Rescue plans put forward by the high-cost lender Amigo Loans were thrown into doubt on Tuesday after a U-turn by the main financial regulator, which said it would object in court to a deal, reversing its previous stance.
Shares in the company, which charges 49.9% interest and requires borrowers to provide a friend or family member to act as a guarantor, tumbled by almost a quarter after the intervention by the Financial Conduct Authority (FCA).
The watchdog said in March before an initial court hearing that while it had several problems with Amigo’s proposed “Scheme of Arrangement”, including over how mis-selling complaints would be assessed by the company and a cap on payouts, it would not oppose the plans.
On Tuesday, in an announcement to the London Stock Exchange, Amigo said it had received a letter from the FCA stating it felt the scheme was unfair and it planned to oppose it at a final court hearing later this month.
Amigo has come under fire over concerns many of its 1 million former and current customers were mis-sold loans and could receive as little as 5% to 10% of a successful claim after the company capped its compensation pool at a maximum £35m and 15% of profits over the next four years.
Campaigners have also objected to proposals that would give board directors the chance to earn £7m in long-term bonuses as part of the deal.
The statement came as the company announced that 74,866 of its creditors voted in favour of the plan, compared with just 3,862 votes against ahead of a virtual creditors meeting on Wednesday for those who did not vote online.
The company is hopeful that a final court hearing will set aside the FCA’s objections and back the deal, clearing the path for the company rescue plan.
Without a deal, the company has said it will become insolvent and customer mis-selling claims will be void.
The City stockbroker Shore Capital said in a note to clients that if the FCA was to be successful in stopping the scheme going ahead, “this would likely see an even worse outcome for claimants, thus defeating its own objective”.
It added: “We think the FCA likely knows this and therefore is simply trying to be seen to do the right thing.”
Amigo was founded in 2005 and came to prominence after the demise of its sub-prime rival Wonga in 2018. It was deluged with mis-selling claims last year after customers accused the business of failing to carry out basic financial checks.
Amigo’s Roger Bennett told the London Stock Exchange: “The FCA has decided that it intends to appear at the court sanction hearing through counsel to oppose the sanction of the scheme, even if approved by the requisite majority of the scheme creditors, on the basis that the court cannot be satisfied that the scheme in its current form is fair.
“The FCA’s letter states that its concerns are in relation to scheme creditors’ claims being significantly reduced whilst other stakeholders such as shareholders are not being asked to contribute, and the terms of the scheme arrangements do not arise out of negotiations with scheme creditors or any body representative of their interests.”
The FCA said the full letter to Amigo was not yet public and could not be shared.