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Peer2Peer Finance News | July 19, 2019

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Collateral investors may face a returns shortfall

Collateral investors may face a returns shortfall
Marc Shoffman

THE ADMINISTRATOR dealing with the collapse of peer-to-peer lender Collateral is investigating a discrepancy in the client money accounts as it reveals that there may not be enough funds to repay investors in full.

BDO took over the administration of Collateral in April after the Financial Conduct Authority opposed the appointment of Refresh Recovery following the platform’s closure in February.

An administrator’s proposal document released this week revealed that a discrepancy in the client money accounts was being investigated.

The document showed that there were balances of £383,243.54 and £429,307.30 in the office and client accounts respectively, but the company records subsequently obtained by BDO indicated that funds of £370,552.64 should have been held on the client account as at 28 February 2018.

BDO’s analysis has found that Collateral operated two loan books, one worth around £14.8m containing loans secured by a first charge over property assets valued at £22m, and a second book containing £1.67m of loans secured over pawnbroking assets worth in excess of £2.4m.

The report warned that while funds could be recouped through the security, there was no guarantee of this and  “a significant part of the loan book” is now overdue.

Overall, BDO estimated there would be investor claims worth £17.5m, while there has already been one creditor make a claim for £8,000.

Read more: Collateral collapse has far-reaching ramifications

In contrast, based on the loanbook and cash held at the bank and client account, BDO warned that Collateral had a deficiency of £477,316.61.

BDO also repeated its “preliminary view” that Collateral investors would have to be treated as unsecured creditors to their agreements being unregulated.

“The estimated claims of creditors exceed the book value of the assets held by the companies,” BDO said.

“Therefore, even before taking account of any potential asset write-downs and the costs of the administrations, it appears likely that not all investors and creditors will recover their entire exposure to the companies and the Collateral lending platform.

“The administrators expect to be able to provide an estimate of the likely outcome to investors and creditors in due course, once recoveries from the loan book are further advanced and further information is available from the companies’ books and records.”