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Peer2Peer Finance News | June 17, 2019

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Crowdstacker investors in disarray over recovery of £7.5m bad loan

Crowdstacker investors in disarray over recovery of £7.5m bad loan

CROWDSTACKER investors have criticised the peer-to-peer lending platform, amid concerns that it may struggle to recover funds from a secured loan that went into default.

Assets owned by the bankrupt borrower’s subsidiaries were sold without Crowdstacker’s agreement, with the proceeds going to another creditor – raising questions about whether the platform will be able to recover investors’ money.

Bar chain operator BurningNight raised more than £7.5m from investors via Crowdstacker’s platform in 2017, with target returns of seven per cent per annum over a three-year period.

Investors were told that the loan was secured over the assets and business of BurningNight with a first-ranking debenture. These assets were said to include freehold and leasehold UK properties.

Later that year, it emerged that BurningNight’s bars were underperforming and they were bought by one of the company’s subsidiaries – B&W Logistics – in December 2017.

However, B&W Logistics went bust in June 2018 and BurningNight itself went into administration in September that year.

Read more: Crowdstacker joins the Peer-to-Peer Finance Association

According to documents filed by BurningNight’s administrators, there is little chance of investors being able to recoup their capital investment in full.

“Based upon realisations to date and estimated future realisations there will be insufficient funds available to enable the secured creditor to be paid in full and it is anticipated it will therefore suffer a shortfall on its lending,” said administrator Begbies Traynor in a filing with Companies House.

Read more: Crowdstacker passes £800k fundraising target on Seedrs

Crowdstacker emailed investors in December 2018 to tell them that it had been informed by appointed administrator Begbies Traynor that certain assets of BurningNight’s subsidiaries had been sold to another company and that the proceeds had been given to another creditor.

One investor in the loan told Peer2Peer Finance News that he did not understand how the assets of BurningNight were sold “under the noses” of Crowdstacker when the platform purportedly had first charge over the loan.

Writing on review site Trustpilot, one BurningNight investor said: “I am out of pocket and don’t think I will ever see my money again,” while another investor said they felt Crowdstacker had been “clueless” in its recovery approach.

Since BurningNight went into administration, Crowdstacker has been in regular contact with investors, telling them in an email that it is “extremely concerned by what has occurred” and that the P2P platform is “investigating the circumstances.”

Read more: Crowdstacker to develop cash and stocks and shares ISAs

In a statement to Peer2Peer Finance News, Crowdstacker urged patience and said that it was still working to recover as much money as possible for its investors.

“In the case of BurningNight, recovery of money is an on-going process, and is likely to take more time to fully complete,” said a Crowdstacker spokesperson. “As such it is too early to make a definitive judgement or assessment of how the security has protected investors in this instance.

“We appreciate waiting for a final outcome is particularly difficult for investors, but we would urge patience to allow the legal process to play out.

“Risk is an inherent part of all types of investing, including P2P. We are a pick-and-choose platform and the ultimate lending/investing decision is made by the investor.

“To aid in investors’ decision-making process we provide detailed information with regards to each business listed on our platform, including the risks associated.

“Additionally, Crowdstacker takes various forms of security on all its investments, and the details of these measures plus the associated risks are listed in the investment brochures.  In the event of default, we enforce security and always use professionals.”