Collateral damage: What do we know a year on from the platform’s closure?
- Marc Shoffman
- On March 25, 2019
IT IS now more than a year since peer-to-peer lender Collateral collapsed, but investors are still waiting to see how much of their money can be recouped.
The Manchester-based platform closed down in February 2018 after it emerged that it had been operating without the correct regulatory permissions.
Its administration was initially managed by Refresh Recovery before the Financial Conduct Authority installed its own auditor with the appointment of BDO.
Here is what we know so far.
Collateral investors were left in the dark after the P2P lending platform mysteriously shut down its website and became uncontactable, amid questions over the firm’s regulatory status.
A message on its site said it was “currently in the process of upgrading our servers and our network infrastructure.
“We apologise for the inconvenience and are working to get everything back to normal as soon as possible,” it said.
By the end of the month it was confirmed that Collateral had gone in to administration, as it had been operating without the correct regulatory permissions. Refresh Recovery was appointed administrator on 28 February.
The administration process hit a stumbling block in April after the Financial Conduct Authority (FCA) launched legal proceedings to replace Refresh Recovery with its own preferred administrator BDO.
The City watchdog said Collateral had failed to seek its approval for the appointment of Refresh Recovery and a High Court approved BDO’s appointement instead.
It has since transpired that Refresh Recovery has also gone into administration.
BDO issued an initial update on Colalteral, warning investors may end up having to recoup any unpaid interest owed as a creditor of the company.
It said its initial view was that due to section 26 of the Financial Services and Markets Act – which deems that agreements with unregulated parties are unenforceable – investors would be treated as creditors.
Its first statement of affairs on the company revealed there may not be enough funds to repay investors in full.
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 loanbooks, 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.
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.
There was some respite for Collateral investors as P2P platform Huddle stepped in to refinance some of its loans.
The first Collateral loan to go live on Huddle’s platform was a £80,500 facility secured by way of a first legal charge against a property.
BDO established a creditors committee to assist in the administration strategy and agreement on fees.
The committee is made up of BondMason chief investment officer Graham Martin, business analyst Richard Winslow, chartered accountant and licensed insolvency practitioner Peter Lawrence, as well as P2P investors Adam Bunch and Steve Wozniak.
A long-awaited six-month update showed BDO is still unable to estimate the likely returns for investors and creditors.
A progress report from BDO revealed it was still working on accessing “user-friendly” data on investor holdings and on chasing payments from borrowers.
BDO attempts to step up its efforts to get owed money back by asking investors to give permission for enforcement action to be taken against borrowers who are unable or unwilling to repay their loans.
This would avoid the costs of court action and was approved by lenders.
Efforts to reconcile the loanbook and investor claims continue.
BDO said it has matched investor accounts for around 85 per cent of users, but has contacted 30 clients to seek further information.
It said reconciling the accounts is essential as each investor will have different claims against the loans into which they invested.
The administrator also revealed it had gained permission from investors to take enforcement action against borrowers who are unable or unwilling to repay their loans.
Collateral will have been in administration under BDO for a year by 27 April.
Under the terms of the administration, Collateral would move into creditors’ voluntary liquidation at this stage.
However, BDO has said it will continue to deal with the affairs of the company to realise assets and return funds to investors and creditors, so this saga is by no means over yet.
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