Five things we learned from first FundingSecure administrator’s report

FUNDINGSECURE’S administrator has unveiled its first proposals following the collapse of the peer-to-peer lending platform.

CG & Co was appointed as administrator for the P2P pawnbroking platform last month and has released its early findings.

Here are five things things the report has revealed about FundingSecure’s downfall.

How FundingSecure collapsed

FundingSecure was formed in 2012 by Richard Luxmore and Norman Akram as a short-term P2P pawnbroking lender, which later expanded into secured lending on property.

It gained authorisation in March 2017 and just 19 months later a review by a business advisory firm highlighted deficiencies with its client accounts.

Issues were raised surrounding compliance with client money, anti-money laundering and due diligence.

There were also concerns expressed regarding failings in the experience and capability of the management in carrying out controlled functions.

New management was introduced in October 2018, which injected loan capital to make-up for the client account shortfalls.

Read more: Lord Myners heaps further pressure on FCA over Lendy failings

Litigation was also commenced against various parties in respect of “inappropriate allocation of investor money” and loans which were not approved under the terms and conditions.

This includes action being taken against Luxmore, who resigned as a director earlier this year.

The administrator CG & Co said freezing orders have been obtained and investigations would continue.

The company concluded in October that it could no longer support the ongoing costs of the legal action and that it was best to enter administration.

Client money failures

The administrator highlights “significant failures” by the company in properly managing client account funds.

Loans to borrowers were “from time to time” a mixture of client and company money and it is unclear who owners some of the assets and who is entitled to any money gained from their realisation.

The October 2018 client money review was supposed to address some of these failures but only five loans were made under improved terms and conditions.

Loanbook performance

FundingSecure had 379 ‘performing loans’ with a value of £59.8m and 91 loans in default worth £20.7m.

That isn’t the end of the story though.

CG & Co has observed that many of the loans described as performing actually had loan extensions from FundingSecure so may actually be in default.

These are now being reviewed and recovery action make take place.

The administrator said it is “too early to detail at individual loan or investor level the likely outcome from loans or litigation.”

Any redemptions in the meantime will be held by the administrator’s solicitors.

Estimated outcome

There is £2.02m in one client account and £797,160 in another that was established after the October 2018 review, the administrator’s report shows.

The company’s statement of affairs, provided by FundingSecure director Nigel Hackett, shows £937,011.87 is owed to unsecured creditors but Hackett said he was uncertain of the value of fixed charges – including securities and director loan accounts – as he was unaware of the position of the company’s former executives.

There is also 21,381 owed to employees, £3m for a floating charge creditor, £3,525 in called up shared capital from ordinary shareholders and £937,011.87 is owed to unsecured creditors.

The administrator said it is too early to provide an estimated outcome for investors or creditors.

This is due to the client money failures and the terms and conditions leaving it unclear who is entitled to what.

Read more: FundingSecure: Are you a creditor or an investor?

Next steps

The administrator is seeking permission from creditors and investors to take legal advice on who is entitled to which assets and on what basis.

Without this, the administrator warns it may not be remunerated and the position of creditors and investors will also be unclear.

It has also proposed setting up a creditors committee of investors and creditors to oversee the administration.

Members can be nominated and will be chosen based on the value of their investment or claim.

An administration typically lasts for a year but CG & Co said it may seek an extension.