The legal position of the Lendy ‘distribution waterfall’ is set to be clarified in court, despite warnings that the process could be costly and unsuccessful.
The Lendy Action Group (LAG) is moving ahead with plans to appoint a solicitor to represent investors who are concerned about “mis-selling and misleading materials, and structure of notes, terms and conditions since Lendy’s inception.”
The proposed ‘distribution waterfall’ sees former Lendy investors split into two groups: model 1 and model 2, which impacts how they receive funds recovered from the collapsed peer-to-peer lender.
Lendy initially operated a structure whereby investors lent to Lendy itself, which then gave the money to borrowers, known as model 1.
However, this was not deemed as a P2P arrangement and a new structure – model 2 – was set up from 2015, meaning that investors began funding the P2P loans directly.
Model 1 investors are defined as creditors, meaning their eventual pay-outs will be pooled with other creditors – including the Lendy directors.
Meanwhile, model 2 are defined as investors, meaning that they may be able to recover funds directly from the loans that they helped to fund.
At the time of writing (17 March), LAG had exceeded its target of raising £75,000 towards its legal fees on the crowdfunding website CrowdJustice.
Damian Webb, lead administrator at RSM, said that he supports LAG’s attempts to gain legal clarity on the position of investors. However, he warned that the legal costs could become prohibitively high.
“It’s right that the Lendy investors can get a lawyer to represent them,” said Webb. “My only concern is that they could spend a lot of money on it. “It doesn’t make any difference to us – it doesn’t affect our fees. We just present the evidence.
“But that’s why we’ve asked the court for direction on that matter – this is the evidence that we can see, but we want assistance on this. We want the court to decide it.”
Writing on the crowdfunding page, LAG representative Lisa Taylor told potential crowdfunders that they will use the funds to fight the waterfall and push back on administration fees.
“Lendy originally promised only to deduct charges for administering the defaulted loans, then they would pay back investors,” she said.
“Then after the portfolio started defaulting en masse and we were stuck, Lendy sent an email, retrospectively changing this. “The issue is how Lendy defined a fee in a way that paid penalty interest and many other items to themselves first.
“This is a hole LAG is focused on plugging.”