The High Court has ruled that London Capital & Finance (LCF) bondholders will not be eligible for compensation.
More than 11,000 LCF investors were left with £237m in losses when the mini-bond provider entered into administration in January 2019.
The investors were seeking to quash the compensation decision provided by the Financial Services Compensation Scheme (FSCS).
In September, the investors were given the go-ahead for a judicial review under the FSCS after a judge refused the FSCS’s request for the case to be dismissed.
However, the High Court has agreed with the FSCS that the bonds sold by LCF don’t meet the conditions required for compensation.
LCF had claimed not to be regulated for issuing bonds, because the bonds it issued were stated to be “non-transferable”.
The judge agreed with the central argument from Shearman & Sterling, who are representing some of the LCF bondholders on a pro bono basis, that the non-transfer clauses in the bonds issued by LCF were unfair and unenforceable.
However, the judge declined to find that the bonds were regulated as a result, and thus declined to set aside the FSCS’s decision not to compensate bondholders.
Shearman & Sterling plan to appeal the decision.
“We are pleased that the judge found in our favour that the non-transfer provisions of the LCF bonds were unfair and unenforceable,” said Thomas Donegan, partner at Shearman & Sterling.
“However, and with respect, we were disappointed that the bonds were then found not to be a ‘transferable security’ for regulatory purposes meaning their issuance was not subject to FSCS compensation. Our clients intend to seek permission to appeal the decision.”
In March, LCF bondholders remained in the dark on when they will receive more compensation after economic secretary to the Treasury John Glen refused to confirm a launch date for the Treasury aid scheme, after announcing in December the Treasury would establish a compensation scheme.
In August, the FSCS said it had paid more than £20m in compensation to those LCF investors it believes received misleading advice from LCF.