The House Crowd’s founder and chief executive Frazer Fearnhead has refuted accusations that he took out an unauthorised loan from the company, after an administrator’s report cited the matter as a “conflict of interest” that played a part in the platform’s collapse.
The peer-to-peer property development lending platform entered into administration in February, owing investors £52.7m in capital and interest.
Documents filed with Companies House earlier this month revealed that the company was under “voluntary requirement” measures with the Financial Conduct Authority (FCA) since last year, due to concerns among non-executive directors that the company was not complying with new industry rules.
In January this year, the FCA agreed to lift the voluntary requirement if certain conditions were met, included the recapitalisation of the firm’s balance sheet. However, The House Crowd was unable to raise external funding, even through government-backed schemes such as the coronavirus business interruption loan scheme, the document said.
As first reported by The Times, the Companies House document also revealed concerns surrounding a loan taken out by a company director, “that breached [the firm’s] credit policy which constituted a reportable matter to the FCA and a conflict of interest”.
This matter, and the inability of The House Crowd to strengthen its balance sheet, led the company’s non-executive directors to conclude that the possibility of the FCA releasing the firm from voluntary requirement measures was likely to be jeopardised. As a result, they recommended the company be put into administration.
Fearnhead (pictured) told Peer2Peer Finance News the loan was made to him in 2019 for around £390,000 and that “it was secured in accordance with the published underwriting policy at the time. Though that policy later changed.”
He said that by February this year £315,000 had already been repaid and was due for redemption at the end of February. He said he has the money to repay what is owed but has been waiting for a redemption statement for over two months.
Fearnhead claims that the board had been aware of the loan since 2019. He said that the loan had gone through an independent underwriting process and been approved by the credit committee, and was secured at around 14 per cent loan-to-value.
Fearnhead also alleges a dispute among senior figures at the firm, with himself and chief financial officer Lewis Walters contesting actions taken by chief operating officer Carl Davies and consultant Andrew Holgate.
Fearnhead claims that Davies and Holgate raised the loan to the board and told the directors he was in breach of FCA rules, without discussing it with him first.
He also alleges that since December 2020, Davies and Holgate were pressing him to put the company into administration, but he and Walters refused because they did not believe it would serve investors.
“We had an alternative plan which was to scale the company back and operate on a shoestring whilst we waited for the economy to recover,” he said.
In response to Fearnhead’s comments, Holgate told Peer2Peer Finance News that his consultancy firm Equitivo was engaged by The House Crowd to provide advice on risk and regulatory matters.
He said that the platform was under scrutiny by the FCA and placed under a voluntary requirement notice from the regulator due to existing regulatory breaches.
“The decision to place any business into administration is made, and can only be made, by all the directors of that business,” Holgate said.
“For clarity, no-one from Equitivo held any executive position at The House Crowd. I understand that the decision was approved through a board vote which will be a matter of record. That decision must have subsequently been approved by the FCA as they have suzerainty over such decisions.
“Equitivo understands that the joint administrators and the FCA continue their investigations into the reasons for the failure of the business, including the actions of the directors and any advisors.
“Equitivo is supporting those parties in their work and continues regular dialogue with the administrators and the FCA.”
Davies, who is not connected to Equitivo, referred Peer2Peer Finance News to Holgate’s comments, adding: “I do not recognise the events as described in any way. The board made the decisions and I was not an executive director. Suffice to say investors are in a far better position as a result of The House Crowd going into administration.”