Business Loan Network’s (BLN) administrators have released their first update, revealing what was behind the downfall of the former peer-to-peer lender.
Kroll was appointed as administrator of BLN, formerly known as ThinCats, in April.
ThinCats exited the retail P2P lending market in December 2019 to focus on institutional funding. It started a managed run-off plan for its P2P business for loan recovery and distribution to lenders but has since fallen into administration.
Here are six things the report has revealed about BLN’s downfall.
The lead-up to the administration
There were upheld complaints against BLN that it could not afford to pay out, with its parent company ESF Capital unwilling to provide any further financial support to the company.
In January, BLN upheld a complaint from a lender about a loan and decided to pay compensation to all investors who had money in it.
This would cost in excess of £400,000, including accrued interest.
There were several lenders’ complaints lodged with the Financial Ombudsman Service (FOS) relating to loans. At the time of the administration, it had upheld eight complaints against BLN, four of which were final decisions.
The administrators understand that no financial restitution was paid to the lenders in respect of the FOS’ four final decisions.
BLN had insufficient cash resources to pay the £400,000 loan compensation, so its board asked ESF for financial support. BLN has confirmed to Peer2Peer Finance News it has not paid this £400,000 compensation.
ESF told BLN’s board that it was unwilling to provide any further financial support to BLN, so the platform sought professional advice.
On 21 January, Kroll was formally engaged to conduct a financial review, consider potential insolvency strategies and to assist with liaising with the Financial Conduct Authority (FCA), while Gunnercooke was instructed to assist from a legal perspective.
Kroll and Gunnercooke concluded that without the ongoing support of ESF, and having regard to the financial consequences of the upheld complaint as well as the likelihood of adverse FOS determinations in due course, that the company was not in a position to fully fund the orderly wind-down of the loanbook.
The directors considered Kroll’s advice and concluded BLN should be placed in insolvency proceedings with a view to them completing the orderly wind-down. Kroll and Gunnercooke assisted the company in seeking a court order for the appointment of the administrators.
As at the appointment date, there were 163 outstanding loans to 73 borrowers and the outstanding principal loan value was around £49.5m.
Of these, the company classified 19 as performing and 144 as non-performing.
Strategy and progress
The joint administrators’ strategy is to continue with the wind-down of the remaining loans during the administration process for the benefit of lenders and the company, distribute client money to investors and realise the business assets for the benefit of the company’s creditors.
The administrators’ methodology is to retain 25 per cent of client assets realised following their appointment to meet the necessary costs of dealing with them.
The 75 per cent balance to which lenders are entitled will be allocated to relevant lenders’ accounts and made available for distribution, subject to appropriate anti-money laundering and know your customer checks being completed.
Client assets are amounts from loan recoveries from loans received after the joint administrators’ appointment to which lenders are entitled.
As at the date of the report, £1,147,662 of client assets have been collected and allocated to lenders’ accounts with a further £130,506 recently received which has been allocated into the company’s client account.
The joint administrators have appointed ESF as loanbook servicer to assist in the process.
The report detailed that loan recoveries were estimated to be around £25.9m, excluding accruing interest, but before deduction of BLN fees and costs and that it could take up to five years for all the loans to be recovered.
The joint administrators warned that this information is estimated and is subject to amendment. The report detailed that based on that information BLN’s future fees and costs could reach up to £1.9m.
As of the date of the report £3,626 of fees and £3,578 of costs have been collected from loan recoveries on behalf of creditors.
The joint administrators’ total time costs incurred from the appointment date to 1 June totalled £140,578, representing 304 hours at an average hourly rate of £463.
The joint administrators have prepared an estimate of the expense likely to be incurred during the administration which totals £166,374.
In addition to this, Kroll and Gunnercooke have totalled £486,017 in pre-administration fees from work they conducted at BLN from January up to when the firm entered into administration in April.
Of this £296,473 has already been paid and £189,544 is outstanding.
The joint administrators have invited creditors and lenders to form a creditors committee that it will meet with regularly. The FCA has been invited as an observer during the course of the loan recovery and distribution process.
The committee would be responsible for – among other things – approving the payment of unpaid pre-administration costs, with the administrators seeking approval for these to be paid from BLN’s assets.