London Capital & Finance (LCF) bondholders have withdrawn their judicial review appeal against the Financial Services Compensation Scheme (FSCS) because they cannot afford to pay the FSCS’ £600,000 legal fees if they lose.
Four of the LCF bondholders, who are representing the rest of the collapsed mini-bond provider’s investors, filed their judicial review last month. They said their lawyers, Shearman & Sterling and Brick Court Chambers, have acted on a pro bono basis.
If the bondholders were successful in their appeal, they would have received full pay-outs for all LCF investments made on or after 3 January 2018. But if they lost, they would have had to pay the legal costs of FSCS and could not afford to do so.
The FSCS agreed at the outset of the judicial review not to seek to recover its legal costs if it won but did not extend the same agreement to the appeal.
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In an update on their crowdfunding page, the bondholders said they do not believe that it would be reasonable to continue with the case while bearing the financial risk personally as well as the time commitment and stress.
They said they may have been able to raise the required funds through crowdfunding if they had a way of contacting all LCF investors, but both the FSCS and LCF administrators Smith & Williamson refused to do this for them.
The LCF bondholders said they have been able to contact around 2,000 bondholders, around half of which are likely to be financially interested in the appeal, via Facebook groups. However, these channels are unlikely to be enough to raise the full £600,000, the bondholders said.
They added that the Treasury has declined to finance the FSCS’s legal costs of the appeal and getting litigation funding from third parties has also failed, partly due to the challenges in identifying, contacting and signing up approximately 6,000 bondholders to a funding agreement within a very tight timeframe.
The LCF bondholders said it stands by its arguments and merits of the case, will accept the outcome and continue to strive to promote the interests of LCF bondholders.
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“We remain of the view that the appeal is meritorious, as can be seen from our skeleton arguments for permission to appeal,” the bondholders said.
“The appeal is being withdrawn only due to the unmitigated, unreasonable and substantial personal costs risk that it would involve.”
“On 29 March 2021 we shared the news that the court had reached a decision on the judicial review that was brought against FSCS by some LCF bondholders,” the FSCS said in an update online.
“The claimants then filed an appeal but have now announced that they have withdrawn this appeal. This brings the legal challenge against FSCS to a close.
“This update does not change any of our decisions on LCF claims.
“The government has announced a compensation scheme for LCF bondholders who FSCS has been unable to compensate.”
More than 11,000 LCF investors were left with £237m in losses when the mini-bond provider entered into administration in January 2019. It has since been revealed that at least £136m of investors’ money was given to companies and individuals associated with LCF’s directors.
Since then, the City regulator has introduced a permanent ban on the marketing of mini-bonds to everyday investors.