The 210,000 Amigo customers who submitted claims to the sub-prime lender over mis-sold products are in limbo after it failed to secure a £15m capital injection from investors as part of the redress scheme, in addition to the 19:1 capital raise required by 26 May 2023.

In an update on its ‘Scheme of Arrangement’, Amigo said it had spoken to 200 investors in a bid to raise the necessary funds, but it has faced “an increasingly challenging economic backdrop in the UK, which has negatively impacted capital markets and the outlook for consumer credit”.

Potential investors cited the current affordability challenges for households amid the cost-of-living crisis, the history of regulatory intervention and the upcoming Consumer Duty (customer first approach by financial services firms).

As such, rather than go down the preferred ‘new business scheme’ to continue trading which would allow for customers to get more of their money back, Amigo confirmed it is now in its ‘fallback solution’ which means it has stopped lending with immediate effect and is placed in an orderly wind-down over the next 12 months.

What does this mean for mis-sold borrowers?

It’s been a long journey to get to this point. Essentially, customers could get back less than half of the money they were initially anticipating.

It all started in 2018 when Amigo received affordability complaints and was ordered to refund the interest paid or update the outstanding balance. But with the influx, it faced collapse and in May 2021, it published a rescue plan which was rejected by the High Court for being ‘”inherently unfair”.

In December 2021, Amigo proposed two new alternative redress schemes, with both options seeing affected borrowers receive less money than they were owed.

Fast forward to March 2022 and the regulator, the Financial Conduct Authority confirmed it wouldn’t oppose Amigo’s scheme of arrangement proposals.

A majority total of 145,532 votes were in favour of Amigo’s preferred ‘new business scheme’ which would see it return to lending and offer cash returns to creditors at an estimated 42p per £1 of claim. The alternative fallback scheme would see the business wind-down where claimants were predicted to get 29p in every £1 owed.

In order for the new business scheme to get the go ahead, it required sanction by the High Court which was confirmed in May 2022 and in June, it confirmed it was set to return to lending under a new guise – RewardRate in early 2023.

A final deadline for submitting claims was on 26 November 2022 and according to PriceWaterhouseCoopers, the independent ‘scheme supervisor’, 210,000 claims were received.

The revised 41p in the pound compensation was calculated on a forecast of around 125,000 claimants, so with much higher numbers, this meant these creditors would receive 20p in the pound under the preferred business model or 17p if the scheme reverts to the fallback solution.

And this 17p in the pound estimate is the latest forecast for customers to note.

Based on a £1,000 claim, this means creditors will now get £170 back, down from the £420 originally expected.

While the scheme claims process is unaffected, the impact on the total compensation scheme creditors will receive in terms of pence in the pound is, as they’ll no longer receive a share of this minimum £15m scheme contribution which was to be raised from investors.

Amigo confirmed there is a £97m scheme contribution plus surplus assets which will be transferred to the scheme creditors after the wind-down.

As the deadline for claims has passed, no further claims can be made, with these currently being reviewed and processed.

Further, all outstanding loans remain subject to the existing payment terms agreed with Amigo and customers should continue to make payments in the usual way.

“Our call centre remains open to customers for continued support. All payment methods and support facilities remain available to customers”, Amigo added.

‘Sad day for creditors’

Danny Malone, Amigo chief executive officer, said: “It’s a sad day for creditors due redress who will now receive a lower level of cash compensation than they would had the new business conditions been satisfied. We are very sorry to be delivering this news today.

“From the beginning, we have faced significant challenges in seeking a solution in the best interests of all our stakeholders and have had to make a series of difficult decisions. A successful scheme which provided a fair financial offer to scheme creditors was always the only way shareholders could retain any value for their shares. Clearly the economic and market environment has moved against us considerably since our scheme, formulated in late 2021 / early 2022, was sanctioned last May. This has severely impacted both our ability to raise capital and the affordability of loans for our potential customers, coupled with tighter lending controls. Whilst removing the £15m upfront payment to the Scheme would take away one barrier and reduce the capital required, there are multiple considerations and risks, as highlighted in today’s announcement, which have led us to conclude that successfully executing a completely new scheme followed by a lower capital raise would remain highly unlikely.”

Malone added: “Our priority is to now undertake an orderly wind-down of both the Amigo Loans Ltd business and the wider group over the next 12 months or so in which we maximise returns for scheme creditors and look after our people as we move through the process.”

RewardRate which launched earlier this year, saw monthly origination of over £1m and was expected to “continue to grow as the conversion rate improves through the application of the learnings from the pilot lending period”.

Amigo added it is still in conversation with potential investors to underwrite a £45m equity raise.