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Woodford investors: Three choices to seek compensation

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28/09/2022
Woodford Equity Income fund (WEIF) investors have been stuck in limbo for the past three years. But things are progressing behind the scenes so if you’ve lost money, here’s what you need to know.

Three years ago, former star manager Neil Woodford’s flagship £3.7bn Woodford Equity Income fund (WEIF) was suspended as it couldn’t meet a surge in redemption requests following a period of poor performance.

The fund’s administrators, Link Fund Solutions, then confirmed it would be wound-up with cash returned to investors “as soon as possible”.

To date, trapped investors are still waiting for their money back, with a final payment expected in 2023.

So far, £2.54bn has been paid out but investors have been braced to see less money returned than expected due to the collapse of one of its major shareholdings – Rutherford Health.

Meanwhile, the city watchdog, the Financial Conduct Authority (FCA) announced Link Fund Solutions could be hit with a £306m penalty over its “failings in managing the liquidity” of the fund.

However, the £306m redress for thousands of investors who lost money – some their life savings – is “nowhere near enough” to compensate them, Meriel Hodgson-Teall, solicitor at Leigh Day said.

This is one of two leading legal firms (the other is Harcus Parker) which have joined forces to act on behalf of investors to bring a claim against Link Fund Solutions.

In June 2022, they filed a joint application at the High Court for a Group Litigation Order (GLO) against LFS which detailed claimants’ allegations against the administrator.

It is expected that the application will be heard in the High Court in December 2022. Leigh Day currently represents over 13,000 individuals in the group claim.

Three options to seek compensation

According to investment platform Hargreaves Lansdown, at the time the fund collapsed, it had 133,769 clients with direct exposure worth £1.09bn. The total direct and indirect eg multimanager/fund of fund clients stood at 291,520.

However, during this week’s Transparency Task Force campaign meeting on ‘Woodford: What’s next…and why Parliament must listen’, questions were raised about where all affected investors are as aside from big name Hargreaves, people may have been investing via other platforms and different vehicles, such as Self-invested Personal Pensions (SIPPs) in their own name.

If you invested in WEIF and lost your money, join The Woodford Campaign Group on Facebook – run by volunteers who were themselves victims of the scandal. Its aim is to provide a platform for members to share ideas and insights and to keep everyone up to date with developments.

Meanwhile investors have three options or next steps to seek compensation (separate to payments being made to shareholders as part of the winding up of the fund), according to Hodgson-Teall:

1) Complain to the firm

You can complain to LFS or the investment platform you invested through. If the complaint isn’t dealt with within eight weeks, there’s no agreement on a way forward or you don’t receive a satisfactory resolution, you can then take your complaint to the Financial Ombudsman Service (FOS).

This is a lawyer-free dispute resolution so you won’t receive any legal advice. FOS regularly publishes complaints data but Hodgson-Teall said that of the “hundreds” of complaints it has received regarding Woodford, just three decisions have been made, with one upheld against an IFA relating to the advice given to invest in the fund.

However, according to the Woodford Campaign Group Leadership Committee, by opening up a complaint now and starting the process, it triggers the eight-week response limit by the firm then the six month countdown to escalate a complaint to FOS. The group said it may be better to wait until the FCA investigation and the court hearing runs its course.

2) Await the outcome of the FCA investigation

The financial regulator continues to investigate the Woodford saga and stated last week that the up to £306m “does not reflect any amount which may be owed to anyone else, including members of the fund, as a result of potential wrongdoing by other parties”.

The FCA has powers to sanction, impose fines and order consumer redress payments, as already indicated with the up to £306m figure “reflecting its current view of LFS’ failings in managing the liquidity of the collapsed Woodford Equity Income fund”.

Therefore, investors could wait until the final outcome of the investigation to see if they’ll get a share of this redress, though Hodgson-Teall warns the figure could be lower as it’s important to note the FCA stated redress of ‘up to’ £306m.

Further, the FCA was very specific in what this figure related to with any FCA-determined redress based on “misconduct rather than losses caused by fluctuations in the market value or price of investments”.

Hodgson-Teall said the FCA is looking at Links ‘failings’ rather than the financial losses people suffered.

3) Instruct lawyers to bring a claim to court

Leigh Day is already acting on behalf of 13,000 claimants as part of the Group Litigation Order. Both Leigh Day and Harcus Parker work on a no win, no fee basis, charging up to 30% and 42% respectively.

If they don’t win following the hearing in December, clients won’t be charged. If you wish to go down this route, Leigh Day ask that you don’t already have a complaint with the Ombudsman.

However, if the FCA concludes its investigation and comes up with a redress figure, Leigh Day will contact clients to let them know “if it is a good amount”. If it is and the client wants to settle the claim, Leigh Day/Harcus will get their stake. If the firms believe it’s not a good offer, they will carry on with the litigation process to get more compensation back for failed investors.

Leigh Day added that as part of the high court process in December, it will ask the court to set a deadline for claims for mid-2023, adding that the defendant is likely to want to set a deadline much sooner.

The mid-2023 deadline would mean enough time to see how the FCA is getting on with the investigation, plus it would give Leigh Day time to carry out clients checks and go through claim forms.

Further, investors need to be mindful of a separate deadline – statute of limitation – meaning they need to bring a claim before this ‘limitation’ of six years.

Hodgson-Teall explains: “If breaches occurred from mid-2017 then affected clients have until mid-2023 to bring a claim for maximum compensation.

“If a breach occurred in mid-2017 but a claim is brought in December 2023, they clan claim from December 2017 so would lose six months of losses.”

The claim also seeks to put people back in the position they should have been in if the fund was properly managed based on what other profitable equity income funds were generating in profit.

What if Link can’t pay compensation?

Other questions related to what would happen if Link couldn’t pay the compensation bill. Leigh Day said Link is “profitable” and “has assets” and is “part of a large international group with its parent Link Administration Holdings based in Australia.

“As it’s profitable, there’s a reasonable chance that its parent company would step in to help. Another possibility is professional indemnity insurance to offer some compensation for people,” Hodgson-Teall said.

If all fails and judgment is passed against Link and Link couldn’t pay, it ‘s a proven civil liability that Link have defaulted on which means FOS would step in to offer up to £85,000 in compensation.

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