Amigo Loans has compensation scheme approved by the High Court

A plan to repay customers to whom Amigo Holdings wrongly sold high-interest loans has been approved at a High Court hearing today.

The decision represents a massive victory for the embattled lender, whose survival has remained in question over the past two years following a boatload of complaints from people who believe the firm sold them loans that they could not repay.

It also means creditors are in line to receive at least £112million between them, with £15million coming from a share issue, though this could go up to £116million if they raise more than expected. 

Thumbs up: Amigo CEO Gary Jennison described the court ruling as ‘good news for creditors, customers and employees’ that would help in ‘drawing a line under the mistakes of the past’ 

Customers had already voted overwhelmingly in favour of the proposal at a meeting 11 days ago, while the Financial Conduct Authority (FCA) had said it would not attend the hearing to oppose or declare evidence regarding the scheme. 

Ahead of the hearing today, trading in Amigo Holdings shares was suspended due to concerns that the limited capacity of people attending the proceedings could lead to market-sensitive information being leaked.

Investors should soon be able to start purchasing shares in the group again, although Amigo still requires the FCA’s permission to start lending again, something it has not done since November 2020.

Amigo’s chief executive Gary Jennison said the court’s decision would ‘allow creditors the chance to maximise their redress payments from Amigo.’ 

He added: ‘While we must secure the FCA’s permission to resume lending and raise fresh capital, the court’s ruling is good news for creditors, customers and employees, and it takes us a step closer to delivering compensation as well as drawing a line under the mistakes of the past.

Should the ruling have gone against Amigo, the company would have then asked the judge to accept an alternative offer known as the ‘fallback solution,’ which was also approved by a majority of loanees on 22 May.

Controversy: Amigo Holdings has been described by some MPs as a ‘legal loan shark,’ because its business model involves lending money to customers at interest rates of up to 49.9 per cent

Such a proposal would have seen it halt lending, pay all necessary expenses, and return surplus cash to creditors before eventually being liquidated.

That would have marked a dramatic downfall for the business, which specialises in offering loans to those with poor credit scores as long as they have a ‘guarantor’ – usually a family member or friend – who could pay the bill if the creditor was unable to do so.

This business model has received major controversy because Amigo lent money to customers at interest rates of up to 49.9 per cent, leading some MPs to describe the group as a ‘legal loan shark.’ 

The firm has often been compared to payday lender Wonga, whose collapse in 2018 followed a surge in damages claims and an FCA probe that found it had lent to people who lacked the ability to repay.

However, demand for the Amigo’s loans continued to grow, and it was valued at £1.3billion when it was listed on the London Stock Exchange in 2018, making its founder James Benamor one of the UK’s youngest billionaires. 

Since that time, Amigo Holdings shares have plummeted by over 97 per cent, and its current market capitalisation is now worth less than £30million. 

This post first appeared on Dailymail.co.uk