Amigo Loans shares crashed further today after the subprime lender announced an equity raise as part of its new rescue plan that would heavily dilute shareholders’ stakes.
The beleaguered company also said it was working on a new compensation plan for customers who were mis-sold loans they could not repay, after its previous offer was rejected by London’s High Court.
Amigo reiterated that the unless the new compensation plan and equity raise are approved by regulators, the business will go bust.
Always on the brink: Amigo said it would go bust unless its new plan is approved
‘The sanctioning of a new scheme is increasingly urgent’, the company said.
‘Without an approved scheme, Amigo expects to have to file for administration or other insolvency process.’
It had said the same in May this year, when a judge refused to approve its cost-cutting compensation scheme for borrowers, who would have been given just 5 per cent of what they were owed for mis-sold loans.
The Financial Conduct Authority said the scheme would have primarily benefited shareholders, and that it believed ‘a fairer scheme’ was possible – despite Amigo saying the scheme’s failure would likely tip it into administration.
Now the company said it was looking at a new compensation scheme which, while not expected to compensate claims in full, would be more generous.
‘We’re pleased the new business scheme, contingent on new lending restarting and a successful equity raise, will offer a markedly better cash contribution compared to the original Scheme developed a year ago,’ said Gary Jennison, chief executive of Amigo.
Meanwhile, it is also looking at launching an equity raise, which Amigo said would result in a ‘material dilution’ of existing shareholders’ stakes in the company.
‘The likelihood of a potential material dilution for shareholders is a difficult but necessary consequence of our situation’, Jennison said.
‘We have noted on many occasions, we are an insolvent business so there are no easy paths if we want to avoid administration and the only other options are for a managed wind-down or insolvency, both of which are worse outcomes for shareholders and customers.’
He added: ‘We really hope as many existing shareholders as possible will invest in what we believe is a great new lending proposition, which aims to address the growing and pressing need in the market for a mid-cost product that helps customers progress to mainstream financial inclusion.’
Shares in Amigo tumbled 25 per cent to 8.04p in morning trading.
Amigo, which lends to people with a poor credit score if they have a friend or family member willing to make repayments if they cannot, has been battered by complaints after rule changes meant thousands of customers had been mis-sold their loans.
It has been wrangling over a customer compensation scheme with the Financial Conduct Authority, after it realised it could not afford to pay the millions of pounds of redress.
Amigo has paused all new lending until it irons out a redress scheme, resulting in revenues falling almost 40 per cent to £56.5million in the six months to the end of September.
In that period, it set aside around £344million to compensate customers who have been mis-sold loans.
Customer numbers dropped 42 per cent to 102million, while its net loan book decreased by 54 per cent.
