Amigo Loans will stop lending after failing to raise funds for compensation | Financial sector

Subprime lender Amigo Loans is to be liquidated after failing to raise enough money to fund customer compensation.

After months of trying to come up with a bailout, Amigo said it would stop lending with immediate effect and be placed in an orderly liquidation, with any excess assets to be transferred to creditors in its compensation scheme. Shares tumbled 75% to 0.4p on the news.

Liquidation is expected to take approximately 12 months. The company specializes in granting credit to people excluded from traditional banks.

Liquidation means those who owe Amigo compensation will receive less or nothing, while shareholders will be wiped out. Amigo said it had not received enough interest from potential equity investors to raise the £45million needed to continue.

The company said: “There will be an impact on the total compensation scheme creditors will receive in terms of pence to pound as they will not receive a share of the £15m minimum contribution which was due to be raised. to investors.”

Danny Malone, Managing Director, said: “It is a very sad day for all of our employees who have worked extremely hard to resolve historic loan issues and rebuild a new Amigo, as well as for our shareholders and the wider stakeholders who have supported us. It is also a sad day for creditors who will now receive less cash compensation than they would if the new trading terms had been met.

“We fought to deliver the best outcome for creditors, colleagues and shareholders and left no stone unturned.”

The loan book will continue to be collected during liquidation and employees will continue to be paid, the company said. It employs less than 200 people.

Amigo escaped a £73million fine last month despite putting consumers at a ‘high risk’ of harm as the Financial Conduct Authority feared the penalty could cause its collapse.

The watchdog’s investigation found that Amigo put business interests ahead of those of its customers, by failing to properly assess whether customers, or their guarantors (often friends or family members), might enable them to repay the loans they had applied for. The FCA estimated that one in four guarantors were forced to step in and make payments on loans issued between November 2018 and March 2020 due to Amigo defaults.