Not fully engaging with all creditors is a risky tactic as UK Court and the FCA say "Adios" to Amigo's proposed rescue plan

Amigo, markets itself as an alternative lender welcoming those with a less than perfect credit score but its door is only open for those who have friends or family who are happy to act as a guarantor.  

Following a significant increase in customer complaints against Amigo relating to its lending activities and, in particular, to unaffordable or unsustainable lending, Amigo is facing financial difficulties, quite aside from redress payments for which it has provisioned £150.9m, it owes the Financial Ombudsman Service £12.5m in relation to unpaid case handling fees. Those financial difficulties led it to request the court to approve a scheme which would see creditors (including borrowers who were mis-sold loans) recover approximately 10p in the pound.

The FCA had been in discussions with Amigo regarding a potential scheme for some months but its objection to the final proposals came late in the day. Neither the court nor the FCA accepted that a failure to implement the proposed scheme would necessarily lead to Amigo's administration, in fact it did not appear to be facing an "imminent or even medium term cashflow crisis". The court, noting that Amigo's customer base were often financially vulnerable and without access to mainstream credit, concluded that they would not have had access to professional advice and were therefore unlikely to fully understand the proposed scheme. They are likely to have seen it as a "take it or leave it" situation. Creditors lacked the necessary information or experience to enable them properly to appreciate the alternative options reasonably available to them; or to understand the basis on which they were being asked by Amigo to sacrifice the great bulk of their redress claims, while the Amigo shareholders were to be allowed to retain their stake. While 95% of the votes cast were in favour of the scheme, only 8.7% of those entitled to vote had done so.

It is a salutary lesson for firms proposing schemes to the FCA and the courts to ensure that they have properly engaged with all classes of creditor and looked at the impact of the proposed scheme on the most vulnerable. 

The FCA has gone on record to say that it believes that Amigo can propose a fairer scheme to customers - whether Amigo does so remains to be seen.