The troubled sub-prime lender Amigo has said it will go bust unless it is allowed to resume lending and raise new equity under a proposed new rescue plan.
Amigo said that in the six months to the end of September it had set aside £344m for customers who complained they were mis-sold loans that they could not afford.
The lender, which grew in popularity after the demise of its rival Wonga in 2018, was banned from lending in May by the Financial Conduct Authority.
Amigo has submitted a new rescue plan after the high court rejected the terms of its initial compensation scheme, which would have handed customers as little as 5% to 10% of any successful claim, and capped the pool at £35m and 15% of profits over the next four years.
While details of the scheme were not made public, Gary Jennison, the Amigo chief executive, said the company had taken on board the view of an independent customer committee that it was recommended be set up by the high court judge.
“The creditor committee made it clear they wanted a scheme that offers the certainty of a cash-based payment, delivered quickly, and this is reflected in the revised offer we are outlining here today,” said Jennison, of what it has termed the new business scheme.
“It will offer a markedly better cash contribution compared with the original scheme developed a year ago.”
The company added: “The sanctioning of a new scheme is increasingly urgent. Without an approved scheme, Amigo expects to have to file for administration or other insolvency process.”
Amigo said the loan impairment rate had jumped from 14% to 22% of its gross loan book in the first six months of its financial year, compared with the same period last year, as more customers default as Covid repayment holidays expire.
It had set aside a much lower figure of £159m for potential compensation for the six months to the end of September 2020.
As a result of being banned from making new loans, customer numbers plummeted 45% year on year to 176,000, with revenues falling 39% to £56m in the first half of its financial year. The company did manage to make a £2.1m pretax profit, compared with a £62m loss in the six months to the end of September last year.
Jennison warned that the new compensation scheme is dependent on Amigo being allowed to restart lending and a successful equity raise to refinance the business, a move that would see any shareholders who do not take part see their stakes significantly diluted.
A second option has also been offered of a “managed wind-down of Amigo Loans”.
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“It is the board’s view that the new business scheme will provide redress creditors with more value and a more certain outcome,” the company said. “Both options will be submitted to the court for sanction at the same time. If the judge does not sanction the new business scheme, the judge will then be asked to sanction the wind-down scheme at the same hearing.”
Amigo said that despite reporting a small profit for the period the company has significant net liabilities of £117.6m.
“While the process has taken considerably longer than we had anticipated, it is critical that we get this right to achieve the fairest outcome for our customers and to satisfy the high court and our regulator that we have addressed their concerns,” said Jennison.
