Administrators to collapsed investment firm London Capital & Finance say they are “confident” its 11,000 largely elderly bondholders will recoup all their money from a loan to an oil company but warned other assets would be far harder to recoup.
LCF borrowed from the public by issuing high interest bonds, raising £236 million. However, it went insolvent when the Financial Conduct Authority launched an investigation and stopped it raising more money.
Administrator Finbarr O’Connell of Smith & Williamson said he was optimistic about making a “full recovery” of the £38 million of LCF funds lent to the Stock Exchange-listed Independent Oil & Gas. The money was lent by an LCF borrower called London Oil & Gas. Yesterday it emerged that Independent had received and rejected a takeover offer but talks are expected to continue.
O’Connell was less optimistic about the rest of London Oil & Gas’s LCF loan, which he said went into an £8 million agreed loan facility to another stock market oil business, Atlantic Energy, and numerous early stage businesses in artificial intelligence and energy. “A number of the debts are going to be challenging to recover,” he said, adding: “We are working with all those entities to establish the situation.”
He said he had traced 12 different businesses which had been invested in, some of which included multiple companies. A small number of directors were involved in all of them.
One, which took out a £70 million loan, has a holiday park in Cornwall and as-yet-unbuilt “greenfield sites” earmarked for development in the Dominican Republic. Another has development property in the Cape Verde islands off Africa.
O’Connell said he was “optimistic” about recovering some value for investors in Cape Verde. He said the Cornish/Dominican operation had refused to open its books to him because it claimed to have signed a non-disclosure agreement with lenders looking to refinance the LCF debt. He said he had spoken to “top City law firms” involved with the potential refinancing transaction.
Smith & Williamson’s fee, which will be taken out of whatever funds he recovers for bondholders, will be large, he admitted. “It will be a multimillion pound fee for myself and my lawyers. We are pursuing £236 million with very substantial investigations. We have had to hit the ground running, hard and quickly.”
O’Connell spoke of his dismay and sympathy for the bondholders, saying: “A quarter of a billion pounds is huge. And sadly, the 11,000 people are people who can least afford to be involved. We are talking about people’s life savings here.”
Investors who have spoken to the Evening Standard include Ian Gomeche, a 66-year-old retiree on a state pension and David Wilson, also 66, a retired social care worker, and Kath Briers, a 45-year-old low income single parent caring for two children with mental health problems currently working as a classroom assistant. They all invested between £20,000 and £35,000. One, an 85-year-old man, invested the £400,000 he had been saving since 1984.
Investors bought so-called “minibonds” offering interest of up to 9% a year. The bonds were unregulated and not approved by the taxman to be used in an ISA.
O’Connell said many investors were unaware of those risk factors: “They thought they were in a Financial Conduct Authority-backed, HMRC approved minibond.”
Asked what other agencies were looking at the LCF situation, he declined to comment beyond saying: “It is important the public understand that all the authorities which one would expect to liaise with me are. That is enforcement agencies, the FCA etc.”
A key line of inquiry is the fact that 20% of investors’ cash went into fees to a sales agent. That huge, instant overhead made it “extremely high risk” for lenders, as any borrower would have to repay the 20% on top of the interest needed to cover bondholder’s interest payments.
To support the agent’s fee and the interest on the loans, borrowers would have to be making an annual return of between 20% to 44% on the money they borrow. “I am still investigating whether it was reasonable for (those involved in LCF) to believe that was in any way realistic.”
The Financial Conduct Authority was alerted to concerns about LCF in 2015 and 2017 but failed to act until December 2018. O’Connell said: “Speaking solely as a commentator on this situation, I would say partially regulated entities provide a difficult environment. The bonds are unregulated but the promotion of them is FCA regulated. The public does not understand the difference.”
He added the very low interest rates mean the environment was ripe for firms like LCF to raise hundreds of millions of pounds from the public.
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