Scheme of Arrangement
A Scheme is a Court-approved process which allows a company to enter into a compromise or arrangement with its creditors.
Amigo is using a Scheme because we think that returns to creditors will be greater under a Scheme compared to an insolvency process. Customers have made complaints about Amigo, including that we did not assess affordability adequately at the time the loan was taken out or when the guarantee was provided. By using a Scheme, Amigo believes it will be able to provide more cash compensation to these customers for their valid claims than they would get in an insolvency process, which is the alternative to the Scheme.
Amigo proposed two alternative Schemes of Arrangement:
- The New Business Scheme, and
- The Wind-Down Scheme
On 23 May 2022, the High Court Judge stated that he would sanction the New Business Scheme. A written copy of the judgment will be published on our dedicated scheme website, www.amigoscheme.co.uk, when available.
The New Business Scheme includes both a ‘Preferred Solution’ and a ‘Fallback Solution'. The reason for this is that there are two specific events that must happen in the Preferred Solution for business (i.e. future lending) to continue. These specific events are called the Conditions (set out below).
For the Preferred Solution to go ahead, the Conditions that Amigo must meet are:
- Amigo starts lending again within nine months of when the New Business Scheme is approved (which requires that the FCA is satisfied that Amigo can recommence lending); and
- Amigo raises new finance from investors within twelve months of when the New Business Scheme is approved (this money in part will fund a further payment of at least £15m to redress creditors under the Preferred Solution).
If the Conditions under the Preferred Solution are met, Amigo is proposing initial cash contributions totalling at least £97m from internally generated resources, alongside a further contribution of at least £15m, being part of the proceeds from a new equity and capital raise.
If both Conditions are not met, Amigo will follow a plan to wind down the business as a Fallback Solution. Under the Fallback Solution, Amigo Loans Ltd will be wound down and its assets collected over time. Cash payments will only be distributed to creditors from any assets left after meeting the costs of operating Amigo's business in its wind down and after repaying its current secured debt financing arrangements.
There is no guaranteed cash amount for redress creditors in the Fallback Solution.
Returns to creditors with valid claims in the New Business Scheme are currently estimated to be 41p/£.
While details of an equity raise to partly fund a return to new lending have not yet been finalised, the contribution to the Scheme of at least £15m is expected to be funded from the proceeds of new finance raised, part of which will be raised in equity finance within twelve months of the Scheme being approved by the Court.
Yes, shareholder approval will be required.
The equity raise, in which 19 new shares will be issued for each existing share, is likely to result in material dilution if existing shareholders do not take up their pre-emption rights.
We recognise this is a difficult situation for all stakeholders but we hope that as many shareholders as possible will invest in our new lending proposition, which will: (a) seek to fulfil our purpose of improving financial inclusion with increased affordability and flexibility over the term as customers pay back their loans and (b) enable us to provide greater returns to redress creditors who have valid claims for compensation under the Scheme.
The New Business Scheme requires that Amigo returns to lending within nine months of the Scheme Effective Date. We hope to be able to do so far sooner than that.
The FCA’s position on Amigo returning to lending was set out in a letter to Amigo dated 4 March 2022 and reported in the following RNS on our website here.
As a new Board and management team, we are focused on developing a business that is very different from the Amigo of the past, founded on lending responsibly with enhanced affordability assessments (including use of Open Banking, or equivalent, technology).
Amigo has agreed with the Independent Customers' Committee that the total net new lending under the New Business Scheme will not be more than £35m until the Conditions have been met and at least £112m has been paid into the Scheme fund.
Subject to FCA approval, we will resume lending with a new proposition which will include a personal unsecured loan, as well as a guarantor loan, designed with customers' interests at the heart. Amigo aims to bring two genuine firsts to the market: a transparent and rewarding feature that allows customers to lower their monthly payments by reducing the APR on their loan; and the ability to take an annual payment holiday – 100% interest free. We believe there is a pressing need in the market for a mid-cost product that can, through incentive and increased flexibility, help customers improve their financial wellbeing and their access to mainstream financial products in the future.
What have you done to prevent a recurrence of the complaints situation that previously existed when you return to lending?
We have a new leadership team who have entirely overhauled internal policies, systems and processes and performed a thorough root cause analysis to prevent the issues of the past recurring. Our approach to future lending has been reviewed by independent assessors as well as the FCA and we will remain in regular dialogue with the FCA to ensure we are aligned with best practice and compliant with regulatory standards.
Amigo must return to lending within nine months of the Scheme Effective Date, with FCA approval, and complete a successful equity raise within twelve months. Amigo will finalise and present details of the quantum and timing of the capital raise along with its future business plan in due course. Shareholder approval will be requested for the equity raise.
Amigo is also subject to two FCA enforcement investigations that have not yet been concluded. The outcome of the FCA investigations could result in a fine being imposed on Amigo. The Board recognises that it will be important to have a resolution to the ongoing FCA investigations before shareholder approval for the raise is sought.
If the conditions of the New Business Scheme are not met, the Board will look to implement the Fallback Solution (i.e. a managed wind-down of the Amigo Loans business).
Any shareholder in Amigo that has a holding equal or greater to 3% (or 5% if held in separate funds) is required to disclose their position within two days (UK shareholders) or four days (non-UK shareholders) of that position being achieved.
We will announce all Notification of Major Interest in Shares (known as TR1's) received to the London Stock Exchange using the RNS platform. We would expect all shareholders in Amigo to comply with their regulatory obligations under the Disclosure and Transparency Rules.
If a shareholder moves through a % bracket, i.e. from 10% to 11%, the same disclosure requirements apply. This also works for those shareholders reducing their position, i.e. from 11% to 10%.