(Alliance News) - Shares in Amigo Holdings PLC tanked on Monday after the guarantor loans provider warned of insolvency if a new business scheme and equity raise are not approved.
Shares in Amigo were down 40% at 3.62 pence in London on Monday. The stock has tumbled 51% over the past 12 months.
The scheme is being proposed to settle claims following probes from UK regulators into mis-sold loans and the way that Amigo dealt with customer complaints.
Amigo said that, as detailed last month, its new business scheme proposes an initial contribution of GBP97 million, to be generated from internal resources. A significant proportion of this will be derived from the run-down of the existing loan book.
It plans to raise capital within one year of the court sanction of the new business scheme to fund both the GBP15 million scheme contribution and future lending. The equity raise is likely to be undertaken by a rights issue for existing shareholders.
This will likely see the company issue at least 19 new shares for every existing one, leaving existing shareholders in the firm with no more than 5% of Amigo's share capital.
"If shareholders do not approve the rights issue, the new business scheme will revert into a wind down under which the shareholders will receive nothing in respect of Amigo Loans Ltd," Amigo warned.
In May last year, the UK High Court blocked the guarantor loans provider's scheme to settle compensation claims, with the UK Financial Conduct Authority seeking a "fairer" deal for customers.
Amigo Chief Executive Gary Jennison on Monday said: "The board is fully committed to providing the maximum amount of redress possible for qualifying creditors."
"Should creditors vote for the new business scheme and the court subsequently approve it, these provisions provide additional protection for creditors and address certain of the concerns raised by the court above the previous scheme. They are necessary for Amigo to survive and avoid insolvency."
By Lucy Heming;Â lucyheming@alliancenews.com
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Amigo (AMGO)