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Scheme 1.0 is dead. As I understand, a new scheme will require new convening hearing, new creditor vote, revised PSL and explanatory statement, and new sanctioning hearing.
The 95% vote has been disregarded because the judge deemed Amigo to have provided inaccurate information to creditors about the imminence of insolvency. The whole thing needs to be re-run with a revised proposal and proper information.
I hope Amigo has secretly booked court dates in preparation as I believe there is a backlog.
GrimRip - I assume you haven’t read the judgement?
Try paragraph 92 for starters. But 74 - 79, 83, 85, 87 are also interesting in terms of how the first scheme sought to transfer value from creditors to shareholders and the clear direction of travel that this needs to be reversed. Paragraph 78 explicitly says that “shareholders are the lowest rank of a company’s capital structure”.
The problem with allocating future profits to pay off creditors in full is that Amigo has already explained that this would take years (probably decades) to achieve. That’s in the judgement too - see paragraph 40 on forecast of value of Future Business Contribution.
As for the Sarah / DC stuff - yawn.
Amigo have been issuing RNS announcements saying they’re liaising with FCA about the scheme for months. Those words are increasingly meaningless.
Of course it’s clear what FCA wants - more for creditors at the expense of shareholders. But what does that look like?
Why not just a % dilution with “new” equity held in trust for creditors until they recoup their losses either through dividends or equity value? Bondholders rights are unaffected, reflecting their superior position in insolvency.
Shareholders take % haircut now but lending resumes and dividends are paid to all shareholders. Sooner creditor losses are recouped, sooner form returns to investors.
Senator, do you really think it was a genuine **** up? Even if Dicker didn’t understand the fundamentals, Gary and CFO and team would’ve been sitting right beside him. Do you really think they would all have overlooked the point - especially knowing what the FCA were going to say?
Thanks Senator, going to take some time to think it over and try to understand. I’m not there yet.
Even after reading your posts, I’m still struggling to see why shareholder equity dilution is not going to part of the design of Scheme 2.0, given the judge said (paragraph 78) that “The shareholders are the lowest rank of a company's capital structure”.
And what do you make of paragraph 40, which says “the Company's forecast total Future Business Contribution is materially lower than the amount of Initial Contribution” (the initial contribution being £15m). What does that mean for a scheme that proposes to pay back customers by extending the four year profit share period without a significant increase in % share?
Senator, now you have lost me. These are genuine questions, I want to understand you.
Isn’t the book equity a measure of value at a fixed point in time? How does that measure losses?
Doesn’t measuring book equity for Anigo involve an assessment of market value of an illiquid stock (e.g. loan book)?
JWD, why do creditors only get 15% if they rank above shareholders? What you say might work if Amigo have 100% (or even 50/50) to creditors until they are repaid.
Remember, the judgement says 15% x 4 years results in a future contribution that’s “materially lower” than the initial £15m. It would take decades to pay everyone back if that’s true.
Senator, are you saying that if FOS upholds a complaint and tells Amigo to reduce a balance, that needs bondholder approval if it’s one of these secured bondholder loans? That just isn’t right. And must be same for the scheme. I’m not saying there might not be some sanction for Amigo or that it wouldn’t represent a breach. But it doesn’t affect the complainants entitlement.
Sharesrising, fall in share price is not a haircut. You still own the same % of Amigo whatever the share price.
I don’t think it’s a question of shareholders putting money in the pot. Shareholders don’t need to get their chequebooks out.
But yes, I think I’d need convincing why shareholders shouldn’t bear the same losses as creditors in order to ensure Amigo survives, given they’re below creditors in insolvency?
Shareholders seemed to think creditors taking a 90% haircut was ok. Why shouldn’t their stake in the company be written down by the same amount as they expect creditors to lose? That way, everyone is in the same boat and has an interest in minimising haircuts all round.
Viking, that is a gross distortion of my views. But I do think the BOTH shareholders and creditors would end up with nothing in administration, which is why I’ve consistently said they BOTH need to share the pain fairly if Amigo is to carry on trading and why I’ve consistently said Scheme 1 was unfair (and that it would have to be opposed by FCA).
Okehurst, I don’t think my points are limited to morality. The legal position is that shareholders rank BELOW redress creditors in insolvency. Amigo’s scheme failed because it sought to reverse that hierarchy. I have said very little about bondholders since the judgement precisely because (whatever the morality) I recognise that their legal position outranks creditors and shareholders in insolvency. For the avoidance of doubt, I wouldn’t suggest that bondholders rights should be forcibly compromised - that would be the road to insolvency.
The judge - and the FCA who are currently giving Amigo a lifeline in the form of the complaints moratorium - have indeed pointed the way and my reading of the judgement is that Scheme 2.0 needs to involve restructure with shareholder dilution. What it doesn’t point to is how significant the scale of that dilution needs to be. But I would say shareholder dilution needs to be AT LEAST the same percentage as the creditor haircut (reflecting not a moral position, but the legal reality that creditors would outrank shareholders in insolvency). If Amigo doesn’t move in this direction, I think the moratorium (which currently favours shareholders over creditors) would need to be pulled by FCA.
Sharesrising - i have no desire to cause pain. I want to see Amigo continue but only in a way that’s fair. I’ve always said shareholders need to carry their fair share of loss and that Scheme 1.0 unfairly loaded all the pain onto creditors. My only surprise was how long it took FCA to stand up against the scheme on that point.
I have never said those at the front of the complaint queue should get preferential treatment. I think you may be confusing customers who have a current loan with those who have a current complaint.
The current FCA redress moratorium is penalising customers with a live loan and benefiting shareholders. I have my doubts about how long that can go on.
FCA has been very clear that it wants the scheme to rebalance the pain away from creditors and into shareholders - judgement and FCA repeatedly say that shareholders rank below creditors. Unless Amigo indicates moves in that direction as part of scheme 2.0, I don’t see how FCA can / would sustain the moratorium. And then you really do get cashflow problems.
There’s a fix here - Amigo could announce that claims will be offset against balances as they stood on 21 December 2020, when they stopped paying redress. But that could make the balance adjustments much more costly, which could have a material impact on viability.
Viking, the current customers part relates to where their outstanding balance is less than the amount they’re owed. Any redress that exceeds the customers’ current loan balance won’t be repaid in insolvency. But where there’s a loan balance, customers will get the FULL value of their claim through a balance reduction.
And that is the essence of my point. As balances get paid down, there is an ever decreasing amount against which full redress can be recovered by creditors. So these customers are better off if Amigo collapses now (when they have a high balance against which to offset redress in full) than in a few months time (when balances will be lower).
To be clear, customers with a valid claim and an outstanding balance are better off the sooner Amigo collapses. The current moratorium (which pauses redress payments whilst balances continue to be paid back by customers) is hugely beneficial to shareholders at the expense of these creditors.