London Capital & Finance goes into administration

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London Capital & Finance has gone into administration, with four practitioners from top-10 accountancy firm Smith & Williamson appointed as administrators.

According to a FAQ on the LCF website, LCF applied for the administration itself. After the FCA froze the company’s assets and censured LCF for persistently misselling its high-risk unregulated bonds to retail investors,

3. As a result of the above, LCF has been unable to raise further monies from investors.

4. Professional advice was sought and the Company was advised that LCF was insolvent and that it should be placed into administration to provide the best outcome for Bondholders and other creditors. The Company was also advised that in order for some independent party to be able to deal with the Company’s assets for the benefit of the Bondholders and the other creditors that the directors should place the Company into Administration such that the Administrators could perform those essential functions. As LCF is an FCA regulated firm, the consent of the FCA is required for the directors of LCF to resolve to place the Company into administration. Accordingly, the consent of the FCA was duly sought and obtained.

The news broke on the Smith & Williamson company website yesterday. The news seems to have crashed Smith & Williamson’s servers, as the smithandwilliamson.com website is unresponsive at time of writing.

In a statement to Professional Adviser, the administrators said:

“It is early days, but our role will be to work with LCF’s borrowers, staff, the security trustee for the bondholders, the FCA and other stakeholders to ascertain what needs to be done in order to maximise the returns to the bondholders.

“We are especially focusing on the various loans made by the company to borrowers. At this juncture, regrettably we are not in a position to return any monies to bondholders.”

Hardman added: “We are working using existing LCF personnel, and gathering information relating to the loans LCF made to various borrowers. These loans to borrowers are the major asset of LCF and the administrators will do nothing to jeopardise the position of the borrowers and hence their ability to repay their debts to the company.”

How likely are investors to see any money back?

The answer to this depends on how much the assets of London Capital & Finance are worth, which is to all practical purposes unknown, despite the hard work others have put in into finding where the money went. Although we know where some of the money went, we don’t know how much these loans are worth or how likely they are to be repaid.

Some of the money raised from investors has been spent (e.g. on commission and other fundraising costs) and is therefore not recoverable.

Contrary to what some investors believe, HMRC and shareholders do not rank ahead of bondholders. Bondholders will either be considered secured creditors with a floating charge, in the best case scenario, or failing that unsecured creditors.

HMRC are unsecured creditors so they are likely to at worst rank equally with bondholders. (A recent change to the rules which makes HMRC a preferred creditor for certain taxes does not apply – it only comes into force after April 2020.)

Shareholders will only receive a payout if there are still funds remaining after all creditors are paid in full.

The people who do rank ahead of bondholders are the administrators, who always get paid first in any insolvency.

How long is the administration likely to take?

Some investors have reported that they have been told to expect a response in 8 weeks or even 1 week. This almost certainly relates to the time for the administrators to submit their initial proposal and establish a creditors’ committee.

The administration itself is likely to take at least a year, and could easily take several years, based on previous administrations of this kind. The exact length of time it takes depends on how much London Capital & Finance has in assets and how easily they can be realised.