Any Armenian iron; Asset Life plc administrators report

The administrators of Asset Life have released their initial report.

Asset Life plc, reviewed here in January 2018, raised £8.9 million from investors in three unregulated minibond issues (A, B and C). At the time of my review they were offering 8.75% per year for a three year term.

When the A and B investors were due to be repaid, Asset Life failed to do so. Asset Life plc asked for 12 months’ grace, which some gave, but others refused. Asset Life was unable to repay those investors who insisted on getting their money back. Interest payments stopped in November 2018.

In May 2019, the FCA issued a warning (five years after Asset Life plc began operation) that Asset Life might be conducting regulated activities without authorisation.

What regulated activities the FCA thought Asset Life plc might be up to is still unclear (even the administrators say they are still in the dark on this point). Raising funds in unregulated minibonds is not a regulated activity, nor is investing them in random mines in Elbonia.

Nonetheless the warning had the effect of preventing Asset Life plc from taking new money in from its Series C bonds, “leaving it with insufficient working capital to meet its existing obligations” (which glosses over the fact that Asset Life plc hadn’t had enough money to meet its existing obligations since it defaulted on the Series A and B investors and stopped paying interest in November 2018).

Asset Life went into administration three months later in August 2019.

The investment

Investors’ funds were to be used to invest in companies with significant growth potential.

Only two such companies remain: Aprelskoe, which is not a virulent Swedish liqueur but a Kyrgyzstani gold exploration company, and Lori Iron and Steel, an Armenian iron ore extraction company.

According to Asset Life plc’s directors, neither is capable of returning any funds without throwing good money after further investment.

The administrators have been advised that there is no realistic prospect of selling Asset Life plc’s shares in Aprelskoe or Lori except to the companies themselves or a connected party.

The administrators therefore intend to continue holding the investments while they continue discussing with other shareholders.

According to the administrators, all of Asset Life plc’s other investments resulted in total losses.

With wearisome predictability, the Asset Life plc directors blamed Brexit for the company’s collapse.

The directors explained to bondholders that there were various reasons for the delay in repayment of the loans, including poor market conditions as a result of the UK’s current political situation, and the uncertainty of Brexit hampering investment decisions.

How specifically Brexit is to blame for Asset Life plc’s failure is unclear. The fall in Sterling after the 2016 referendum should have made it easier to pay back investors’ money in Sterling using revenue earned overseas in obscure ex-Soviet satellite states, not harder.

Prospects for return

Series C bond investors are being treated as secured creditors while Series A and B bond investors are being treated as unsecured.

A Security Trustee was initially in place for the Series A investors but the Trustee company was dissolved shortly after funds were raised.

The fact that Asset Life plc’s old investors are outranked by their new ones could come as a kick in the teeth, if of course Asset Life plc does actually manage to realise any returns for bondholders at all after paying the administrators’ fees. This would appear to be extremely uncertain.

Director Martin Binks failed to provide a proper Statement of Affairs, instead submitting only previously published accounts and a schedule of bondholders (not a full list of creditors), plus “various items of loose paperwork”.

The administrators have done their best to provide their own schedule, but their list of assets has £8,000 of cash in the bank as the only asset with any known value, with all other assets listed as “nil” or “uncertain”.

What happened to the Lenders Guarantee and insurance?

As late as July 2017, Asset Life plc claimed on its website that funds were guaranteed up to £250,000. In October 2016, this guarantee was supposedly provided by GEF Guarantee Equity Fund Limited.

[Our Fixed Interest Plan] offers an inclusive Lenders Guarantee by GEF Guarantee Equity Fund Limited which protects both the deposit and interest promised to our clients at Asset Life.

GEF Guarantee Equity Fund Limited was a company in Israel owned by a UK company, GEF Guarantee Equity UK Limited. In October 2016, the UK parent had already been in liquidation for half a year.

At some point between then and July 2017, Asset Life plc replaced this with a similar Lenders Guarantee – still with “Capital deposit and interest protected up to £250,000” – this time covered by Klapton Insurance, headquartered in Anjouan, a small island in the Indian Ocean.

However in February 2018 the claim that the insurance guaranteed investors’ capital was removed and replaced by the more vague “an active form of indemnity insurance to cover the Loan”. The insurer was not named except as “underwritten by A rated (AM Best) Rated insurers, either Lloyd’s of London or Company markets”.

Of these various insurance policies there is no mention in the administrators’ report.

Around February 2018, the FCA-regulated company responsible for signing off Asset Life plc’s website switched from Opus Capital to Equity For Growth (Securities) Limited.

Anglo Wealth

Asset Life plc Chairman Martin Binks is well-experienced in the unregulated minibond sector.

Binks was a director of collapsed minibond firm London Capital & Finance from October 2015 to August 2016.

Since May 2014 Martin Binks has been a director of another former minibond firm, Anglo Wealth Limited.

In December 2018 Anglo Wealth Limited was described as an “elegantly packaged scam” by a Southwark Crown Court judge, who sentenced two other Anglo Wealth directors, Terrence Mitchell and Andrew Meikle to suspended prison sentences and disqualification as directors.

According to the administrator’s report, Mitchell remains Asset Life plc’s joint-largest shareholders with a 10% share (banned directors are not banned from being shareholders).

Binks was not part of the criminal case and has not been accused of any wrongdoing in relation to his ongoing role at Anglo Wealth.

Despite the fact that the bulk of the Anglo Wealth funds were “dissipated on supporting the defendants’ lifestyles”, according to lawyers advising the CPS, Anglo Wealth investors were repaid in full.

The connections between Asset Life plc and Anglo Wealth are identified as an “area of specific concern” by the administrators.

We are aware that certain individuals previously involved in managing Asset Life plc were disqualified in acting in the promotion, formation and management of any company following criminal proceedings relating to a predecessor company, Anglo Wealth Limited (AWL). The Company’s audited accounts show that Asset Life plc acquired a number of its holdings from AWL in consideration for writing off an intercompany debt. We are therefore investigating the relationship between AWL and Asset Life plc, and the nature and extent of the intercompany transactions.

So, just to make sure everyone is following along:

• Anglo Wealth raised just over £1 million from investors (according to its 2017 accounts, the last filed before it repaid investors).
• Anglo Wealth was, according to the judge that sentenced Meikle and Mitchell, an “elegantly packaged scam”.
• According to lawyers assisting with the prosecution, “Unusually for a prosecution of this type, the investors were re-paid in full (albeit only after the pair knew they faced criminal investigation)”.
• Anglo Wealth managed to find money to repay the investors despite the fact that the investors’ money was already gone, Anglo Wealth having “dissipated the bulk of the funds on supporting the defendants’ lifestyles.”
• In part due to the fact that Anglo Wealth managed to repay its investors with other money from sources unknown, Mitchell and Meikle did not see the inside of a prison cell, receiving only suspended sentences plus fines totalling £250,000 (less than a quarter of the amount they scammed from investor).
• Asset Life plc, described by the administrators as Anglo Wealth’s successor company, raised a total of £9 million from investors between 2014 and 2019.
• Anglo Wealth borrowed money from Asset Life plc (this is the intercompany debt referred to in the administrators report).
• This intercompany debt was settled by Anglo Wealth passing holdings to Asset Life plc.
• All these holdings received from Anglo Wealth to settle this debt to Asset Life have either gone bust with total losses, are of uncertain value, or were realised before the company defaulted on its investors and entered administration.

The administrators’ investigations continue.

…The lack of accounting records and the involvement of numerous third party payment agents has made the task of reconciling the Company’s financial affairs extremely challenging.

Due to the lack of transparent information on the trading transactions of this Company, we anticipate that these investigations may take some time. In addition, our investigations are likely to require the use of Insolvency Act 1986 powers to compel the provision of information from third parties.