Things have gone from bad to worse for Buy2letcars investors, after the Financial Conduct Authority revealed yesterday that the whole scheme has gone into administration, less than a month after the FCA effectively stopped the scheme from taking in new investor money.
All three of Buy2letcars’ constituent companies: Buy 2 Let Cars Ltd, Rent 2 Own Cars Ltd, and the holding company Raedex Consortium, went into administration on Tuesday 15 March, with RSM Restructuring Advisory appointed as the administrators.
Buy2letcars’ investment scheme is unregulated, but the FCA does regulate the side of the business where it leases the cars bought using investor money to borrowers, who in turn pay the interest that supposedly funds returns to investors. On 19 February, the FCA stopped Buy2letcars from making new vehicle leases; this effectively stopped Buy2letcars from taking in new money as it couldn’t use it to lease new cars for the time being.
If history is any guide, the decision of Buy2letcars’ directors to appoint administrators is to be followed by individuals claiming to be investors and blaming the FCA for the collapse of the business.
Prior to the FCA shutdown, Buy2letcars claimed that its finances were sound and its accounts showed continual losses and substantial net liabilities only because its accountants were “lazy”.
Even after the shutdown, apparent investors swamped Trustpilot with 5 star reviews defending the company. Unfortunately their attempts to defend the company only demonstrated how Buy2letcars’ misleading advertising ensnared investors who were clearly not sophisticated investors only investing money they can afford to lose.
The question remains: if Buy2letcars was in such a good state of health, why has it gone into administration only a month after being prevented from taking in new investment? Note that its borrowers were instructed to carry on making the lease payments on their vehicles, so the FCA shutdown should not have affected its ability to service its debt to investors.
The appointment of administrators seems to have put an end to investors’ bout of Tirana Syndrome (a variant of Stockholm Syndrome where investors in a collapsed investment scheme side with the people who took their money against regulators, administrators and other outside agencies), if the Trustpilot reviews over the last couple of days are any indication.
I reviewed Buy2LetCars in June 2018 and noted that, despite its attempts to portray itself as an alternative to a savings account and a “safer investment”, it was in reality an inherently high risk unregulated investment scheme. I also noted that the scheme gave off a distinct whiff of being an unauthorised collective investment scheme, which is illegal.
Whether Buy2LetCars did in fact pool investors’ money to pay their returns, which would make it an illegal collective investment scheme, has yet to be confirmed by the FCA or administrators. How it managed to continually maintain a 100% payment record up to the FCA shutdown without pooling investor money, bearing in mind the inherent risks of leasing cars (depreciating assets) to subprime borrowers, is likewise not clear.
Up until the FCA shutdown, Buy2letcars spent 2020 exploiting the pandemic, claiming to provide an “ethical investment” that provided key workers with cars, despite the fact that there is nothing ethical about renting cars to key workers at sufficiently high interest rates to allow it to pay 11% annual returns to investors on top of accounting for bad debts, depreciation on cars and all its other costs.
More to follow when the administrators release their initial report.
Thanks to a pseudonymous reader for flagging the FCA announcement.