Regulation  

Two companies wound up for £12m pension liberation

Two companies wound up for £12m pension liberation

Two North West-based companies have been wound up by the High Court for operating a “misleading” pension-backed loan and investment scheme in which clients invested £11.9m.

The liquidation was ordered following an investigation by the Insolvency Service which found that the companies, KJK Investments Ltd and G Loans Ltd, operated a ‘pension liberation’ scheme.

Clients were encouraged to obtain a loan from Windermere-based G Loans on the condition that they used their existing pension funds to purchase shares in Liverpool-based KJK Investments.

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The Insolvency Service said clients were “led to believe” that their investment in KJK would increase in value by 6 per cent each year and that these returns would be sufficient to enable the client to repay their loan from the proceeds of their pension upon retirement.

Over a two and a half year period, KJK received £11.9m worth of investments from 209 clients and G Loans Ltd provided £6.3m of loans.

The loans made to clients were typically in the region of 50 per cent of the amount invested by the client in KJK shares.

The investigation found that KJK was not a commercial lender (as it claimed to be), but that a significant portion of the funds invested by the clients were, in fact, lent by KJK on uncommercial terms to G Loans.

This was the only means by which it was able to provide loans to the clients – meaning that the loans were funded from their own pension funds invested in KJK.

The loans provided were on terms that allowed interest to be accrued rather than paid, such that G Loans was not in a position to repay its liability to KJK, and it in turn could not pay a dividend to invested clients.

The remaining funds were used to make loans to other associated companies on uncommercial terms and to pay substantial commissions, fees and salaries to those involved in the operation of the companies.

Sales commissions totalled in excess of £900,000 whilst the directors received payments totalling £490,000.

According to the court, the scheme itself was lacking in any proper commercial basis, with the result that there was no realistic prospect of clients getting back the funds which they had originally invested in KJK.

Colin Cronin, investigation supervisor, explained that pension liberation is being widely promoted as an easy way of gaining early access to pension savings, particularly given the recent changes in legislation.

“Any schemes offering such benefits should be viewed with caution and independent financial advice should always be sought before entering into such a scheme.

“In this case clients were not told that they were obtaining loans funded directly from their own pension pots.”

The companies were wound up on 15 April and the Official Receiver has been appointed as liquidator.

peter.walker@ft.com