Investors in the collapsed London Capital & Finance have launched a judicial review against the Financial Services Compensation Scheme amid concerns the majority of bondholders have not received any compensation.
Before it entered administration in January, LCF raised in excess of £237m from more than 11,500 investors over the course of two years, and it has been embroiled in a scandal since.
The issue of compensation from the FSCS has been a matter of much debate over the past year as mini-bonds are unregulated investments and therefore not protected by the scheme.
The lifeboat scheme has since been investigating other possible avenues for compensation, such as evidence of advice being given to bondholders by LCF, and in January it announced it would compensate 159 investors who transferred their savings from external stocks and shares Isa accounts into LCF accounts - a regulated activity.
But this decision has been widely criticised by bondholders and on March 18 four members of the creditors’ committee in the LCF administration filed a judicial review claim against the FSCS.
Thomas Donegan, partner at law firm Shearman & Sterling which is representing the bondholders, said: "We are delighted to have been able to commence this case and thank the Administrative Court for its cooperation.
"We are also grateful to the Financial Services Compensation Scheme for their agreement to bear their own costs of the matter.
"The FSCS has itself repeatedly recognised the complexities involved and we now look forward to these issues being considered by the judiciary."
The FSCS is still reviewing any possible advice claims but has previously warned many customers would not be eligible for compensation on this basis.
James Darbyshire, general counsel at the FSCS, said he appreciated LCF was a "complex and sensitive case" affecting a large number of investors who were keen to understand the lifeboat-body's decisions.
Mr Darbyshire said: "FSCS has undertaken a thorough and wide-ranging investigation to determine whether LCF carried out any regulated activities that we might be able to compensate for.
"This has included significant factual analysis and consideration of some complex legal and regulatory issues.
"FSCS has been transparent and cooperative in discussing the legal issues with the investors and will continue to do so.
"To ensure that the investors' real concerns are fully addressed, we have taken the unusual step to agree not to seek to enforce any costs order in our favour against the investors."
This means if the investors lose their case against the FSCS, the latter will not seek to recover legal costs from the group.
He added: "FSCS is an impartial service and is operationally independent from the financial regulators. FSCS reviews each claim on its individual merits according to the requirements under the rules, which FSCS is legally required to follow."
Shearman & Sterling said the case was only possible because the FSCS agreed each party should pay their own costs regardless of the outcome, otherwise the four claimants would personally bear the risk of the lifeboat-body's legal fees if the case was unsuccessful.