The Financial Services Compensation Scheme (FSCS) has started to investigate claims against a failed German property scheme that holds million of pounds of UK pension money.
The Dolphin Trust, renamed German Property Group in April 2019, went bust earlier this year and although it is unregulated, the compensation fund believes some may have invested via regulated entities, paving the way for claims.
The scheme focused on redeveloping German listed buildings into luxury apartments, and had promised UK investors double-digit returns on their investments.
But the company has been beset with problems as investors, many of whom gained access through self-invested personal pensions, saw the maturity date of their investments pass without payment.
Earlier this year a review of the business was commissioned, followed by a bankruptcy filing for the whole group in late July.
Although the FSCS does not typically make compensation payments before a firm has collapsed, and the scheme has deemed it to be ‘in default’, it can act sooner if deemed necessary.
In the case of GPG, it told FTAdviser: “Some of the information suggests returns to creditors could be uncertain, potentially very low and also take a long time.
“In those circumstances, we can invoke COMP 11.2.9R to set a nil value for assessing claims, but we will then take over the investors’ interests and pursue recoveries. This is what we are doing in this case.”
Investor losses could reach millions with a BBC investigation in 2019 estimating the property group borrowed up to £600m from the likes of pension investors.
However, not all UK investors will be eligible to bring a claim as the GPG/Dolphin companies themselves were not regulated in the UK and many of the investments were sold via unregulated introducers.
FSCS said: “For FSCS to pay compensation, we need to be establish a liability on the part of a failed UK-regulated firm arising out of these investments.
"There may be inter-company claims within the GPG companies which are relevant to FSCS seeking recoveries. We expect the insolvency process in Germany to continue to develop and we are monitoring the position.”
Meanwhile German administrator Goerg has written to investors informing them of the “total mess” it has found in the business's records.
In a letter in August partner Tim Beyer wrote: “Please note that we have found a total mess over here. It will take at least to the end of September before the insolvency court will have issued court orders for all companies of the GPG group.
“And due to the fact that the bookkeeping, the documentation and all other relevant information regarding assets, money, etc. are incomplete, not available in the first place or just a total mess, we probably need at least until the beginning of 2021 before we are in a position to talk about any concrete investment or assets.”
Mr Beyer believes there are between 150 and 200 companies in the group.