Troubled mini-bond provider enters administration

Troubled mini-bond provider enters administration

A mini-bond provider under investigation by the Financial Conduct Authority has entered administration, with the funds of more than 14,000 bondholders at risk.

In December last year the FCA ordered London Capital & Finance Plc to stop marketing its fixed-rate investment bonds and Isa products and the provider had its assets frozen by the regulator earlier this month.

The FCA found the Tunbridge Wells-based firm had signed clients up to fixed rate Isas promising 8 per cent interest, with investors' capital then invested into mini-bonds used to issue loans to small businesses.

Yesterday (January 30), Finbarr O’Connell, Adam Stephens, Colin Hardman and Henry Shinners of Smith & Williamson LLP were appointed as joint administrators of the firm.  

The administrators said they will be working with London Capital & Finance borrowers, staff, the security trustee for the bondholders, the FCA and other stakeholders in order to maximise the returns to the bondholders.

Mr O’Connell said: "We are especially focusing on the various loans made by the company to borrowers. At this juncture, regrettably we are not in a position to return any monies to bondholders." 

Mini-bonds are unregulated investments, so if underlying loans performed sufficiently poorly and London Capital & Finance was not able to make the interest payments to investors clients will not be covered by the Financial Services Compensation Scheme (FSCS). 

There were concerns the 14,000 clients of the firm may not have fully understood the nature of the investment they were making due to unclear marketing material.

As unregulated investments, London Capital & Finance did not need to be authorised by the FCA to issue the mini-bonds but it did need to be authorised to issue the promotion of the mini-bonds.

A dedicated call centre helpline and email address has now been set up for affected parties. 

Mr Hardman said: "We are working using existing London Capital & Finance personnel, and gathering information relating to the loans made to various borrowers.

"These loans to borrowers are the major asset of the company and the administrators will do nothing to jeopardise the position of the borrowers and hence their ability to repay their debts to the company."