Investors in £46m mini-bond scheme face 100% losses

Investors in £46m mini-bond scheme face 100% losses

Investors in a mini-bond scheme which collapsed earlier this year might never reclaim their funds after the property portfolio in which their £46m was invested looks likely to be worth less than £1m.

Blackmore Bond raised millions of pounds from investors to fund property developments between 2016 and 2018, but the company fell into administration in April after several months of rocky waters in which it failed to pay interest due to bondholders.

In June administrators Duff & Phelps warned investors might only recover a maximum of £5m from the 11 property development projects into which their £46m was piled. 

But after a series of setbacks since then the administrators have now estimated funds available from the property portfolio are unlikely to exceed £1m. 

With administrators' and legal fees already totalling more than £1.3m, and with bondholders qualifying as unsecured creditors, Duff & Phelps warned there would be "substantial shortfall" in investor funds.

Unsecured creditors rank below secured creditors when proceeds of a liquidated company are distributed.  

Duff & Phelps warned the value of the properties had been impacted by the discovery of poor quality building work which in some cases required refurbishment and a "considerable" increase of interest owed on loans, often short term or bridging finance, whilst the properties were evaluated and marketed for sale. 

Blackmore Bond had cash in the bank of less than £1,000 when Geoff Bouchier and Benjamin Wiles of Duff & Phelps were appointed as joint administrators on April 22.

Bondholders had not received their contractual quarterly interest payments since October last year despite assurances from Blackmore directors that cashflow issues would soon be resolved.

The bonds were advertised with returns of between 6.5 and 10 per cent and some were marketed as an alternative to an Innovative Finance Isa, where interest paid to bondholders is tax free, according to the administrators.

Blackmore Bond used the same online marketing company that represented scandal-embroiled London Capital & Finance, to source new investor funds.

According to administrators the company was paid a fee of 20 per cent and invoiced directly once bondholders had advanced funds for the mini bonds.

London Capital & Finance fell into administration in January last year after raising in excess of £237m from more than 11,500 investors over the course of two years. 

Blackmore Bond directors previously blamed the collapse of London Capital & Finance, and the surrounding press coverage, for making it increasingly difficult to attract new investment to their own scheme.

The company was not regulated by the Financial Conduct Authority.

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