P2P Money Blog

The administrators BDO who are running Collateral since the court appointed them on 28th April 2018 have updated their frequently asked questions on their website.

This does not make good reading for lenders.

Have borrowers continued to service the loans?

Since the business ceased trading, there have been a limited number of receipts into the Companies? bank accounts in respect of the outstanding loans. The Joint Administrators have now obtained a significant volume of documentation in respect of the outstanding loans, which will enable them to take steps to recover the loans as they fall due.

This suggests that a number of borrowers have ceased paying Collateral since the administration.

Have the Joint Administrators retained any of the Companies? staff to assist in the administration?

The Joint Administrators have been advised that the directors made all five members of staff redundant prior to their appointment. Where appropriate, the Joint Administrators are liaising with the directors in relation to the Companies? affairs.

The Companies? online platform allowed the investors to choose specific loans to invest into and awarded different interest rates and/or priority for different loans or different tranches of loans. Will I be receiving repayment in respect of each loan/tranche of loan that is being repaid in the same priority?

Whilst the information that has been retrieved by the Joint Administrators to date contains details of the investors and their total loan exposure, it does not provide sufficient detail to extract an analysis of each investor?s investments into specific loans or tranches of loans. The Joint Administrators? investigations to recover further information are continuing, and we will update investors in due course.

What has happened to the IT platform?

The Joint Administrators? have been advised that the electronic Collateral platform, and all the data which it hosted (including back-ups of the platform), was held on third party servers which had been decommissioned prior to our appointment, and was therefore not available to the Companies. We have identified the third party server provider, however, and we are currently in correspondence with the provider to determine what action, if any, can be taken to recover the data. A further update will be provided in due course.

It is extreenly concerning to note that it has not been possible to determine what each lender actually owned, and that the IT platform - including backups - has been decommissioned prior to the appointment of BDO.

Will investors be treated as creditors?

From the information currently available, the initial view of the Joint Administrators? lawyers is that investors will be treated as creditors of the Companies as a consequence of s26 of the Financial Services and Markets Act 2000. A further update will be provide in the Joint Administrators? proposals to creditors, which are due to be issued on or before 22 June 2018.

Section 26 of the Financial Services and Markets Act 2000 states:

26. Agreements made by unauthorised persons.
1. An agreement made by a person in the course of carrying on a regulated activity in contravention of the general prohibition is unenforceable against the other party.
2. The other party is entitled to recover
1. any money or other property paid or transferred by him under the agreement; and
2. compensation for any loss sustained by him as a result of having parted with it.
3. ?Agreement? means an agreement
1. made after this section comes into force; and
2. the making or performance of which constitutes, or is part of, the regulated activity in question.
4. This section does not apply if the regulated activity is accepting deposits.

This is perhaps the most concerning from the point of view of a lender, as being treated as a creditor is likely to leave their investments subject to the costs of administration - which are very high.

While the circumstances are different, this is being handled in a similar way to TrustBuddy, with investors exposed (on what are secure investments on Collateral) and subject to a lengthy administration process.  One member of the P2P Independent Forum referred to this as "legalised theft", and another stating this calls into question P2P lending itself, with serious questions being asked of the way this has been handled by the FCA.

A selection of interesting points and questions that have been raised by members of the P2P Independent Forum.  User michaelc commented:

More generally, the whole premise of P2P has been somewhat blown out of the water. How can any investor really know they are investing directly to the borrower?

Regarding the FCA, my understanding is that their main raison d'etre is ultimately to protect consumer investors and depositors. How are they doing that by appointing an administrator who first of all relegates us to the status of a mere creditor?

Regarding the lost accounts. This is simply incredible. Even a normal bog standard company has to keep records for (6 years I think). For these records to "disappear" suggest criminal activity. I would like to know who the IT provider(s) was and some more detail about when the instances were shut down, were they deleted etc?

User Momentus commented:

It's made me realise just how rapidly things can take a turn for the worse and just how flimsy these supposed "safeguards" clearly are if they can be so easily brushed aside.

The fact that any platform can just ignore required FCA permissions and totally dismantle the entire market safety structure that was put in place to protect investors so easily just blows my mind.

And who will pay the price heavily from this now? The supposedly "protected" investors.... The whole thing just stinks.

User m2btj commented:

BDO appear to be treating the wind down of Col as they would for any other company in administration. I would go as far as to say their thinking is not up to the task of winding down a P2P company like Col. The only winners, other than BDO, are the borrowers who appear to have stopped making loan payments. I have very little confidence in BDO at this stage.

The P2P money website blog has been awarded one of the Top 10 UK P2P Lending Blogs on the web.

Anuj Agarwal, founder of Feedspot, wrote "I personally give you a high-five and want to thank you for your contribution to this world. This is the most comprehensive list of Top 10 UK Peer to Peer Lending blogs on the internet and I?m honored to have you as part of this!"

Ian Gurney, founder of P2P money, stated "This is a great achievement to be recognised again as one of the Top 10 P2P Lending Blogs in the United Kingdom".

An email was sent by the new administrators of Collateral yesterday confirming what we already know from the recent court case where the FCA challenged the appointment of the previous administrator.  The email confirms BDO LLP are the new administrators.  The email also states that lenders (who are referred to as "investors") do not currently need to provide proof of debts at this stage.

Email from BDO LLP sent to all credtors and lenders:

The Joint Administrators are currently undertaking a review of the Companies? financial position and the terms of the various legal and contractual documents between the Companies, the investors and the borrowers. Where appropriate, the Joint Administrators will seek legal advice to assist in their determination.

Once all of the Companies? books and records have been recovered and the various legal and contractual positions ascertained, the Joint Administrators will seek to reconcile the position of all investors, other creditors and borrowers. It is recognised that, without access to the Companies? online platform, many investors will not presently be able to confirm the amounts that they consider are owed to them. At this stage, the Joint Administrators do not, therefore, require investors to provide a proof of debt form.

Lenders can follow discussions about Collateral UK (in administraton) on the P2P Frank Discussion forum and the P2P Independent Forum.

RateSetter has announced changes to the monthly Rolling Market, effective on the 6th June.

Currently, investments in the Rolling market ?roll? each month. When this happens all your investments are reinvested and matched to different borrowers.  This means that the interest rate of your investment is likely to change every month.  Many of our customers have said they find this complicated and we believe that this fluctuation doesn?t deliver the consistent returns that you would expect.

So, from 6 June 2018, when your investment is matched to a borrower it will remain matched to that borrower, at the same rate of interest, until that loan is repaid. This is how RateSetter?s other products work and it will help you get the returns you expected. Of course, the Rolling market will continue to ?roll? but this will only affect money that is due for reinvestment.  In other words, as borrowers repay every month, the money that is repaid will simply be matched to new borrowers at the Market Rate.

For RateSetter, this will mean a simplification of our Rolling market model which we hope will make the market run even more efficiently and streamline some of our internal processes.

As capital and interest is repaid by borrowers, it is returned to investors in monthly instalments for the duration of the investment.  These repayments will be automatically reinvested back into the Rolling market at the prevailing Market Rate.  As the overwhelming majority (up to 93%) of our investors currently reinvest at the Market Rate, a proportion that continues to rise over time, we have decided to withdraw the option of selecting a bespoke rate for reinvested money in the Rolling market.

We will retain the option for investors to choose between setting their own rate or taking the prevailing market rate when investing new money.  It is this new money that will determine the Market Rate.

Investors are able to access funds invested in the Rolling market without incurring a fee, subject, of course, to RateSetter being able to transfer the loans to other investors.  As part of this service, RateSetter itself takes on the risk that we won?t be able to transfer loans to another investor at the same interest rate.  This means that when an investor withdraws from the Rolling market and immediately reinvests at a higher interest rate, it has a cost to RateSetter and can artificially alter the Market Rate. 

To protect the integrity of our market we are introducing a Fair Usage policy which creates an investment pause of 14 days after a withdrawal from the market.

The FCA have won in court and the administrators appointed by Collateral to run the business have been replaced by BDO LLP.  Collateral was originally placed in administration on 28th February.  A statement has been published on the BDO website confirming this: 

Shane Crooks and Mark Shaw of BDO LLP, 55 Baker Street, London W1U 7EU, were appointed as Joint Administrators (referred to below as ?the BDO Administrators?) in respect of the Companies by the High Court of Justice in Manchester (?the High Court?) on 27 April 2018. The appointment of Messrs Crooks and Shaw has taken place with immediate effect.

Please note that the High Court has also declared that the attempted appointment of Mr Gordon Craig, of Refresh Recovery Limited, West Lancashire Investment Centre, White Moss Business Park, Skelmersdale, Lancs WN8 9TG as Administrator of the Collateral Companies on 28 February 2018 is invalid.

The BDO Administrators have the sole and exclusive power to control and manage the assets, business and affairs of the Collateral Companies.

The BDO Administrators are independent of the Collateral Companies, their directors and Mr Craig/his firm.

The BDO Administrators are under the overall control of the High Court and were appointed following an application to the High Court by the Financial Conduct Authority, the UK?s financial services regulator.

All contact with the Collateral Companies must now be made through the BDO Administrators, whose contact details are below.

The BDO Administrators will be carrying out an immediate review of and investigation into the affairs of the Collateral Companies and will be liaising with investors in respect of their investments in due course.

Further information will shortly be set out, including a Frequently Asked Questions section and a copy of the court order appointing the BDO Administrators.

There is a further statement on the FCA website:

The Collateral Companies operated a peer-to-peer lending platform through a website (collateraluk.com) and Collateral UK Ltd purported to hold an interim permission from the FCA to carry on regulated activities. In fact, none of the Collateral Companies held any valid authorisation or permission to carry on regulated activities. When challenged by the FCA, the Collateral Companies agreed to cease their lending activities and, on 26 February 2018, the lending platform became inoperative.

The Collateral Companies were required to obtain the approval of the FCA when appointing an administrator. This is designed to protect investors by ensuring an independent person conducts the administration in the best interests of the investors. This did not happen. Accordingly the FCA has intervened to ensure investors are protected as the law requires.

On 16 March 2018, the High Court adjourned the FCA?s applications to 27 April 2018. Until then, the Court ordered that, barring incoming payment of loan interest and repayments and certain other administrative steps, the substantive progress of the administration should be paused.

On 27 April 2018, the High Court in Manchester appointed new administrators to Collateral (UK) Ltd (Collateral UK), Collateral Sales Ltd and Collateral Security Trustee Ltd (together, the Collateral Companies) following an application by the FCA.  The Collateral Companies had been placed into administration by their Directors on 28 February 2018. The Court agreed that the appointment of the previous administrator had been invalid and has now appointed Messrs Shane Crooks and Mark Shaw of BDO LLP as joint administrators of the Collateral Companies to protect the interests of creditors.

The FCA took court action to ensure that the interests of creditors and investors affected by Collateral UK?s administration were properly protected and treated fairly by a validly appointed administrator who is independent of anyone connected to the Collateral Companies.

A summary of the events at the High Court in Manchester have been published on the P2P Frank Discussion forum and the P2P Independent Forum.  Several lenders who attended court have reported that it was stated that £300k was removed from the client account in February and subsequently the personal bank accounts of the former directors have been frozen amid concerns over missing funds.  It was also stated that the FCA acted after reading comments on the P2P Independent Forum.

A website has been setup by the administrators for lenders and borrowers of Collateral.  The administrators have confirmed that there are no immediate steps that lenders need to take in respect of the administration.

https://www.bdo.co.uk/en-gb/collateral-companies-in-administration

The administrators BDO LLP are regulated by the Financial Conduct Authority, and have permissions to hold client money and advise on P2P agreements, but they do not have permission for operating an electronic system in relation to lending.

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