Amigo Holdings’ two schemes of arrangement sent to creditor vote

By Sarah Lizee

Olympia, Wash., March 15 – Amigo Holdings plc said that its proposed schemes of arrangement can proceed to a creditor vote, following a court hearing that took place on March 8.

According to a London Stock Exchange notice, ALL Scheme Ltd. can convene a meeting of creditors on May 12 to consider and vote on two proposed schemes. As such, past and present borrowers and guarantors who believe that they have a valid claim against Amigo will be able to vote on the schemes.

If creditors vote for the schemes, the court sanction hearing is expected to be held on May 23 and May 24.

The company said the last two years put the future of Amigo as a going concern in doubt because of a significant increase in the level of customer claims received and the economic impact of the Covid-19 pandemic.

Amigo said it doesn’t have enough money to pay the full amount of cash compensation to the people who have valid claims, and because of this, it is proposing the schemes to try to maximize returns creditors receive.

The company initially proposed its first scheme in May 2021, which received approval from creditors, but not from the high court. At that time, the judge was not satisfied that the scheme was fair to creditors.

In December, the company put together two new schemes following discussions with a new customers’ committee. The schemes offer creditors a choice between a new business scheme and a wind-down scheme.

The company said the new proposals provide better returns for creditors than the previous scheme and better returns than the likely alternative to the schemes.

New business scheme

The new business scheme includes both a preferred solution, under which two conditions must be met, and a fallback solution, under which the existing business would be wound down.

The preferred solution will be implemented if the new business scheme is approved by creditors and the court, and if, within nine months of the scheme effective date, Amigo restarts lending – which requires that the Financial Conduct Authority is satisfied that the firm can begin lending again – and Amigo raises at least £70 million of financing within 12 months of the scheme effective date from external sources.

If both of the conditions under the preferred solution are met, £112 million in cash will be available in the scheme fund within 10 business days for payment to creditors whose claims are assessed and found to be valid:

• £60 million, having been paid into the scheme fund within five business days of the scheme effective date;

• £37 million, having been paid to the scheme fund within nine months of the scheme effective date; and

• £15 million, funded from the proceeds of the new finance raised.

The costs of implementing the preferred solution will be paid for separately by Amigo outside of the scheme.

Amigo has also agreed that the total net new lending under the new business scheme will not be more than £35 million until the conditions have been met and the £112 million has been paid into the scheme fund.

If either of the conditions are not met, the initial payments of £60 million and £37 million that were paid into the scheme will be returned to Amigo to be dealt with under the terms of the fallback solution.

Cash returns to creditors with valid claims in the preferred solution are currently estimated to be 42 pence per £1 claim.

The fallback solution does not have a fixed cash amount to pay valid claims. Instead, Amigo’s assets will be collected over time and cash payments will only be distributed to creditors from any assets left in Amigo, after meeting the costs of operating Amigo’s business in its wind-down and after repaying its current debt financing arrangements provided by the bondholders.

Amigo owes £234 million under the bonds, which carry an interest rate of 7 5/8% per year. As Amigo has given security for its debt under the bonds, holders are entitled to get paid in full before any of the customers who are owed compensation will receive anything.

Wind-down scheme

The company said the wind-down scheme has similarities to the fallback solution under the new business scheme, including the process of how cash would be collected from Amigo’s loan book; how creditor claims would be submitted; and how the cash collected would be offered to creditors to pay valid claims.

Essentially, the only difference is the timing of when the scheme would take effect and the resulting possibility of either higher or lower returns for creditors between the two.

If the court approved the wind-down scheme, it would take effect straight away. In contrast, the fallback solution would only take effect if the conditions of the preferred solution are not met. This difference in timing could, in theory, lead to a difference in returns for creditors between the two. Returns could either be greater or less in either case depending on how much money was collected and spent.

Cash returns to creditors with valid claims in the wind-down scheme are currently estimated to be 29 pence per £1 claim.

Amigo said its intention is to first ask the court to consider the new business scheme for approval. If the wind-down scheme is approved by the creditors, the court will only actually be asked to approve the wind-down scheme if any of the following three things happen:

• 75% by value or 50% by number of those creditors voting do not vote in favor of the new business scheme;

• Prior to the court sanction hearing and having taken advice of leading counsel, Amigo considers that the new business scheme is unlikely to be approved by the court and therefore Amigo chooses not to ask the court to sanction the new business scheme; or

• The court does not approve the new business scheme.

If neither of the schemes are approved by the court, Amigo will go into an insolvency process, likely through administration or liquidation. Cash returns in this scenario are estimated to be 24 pence per £1 claim.

Bournemouth, U.K.-based Amigo is a guarantor loan company.

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