Collateral UK – Administration Update

 

A replacement of administrator

Collateral UK voluntarily entered administration on the 26th of February 2018 initially appointing an administrator by the name of Refresh Recovery. This appointment was quickly contested by the regulator (FCA) which paused the administration just a few weeks in to the process. After a court hearing on the 27th April 2018 Refresh Recovery (RR) were indeed removed from the administration of Collateral UK and were replaced by administrators BDO. The official reason given for the challenge in the appointment of the administrator, was that an appointment had to be authorised by the regulator (FCA), in this case the appointment was not authorised, therefore invalid. Refresh Recovery have subsequently filled for administration their-selfs on the 18th of July 2018.

 

The new administration

Once BDO were confirmed as administrator they set up an investor/borrower porthole for the release of relevant information. This includes any major progress in the administration process as well as periodic general FAQ’s, this information is publicly available to anybody who wishes to view it via the links above. On the 25th July 2018 it was decided the best way forward for the interest of lenders was to set up a Creditors Committee. This is a committee of at least three but no more than five individuals involved in the administrated company from a creditors perspective (in this case lenders). Thirteen nominations were received meaning a voting round had to be carried out to choose the maximum of five representatives. The five selected members of the Creditors committee were confirmed on the 23rd August 2018. There has been no further official update since.

 

The talk about town

Much of anything else released in the public domain about this administration at this time is potentially tinged with personal spin and interpretation. So I’m going highlight some of these rumours and attempt to put them in some kind of perspective.

Firstly there is the proposed administration cost, RR quoted an initial upfront fee of £48’000, sounds reasonable. BDO have quoted circa £550’000, now before you cause yourself an injury by falling off your chair, think about it. Collateral UK had quite an extensive loan book stretching across much of the country, now one might reasonably expect each of these developments would require at least one if not more site visits to ascertain the validity and state of the security to the attached loan. The work hours and travel expenses alone in performing this task would probably eat up much of the original RR quote. Then there are to name a few : lender communication expenses ; borrower communication expenses ; costs of maintaining the communication porthole ; costs of conducting potential sales of loans and parts of the business as a going concern ; costs of enforcing a security to gain a recovery ; compliance costs ; other legal costs. I could go on but when you actually consider the shear complexity of the Collateral UK loan book and the company as a whole, you could as lender start to think maybe you had a lucky escape from RR with a grossly underestimated administration cost.

The initial £48’000 quoted by RR for the administration was paid upfront before the legal challenge to the appointment. It has been rumoured but not confirmed in an official capacity that this fee was reimbursed back in to the administrated Collateral UK company. I’m inclined to believe this is probably the case as the appointment was found to be invalid by court process and a condition of the court ruling would likely have been the reversion of any fees paid.

There is another rumour around an approximate sum of £300’000 being removed from the company accounts at the directors discretion in the weeks leading up to the collapse of the company. This is by the far the most salacious rumour as it could well be considered embezzlement.

Definition of embezzlement

ɛmˈbɛzlm(ə)nt/
noun
  1. theft or misappropriation of funds placed in one’s trust or belonging to one’s employer.

If, and it’s a big if, this was the case then embezzlement is of course a criminal offence. That in itself could well be leverage enough to return the funds if this has indeed taken place.

I have seen a figure banded about referring to a deficit between the loan book assets and lender/creditor/administration liabilities. With the loan book being valued at approximately £17.5 million and liabilities approximately £18.5 million leaving a deficit of approximately £1 million. Now i have no where near enough information to even attempt to explore this claim and I recall this was a claim voiced early on based on the initial release of preliminary figures. All I would say if that was indeed the case, it would equate to a potential 94.6% recovery, could be a down site worse.

 

Conclusion

Finally, where I stand personally on the state of the administration as an investor (lender). Yes its frustratingly slow and as investor I have ‘dead’ money tied up in the administration. Looking at it from the administrators side, this is undoubtedly a learning experience for them, all previous P2P company collapses have been tiny in comparison. If a traditional retail company with 2’000 employees collapses the administration is performed using well tested and a known legal processes and principles. The employees will then be compensated against liabilities evenly with what ever assets remain beyond the settlement of priority creditors (usually no more than a few dozen). This process can usually be wrapped up in 6 to 12 months.

With Collateral UK that equation is turned on its head, the company it’s self has a few employees but 2’000 (can’t recall the exact number but i think its broadly right) creditors/lenders. In the retail situation employees would tend to disproportionately loose out compared to creditors. In this situation maths would dictate that creditors would lose out somewhat because they are more exposed (there are more of them). Employees could stand to loose close to everything.

So I’m at least expecting a minimum of two years before anything close to a resolution (spring 2020). In terms of recovery, it’s a guess at this stage, like everybody else, but I would expect at least a small trim, anything better would be welcome news.

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