On 30 January 2019, London Capital and Finance Plc (LCF) appointed Finbarr O’Connell, Adam Stephens, Henry Shinners and Colin Hardman of Smith and Williamson LLP as joint administrators. These appointments have been made by order of the court. The administrators’ function is generally to act in the interest of the company’s creditors as a whole, and this must be done as quickly and efficiently as is reasonably practicable.
The joint administrators will contact all affected parties in due course, including those borrowers which LCF loaned money to and bond holders. For more information about the administration please:
Call UK: 0800 046 7006 or International: +44 (0)20 3281 1808
Email: [email protected]
Write: FAO: The Administrators London Capital & Finance plc (in administration)
c/o Smith & Williamson LLP
Who appointed the joint administrators?
The directors of the company received independent advice and determined that the company was insolvent. They then appointed the joint administrators. The FCA consented to the appointment of the joint administrators.
I am a bond holder, will I get my money back?
The company’s estate will be dealt with by the administrators, who will assess the company’s assets and put forward proposals as to how they will proceed with the administration. The joint administrators will write to you with their proposals for the administration within eight weeks of appointment, this will include the process of how you make a claim.
Do I need to use a third party to get my money back?
If you are approached by a company offering to help you recover your money, you should proceed with caution. For the vast majority of LCF’s bond holders, there will be no benefit in involving a third party in making a claim. If you have any questions about the administration process, please contact the joint administrators using the contact details above.
Being Alert to Scams
All customers should remain alert to the possibility of fraud. If you are cold called by someone claiming to be from LCF or Smith & Williamson, please end the call and call them back using the number above.
What is a mini-bond?
A mini-bond is an unlisted debt security, typically issued by small businesses to raise funds.
Mini-bonds can be attractive to investors because of the interest rates on offer. However, prospective investors need to understand the associated risks. Mini-bonds are usually illiquid as they are not transferable, unlike listed retail bonds, which they are often compared to. They can also be high risk, as the failure rate of small businesses can be high. Additionally, as with the issue of other non-transferable corporate bonds, there is no Financial Services Compensation Scheme (FSCS) protection if the issuer fails.
What concerns led to the FCA to take action against LCF?
London Capital & Finance PLC (LCF) was the issuer of mini-bonds which it stated it used to make loans to corporate borrowers to provide capital for further investment. The FCA believes there are approximately 14,000 customers invested in its bonds.
Issuing mini-bonds is not a regulated activity so firms issuing mini-bonds do not need to be authorised by the FCA. However, when an authorised firm approves a promotion for mini-bonds, they must ensure that it is in line with FCA rules that the financial promotion is fair, clear and not misleading. This means, for example, that risks are appropriately communicated.
On 10 December 2018 the FCA directed LCF to immediately withdraw its promotional material on the basis that the way in which it was marketing it bonds was misleading, not fair and unclear. The FCA’s concerns included the fact that LCF bonds were being marketed as ISA eligible when they were not – for further details see the FCA’s Second Supervisory Notice dated 17 January 2019. The FCA immediately commenced an investigation into the firm’s promotions.
In order to further protect investors, and because the FCA had serious concerns about the way the firm was conducting its business, on 13 December 2018 the FCA imposed certain requirements on LCF including (a) not to dispose of or deal with its assets, save in limited circumstances (b) to cease conducting all regulated activity and (c) not to communicate any financial promotions. These requirements were imposed pursuant to a voluntary application by LCF.
Serious Fraud Office
On 18 March 2019, the Serious Fraud Office announced that they had commenced an investigation in to various individuals associated with LCF. The investigation was opened as a result of the FCA referring the matter to the National Economic Crime Centre (NECC) which is based at the National Crime Agency’s London HQ and includes officers from the Financial Conduct Authority, the NCA, HM Revenue and Customs, the City of London Police, the Serious Fraud Office, the Crown Prosecution Service and the Home Office. The FCA’s investigation into these matters will proceed jointly with the SFO’s.
Did LCF need to be authorised?
Firms are required to be authorised by the FCA if they undertake any of the regulated activities listed in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the Order). Authorised firms are subject to a set of overarching principles and rules issued by the FCA. These principles and rules have to be followed when an authorised firm is carrying on regulated activities in the UK. The Order excludes certain activities from its scope.
Issuing mini-bonds does not normally involve the carrying on of a regulated activity. Therefore, LCF did not need to be authorised to issue the mini bonds but did need to be authorised to issue the promotion of the mini bonds.
Will investors be able to get compensation from the Financial Services Compensation Scheme?
Issuing mini bonds is not a regulated activity, just as is typically the case with other corporate bonds. This means investors are unlikely to have access to the FSCS in the event the firm is declared in default, but this would be a matter for the FSCS to determine.
The FSCS may only compensate protected types of claim. If the defaulting firm generated protected claims, e.g. from unsuitable advice on investments, the FSCS could compensate eligible claimants, provided all relevant criteria are met.
Will investors have a tax liability as the products are not ISA eligible?
On the 19 March 2019 HMRC contacted bondholders to inform them that they had decided that the Innovative Finance ISAs offered to investors by LCF did not comply with the requirements of the ISA regulations. The mini-bonds offered by LCF were not qualifying ISA investments because they were not a transferable security.
ISA account holders can contact HMRC by email at [email protected] with any questions relating to their LCF ISAs.
On 1 April 2019 the FCA announced that the Board had taken a decision that there should be an investigation by an independent person into the issues raised by the failure of London Capital & Finance (LC&F). The investigation should cover questions in two areas:
- whether the existing regulatory system adequately protects retail purchasers of mini-bonds from unacceptable levels of harm
- the FCA’s supervision of LC&F
On 2 April 2019 Charles Randell, FCA Chair wrote to the Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee to provide further details on the Board’s decision.