Collateral Peer To Peer Closes Its Doors – My Thoughts

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collateral p2p shutdown

Collateral Peer To Peer Closes Its Doors

** Updated September 28th, 2018 **

You can read Collateral updates on BDO’s website here.

Latest Update

A Creditors Committee meeting occurred at BDO’s (the administrator) offices on September 26th, 2018. I wasn’t present for the meeting but I have received feedback. (My comments are in brackets):

  • All of the data from the platform has been recovered so all the lenders’ loan balances and the information is safe (I hope BDO will formulate this date into a frontend web application in order for lender’s to access at some point)
  • BDO appears to be handling the loan book in a professional manner. An undisclosed amount of loans have already been repaid with both capital and interest
  • All of BDO’s fees must be approved by the committee. (These fees will be significant)
  • There are talks of distributing recovered funds on a loan by loan and tranche by tranche basis. There is no timeline for this
  • BDO is taking a hard lined approach on keeping the loans in good standing. They are willing to legally enforce default proceedings wherever necessary

While it’s still hard to determine how much of the loan book can be sold to repay lenders’, I found the meeting feedback to be positive.

Collateral has been court-appointed into administration due to an FCA regulation permissions lapse assumption.

Collateral has ceased trading less than two years of opening its peer to peer lending doors in May 2016. Collateral received strong lender support from its beginnings as a jewellery pawn-broking style lender lending to its maturity as a property development and bridging loan facilitator. I had high hopes for Collateral and was ultimately shocked to hear about its shutdown.

For full disclosure, I have 5% of my net peer to peer lending invested in Collateral’s loans.

Who Is Administering Collaterals Affairs And Loan Book?

BDO: https://www.bdo.co.uk/en-gb/collateral-companies-in-administration
Shane Crooks & Mark Shaw (They will not take telephone enquiries)
investorcollateral@bdo.co.uk

On the 27th of April 2018, the Financial Conduct Authority (FCA) successfully persuaded the court system that Refresh Recovery’s appointment as Administrator was “invalid”. BDO was named as the new Administrator.

What The Heck Happened To Collateral??

I previously called Refresh Recovery (Collateral’s previous Administrator), for an update and here’s the information I can share.

Collateral was supposedly forced into administration by the Financial Conduct Authority for operating without FCA permissions. Collateral believed they were operating under FCA permission when in fact they were not which makes me question the competency of the people in charge. Collateral will not be opening their doors again. It is certainly an unusual turn of events.

The newly appointed Joint Administrators, BDO, are officers of the court and will work to act in the interest of Collateral, creditors, lenders and borrowers. There is no word on whether BDO will be able to achieve full repayment of capital and interest owed to lenders.

Collateral was operating profitably and had an excess of client account funds. Unfortunately, £390,000 of those funds were withdrawn by Collateral as “company profits” starting in February 2018. Hopefully, those funds can be tracked and recovered.

Are Lenders Considered Collateral Creditors?

The administrator has now an initial view that all lenders will be treated as creditors. This is because Collateral’s company acting as the lenders’ agent and issuing loan agreements, was deemed as FCA unauthorised and therefore, loan agreements with unregulated agents are unenforceable.

Creditors Committee

BDO has formed a five-person Creditors Committee with members being voted in by investors and creditors. Here is information on each elected member:

Mr Adam Bunch
An entrepreneur based in London who has been investing in P2P since 2014 both as an individual and through his Limited company. He has exposure to every type of loan on the Collateral platform ranging from jewellery to property development. His aim to represent the interests of all investors across the entire loan book

Mr Peter Lawrence 
Qualified Chartered Accountant for over 30 years, and former Licenced Insolvency Practitioner. Has acted as Administrator, Receiver, Liquidator and other office holder in over 100 cases, also served on many Creditors’ Committees of other office holder’s cases on numerous occasions. Was a London partner in a large accountancy practice.

Dr Steve Wozniak 
A research scientist with a fortunate name involved in many aspects of buildings technology and economics. An expert witness in court cases. He helped to formulate some British Standards and parts of Building Regulations. He has twice given evidence to Select Committees of Parliament, once as a government scientist and once privately. Steve was a BTL landlord before diversifying into P2P where he has major investments in 10 platforms (including 1% of the Collateral loan book).

Mr Graham Martin of BondMason Client Limited
“BondMason Client Limited has extensive experience in investing in the asset classes to which the Collateral Companies are involved. The company is willing and able to devote its resources to the Committee thereby representing the interests of other creditors and assisting the Joint Administrators where applicable. The management team at BondMason have experience of sitting on formal and informal creditors’ committees both in the UK and Internationally.”

Mr Richard Winslow 
He is experienced business analyst and decision maker who has worked with BDO in the past and has a good understanding of what to expect from BDO to move forward on investors’ behalves. Richard is also a Collateral investor.

What Happens Next?

(See Latest Update section at the top of the page). BDO continues its full investigation and audit of Collateral. This process could take a long time as BDO will need to understand Collateral’s loans, investor funds, and track financial transactions. BDO will continue to collect loan repayments on behalf of lenders but there is no word on whether or not these loan repayments will be distributed to lenders.

Since Collateral’s website was taken offline prior to the company going into administration, the data showing lenders’ holdings in each loan held was missing from third-party computer servers. On June 23rd, 2018, BDO sent me a Proof of Debt Form which correctly listed the total amount of loans I held through Collateral’s platform. This means BDO was able to retrieve loan data which is positive news. Each lender will hopefully receive an accurate account of their total owed debt.

BDO could work with other peer to peer lending companies to sell Collateral’s loan book although I think this would be a tricky process. Having said that, peer to peer lender Huddle recently offered one of Collateral’s loans to its lenders but it was removed.

Isn’t Having An Administrator In Charge A Good Thing?

Yes. Administrators are put in place by the courts to oversee company failure or insolvency. The FCA stepped in to protect the interests of both lenders and borrowers.

Fees and administration costs are becoming a major issue. BDO’s fees as of June 21st, 2018 are already £36,463.23 and the administration process is still in its infant stage. How expensive will the legal and administration fees be in order to manage the loan book and continue the payment collections? Things could become markedly worse if additional defaults occur. The estimated Administration fees are £500,000. This money will likely be paid from Collateral’s estate.

Is There Any Money Left In Collateral And What Happens To This Money?

According to reports, Collateral held funds totaling £395,404 which included deposits totaling £370,553 from 777 people. Collateral collected a full loan terms interest in advance so that may bode well for lenders if Collateral acted honestly and correctly. This and any other uninvested money should be held aside and used to pay the administrators fees and to repay lenders.

In February 2018, these funds were withdrawn from the client account. A full investigation is being conducted to find out what happened to these funds.

What About The Loan Book?

Refresh Recovery reported that Collateral had outstanding loans of £15,624,628 secured by property valued at £23,552,400.

What About Other Assets?

Refresh Recovery reported that Collateral has outstanding loans of £1,678,071 secured by assets valued at £2,478,336 These assets include jewellery, vehicles, antiques and art. These assets are being held by the administrator.

Could Another Peer To Peer Company Step In?

Doubtful but Bondmason has offered to assist Collateral. You can read more about this here.

According to Refresh Recovery, it has received more than 15 expressions of interest in buying all or part of Collateral’s loan book but none of these materialised.

It would be expected for other peer to peer lending companies to step in and help. It’s in the sectors best interest for Collateral’s situation to be handled correctly to provide investor confidence in the wind-up process. If not, lenders investing through other peer to peer companies might run for the exits, creating a panic.

What Are My Personal Thoughts / Should Investors Be Concerned?

Anytime a company closes its doors is a serious cause for concern. The more information is revealed, the more I’m troubled. Firstly, Collateral’s website stated the shutdown was an IT technical issue and that the site would be back up “shortly”. This was the first obvious untruth.

After reading the April 27th, 2018 court discussions including disclosure of almost £400,000 being withdrawn from Collateral’s client bank accounts directly into the accounts of one of Collateral owners, I think this administrator replacement was a good move by the FCA designed to protect investors. It remains to be seen how much of lenders’ funds will be returned.

At first, I was concerned how the FCA was stepping in to impose their choice of the administrator but have now changed my opinion as it turned out the FCA knew more about the situation and was acting in the best interests of investors, lenders and creditors.

When I first decided to invest through Collateral, I had communicated with one of the owners and through my research, I believed the management was competent and the company was built to succeed. I studied Collateral for some time before I invested and knew the risks of investing, being that it was a smaller peer to peer lending company with no operating history. However the returns I was receiving outweighed the risks.

I would like to believe that Collateral’s owners were operating their business with integrity but true character is tested when the poo starts hitting the fan. It will be very interesting to discover what happened to the money that was withdrawn from client accounts. More will be revealed after BDO’s investigation.

As much as it pains me to see a peer to peer company go out of business, I knew it would happen one day. I think it will trigger other companies into cleaning up their acts and making sure all their legal, regulatory, data and financial obligations are in order.

Diversify Diversify Diversify!

Collateral’s closure is a good reminder of how important diversification is within any investment sector. This is the reason I invest through multiple different peer to peer and crowdlending companies. If one fails, it doesn’t have a hugely detrimental impact on my overall portfolio.

What Can We Learn

Lenders are now learning that assumptions could be costly. I as a lender assumed that Collateral was being run as an FCA regulated company and that all data was being held securely and backed up. Neither of these assumptions proved to be true.

It would certainly be prudent for lenders investing through other peer to peer and crowdlending companies to make sure they hold their own loan information in case the worst happens.

Collateral’s situation is extremely complicated and will take time to be settled.

I will update this page as I receive more information.


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** This page is for information purposes only and should not be considered investment advice. Opinions expressed on this page are mine only. All information was deemed to be correct at the time of writing. Please consult legal advice before taking any course of action. Peer to peer lending contains risks so never invest more than you can afford to lose. **