FundingSecure: Are you a creditor or an investor?
Kathryn Gaw Industry News, News CG Recovery, Duff & Phelps, FundingSecure, Mark Turner
ARE FundingSecure's account holders viewed as investors or as creditors during the administration process? This is a question that is dominating the early post-mortems of the peer-to-peer platform's collapse, and raises serious concerns for existing and future P2P lenders.
Earlier this year, when property-backed P2P platform Lendy went into administration, account-holders were named as creditors, and offered positions on the creditors committee.
However, early signs suggest that FundingSecure's administrators CG Recovery are making a clear distinction between creditors and investors. This distinction will determine how quickly account holders are repaid, and how much money is left to refund user accounts.
"A creditor for example would be their landlord who is owed rent," said Mark Turner, a managing director at Duff & Phelps' compliance and regulatory consulting practice in London.
"With Lendy, we saw that some investors were being referred to as creditors so I think that is a fundamental determination.
"That's fundamentally important because if you have invested in a good loan, if you are an investor you will get your money back. If you invest in a good loan and you're a creditor you may not, because you'll be pooled with all the others."
CG Recovery has already said that it will be contacting creditors with more details within eight weeks. All creditors will receive a letter with access to a website portal from where they will be able to download the administrators' proposals.
However, the administrators have addressed investors separately, saying that they will be receiving updates directly via the email addresses previously provided to FundingSecure. This suggests that they will be treated differently to creditors and will not necessarily be contacted with the same proposals.
Turner pointed out that FundingSecure's model may mean that account holders are linked directly with each individual loan on a P2P basis, which could lead to them being defined as creditors.
However, he added that "this may be subject to a legal opinion as well whether each individual lender is basically a creditor of the company overall or whether they are taking them on a loan by loan basis."
When the dust settles on FundingSecure's collapse, the administrator's treatment of investors will be closely monitored by all P2P account-holders, who will want to know exactly where they stand if the worst-case scenario occurs.
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