Former customers of London Capital & Finance (LCF), one of Britain’s biggest recent financial mis-selling scandals, are preparing to challenge its administrators over the scale of fees being charged to handle the insolvency.
Sky News understands that a number of creditors have been angered by the estimated £7.2m that Smith & Williamson intends to charge for the period from LCF’s collapse in January 2019 to the second anniversary of the company’s failure early next year.
LCF’s demise came after concerns expressed by the City watchdog about its business model, which involved the – effectively unregulated – sale of minibonds to thousands of customers.
The company signed clients up to fixed-rate ISA products with a guaranteed 8% rate of interest, with investors’ money then invested in minibonds used to make loans to small businesses.
At the time of its collapse, LCF owed more than £235m, with many customers given the shattering news earlier this year that they are unlikely to be eligible for compensation.
According to an update last month, £13.5m has been paid out by the Financial Services Compensation Scheme, but administrators are expected to recover only a fraction of customers’ money.
The Serious Fraud Office and Financial Conduct Authority are investigating the conduct of several individuals connected to LCF, while the company’s auditors are also facing regulatory probes.
The scandal prompted the appointment of Dame Elizabeth Gloster, a former High Court judge, to review the FCA’s regulation of LCF.
Dame Elizabeth said in May that she was targeting the end of September to complete her report.
The fees of Smith & Williamson and Mishcon de Reya, the law firm assisting with the administration process, were last updated in a progress report published earlier this year.
Any further increases in those fees will require the approval of a creditors’ committee, the progress report said, and some creditors are understood to be resistant to any such rise.
Henry Shinners, partner at Smith & Williamson LLP and joint administrator of LCF commented: “We are transparent about all costs incurred in the administration of London Capital & Finance (LCF) and the costs are disclosed, in full, in progress reports provided to creditors every six months.
“Costs in the administration of LCF are driven by the level of investigation work required in having to sift through over two million documents and track tens of thousands of transactions to work out where bondholders’ money has gone and seek to recover it.
“Legal challenges by parties connected to London Oil & Gas and LCF, which we believe have been unnecessary and designed to obstruct our work, have also added significantly to the costs.
“However, we firmly believe recoveries for bondholders from this work will significantly outweigh the costs.”
FRP Advisory, another City firm, was also brought in to work on the insolvency as a conflict administrator.