London Capital Finance Administrator Update - Summary Jan 2020

The administrators of LCF have issued their six monthly update on their progress. It's a lengthy document running to 50 pages so I thought it might be worth giving a summary of their findings and my thoughts on them so that bondholders have an idea of the key points made. As always with my blog these are my takeaways from the document, feel free to read it in full yourself if you want to confirm the details.

The administrators have given an outline of their costs so far and the total they expect by January 2021. This total comes in at £7.2 million which is slightly lower than their previous estimate. It sounds a lot and obviously is but there is a huge amount of work to track down assets in a company that has apparently deliberately tried to disguise the destination of money received from bondholders.

It seems clear from this report that the Administrators comments in February 2019 that the value of loans matched bondholder funds and assets in place were very wide of the mark.  If I could tell as a complete outsider without access to company information then the administrators should easily have seen the problems. This isn't the kind of schoolboy error that you'd expect from professional, experienced insolvency practictioners.

From the money recovered so far bondholders will receive 5% of their investment back during March 2020. So an investor with £10,000 bond will receive £500.

Asset Backed Loans?

The confirmation of the lack of assets backing the loans is hard to comprehend and goes against everything that LCF claimed in their  prospectus. A summary of the key points below - some are confirmation of previous statements

• Loan for £12m to company with no bank account - no recovery expected (FS Equestrian)
• Loan for £32.6m with no documentation or purpose identified (London Group LLP)
• £18m loan made to cover interest payments on other loans (unclear if any recovery)
• £12 million loan made to company with no assets (Cape Verde companies)
• 25% of bondholders funds paid as commission to Surge Financial

Loans without Agreement?

Overall there is additional detail given on all of the loans made by LCF to the different companies in the various groups. One shocking point made is the lack of documentation for loans issued. It appears that the directors of LCF (and their proxies) were spreading money around like water and had little regard for checking where it was going or recording the activities. Perhaps this was deliberate to ensure there was no paper trail to follow them when LCF went bust.

There is mention of future legal action and the SFO but to protect the investigations little detail is given. The scale of the suggested misappropriation of funds would indicate that these actions are likely to take some time to complete but are quite shocking in their scale.

Sickness and Ignorance

Andy Thompson, CEO of LCF is still too ill to speak with the administrators. No mention is made of the bondholders who have become ill from the stress and worry of losing their investments though. Other personalities involved seem to have forgotten anything to do with the company or are failing to cooperate in any way. Further legal action is ongoing to get answers from Sean Cubitt who received £12.3 million to his company FS Equestrian - the one that had no bank account!

Andy Thompson - LCF Director prior to his severe illness

There is some fascinating breakdown of the loans made to the 12 borrowing companies much of which backs up exactly the information I produced on this blog back in early January 2019. Compare the diagram on page 42 with the one I produced below. I didn't have the loan details for obvious reasons but the structure was spot on. I doubt those who accused this blog of making it up and scaremongering at the time will retract given the proof now provided.

London Capital Finance Administrator Update - Summary Jan 2020

The summary of the loans made by LCF is below (page 3 of report)

One key statement is the highlighted part above - "we are investigating the very substantial discrepancies which are highlighted"

Money Back?

Aside from London Oil & Gas which looks like it may have some reasonable prospect of recovery of some funds the other borrowers appear to have little chance of getting much if any money back.

Even recovery of money from London Oil and Gas could be only a fraction of the loans made. The total value was £124 million but the actual loans made were only £83 million (down from £88m previously identified by S&W) The missing £41 million relates to the 25% commission paid to Surge Financial.

The possible top end valuation of the shares held by London Oil & Gas in an oil development company (IOG) is approx £57 million. If this is achieved then it would mean that out of the £124 million loan to London Oil and Gas only £57 million was recovered.

Another loan of £32 million to a company called London Group LLP is mentioned as not having any documentation and no identified purpose. It would seem unlikely that this could be recovered. Owners of London Group LLP are Simon Hume Kendall and Elten Barker.

Simon Hume Kendall - London Group LLP

One positive piece of news that doesn't seem to have been reported elsewhere is that a small number of bondholders who transferred money to LCF after the FCA had restricted their activity on 10 December 2019 have had their money refunded in full as it was in limbo with the payment processor.

https://smithandwilliamson.com/media/6517/lcf-progress-report-january-2020-final.pdf