London Capital Finance Compensation Scheme Announced - How Much will be paid out to investors?

By J Drew -

 The UK Government has today (19th April 2021) announced a new compensation scheme for investors in London Capital & Finance (LCF) where they will be compensated up to 80% of their investment to a maximum of £68,000. This ties in with the FSCS maximum compensation of £85,000 for failed savings & investment schemes.

Any payments already received from the administrators (the 2.5% dividend) and any interest payments will be deducted from the compensation payments made. The government have stated that they expect payments to be completed within 6 months of the law enabling the compensation being passed in Parliament..

Some worked examples are below:

Investor paid £10,000 to LCF just before they collapsed. No interest payments received from LCF.

    Compensation from government = 80% x £10,000 = £8000.

Investor paid £10,000 to LCF and received their 8% interest for a year so a total interest of £800. 

    Compensation from government = 80% x £10,000 = £8000 minus interest already paid  of £800 so total of £7200

Investor paid £10,000 to LCF and received their 8% interest for a year of £800 plus 2.5% dividend (£250) from administrators. 

    Compensation from government = 80% x £10,000 = £8000 minus interest already paid  of £800 and £250 dividend so total of £6950 compensation

Investor paid £20,000 to LCF and received 6.5% interest for 1 year (total £1300) plus 2.5% dividend (£500) from administration.

    Compensation = 80% x £20,000 = £16,000 minus £1300 interest minus £500 dividend so total is £14200 compensation.

Investor paid £100,000 to LCF and received no interest payments

    Compensation from government = 80% x £100,000 = £80,000 but because cap is maximum of £68,000 then they will receive £68,000 compensation

Investor paid £100,000 to LCF and received 2 years interest payments of £8000 per year (total £16,000)

    Compensation from government = 80% x £100,000 = £80,000 but capped at £68,000 minus £16000 interest paid so £52,000 compensation (this figure might be higher if they government apply interest deduction before the maximum compensation figure derived which seems unlikely as someone investing £100k would get more back than someone investing less)

The full government statement is here https://questions-statements.parliament.uk/written-statements/detail/2021-04-19/hcws922



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