LCF Compensation Scheme Details Revealed

The government have finally revealed the details of the compensation scheme for investors in the failed mini bond company London Capital and Finance. The company was shown to be a Ponzi scheme by the administrators as new investor money was being used to pay interest to existing investors and loans were being made to companies linked to the directors of the company.

The announcement by the government has clarified many of the questions raised after the scheme was announced and gives the information to allow investors to decide if they want to accept the compensation offer or wait for the administrators to recover funds from the few remaining solvent investments made by LCF.

The details confirm that by accepting the compensation offer investors will give up all rights to any recovery from the administrators and that the FSCS will receive any money that is recovered on their behalf. This is not surprising as it recoups some of the cost of the compensation scheme.

It also explains that investors do not need to take any action to receive their compensation and will be contacted by the FSCS with their calculated compensation amount.

The calculation follows one of the examples I outlined when the scheme was originally announced. I'll produce a calculator to help investors work out the amount they'll get but it will be 80% of the amount invested, minus any interest payments up to a maximum of £68,000. Any payments already made by the administrators will be deducted from this to give the final compensation amount.

For an investor with £20,000 in LCF bonds who received no interest and only 2.5% from administrators they'll get a total of £20k X 80%=£16,000 minus the £500 (2.5%) from administrators so £15,500. This is a far better outcome than the predicted administration proceeds of up to £5000.

This does mean that investors who have invested substantially above the FSCS limit may want to consider whether waiting for the administrators to recover funds will be a better option financially. Unfortunately this option is somewhat of a gamble as the recovery is unknown other than the estimate of "up to 25%", there is still no timetable for the payment of any funds recovered and this is now likely to be a much longer process if very few investors are involved. FSCS/government may be prepared to wait to recover the maximum amount from the assets remaining and will be able to massively outvote the few investors left in any decisions required.