Serious questions have also been raised about Lendy’s anti-money laundering practices, the transfer of ownership of the firm’s premises, and how it was remunerated for administering the platform and loans.
Director Liam Brooke’s (pictured) conduct in the lead-up to the administration is also being reviewed following legal requirements.
Lendy investors have been warned they are likely to receive just half their money back from the outstanding loans – and some could get almost nothing back.
Overall, before costs are deducted, investors are expected to receive an average of around 57p and 58p in the pound from the development finance and bridging loan books respectively.
However, individual loan recovery rates could range substantially between 7p to 100p of the capital provided by investors.
Development values ‘substantially lower’
The estimates were released by administrator RSM to creditors and revealed the shocking state of the loan books.
In total, Lendy has 54 outstanding bridging and development finance loans worth a combined £152m, with 36 in insolvency proceedings.
The development finance book has 25 live loans worth £116m and a total gross development value (GDV) of £226m, with 14 in the insolvency process.
However, the administrators warned that many of these assets are only partially completed and “consequently the current valuations obtained by the company are substantially lower than the reported GDV values”.
Of the remaining 11 loans, more are expected to enter into insolvency, but the administrators believe it should be possible to refinance elements of the remaining portfolio.
Bridging book ‘undermined’
The bridging loan book makes similarly grim reading, with 29 live loans worth £36m but 22 of these are in insolvency proceedings.
The loans were secured against assets valued historically at £81m, however the administrators again warned that current reported values are significantly lower.
“Some of the schemes were dependent on subsequent securing of development finance and planning permissions,” the report said.
“The inability to secure new finance to refinance the Lendy loan or secure appropriate planning consents appears to have undermined the rationale behind some of these loans.”
The administrators added that there was a notable concentration of assets in Scotland with £10m secured against Scottish assets, and they also expect some of the seven currently solvent schemes will be dragged into insolvency.
Payments and transfer of property
The administrators also raised concerns about how the ownership of the company’s offices was transferred in October 2018 along with other dividend payments which are under investigation.
“We are investigating the sale and transfer of the company’s trading premises to a fellow group company, Brankesmere Limited, which was transferred in October 2018 for £861,929, as well as the other distributions made to the company shareholders,” the report said.
“In addition, various other matters have been brought to our attention from our discussions with Investors, creditors and the FCA.
It added: “At this stage, due to the confidential nature of these investigations no further information can be provided to the wider body of creditors and investors so as not to prejudice our position should we need to issue court proceedings.”
And investigations are being undertaken into how Lendy was paid for administering the platform and loan book, despite there not appearing to be any formal agreement to do so.
Anti-money laundering compliance
Issues with the anti-money laundering (AML) process were further highlighted by RSM.
“Before the joint administrators release any funds to investors they are required to ensure compliance with appropriate AML legislation,” the administrators said.
“An initial review of the company’s existing AML and client take-on procedures has noted certain deficiencies that have required further investigation.”