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Thousands of London Capital & Finance investors, promised 8% returns, left in limbo


Another mini-bond bites the dust: Thousands of London Capital & Finance investors who were promised 8% returns left in limbo

  • London Capital & Finance has collapsed into administration
  • The firm sold mini-bonds which are not covered by the FSCS 
  • Previously been investigated by the FCA and had its accounts frozen last month and was told to stop offering its products as they were ‘misleading’

George Nixon For Thisismoney.co.uk

A company that sold mini-bonds and Isas offering interest rates of eight per cent to 14,000 people has collapsed into administration.

London Capital & Finance had its accounts frozen by the Financial Conduct Authority on 13 December 2018 following an investigation by the watchdog.

At the time, the company had raised up to £214million from investors, including pensioners.

London Capital & Finance called in administrators after the FCA had previously investigated it and froze its accounts. Investors haven't received interest since the probe began last year

London Capital & Finance called in administrators after the FCA had previously investigated it and froze its accounts. Investors haven’t received interest since the probe began last year

Three days before that, the watchdog ordered LCF to stop promoting its offers, claiming ‘the way in which it was marketing it bonds was misleading, not fair and unclear.’

According to the FCA, investments in the company’s mini-bonds are unlikely to be covered by the Financial Services Compensation Scheme, raising doubts as to whether investors will be able to get their money back.

Investors have not received any interest since the FCA investigation began.

We warned LCF – and mini-bonds – in September 2017. The company lent money to small and medium-sized businesses, funding that lending through bonds paying between 3.9 per cent and 8 per cent a year.

Smith & Williamson LLP was appointed joint administrators yesterday after being called in by the company directors. 

HOW DO MINI-BONDS AND RETAIL BONDS WORK?

Companies issue bonds as a way of borrowing money to grow or fund their activities, or to reduce their reliance on bank borrowing.

Minimum prices for savers and investors start at a low level – sometimes as little as £100 but more usually from £1,000.

Investors earn interest on the bonds while they hold them. The bonds run out or ‘mature’ on a fixed date in the future when all being well you get your money back. 

A statement on the website of the FCA said that: ‘The directors of the company received independent advice and determined that the company was insolvent.’

A statement from the administrators said: ‘Investors in LCF’s mini-bonds were retail clients who were UK taxpayers and who fall into the category of either high net worth individuals, sophisticated individuals, self-certified sophisticated individuals or restricted investors, as noted on its website.’

One administrator, Finbarr O’Connell, told the Evening Standard: ‘It is early days, but our role will be to work with LCF’s borrowers, staff, the security trustee for the bondholders, the FCA and other stakeholders to ascertain what needs to be done in order to maximise the returns to the bondholders.

‘We are especially focusing on the various loans made by the company to borrowers. 

‘At this juncture, regrettably we are not in a position to return any monies to bondholders.’

Those seeking to get in contact with the administrators can call 0800 046 7006 or email LondonCapital@smithandwilliamson.com.

Have you been sunk by a risky mini-bond, including this LCF one? Get in touch: editor@thisismoney.co.uk 

What are the risks involved with mini-bonds?

The main risk is that the company you loan money to fails and is unable to repay your loan, which has happened in a number of cases that This is Money has reported on in the last few years.

In this instance it’s important to note that this kind of investment is not covered by the FSCS.

If you are tempted, it’s important to read the literature produced to accompany the launch of the mini-bond and fully understand it, and the risks involved.

You should have a good idea of how financially strong the company is before lending your money to them, because if they already have lots of debt and are not profitable there is more chance of them going bust and not being able to pay you back your money.

You should also check on whether the interest payments are issued in cash or in kind, and make sure you are happy with the arrangement.

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