TrustBuddy

Site is shut down. Rights issue cancelled. Matter referred to police. More anon.

From what is reported, there is £23m lent to borrowers and £2.9m missing.

The borrowers have been told to continue making payments. If none of the borrowers default, then the £23m of capital should be returned to lenders. In addition, there should be enough interest accruing on those loans to cover the £2.9m that is missing.

That means a net return of zero, which is about the same rate you get leaving the money in the bank.

I wonder if the real scandal has yet to happen. How much will the administrators charge to wind down the loan book ?

It will have really huge negative impact for P2P lending reputation. 

Would it be too weird if a bunch of people got together to raise the money to buy it, via something like kickstarter ?

The first P2P funded P2P platform? By the people, for the people and all that ...

Stories 1 and 2 via machine translation about the bankruptcy administrator's plans:

1. Lenders are to get all of the money in the client fund account, not other creditors. Initially theere was concern that much client money was not in properly segregated client accounts held in trust.

2. Most of the value to lenders is in €300 million of loans, not in the client fund account and it is expected that the value is only about 20% of this because of the large number of poor quality loans. They believe that the best way to proceed is to sell the whole loan book to the highest bidder and were seeking comments from lenders until 17 November after an email a week ago. Some lenders did get in touch saying that they wanted something else and the sale process is currently on hold.

3. They believe that if the loan book is not sold quickly it will lose value. This causes me to wonder whether they have chosen to keep any of the debt collection staff employed, giving me the impression not, not even for the month or three from insolvency it would take to chase even the most recently made short term loans where borrowers may be just trying not paying to see what happens.

4. Five to ten potential buyers for the platform software with value likely to be in the tens of millions of Crowns. Ten million Crowns is about £750k.

So far I think that the administrator may well have made a costly for lenders mistake by not keeping debt collection staff employed for the first few months during which most of the payday-type loans would become due, though many were previously expected to take three to four months to fully repay if given the previously normal few extensions for a few months on request. it's pretty natural for many vulnerable borrowers to consider just not repaying if not chased and if in need of more time, as seemed to be normal business practice.

No statistics on this but at least for payday-type lending it may well illustrate the practical importance of a viable living will approach that keeps debt collection activity going as normal for at least a few months. Even for longer term lending it's very likely that at least keeping debt collection running as normal for the first six or so weeks will help a lot, by quickly following up on those who try it on at the first payment after they learn of the company failure.

I don't know if it's possible to write employment contracts for key debt collection employees that will keep them working for a few months after insolvency but if it can be done it seems like something that should be incorporated into the plans for at least consumer lenders, and probably beneficial also for a while for business lending as well. Maybe a segregated pay pot held in trust for this purpose would do the job if nothing else can?

Same would apply to things like paying providers of automated debt collection phone calls and emails - has to continue for a while after insolvency to stop the try it on issue. Again money set aside in trust might be a way to get it done?

How a business is run when it goes into administration is very much down to the administrator and is independent of any contracts that might be in place for employees. I have been involved directly and indirectly several administrations and they have been handled in very different ways. In one the whole workforce was kept on as the Administrators quickly found a buyer, in another key production staff were kept on in order to complete and ship WIP plus they were offered a bonus if they stayed on, and in yet another everyone was laid off and the staff were given individual appointments for when they could enter the premises and collect the personal belongings. 

>>This is what has happened in the Madoff recovery, with many who made money early on being compelled to return their false profits to help pay those who didn't exit. So even getting out in time might not be enough to protect an investor in such a situation.<<

Good if this applies to the former directors who sold their Trustbuddy shares at the peak of the market.