British P2P site Collateral UK is closed down by regulator

The administrators recently provided each Collateral UK investor with an update on the situation. In our view, the most critical statement made was confirmation that all loan investments are ring-fenced. All payments made by borrowers will be passed onto each investor with a participation in the loan. The administrator is also looking at options to potentially continue the business. However we think the chances of this taking place are very slim. More likely, the loans will be transferred across to another P2P platform, who may be able to service the loans efficiently. This would also help to grow the investor base of another platform. 

One outstanding question remains about the cash that was held on behalf of investors by the platform. Will this be repatriated to each investor, or form part of the estate of the company to be allocated to creditors? We understand that the administrators have provided some assurances that this cash will be repatriated to investors, as the funds sit in a separate ring-fenced account. This is positive news. We would have expected such funds to be ring-fenced properly.  

One concern we have, however is that during February, Collateral UK changed its terms and conditions to say that “if Collateral was to become insolvent then any money held by it would not be held in accordance with the FCA’s client money rules, which require in particular that client money is held separately from a firm’s own money, and it is likely you would rank as an ordinary unsecured creditor. Ordinary unsecured creditors rarely make any recovery on insolvency.” We hope that these changes to the terms and conditions have no impact on the legal position of Collateral UK’s investors. Particularly as the changes to the wording were made without any consultation or explicit notification.