gunnercooke Partner Jeremy Goldring is acting for Lisa Taylor, who was appointed by the Court to be a representative respondent in an application made by Lendy’s Administrators (RSM) to determine how they should distribute the proceeds of assets they have recovered since they were appointed in May 2019.
Andreas Gledhill QC and Carmine Conte were instructed for Ms. Taylor. After a 4 day trial, judgment was handed down 12 August 2021.
Lendy has been in business since 2013 as a “peer-to-peer” lender. Anyone who signed up as a member was offered the opportunity to invest in a selection of loans which Lendy sourced. When a loan became fully subscribed, it went “live”, and the investors in that loan enjoyed a regular payment of quarterly interest, often as much as 12% per annum. At its peak, Lendy was facilitating loans with an aggregate value of approximately £225m.
Following altercations with the FCA, Lendy stopped providing new loans and was placed into administration. RSM continued to collect repayments from borrowers, but often the amount recovered was less than the amount which had been lent.
Many of the investors are pensioners who have invested their life savings. Lendy’s contractual arrangements with them and with the borrowers did not make it clear (a) as between Lendy and the investors, who is entitled to default interest payable by borrowers who had not repaid their loans when due and (b) when the loan proceeds were insufficient to repay investors, how much Lendy was entitled to keep for its own account from the proceeds in priority to the rights of investors. Lendy also altered its business model in 2015, such that the rights of earlier lenders differed from those who invested later (“the Model 2 Lenders”).
RSM were initially advised that Lendy’s rights prevailed, but in the light of concern expressed by Model 2 Lenders in correspondence and via social media, indicated that they would seek the Court’s directions. Ms Taylor had by that time become a focal point on Facebook and, having obtained a grant from CrowdJustice to cover initial legal fees, engaged gunnercooke to assist. Soon after RSM issued the application, a comprehensive list of the legal issues arising was established and it was agreed that Ms Taylor would argue all points which were for the potential benefit of the Model 2 Lenders. If those were to prevail, the outcome for Model 2 Lenders would be substantially improved.
The 12th August judgement by the Court found that:
• No part of the Default Interest belongs to Lendy: it is all the property of M2 Lenders.
• The “waterfall” (whereby anything payable to Lendy from loan proceeds should take priority to amounts payable to M2 Lenders) is unenforceable (as it was not brought to the attention of M2 Lenders and in any event amounted to a breach of duty by Lendy.
• Although unnecessary (given the prior conclusions), the Court also found that Lendy’s conduct was such that its discretion to apply the waterfall must be exercised by prioritising M2 Lenders.
There remain three deferred issues:
(a) whether M2 Lenders are unsecured creditors (and if so, how to quantify their claims),
(b) who are the proper beneficiaries of certain “third party claims” (ie, against professional, possibly negligent valuers) and
(c) what amounts should RSM be allowed to deduct from M2 loan recoveries to cover the costs incurred in administering, recovering and distributing the loans, and if so on what basis should that be applied.
These matters will now be considered further by the respective legal teams in the light of the Judgment, and either resolved by agreement or referred back to the Court for determination.
Responding to news of the result, Ms. Taylor commented: “This is incredible work, and I can’t thank my legal team enough.”