Sub-prime lender to leave Stock Exchange on Monday

Cattles, the embattled sub-prime lender, will leave the London Stock Exchange on Monday as a two-year nightmare  could finally be drawing to a close.

A scheme of arrangement, whereby the group’s shares are being bought for £5.3m by a specially formed company called Bovess, was approved earlier this week by the High Court.

Bovess, which will be run privately, will operate Cattles’ loan book while Cattles itself avoids administration. It means that Cattles will be able to continue trying to claw back debts whilst preserving some 2,500 jobs.

However, head count will shrink as Cattles winds down over an expected two or three-year period.

As part of the ongoing arrangements, Welcome Financial Services – the main subsidiary of the Cattles Group – has set aside £110m to compensate customers who were mis-sold payment protection insurance. This debt will also be bought by Bovess.

Welcome had been declared in default by the Financial Services Compensation Scheme because the firm is effectively insolvent. Welcome sold around 500,000 PPI policies but will not be able to meet any claims against it.

But as part of the restructure, it has come to an arrangement with the FSCS to compensate those mis-sold PPI, and customers who took out a PPI policy with the firm on or after January 14, 2005, can make a claim through the FSCS.

According to the FSCS, Welcome has given it £50m and is due to hand over a further £40m as redress, but the final sum could be higher. Welcome has also established a £20m fund as redress for customers sold pre-regulated policies before January 14, 2005.

Welcome is assisting the FSCS in its handling of the claims. “The FSCS will be making arrangements to contact all policyholders and will work as quickly as possible to process any claims received,” said FSCS chief executive Mark Neale.

Successful claimants will receive 90% of any financial loss they may have suffered, such as paying premiums on policies which were mis-sold.

The FSCS said that under this arrangement customers could expect to receive any compensation much faster than if Welcome Finance had gone into a formal insolvency procedure such as administration.

Welcome stopped lending in 2009 after Cattles fell into difficulties when an accountancy scandal erupted, forcing it to make an extra provision of £700m for bad debts and leading to the suspension of its shares.

Before the recession, Cattles was valued at almost £1.5bn. Started in 1927, it made its name in lending to cash-strapped households. In 2009, it suspended six executives amidst a series of profit warnings and withdrew its application to become a bank.

Cattles’ shareholders, some of whom campaigned against the Bovess arrangement going through, are expected to receive a 1p per share payment by March 16.

Bondholders owed around £750m will receive just £49m as part of a deal which saw them, noteholders and banks owed around £2.4bn by Cattles and Welcome.

The Supreme Court ruled last year that the banks could recoup the largest proportion of Cattles’ outstanding loans.

Cattles executive chairman Margaret Young said: “The board of Cattles is pleased to announce that the various schemes of arrangement to permit the restructuring of the group’s finances, which received the sanction of the High Court on Monday, have today become effective. The restructuring is therefore now completed.

“This is in itself a significant achievement which seemed highly unlikely two years ago when we faced potentially the immediate financial collapse of the group.
 
“However, with the support of our main financial creditors and after an extended period of complex negotiations, we have stabilised the group’s financial position, implemented the managed contraction of Welcome Finance and to date collected over £1.1bn of its outstanding loan book, with more to come.

“We have restored the group’s two remaining trading subsidiaries, Shopacheck and The Lewis Group, to profitability and continue to develop both businesses.

“I believe this has produced the best possible outcome for all concerned, and I would like to thank the group’s creditors, the shareholders of Cattles and our loyal employees for their support through this difficult and challenging process.”