In April 2017 the so-called peer-to-peer lending company Lendy Ltd facilitated a loan to Mederco Block A Ltd. Lendy were acting as agent for some 3500 retail investors who collectively financed a facility of £5.2m, secured by a First Charge against a property in West Yorkshire.
The loan description on the Lendy website describes the site:
Located about half a mile from Huddersfield town centre, the security property comprises a development site with planning permission for student accommodation. The proposed scheme is for a detached nine storey building providing 168 self-contained studio rooms with en-suite bathroom and kitchen facilities. The accommodation will include communal living space and 24 car parking spaces.
https://lendy.co.uk/loans/590#overview
It is understood some of the individual units within the site were sold to around 150 property investors before the loan defaulted and Lendy appointed RSM UK as administrators over the borrowing company.
This hearing was an application by RSM UK, the Administrators of Mederco Block A Ltd to request the Court orders that the method of their remuneration be on a “time properly spent basis”. The other methods provided by statute are on a fixed fee basis or a percentage of assets realised.
Mr Marcus Levine, a lay person, on behalf of the respondents, the creditors committee, resisted the application and Mr Matthew Weaver of Radcliffe Chambers, appeared for the Administrators RSM UK.
The hearing started at 10.30 and was adjourned shortly after starting to allow Mr Weaver to read and take instructions upon a letter that Mr Levine had sent to the court “some time yesterday”.
Upon resumption of the hearing the judge described the letter as “well expressed and cogent” and said if his understanding was correct the respondents seek an adjournment on the basis that it’s not suitable to fix the basis of remuneration today.
Mr Weaver, said the administrators resisted the application for adjournment as having read the “many complaints” detailed in the letter, they seemed to be aimed at the quantum rather than the basis of the remuneration.
The judge ruled that the application was ready for hearing and that costs would be incurred by delaying proceedings. Describing this as “obviously a complicated matter” the judge allowed a short adjournment as the allocated time slot of 30 minutes was coming to an end. The judge encouraged Mr Levine to speak to Mr Weaver on the phone during the adjournment as there might be “some benefit” to this.
Having adjourned at 11.00am the hearing resumed at 3pm.
In describing some background to the matter Mr Weaver told the court that the Administrators had attempted to sell the building and had received 10 bids from 86 interested parties.
The court was told the preferred bidder had dropped out in March 2020, for reasons partly connected with Covid-19 including an anticipated decline in student occupancy numbers and issues with finance. The administrators were in the “middle of negotiations” however for reasons of commercial sensitivity no further details were revealed to the court.
Mr Weaver submitted that the creditors committee had been asked to decide the basis of remuneration but had failed to do. The court was told the committee was made up of four members, all of whom were part of a larger class of some 150 secured creditors who had an “equitable lien” in the charged property in the form of UN1 notices. Mr Levine explained that the company had been placed into administration “days” before completion of the leasehold sale.
Mr Weaver told the court that the “practical reality” of the matter was that Saving Stream Security Holding Limited (“SSSHL”), who held the security on behalf of the Lendy investors, ranked first with a fixed charge over the property and were already facing a “significant shortfall” thus “no one other than SSSHL would get funds”.
Mr Levine submitted to the court that the respondents resisted the application because of an apparent conflict of interest. He explained that Mr Damian Webb had been an Administrator of this company and therefore “was privy” to all the documents and company records before becoming an administrator of Lendy Ltd, one of the charge holders. Mr Weaver responded by explaining Mr Webb had “resigned immediately” upon engagement with the Lendy matter and that so-called ‘Chinese walls’ had been set-up to prevent information leaking between teams.
Mr Weaver also explained that the conflict of interest had been considered and was why specific ‘conflict administrators’ had been appointed in this matter. Mr Levine told the court that the conflicts mentioned were under active consideration by the Insolvency Ombudsman service following a complaint.
Mr Levine further submitted that they resisted the application because of the lack of a proper investigation into the circumstances of the administration. In response Mr Weaver stated that investigations had and were being carried out but may not necessarily bear any fruit.
The judge explained that this was an application to fix the basis of the remuneration and that there is a time to challenge the quantum but that was not now.
Mr Levine further submitted that they had an arguable case that SSSHL should not in fact rank first and that there “was more to this than meets the eye”. The argument was not fully developed but the judge agreed that he felt he “was at the tip of the iceberg”.
The judge granted the application that the remuneration be on the basis of time properly spent and the hearing ended at 16.25. Costs of the application to be costs of the administration.
Opinion
It’s not just the peer-to-peer lenders who become victims when the loan defaults – in this case 150 property investors stand to lose the whole of their investment – it’s clear to see why they they are putting up a fight. Mr Levine might have not been able to hit the nail on the head in today’s hearing but I’m sure they’ll be hammering out the details in a courtroom soon.
CR-2020-LDS-000183 Mederco Block A Ltd (In Administration)
30th October 2020
Before DHCJ Sutcliffe QC
Sitting as a Judge of the High Court
In the Business and Property Courts In Leeds
Mouse in the Court 