Lendy Ltd was a so-called peer-to-peer lending company which facilitated the crowd funding of loans by members of the public secured against property and other assets.
The company collapsed in May 2019 following action taken by the Financial Conduct Authority and RSM Restructuring Advisory LLP were appointed as administrators. The Administrators filed an application for directions at the High Court in Birmingham on 10th July 2020 which was heard week commencing 28th June 2021.
Read the submissions made on Day 1 here: “Lendy Directions Hearing Day 1”
Read the submissions made on Day 2 here: “Lendy Directions Hearing Day 2“
Read the submissions made on Day 3 here: “Lendy Directions Hearing Day 3”
Read the submissions made on Day 4 here: “Lendy Directions Hearing Day 4”
And handed down some six weeks after the trial: Read the Judgment
A comprehensive background to the circumstances of the Administration of Lendy and its history is provided by Joint Administrator Damian Webb in his second Witness Statement which stood as his evidence-in-chief (please note the references to paragraphs 69, 118, 160, 198, 203a and 222 in Mr Webb’s third Witness Statement and his fifth Witness Statement):
In basic terms Lendy acted as an agent on behalf of retail investors who would collectively crowdfund loans purported to be secured against property. For the purposes of these proceedings there were two ways the platform managed the relationship between the lenders and borrowers:
So-called Model 1 loans were where an investor would lend money to Lendy in respect of an identified Borrower and the Company would, by way of back-to-back loan, lend an equivalent sum to the identified Borrower.
So-called Model 2 loans were where Lendy acted as an agent to establish a direct contractual relationship between the lenders and the borrower.
This 4-day directions hearing concerns the competing entitlements (ie who should get the money when loans redeem) of three classes of person:
(1) the Model 1 Lenders;
(2) the Model 2 Lenders; and
(3) the other unsecured creditors of Lendy (including creditors in respect of administration expenses).
The issues to be decided by the court were helpfully identified by HHJ Rawlings (SAAHCJ) in December 2020 (.pdf):
However, certain issues were deleted because (as helpfully explained at paragraph 15 of the Applicants Skeleton Argument) they included:
(i) certain issues relating to the expenses of the Companies’ administrations (which may need to be determined in due course but will depend on the outcome of the present trial);
(ii) certain issues which are agreed and where directions are not required; and
(iii) one issue which is too fact-sensitive to be determined at this trial and may fall to be determined in due course.
Final List of Issues
Issue 1: Do the Model 1 Investors (in their capacity as such) have any claim other than an unsecured provable claim against Lendy?
Issue 2: Do the proceeds of security of a Model 1 Loan form part of Lendy’s general estate?
Issue 3: As regards its contractual liability to Model 1 Investors pursuant to the Model 1 Terms, is Lendy liable to each Model 1 Investor only to the extent that Lendy is repaid by a borrower under, or makes recoveries in respect of, the relevant Model 1 Loan which that Model 1 Investor has funded?
Issue 4: If the answer to the question in issue 3 is ‘yes’, should the Model 1 Investors’ contractual claims be valued in an amount equal to the gross proceeds received by Lendy for the relevant Model 1 Loan or the net proceeds of that Model 1 Loan (taking into account the costs of realisation)?
Issue 5: On a proper construction of clause 6.3 of the Model 2 Loans, is the borrower required to pay the default interest to (i) the relevant Model 2 Investors and/or Model 2 Transferees, (ii) to Lendy (as principal) or (iii) in any other manner?
Issue 6: Were any of the relevant clauses in the Model 2 Terms not properly incorporated into the contract between Lendy and Model 2 Investors (on the basis that they were onerous or unusual or otherwise?)
Issue 7: Do any of the relevant clauses in the Model 2 Terms constitute ‘unfair terms’ under Part 2 of the Consumer Rights Act 2015?
Issue 8: Has Lendy breached any of its fiduciary duties regarding its charging fees and/or interest for its own account in connection with the Model 2 Loans? If so:
(a) what is the appropriate form of relief for Model 2 Investors and/or the Model 2 Transferees;
(b) is Lendy entitled to an equitable allowance to cover its costs as agent; and
(c) if the answer to the question in issue 8(b) is ‘yes’, how should that allowance be calculated in principle?
Issue 9: Based upon the answers to the questions in issues 5 to 8, do the Model 2 Investors and/or the Model 2 Transferees have a legal or equitable proprietary interest in any of the following:
(a) any default interest payable by a borrower to Lendy under a Model 2 Loan;
(b) all standard interest payable by a borrower to Lendy under a Model 2 Loan; and
(c) any of the fees payable by a borrower to Lendy pursuant to a Model 2 Loan?
Issue 10: Should the Secured Liabilities be discharged pro rata between Lendy on the one hand, and Model 2 Investors and/or Model 2 Transferees on the other hand, or in some other manner?
It is understood the parties have agreed that the issues will be addressed in the following order at trial:
Day 1
Issues 1 to 4;
Day 2
Issue 5;
Issue 8 (Applicants Submissions);
Day 3
Issue 8 (Respondents Submissions);
Issue 7;
Issue 9;
Day 4
Issue 10.
The Trial
The Parties:
Sitting in the Business and Property Courts in Birmingham
Before His Honour Judge Brian Rawlings (Sitting As a High Court Judge)
Appearing on behalf of the Applicant (The Joint Administrators of Lendy):
Felicity Toube QC – Senior Counsel
Ryan Perkins – Junior Counsel
Instructed by Shoosmiths
Appearing on behalf of the First Respondent (Ms Lisa Taylor representing the Model 2 lenders):
Andrea Gledhill QC – Senior Counsel
Carmine Conte – Junior Counsel
Instructed by Jeremy Goldring of Gunnercooke LLP
The Skeleton Arguments:
As filed on behalf of the Applicants – The Joint Administrators (.pdf):
Some key points:
Are The Administrators Neutral?
“The Applicants, as Administrators, are neutral on the outcome of the Applications.
However, it is necessary for someone to represent the interests of the Model 1 Investors, and the Applicants are the obvious persons to do so. It was not considered cost-effective or proportionate to appoint a separate representative respondent on behalf of the Model 1 Investors. The Applicants have made it clear that they will adopt this approach at all three of the Case Management Conferences.”
As filed on behalf of the Respondent – Ms Lisa Taylor (As representative of the Model 2 Lenders) (.pdf):
Some important points:
At 55.2.1 it is revealed that as early as Aug 2016 “the FCA wrote to Lendy stating that its internet advertisements “may not meet our requirements to be fair, clear and not misleading, and … present a potentially misleading impression of the returns available and the nature and safety of the investments”
At 55.2.2 the revelation that in “June 2017, the Authority wrote again, raising concerns over how the funding of interest payments was explained, failures to flag the fact that loans being traded in the secondary market had already gone into default, and the claims made by Lendy about its Provision Fund”
And at 51.3 its stated that in March 2018 the Financial Conduct “Authority had provisionally indicated that it was minded to refuse Lendy’s FSMA part 4A application”
Mouse in the Court 
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