A HIGH Court judge was “satisfied” that Amigo Loans would go into administration if he did not back a scheme to limit compensation payouts.

Amigo – which employs around 200 people at its Bournemouth HQ – won a crucial court case last week and is accepting claims from those who believe they were mis-sold loans.

It hopes its plan to save the business will give complainants 41 pence in each pound they are owed. Amigo estimated they would receive 31 pence in the pound if the business went into administration.

Under previous proposals, rejected by the High Court last year, complainants would have received 10 pence in the pound plus the possibility of further payments.

In his full judgement, Mr Justice Trower said: “I am satisfied that the steps taken by Amigo to promote schemes which are more advantageous to customer creditors can reasonably thought to have achieved the best terms available and that … if those proposals were to be rejected by the scheme creditors or the court, administration would now be the only alternative.”

The court heard Amigo’s total liabilities at the end of last year were £597million, including £347.5m for redress claims. Its liabilities outstripped its assets by £123m, prompting the court to accept the business was “balance sheet insolvent”.

Amigo’s “new business scheme” was backed by 145,523 creditors, 88.8 per cent of those taking part in a vote.

Mr Justice Trower wrote: “I am satisfied that the processes put in place for consulting customer creditors, for ensuring that they were aware in readily comprehensible language of the terms of what was proposed and for giving them support in their decision making meant that Amigo has overcome the problems which caused sanction of the previous scheme to be refused.”

Since 2005, Amigo has made 927,000 guarantor loans to 507,144 borrowers. It currently has around 81,000 customers with loans, the court heard. The business has not offered any new loans since 2020. Amigo plans to raise capital by issuing at least 19 shares for every existing one, generating at least £15m. It told the court it intended to provide £60m from its own funds towards compensation five days after its new business scheme becomes effective, with another £37m within nine months.

If it is allowed to resume lending and the share issue goes ahead, it says creditors would receive the estimated 41 pence in the pound, with a final dividend in November 2023.

If these conditions are not satisfied, it would cease lending while continuing to collect on existing loans, generating between 33 and 37 pence in the pound for creditors, with a final dividend in May 2024.

The judge dismissed representations from the Amigo Shareholders Action Group, which said it represented 66 members holding 8.9 per cent of the total issued shares.

Its chairman, Mohammed Majid, had told the hearing that the equity raise should be limited to the amount necessary to pay creditors and should not be used to recapitalise the business.

Mr Justice Trower said his submissions were “misconceived” and had “no legal relevance”. He said paying creditors was “inseparable from funding new lending”.