Terms and conditions for FundingSecure

Important Update

FundingSecure Limited ("the Company")

Jonathan Avery-Gee, Edward Avery-Gee and Daniel Richardson (‘the Administrators’) of CG & Co (‘CG’) were appointed Administrators of the Company on 23rd October 2019. The administrators are working closely with the FCA who consented to their appointment over the Companies.

The Company was placed into administration on 23rd October 2019 by a resolution of the board of directors of the Company. As a result of the administration no legal proceedings may be commenced or continued with against the Company without the consent of the Administrators or leave of the Court. The Company is now protected from any third party actions by virtue of a statutory moratorium.

The administrators have set up a dedicated email address for creditors to contact the administration team.

fundingsecure@cg-recovery.com

We will only be able to respond to urgent queries. However, key updates on loans will be ongoing and accessable on the investor platform.

Due to the early stages of the administrations, the information we have is limited, we therefore request that creditors continue to consult the website and historic investor updates in the first instance. We will continue to update investors and creditors as additional information becomes available so please watch this website for updates.

The business and affairs of the Company are now controlled by the Administrators who act as agents of the Company and act without personal liability.

Jonathan Avery-Gee, Edward Avery-Gee and Daniel Richardson are licensed as insolvency practitioners in the United Kingdom by the Institute of Chartered Accountants In England and Wales and the Insolvency Practitioners Association.

NOTE

The administrators have received a claim from a creditor relating to monies paid into the Company’s client account prior to the administration, including an assertion that the said monies are subject to what is termed a “Quistclose Trust”. The administrators are currently investigating this claim and also taking legal advice on the same. However, pending proper investigation of the claim and its resolution, the administrators have no alternative but to suspend further payments to the investors by way of distribution from the client account/platform until further notice.

NOTE 2

Since our last update in December 2021 regarding the freezing of the e-wallet account, discussions have continued with the creditor claimant’s solicitors. It is likely that the creditor claimant will now issue proceedings to seek to recover the monies held in the e-wallet account, which it claims are subject to a trust in its favour. As the monies in the e-wallet account are not assets of the Company, the Joint Administrators will take a neutral position in any proceedings. Discussions are ongoing as to how to best protect the interests of affected investors, in particular allowing them an opportunity to be joined to any proceedings, if they so wish after taking legal advice.

NOTE 3

Further to our previous announcements regarding the potential Quistclose Trust claim, we are now able to provide further details of the proceedings which are to be brought against FundingSecure Limited (in Administration). As per our previous announcement, the Joint Administrators will take a neutral position in any proceedings. The claimant is JC Starr Holdings Ltd and the claim concerns the payment of £500,000, which was paid into FundingSecure Limited’s client account in April 2019 pursuant to a written agreement between those parties dated 12 April 2019 and headed "Underwriting Agreement". JC Starr Holdings Ltd claims that the monies were subject to a Quistclose Trust in its favour. As part of the proceedings, those Investors who have balances in the e-wallet account are being given the opportunity to be joined to any proceedings, if they so wish after taking legal advice. Those Investors who believe they have an interest in any claim should email ebladon@boodlehatfield.com stating their full name, Username and the current balance within their e-wallet account by 25 July 2022. Boodle Hatfield LLP, the solicitors for JC Starr Holdings Ltd, will then provide such Investors with draft Particulars of Claim as soon as possible and no later than 8 August 2022, whereupon the Investors will be able to obtain legal advice and then decide whether or not they wish to participate in proceedings. Those Investors who do wish to participate in proceedings must confirm their intention to do so by 19 September 2022. Boodle Hatfield have advised that should any Investor contact them after 25 July 2022 then those Investors will still be provided with the draft particulars but will only have until 19 September 2022 to confirm their intention to participate in proceedings.

NOTE 4

The Joint Administrators have received a significant number of requests asking what the e-wallet balance is. This is the amount of your current available funds (plus any pending withdrawals). These sums can be found in the “Current Overview” under “Account Information”. Please note that the previous update was as agreed with Boodle Hatfield LLP, the solicitors for JC Starr Holdings Ltd. In the first instance, you should request a copy of the draft Particulars of Claim, which will give you more information on the claim. You then should obtain legal advice on the claim. If you or your adviser then still have any queries, we will endeavour to deal with them. It is recommended that all Investors (irrespective of their current balance) request the Particulars of Claim and review the same with their legal advisors in order to fully understand the nature and application of the Claim and whether or not this is limited to any particular sum.

NOTE 5

We refer you to previous updates on the claim by JC Starr Holdings Ltd (JC Starr) regarding the payment of £500,000 (the Payment) paid into the e-wallet/client account (the Account) in April 2019. Following the taking of legal advice, consultation with the Creditors’ Committee and the development on the Platform of a mechanism to allow funds to move whilst preserving the frozen account, we have now started paying monies due to investors on those loans made by FundingSecure prior to April 2019. We are now investigating whether payments can be made on those loans made after April 2019; that is after the Payment was paid into the Account. However, based on legal advice to date, payments on these loans will be more problematical as the loans were made after the Payment was paid into the Account. We continue to keep the matter under review and we will update you further, but while JC Starr’s claim is extant and unresolved we need to be cautious regarding any payments and follow legal advice.

NOTE 6
We have previously updated investors as to the claim made by JC Starr Holdings Ltd (JC Starr) against FundingSecure. JC Starr issued its claim in the High Court on 6 September 2023. JC Starr is asserting a proprietary interest in the sum of £499,985 (“the Disputed Money”), which the Joint Administrators are currently treating as belonging to the investors. FundingSecure itself does not assert any interest in the Disputed Money – it either belongs to the investors or to JC Starr. On 4 April 2024, Paul Mundy (Mr Mundy) applied to the High Court for an order that he be appointed as a representative party of the investors in order to defend the claim brought by JC Starr. Mr Mundy is a member of FundingSecure’s creditors’ committee. A High Court hearing was held before Deputy District Judge Hassall on 19 April 2024. At the hearing, Mr Mundy’s application to be appointed as a representative of the investors was accepted by the Judge. Mr Mundy also applied for an order that he be “indemnified” by the investors – i.e. the investors are to pay his legal fees. FundingSecure’s barrister suggested to the Judge that Mr Mundy’s legal fees be subject to a cap to ensure that, for example, they do not exceed the amount of JC Starr’s claim. Mr Mundy’s barrister opposed that suggestion and the Judge agreed with Mr Mundy’s barrister that there should no such cap. The court has therefore ordered that Mr Mundy’s legal fees are to be paid by the investors, out of funds currently held by FundingSecure / the Joint Administrators for the investors – but subject to what is called a “detailed assessment” by the court on the “indemnity basis”. The assessment will happen at some point in the future. In the meantime, the mechanism for payment of the legal fees is that Mr Mundy’s solicitors will provide a certificate and request a payment each month and, pursuant to the terms of the court order, FundingSecure / the Joint Administrators will be required to pay an equivalent amount of investors’ money to Mr Mundy’s solicitors. Accordingly, the amount available for investors will reduce each month as their money is paid across in respect of Mr Mundy’s legal fees. These deductions are not being used by FundingSecure or in respect of the Joint Administrators’ expenses – they are deductions made pursuant to the court’s order that Mr Mundy’s legal fees are to be paid by the investors. Prior to the hearing on 19 April 2024, Mr Mundy filed a statement of costs seeking costs of £53,094 in the period 6 February 2024 to 18 April 2024 – approximately £22,000 per month. On 1 May 2024, Mr Mundy’s solicitors wrote to FundingSecure seeking payment of £50,000. That sum was paid from the funds held for investors on 9 May 2024. Although the court order has been made, FundingSecure and the Joint Administrators are currently awaiting a copy of the “sealed” (i.e. court-stamped) order from the court. The order will provide that “each of the General Investors has permission to apply to vary or discharge [the provisions relating to the payment of Mr Mundy’s legal costs] of this Order on the condition that such application is issued by 4pm on 15 May 2024”. We assume that the date will be pushed back in light of the time it has taken to formalise the order. The Court has ordered that JC Starr’s solicitor should serve the Order once it has been sealed by the Court. FundingSecure and the Joint Administrators have no interest in the Disputed Money and no interest in the ongoing proceedings – save as onlookers who wish for the litigation to be conducted efficiently and proportionately in the interests of all investors. They cannot offer any legal advice and any investor who has concerns or comments about the litigation should seek their own independent advice. The Joint Administrators will continue to update the investors as to the progress of JC Starr’s claim and the amount of investor funds that have been paid in respect of Mr Mundy’s legal fees. If any investor would like details as to the solicitors representing JC Starr and/or Mr Mundy, these can be obtained by contacting the Joint Administrators at fundingsecure@cg-recovery.com.

NOTE 7

An update to the JC Starr claim is available here

NOTE 8

A further update to the JC Starr claim is available here

NOTE 9

A further update to the JC Starr claim is available here

For more information please download our FAQs

Last updated:31/10/2024

Risk Warnings - Our Approach

Is Peer to Peer Lending Safe?

Capital returns are not guaranteed, neither are forecast interest returns, which may also be lower than expected.

FSL primarily manages this capital risk by ensuring all assets are professionally valued and restricting the amount lent to a typical maximum range of 70% - 75% of the value (LTV). This means that if a loan does default, FSL have provisioned in the loan arrangement, a minimum of 25% buffer between what has been lent and the market value of the security.

This basic management of capital risk is supported through our approach to lending due diligence process, that targets the competence of the borrower, specifically background (not credit scoring) checks and rigorous due diligence on ownership, title in addition to the value of the security asset. A borrower monitoring process is in place, primarily to protect the interests of lenders during the period that each loan is active. In the event of a default, for pledged asset loans action is taken by FSL to sell the asset at auction, and for property bridging or development loans we may appoint a receiver, to protect your interests. Interest continues to accrue until the asset is sold.

Despite these measures, your capital does remain at risk. Investors should always review each loan carefully and decide on whether the risk vs reward proposition is acceptable to them.

Investments on our platform are highly illiquid and investors should consider these as long- term investments. There is no recognised market to sell such investments although it may be possible via FundingSecure’s secondary market.

Historic default rates and forecasts of interest returns are not an indicator of future performance.

The Financial Services Compensation Scheme (FSCS) seeks to protect the cash held in your FundingSecure Limited (‘FSL’) client money account (up to a maximum amount of £85,000), however, the investments (property loans or pledged asset loans) that you make through our platform are not protected by the FSCS.

Please read the Key Risks Category section before investing.

Risk Warnings

Your capital is at risk when investing in Peer to Peer Lending. FSL suggests that you as an investor takes independent investment advice before depositing monies with a Peer to Peer lender and ensure when you do deposit funds you diversify that portion across multi loans.

Your income returns are at risk, given the default risk or where a borrower repays the loan early and as such the amount of interest received could be less than interest calculated at the start of the loan.

Before investing in loans it’s important to understand the different categories of risk associated with each type of investment. This summary of the types of risk involved in lending is intended as a guide and is not an exhaustive list of all the specific risks factors or scenarios where investors could lose all or part of their capital.

FSL works hard to manage the risks and we believe that our product represents an attractive balance of risk and reward, however we consider property development loans to be a higher risk investment than property bridging loans or pledged asset loan.

As with all investments, particularly high-risk investments, investors should consider diversifying their exposure across a number of property development loans and limit exposure to any single loan accordingly.

FSL does not provide tax or investment advice and any general information is provided to help investors make your own informed decisions. Investors are advised to obtain appropriate tax or investment advice (such as from an independent investment adviser) where necessary.

Key Risk Category

For each risk category, FSL will describe the risk and provide an overview of our controls that seek to reduce such risks materialising.

Liquidity Risk

An investor decides they would like to withdraw their capital from the investment before the end of the term but is unable to.

It is important that Investors understand that our products are in principle illiquid as they have a minimum 6 month holding period. So, if as an investor you need access to such funds before the end of the holding period, relevant to your chosen investment, then maybe such an investment is not suitable to your needs.

Principally once investors allocate funds to an investment, such funds are unable to be withdrawn until as a minimum expectation, the end of the loan period. Investors can indicate whether they wish to hold the investment only through to the term of the loan, i.e. expected end date of the loan. FSL as part of their initial due diligence process consider the project risk. However, it remains possible that during the expected lifespan of the loan, factors such as external events like the weather or internal events such as availability of resources, may arise that extends the expected end date. As per clause 6.5 of the terms of business your exposure to this risk, beyond investors initial holding period (i.e. the original term of the loan), may still arise, where FSL considers it prudent to extend terms rather than press for default of the loan.

FSL seek to support the impact of this risk through offering a secondary trading facility, that is available for an investor seeking to ‘sell’ their investment. However, there is no guarantee that a buyer i.e. another investor, will be seeking to purchase what you are seeking to sell at that point in time nor at the price that you wish to sell the investment for.

Senior Lender Risk

E.g. the senior lender moves to enforce their security if the borrower falls into default at the end of the loan term.

FSL manages this risk in most cases as the senior lender on behalf of the investors i.e. has first charge of the security of the borrower and therefore control over default process.

Where FSL has a subordinated e.g. second charge over a loan, it typically manages this risk by capping lending < 65% LTV. However, the first charge, usually held by a bank will need to be paid back first and additional transactional charges (e.g. legal fees) can arise from the default process, that may reduce investors recovered capital.

In either case, the process of recovery may take time and there is a risk that you would not recover the full amount due to you.

Market Risk – Property Loans

E.g. an economic shock leading to a substantial fall in property values, could result in the properties being worth less than the total outstanding value of debt secured against the property. The repayment of your investment relies on the sale value of the pledged asset. Any future downturn in the UK real estate selling prices or the rental returns could materially adversely affect the value of the property security, the developer's motivation to complete a development, and the developer's ability to finance repayments due to you. As well as factors impacting on the UK real estate market generally, there may be specific factors relevant to the particular area in which the property is based, or the property itself, which mean that the property cannot be sold at a sufficient price to repay all of your investment, or at all.

FSL principally seek to reduce this risk through its maximum LTV lending criteria as noted above.

A further tool we use is where a 3^rd party will underwrite our loans and such macro risks transfers to them to manage. Where this is the case, it will be documented on the loan.

Developer Risk

E.g. the developer becomes insolvent or fails to complete the project with the funding received and cannot secure additional finance. Developers could misuse the invested funds without our knowledge, thereby increasing the risk of default. Developers may also become unable to complete the scheduled work on time, or at all, for financial or other reasons.

The project is sold uncompleted to another developer for below its expected completion value (Gross Development Value, GDV). Investors could lose interest and capital.

FSL has in place a lending and servicing policy. A key element of such policies is to provide governance around the lending journey. FSL’s, Credit Committee has as an objective to oversee that our processes and controls remain effective to manage such risks.

An example of us managing the developer risk is through our underwriting and due diligence processes. During the underwriting process, FundingSecure will assess the project for viability, and review the borrower’s CV to ensure they have the experience and/or correct team behind the project to successfully execute it.

During due diligence, anti-money laundering and criminal searches, together with open source data checks, will be undertaken for all directors, borrowers and any other key figures in the project to ensure their suitability and to mitigate risks.

Typically, a Quantity Surveyor (QS) will be appointed to review the scheme and report any risks to FundingSecure.

In the legal documentation for the facility there will be conditions and covenants included that must be met before more funds will be released against the security.

Upon receipt of a request for more funds, the QS will revisit the site and validate the amount of money spent on the project to date. FundingSecure will only release money in arrears of works completed so value has been added to the security.

In either case, the process of recovery may take time and there is a risk that you may not recover the full amount due to you.

Repayment Delay

E.g. the developer is unable to sell the completed property(s) or refinance the scheme before the end of the loan term

Manage impact through our contact strategy to engage early with the borrower prior to expected end date of the loan. Where FSL agrees to extend the loan and not place the borrower in default, such contract and communication intensifies. In all cases FSL seeks to maintain an open communication with investors in such loans.

Conflicts of Interest

If the developer were to be an associate of FSL, this means that FSL individuals associated with the developer could be responsible for setting interest rates on loans and may be responsible for taking recovery action against the developer.

An association between FSL and the developer will always be disclosed on the ‘Investment opportunity’ page. Any investment returns quoted will not be affected by FSL's fees, regardless of the identity of the developer. The Company's Head of Credit will never hold an interest in or with the developer and is obliged to prioritise the interests of investors over the interests of the developer.

No Cancellation Rights

Some investment products contain cancellation rights, however P2P lending is not one of these.

While your funds remain ‘available’, you can withdraw your money at any time (subject to the necessary anti money laundering checks having been completed when you onboarded).

Once you as an Investor allocate your funds to a project, you are unable to cancel your allocation. When the allocation is activated by the platform and monies settled with the borrower, your funds are then committed.

FSL has in place a secondary trading facility but this is only available once loans become active on the platform. Please review the liquidity risk management above for more details on this facility or the link.

Interest Rate and Price Inflation

Increases in market interest rates and price inflation may affect the re-sale value of the fixed rate investments adversely.

Decreases in market interest rates and deflation can have a positive impact on the value of fixed rate investments.

Taxation

The impact of taxation on your interest receipts or any capital gain made through the secondary trading facility is your responsibility. Interest returns are always quoted without taking the effect of personal taxation into account. FSL, does not provide tax advice. If you are unsure of the tax consequences of investment and how they apply to you, you should seek independent advice.

Any changes to the taxation environment or a change in the tax treatment of the Company may affect your investment returns.

Effect of FSL Own Insolvency

In line with the FCA’s requirements, FSL’s wind-down policy articulates the necessary provisions in place that aim to maintain client’s best interests. We are responsible for providing staff to monitor the borrowers repayments.

Brexit Risk

The lack of clarity and general uncertainty regarding the UK's exit from the EU is likely to increase market volatility and may impact buyer and investor confidence in the UK property market. This could adversely affect the timing and level of resale volumes.