What is the standby plan?
Our standby plan is in fact a series of plans with different strategies so as to achieve the optimum outcome if the plan is ever put into action. Broadly, the strategies making up the plan are:
- Transfer of the entire platform to another business (which may or may not already operate a peer-to-peer platform) – in this scenario it is likely that the platform would continue to operate broadly as normal but under new ownership investors could decide whether or not to continue to invest on the platform;
- Sale of the loan book to another lending company (which may or may not operate a peer-to-peer platform) – in this scenario the sale proceeds of the loan book would be used to repay investors for their interest in the outstanding loans (or such proportion as the sale proceeds would allow) and then cash would be returned to investors in a relatively short period;
- Wind down of the loan book over the normal term of the loans – the platform would close to new business and the loans would be collected with funds returned to investors over the agreed terms of the loans, or earlier if loans are redeemed early.
In the event that the standby plan is put into effect, Assetz Capital (our living will partner) will take over the operation of the business.
Operative clauses in contracts
The peer-to-peer loans we arrange and manage on behalf of investors are not impacted by any of the strategies envisaged in our standby plan.
Assetz Exchange may assign its interest in the loans, as loan servicing agent, to a third party and the borrowing SPV would still need to comply with the terms of the loans and the security arrangements in force.
Under our terms and conditions with investors we are able to appoint an alternative agent to manage the loans on behalf of investors if needed.
Neither our terms with the borrowing SPV or our terms with investors are impacted by a potential insolvency of the platform should that occur during the implementation of the standby plan.
Wind down arrangements
The third strategy under the standby plan involves winding down the loan book over the natural term of the loans. It is the fall back strategy if the platform or loan book sales strategies do not succeed. As a result, we outline further details of those wind down arrangements here:
- Assetz Capital would be appointed to take over the loan monitoring operations of the platform supported by a core team of Assetz Exchange staff. Depending on conditions at the time, in order to protect core operations from potential claims of creditors, this may be via an insolvency process such as an administration or a CVA;
- Under Assetz Capital’s supervision, the core team would intend to carry out the following actions:
- reduce the functionality of the platform to simplify operations, namely: cease accepting new investors or deposits, cease advancing new loans or providing new funding on existing loans and suspending the secondary market (Exchange);
- engage with the borrowing SPV to ensure repayments continue to be made; process repayments through the client money systems, returning funds to investors accounts on the platform;
- facilitate withdrawals by investors from the platform once repayments were credited to their account;
- With the support of the core team, Assetz Capital would continue to attempt to refinance some loans on the platform to other commercial lenders. This is intended to accelerate the return of funds to investors ahead of the standard terms of loans on the loan book;
- Funds held in the client money account upon the appointment of Assetz Capital, and funds paid into the client money account by the borrowing SPVs over the course of the wind down would continue to be held in a segregated client money account operated under the existing CASS permissions of Assetz Exchange by its core team, until withdrawn by investors via the normal process;
- The services of Goji, who support IFISA administration for the platform, would continue with the intention that Assetz Exchange’s IFISA manager status continued and the tax free status of IFISA investments on the platform was retained.
Risks to standby and wind down arrangements
We have engaged experts to advise on the adequacy of our standby plan and wind down arrangements and we believe that, if implemented, there is a reasonable prospect of them leading to an orderly cessation of our peer-to-peer operations. But there are always risks that assumptions made during the planning process prove to be incorrect if they are ever tested in practice.
Specifically, whilst we believe we have addressed and mitigated these risks in our existing plans, the following risks will arise:
- If there is insufficient funding available to pay for the costs of collecting the loan repayments over the life of the loans, that activity may cease leaving no means to return investors’ investments to them. However, in our estimation, the monitoring income Assetz Exchange is entitled to under the loan agreements is more than sufficient to cover the expected costs of winding down the loan book;
- That services in a wind down are provided by entities which do not have the same permissions as Assetz Exchange and as a result the same regulatory protections do not exist throughout the wind down period. However, we are advised by Assetz Capital that between the continuing permissions of Assetz Exchange and their own permissions that there should be no decrease in regulatory scrutiny during a wind down period;
- The vast majority of value on the platform is represented by loans owed by borrowing SPVs which do not fall under client money entitlements at the point Wind Down Arrangements are triggered. However, the intention of Assetz Exchange’s wind down arrangements is that its existing client money operations continue as normal during the wind down process and no change to its client money permissions is expected.