Managers at bankrupt rent-to-own company BrightHouse, which specialized in loans for big-ticket items like refrigerators and couches, have warned they won’t have enough money to compensate thousands of customers left with unaffordable debt.
The latest report from accountants Grant Thornton, who is in charge of the administration, shows that a plan to set aside £600,000 for payments to clients who BrightHouse has sold expensive loans to has been scrapped.
Meanwhile, several creditors have received large sums. They include supply chain finance firm Greensill, which is in administration after collapsing last year. Greensill, or his creditors, have received nearly £31m.
The process will raise new questions about how UK insolvency rules prioritize payments for investors and lenders over customers.
Before going bankrupt in 2020, BrightHouse offered high-interest rent-to-own contracts to customers who might otherwise struggle to afford the upfront costs of household items like refrigerators, ovens, TVs and couches. It charged interest of up to 69.9%, which, in addition to service and insurance fees, could mean customers were paying two or three times the cost of the item on the high street. Some customers were never able to own the goods if they fell behind on payments.
BrightHouse’s clients generally came from low-income households receiving state benefits. The decision means some of the UK’s most vulnerable consumers could be missing out on crucial funds, just as the cost of living crisis tightens finances.
Grant Thornton originally set aside up to £600,000 to deal with more than 11,000 affordability claims from clients who fear they may have been mis-sold loans. But the latest report from him, published at the end of April, reveals that administrators plan to seek court permission to scrap the compensation pot after deciding the cost would be too high.
“Given the likely significant volume and complexity of customer affordability claims…administrators expect the cost associated with evaluating these claims to far exceed the funds available for distribution,” the report says.
“As a consequence of the above, the administrators seek to file an application with the court in the next period to seek the non-application of the prescribed part,” he added.
Under the original plans, clients would have been reimbursed fees and interest, as well as an additional 8% interest on that sum going back to the inception of their loan.
Meanwhile, the servicers confirmed that they had hired a debt collection agency to “improve” customer payments and “maximize” creditor payments. Those creditors include Greensill Capital, whose collapse last year sparked a wave of political scandals.
Greensill, which has specialized in offering advances on company bills for a fee, issued loans to BrightHouse in 2018. As a lender, Greensill was counted as a secured creditor, putting it at the front of the queue for payment. when his client, BrightHouse, left. bust. The administrators’ report confirmed that Greensill was fully repaid, receiving a total of £30.86m in 2020, the year before it collapsed into administration.
Sara Williams, Debt Counselor and blog author Debt Camel, he said: “The hundreds of thousands of customers who should have had a refund for unaffordable loans will get nothing. All the money that has been forced to pay clients during the administration goes to secured creditors.”
He added: “The government and the Insolvency Service must change this. Customers are the innocent victims here and must be given priority. Servicers should not seek debt collection without first considering whether the loan was mis-sold.”
The problem is particularly acute for clients of rent-to-own companies, who are often young people, women or single mothers living in rented housing.
Customers have faced similar problems dealing with collapsed payday lenders like Wonga. Hundreds of thousands of its former borrowers who were improperly sold loans by the company were told they would only receive 4.3 pence for every pound owed in compensation.
A spokesman for the trustees of Grant Thornton, which is also handling Greensill’s winding up in the UK, said they were meeting their obligations under UK insolvency rules and had distributed BrightHouse’s assets “as required by law.”
The spokesperson said: “While Greensill Capital (UK) Ltd was previously a secured creditor of BrightHouse, any obligations owed to it as part of the administration of BrightHouse were paid to it in accordance with the law and before it entered administration. We have no further comment beyond the content of the administrators’ presentations regarding both matters.”
A spokesperson for the Insolvency Service said: “The insolvency framework is designed to ensure that creditors of an insolvent company receive as much of their money as possible, and it is the duty of insolvency practitioners to consider the interests of all creditors. in the performance of their work.”