Administration: Orderly wind-down is funder’s best option
Affiniti Finance – which lent money to thousands of law firm clients – went into administration late last year after a breakdown in the relationship with its ultimate backer, which is now owed £43m, it has emerged.
The newly published report of the administrators, Quantuma, said it was not possible for Affinit to continue as a going concern, leaving an “orderly run-off process” the best option for creditors.
Affiniti, based in Chester, lent money to clients via Consumer Credit Act agreements to fund their disbursements in personal injury and financial mis-selling claims.
Quantuma said the company also provided a number of “direct law firm lends” in respect of certain matters that were not considered suitable for such agreements.
“The company’s loan facilities are being reviewed with the various law firms by way of audits and this remains ongoing,” the report said.
The business was doing well – draft accounts for the year to 31 October 2021 recorded revenue of £9.9m, almost double the year before, and profit of £3.3m, a near three-fold increase.
However, Quantuma explained that “a series of events occurred, over an extended period, which resulted in the company defaulting on its obligations under a loan agreement with its secured creditor and provider of finance, Fortress Capital”.
Affiniti was dependent on this funding and as a result of the breakdown in the relationship, Fortress decided not to advance any further funds for new lending and instead demanded repayment of the £43m it had lent.
Affiniti was unable to do so and Fortress instructed Quantuma.
The report said that, “for both regulatory and financial reasons”, Affiniti could not continue to trade and write new business, meaning it could not be rescued as a going concern.
It continued: “The joint administrators believe that the administration will facilitate the process of auditing and understanding the company’s loan book in order that it can be collected in an orderly run-off process utilising the existing staff and company operations in a more orderly fashion than would be achieved in a liquidation scenario.”
Quantuma said the value of Affiniti’s loan book for the month ended 31 October 2021 was just over £30m. Some £173,000 was collected between 4 November, when it was appointed, and 29 December. “The anticipated value of total future collections is uncertain but funds are being received regularly.”
The administrators said they anticipated there would be sufficient funds to be pay a distribution to preferential creditors – staff (owed £8,249) and HM Revenue & Customs (£214,351) – and “there may be” enough to pay a dividend to unsecured creditors too. Trade creditors are owed £936,000.
Quantuma expects its fees to be £850,000, with another £675,000 spent on solicitors and £100,000 on file audits.
In September 2020, Affiniti said it was planning for a major expansion after a £250m capital raise backed by what it described as a “multi-billion-dollar” US-based fund but declined to name.
At the time, Affiniti was invested in more than 5,000 litigation matters, but said it expected this number to increase 10-fold by the end of 2021.