£ 10million Cash Appeal Saves Payday Lender Wonga From Insolvency | Economic news

Wonga, one of Britain’s largest short-term money lenders, was saved from bankruptcy thanks to an emergency £ 10million injection from a consortium of leading tech investors .

Sky News can exclusively reveal that Wonga, who was one of the pioneers in the UK’s online payday lending industry, has been rescued in recent weeks after its CEO warned shareholders he was at risk of becoming insolvent.

The fundraiser was said to have taken place at a valuation of just $ 30million (£ 23million) before the fresh money was injected – a startling drop for a fintech group that once had ambitions to a quotation in New York which could have evaluated it. well over $ 1 billion (£ 769 million).

Sources close to Wonga said the £ 10million has now been received from leading venture capital funds such as Accel Partners and Balderton Capital, both of whom are longtime investors in the company, eliminating thus the immediate threat to its future.

Sky News has learned that Tara Kneafsey, the lender’s chief executive, informed her fellow administrators two months ago that an increase in the volume of complaints about loans made before new rules were introduced in 2014 triggered a sharp increase. compensation payments.

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The company was among the pioneers of the UK online payday loan industry

A source close to one of Wonga’s institutional shareholders said Ms Kneafsey warned in late May that the company was at risk of becoming insolvent without an injection of capital.

Wonga’s cash flow has reportedly become so tight that its board of directors is currently evaluating the sale of some of its assets, as well as increasing debt.

Ms Kneafsey also reportedly pointed out that a pending decision from the financial ombudsman regarding the deadline for legacy complaints about irresponsible lending was another headache for Wonga.

The new capital injection was reportedly made more complicated by the requirement for Wonga’s UK arm to provide liquidity to its parent company in June.

The directors of the UK division could have risked breaching their legal obligations if they had sanctioned the transfer of funds to an insolvent company.

Protesters protest against Wonga in central London in 2014
Picture:
Protesters protest against Wonga in central London in 2014

Wonga, which employs around 500 people, has been in deficit for a few years after encountering a series of regulatory hurdles such as the city’s watchdog cap on the cost of short-term loans.

The company, which lost around £ 65million in 2016, was aiming for a return to profitability last year, although it is not clear if that target was met as its 2017 results are not due for release until Several weeks.

In a statement released to Sky News over the weekend, a spokesperson for the Wonga Group said, “Wonga continues to make progress on the transformation plan set for the company.

“In recent months, however, the short-term credit industry has seen a marked increase in legacy loan claims, primarily driven by the activity of claims handling companies.

“In line with this changing market environment, Wonga experienced a significant increase in claims related to loans taken out before the current management team joined the company in 2014.

“As a result, the team has raised £ 10million in new capital from existing shareholders, who fully support management’s plans for the company.”

Wonga, who rose to prominence by sponsoring Newcastle United, continues to trade in countries like Poland, South Africa and Spain.

Its board of directors, chaired by chairman Andy Haste, former boss of RSA Insurance, has previously expressed confidence in its ability to re-establish itself as a sustainable business in the UK.

A flexible loan product has been launched with some success as the company seeks to diversify away from the short-term lending business which has sparked political and public controversy.

The entire payday lending industry has been hit by the Financial Conduct Authority’s price cap, with dozens of providers going bankrupt since its introduction in 2014.

In 2015, Wonga was ordered by the town watchdog to pay more than £ 2.5million in compensation to 45,000 clients who received letters allegedly from law firms but who in fact failed. did not exist.

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