03 August 2015

Insolvency and consumer credit businesses

A trap for administrators and a workload for the FCA

Consumer credit businesses used to be licensed by the OFT, in a fairly relaxed licensing regime. It included not only consumer credit lenders, but also businesses with a tangential involvement in credit such as credit brokers, debt collectors and debt advisers. Credit brokers include most businesses who introduce consumers to credit providers, such as motor, furniture and electrical retailers. Many large businesses held consumer credit licences for minor activities outside of their main businesses, such as employee loan schemes or other employee benefits.

The Financial Conduct Authority has now taken over regulation of consumer credit, with all the complexity of the financial services regime. Consumer credit businesses have become "authorised persons" (including those who have the transitional "interim permission"). That has many consequences, some of them possibly unforeseen. One of them is the application of the FSMA insolvency legislation to all consumer credit businesses.

A possible major trap is that an appointment of an administrator by the directors of a consumer credit authorised business, or of one that should be authorised, needs the prior consent of the FCA (section 362A FSMA 2000). The directors must obtain the consent of the FCA before filing a Notice of Intention to Appoint Administrators, or if there is no qualifying floating charge holder and therefore no need to file such a notice, the consent must be filed at the same time as the Notice of Appointment of Administrators. Failure to obtain the FCA’s consent renders the administrator's appointment invalid; but the case of Peter Lloyd Bootes and others v Ceart Risk Services Ltd holds that this is a curable defect, so the appointment will take effect when the consent is obtained and filed.  

If there is a qualifying floating charge holder, and it makes the appointment, no prior consent of the FCA is required. But all documents in relation to the administration issued to creditors must also be sent to the FCA, and similar requirements apply to other forms of insolvency.

This is yet another thing for insolvency practitioners to look out for before appointment, and a potential source of uncertainty in the validity of appointments. A search of the FCA register should probably be routine (and the separate specialist registers, including the consumer credit register), but even that is not complete protection: if the business should have been authorised, for instance because it introduced consumers to credit providers, the FCA's consent is still needed. Whether the FCA will give timely consents in respect of firms it has never heard of, or precautionary applications for consent, remains to be seen.

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