Morses Club announces new scheme of arrangement, equity issue

Morses Club was under the cosh as the subprime lender said it had created a new subsidiary to allow it to enter a scheme of arrangement to deal with customer redress claims for unaffordable lending, but that insolvency was likely if the scheme fails to go ahead.

The company announced on 11 August that it was pausing the processing of all new redress claims. That pause remains in place but the Financial Ombudsman Service (FOS) has still not agreed to pause complaint processing and is handling complaints referred to the service.

Morses said on Tuesday that the new company it has incorporated has issued a practice statement letter (PSL) to relevant customers and the FOS.

It is proposing a compensation fund of "at least" £20m. This comprises £15m or if greater, the fair value of Morses Club, from an issue of equity. This would involve the issue of 19 new ordinary shares for each existing ordinary share, which would result in existing shareholders being diluted by at least 95%.

Morses said that while the funding itself will not occur until the end of the scheme process in June 2024, it is seeking investors who will agree to guarantee the funding before the court convening hearing listed for 7 March 2023.

"In the event that such an arrangement is not made, or shareholders do not approve the fund raise the scheme will not proceed, and the company will need to commence insolvency proceedings," it warned.

The scheme would also comprise £5m from the value of Morses Club assets less certain costs.

Chief executive Gary Marshall said: "We continue to work on finalising the detail of a scheme, and the issuing of a PSL to scheme creditors is a significant step in progressing the scheme and removing the uncertainty of the company's ongoing redress claims liability.

"Without the certainty provided by a scheme, there continues to be material uncertainty that the company could continue as a going concern. Despite the challenges which the business faces, we will work with all our key stakeholders to ensure the best outcome for our customers, and the survival of the company."

At 1055 GMT, Morses Club shares were down 26% at 1.75p.