Financial pressure can easily lead the unwary into the arms of unscrupulous lenders. One High Court case, in which numerous borrowers found themselves in legal limbo, shows how unwise it is to enter into such transactions without professional advice.

A businessman had, through his company, operated as what he described as a ‘lender of last resort’, offering high-interest loans to those in financial difficulties. Many of the loans were secured by way of mortgages on borrowers’ homes. In fact, neither the businessman nor his company was properly licensed to lend money and most of the loans were likely to have been invalid.

Once his activities were uncovered, the businessman was, amongst other things, sentenced to three and a half years’ imprisonment for various offences under the Consumer Credit Act 1974 and the Financial Services and Markets Act 2000. He was also disqualified from acting as a director for 15 years and, after his release, would for five years be subject to a Serious Crime Prevention Order, forbidding him from conducting any business in the credit sphere.

His company had been placed in liquidation and two of the other corporate vehicles through which he operated had been placed under the management of the Official Receiver. Difficulties arose, however, because of the businessman’s purported assignment of the company’s loan book to the corporate vehicles.

Depending on the validity or otherwise of the assignment, it was either the Official Receiver or the liquidators who bore responsibility for dealing with the fallout from the debacle, including the release of mortgages in respect of invalid or fully paid loans. In the meantime, a number of borrowers remained unable to deal with their properties because of the mortgages registered against them.

In resolving the matter, the Court found that the assignment was invalid, having been entered into after the date on which a petition to wind up the company was presented. It was in any event void, having been entered into at an undervalue with the intention of defrauding the company’s creditors. In the circumstances, the loan book remained with the company and it was for the liquidators to take all necessary steps to protect the interests of the borrowers and the company’s creditors.