Voluntary action group secures millions for investors in defunct Secured Energy Bonds

Hundreds of people, who invested in a solar panel project, have got back money back after a four year battle

 

The 900 people who invested  £7.5 million and looked to have lost all, are now being compensated by the Financial Services Compensation Scheme (up to the scheme’s maximum £50K limit) as the result of the collective action of a small group of investors. 

 

All looked gloomy, when investors in Secured Energy Bonds (SEB) came together on a warm April day in 2015 for the creditors meeting called by administrators Grant Thornton.  

 

It had all looked so different 18 months before, when investors flocked to invest in a seemingly ethical project to put solar panels on selected UK businesses and schools across the country with a decent rate of return of 6.5% over three years. 

 

As with all investments, there were stated risks. The banks were not lending much at the time and the project initiators were seeking to raise the funds from retail investors.  However, investors’ concerns were satisfied by the actions and undertakings of Financial Conduct Authority (FCA) regulated firm Independent Portfolio Managers (IPM). 

 

IPM approved the financial promotion of the mini-bond which, in the investors’ eyes, gave legitimacy to the mini-bonds.  IPM also took on the additional roles of Corporate Director and Security Trustee, ostensibly for the purpose of protecting bondholders’ interests.  

 

Despite any reservations there might have been, this mini-bond seemed pretty safe, just so long as all involved did what it said on the tin (i.e. fulfilled the promises made in the Invitation Document) and the sun continued to shine!  The solar panels were to be fitted to commercial buildings and schools so that, even if some problems arose, those assets would be in place to claim against. 

  

All went along smoothly for the first year, the quarterly interest payments being made as expected.  The first sign of trouble was in January 2015 when the fourth interest payment was not honoured.  The problems arose when a large amount of the £7.5m raised, intended to fund the solar panel installations, was siphoned off by the Australian parent company, CBD Energy, for other purposes.  Unknown to SEB investors, CBD Energy had been placed into administration towards the end of  2014.  

  

The creditors’ meeting was the first opportunity to meet any of the other investors who had similarly put their money into SEB in good faith.  There was a lot of anger and a decided lack of optimism.  A few of us met afterwards, agreed to stay in touch and established an email contact list so that investors could be kept informed about what was going on.  It was this group that rapidly became the SEB Investors’ Action Group (SEB-IAG). 

  

There was media coverage and contact was made with MPs to highlight our plight.  Investors were directed by the Financial Conduct Authority (FCA) to contact IPM in the first instance, then if their response was not satisfactory to go to the Financial Ombudsman Service (FOS).  A number of investors took this route. 

  

In September 2015, it was doubly irritating to learn that, on their website, IPM were boasting about their “high quality investment analysis and research on UK and offshore collective investment schemes” and their “expertise in the solar park industry”.  They were also boasting that they’d  “launched the first successful secured mini-bond in the UK”.  

 

In 2014, IPM took on a similar role in approving the financial promotion of other mini-bonds such as Providence Bonds plc and Providence Bonds II plc, which also subsequently went into administration in September 2016. 

  

The initial response of the FOS to investor complaints was favourable, indicating that they were minded to look at the investors’ case against IPM.  However, with a change of adjudicator, this then changed – in January 2016 the FOS adopted the opposite viewpoint. 

 

The SEB IAG highlighted the FOS’ reversal of opinion to more MPs, made representations to the Treasury Select Committee and to the FCA.  Legal firm, FS Legal, had already been appointed by the SEB-IAG to represent those investors who needed support in handling their claims with the FOS. 

 

However, it was at this point their brief had to change as it was evident that the negative opinion on ‘jurisdiction’ would need to be overturned to enable investors to have their claims considered by the FOS.  A barrister’s opinion was obtained – this was instrumental in getting the FOS to change its position. 

  

In January 2017, after deliberating over matters for more than a year, the FOS indicated they’d changed their position and, in April of the same year, issued a decision on a “sample case” which found that there was a customer relationship between investors and IPM – this meant that the FOS could look at the complaints. 

 

It wasn’t until June 2018 that another “sample case” investor received a Final Decision from the FOS, which ruled that IPM’s involvement was not only approving the promotion documents as “fair clear and not misleading” to retail investors but that it “had an ongoing role in the investment scheme” and was “central to the security and quality assurance arrangements” of SEB.  It also ruled that the security that was put in place for the mini-bond was flawed, “leaving the security secured, in effect, on nothing. This was a fundamental flaw and one which IPM should reasonably have spotted.” 

 

IPM were then ordered to repay the “sample case” investor their capital sum plus compensation but failed to do so.  For this reason and for other failings, the FOS declared IPM “in default” in the summer of 2018.  Consequently, the complaints against IPM were transferred to the Financial Services Compensation Scheme (FSCS) and IPM has subsequently gone into liquidation.  The SEB-IAG continued to guide investors in dealing with the different elements of the new scheme. 

  

The move from the FOS to the FSCS inevitably meant more delay for investors but, in March this year, the FSCS began paying out on SEB and Providence Bonds investors’ claims against IPM.  The FSCS deserves praise for the speed and professionalism with which they were able to quickly assess the complex evidence that existed against IPM in relation to their involvement in approving both the Secured Energy Bonds and Providence Bonds.  This evidence was assembled and provided by the relevant legal representatives and Investor Action Groups for each bond.  The FSCS have ruled in favour of investors and have now set out an award for all those involved - although less than originally set by the FOS, it represents a huge victory nonetheless. 

  

Investor and key member of SEB-IAG, Fiona Pitkeathy said: “The collective actions of a few people on that April day and over the past four years have resulted in success for all those who invested in SEB and Providence Bonds  -  a cause for celebration as these investors thought they might never see their money again. 

“However, as the SEB-IAG intends to continue to campaign for regulatory reform for better protection of retail investors, it is hoped that our actions will eventually result in significant benefits to investors across the country.” 

 

Baljit Ruprah, Legal Director and Solicitor at FS Legal Solicitors LLP said: “We have worked very closely with the SEB-IAG throughout this matter and they have been a pleasure to work with. We are of course delighted that so many investors have been compensated and hope that they can move on from this dark chapter in their investment lives as soon as possible. In my view, the FCA need to work harder to ensure that all parties involved in the investment process are regulated properly so that retail investors are offered full protection at all times.  Only then will consumers regain confidence in the industry, thereby giving the industry a chance to thrive.”  

 

It has been a long hard battle which, for a very small number of committed people in the SEB –IAG, has taken up huge amounts of time.  However, the result is enormous.  Hundreds of investors are finally being reunited with their money, due in large part to the voluntary actions of a few. 

- also see: https://www.thisismoney.co.uk/money/investing/article-7447777/SEB-mini-bond-investors-win-5m-payout-FSCS.html

https://www.theguardian.com/money/2019/sep/07/not-so-grand-the-fca-must-protect-investors-in-high-risk-mini-bonds