In what has been widely seen as a cautionary tale for the alternative-finance industry, lenders who issued cash through collapsed platform TrustBuddy have learned that they will lose 25% of any recovered funds, because of costs.
The Swedish firm folded on 19 October, announcing its bankruptcy in the wake of allegations that it had misused client funds to shore up its own books.
TrustBuddy’s failure came as a severe blow to the emerging wave of new-style financial-services providers. Outwardly successful, it was the first ever peer-to-peer (P2P) lender to achieve a stock-market listing, floating on the NASDAQ OMX First North index in 2011 following a reverse takeover of the already-listed 360 Holding.
Now, three months on from the debacle, Swedish law firm Lindahl – handler of TrustBuddy’s post-bankruptcy affairs – has told people who backed loans through the platform that their full stakes will not be returned, even in the event that those monies are recovered.
In a letter to the platform’s users, Lindahl wrote: “The last few days we have received many questions about our intentions on managing the outstanding P2P loans in TrustBuddy. The questions mainly originate from… representatives of a number of Norwegian lenders, each of whom has [a] larger outstanding loan.”
It added: “The claims belong to the lenders due to right of separation. When it comes to outstanding claims, each individual lender has a right of separation if his/her claim can be individually identified. Regarding received payments on loans, which were in the bankruptcy estate’s proceeds on the date of bankruptcy, there is a collective right of separation for the lenders.
“The collective right of separation applies to so-called ‘active capital’, ‘stopped capital’, and partial payments on loans, which were not reported back to lenders but lent out again, without being applied to any particular lender.”
Despite those rights of separation, though, Lindahl revealed: “The bankruptcy estate asked collection agencies to submit offers on collecting the claims on behalf of the lenders. We received two well-grounded offers, meaning a final cost for the lenders amounting to 25% of recovered claims, following nine months after starting the collection.”
Attempting to soften the blow, Lindahl added that the agencies would not charge any fees during those initial nine months – but hinted that backers could see their stakes whittled down yet further. “ln addition to these costs,” it wrote, “there would be costs for the bankruptcy estate to deal with the collection on behalf of the lenders.”
Lindahl’s letter has compounded the disappointment of TrustBuddy’s lending community, which had every reason to believe that the platform was on a meteoric rise. In November 2014, three years on from the breakthrough 360 Holding deal, it acquired Dutch rival Geldvoorelkaar and Italian competitor Prestiamoci.
However, last year TrustBuddy announced that “too much non-performing debt” in its P2P portfolio had caused wider financial difficulties. In August, the company hired new management in the shape of former Klarna vice president of global financial services Philip Mikal – but two months later, it emerged that Mikal himself had uncovered irregularities, and the company immediately shut down.
A statement on the TrustBuddy website from board chairman Simon Nathanson reads: “As a result of the misconduct, our ongoing discussions with stakeholders, lack of liquidity and inability to operate a regulated operation, TrustBuddy cannot move forward with the business.”
Below that statement, Lindahl partner Lars-Henrik Andersson – who is overseeing the post-bankruptcy process – writes that his focus is “to fully understand the critical questions of the business in order to find the best way to safeguard the interests of the creditors and other stakeholders”, adding that his firm now controls all of TrustBuddy’s assets.
Monitor the progress of the Lindahl investigation at this webpage.