Morses Club to pursue a potential scheme of arrangement

The move is designed to deal with customer redress claims for unaffordable lending to the company. A key objective of this potential scheme would be to treat all customers equitably and settle eligible redress over a period to be defined. 

Directors of the business believe that a successful scheme would provide more certainty in respect of the total liability for redress claims and help to secure the longer-term stability of the company. 

The firm’s directors have also said that while it considers that Morses Club has adequate liquidity for the immediate future, they believe without a potential scheme, the level of redress claims could jeopardise the group’s future. 

It added that it will continue to explore alternative options to a scheme but it’s likely the alternative options would result in those with redress claims receiving considerably lower amounts than they would under the scheme. 

Off the back of this, the company has provided the Financial Conduct Authority (FCA) with its proposals and is engaging with them regarding a potential scheme and its future business model. 

It’s also taken steps to appoint an independent chairperson to set up a customer committee to represent eligible customers and assist the company in developing any potential scheme. Details of any potential scheme are to be announced in due course. 

This scheme would be subject to the approval of the requisite majority of affected customers and, thereafter, the court. 

The business has also provided a financial update for the end of the 2022 financial year. Due to the emerging position relating to complaints in advance of a potential scheme, an additional provision of £45m is expected to be recognised in the 2022 financial year accounts as an exceptional item. 

The impact of the uphold rates on complaints and adviser fees resulting from additional audit work means that the adverse effect on adjusted profit before the 2022 financial year is now likely to fall within the range of 30% to 40% discount to market consensus. 

The company’s current funding facility of £35m is in place until March 2023 and is having ongoing discussions with the funders about a proposed extension to the facility and amendments to the covenants. 

As part of this, the firm has tightened its lending policies and - as a result - has seen a decline in sales volumes. In addition, the structure of the loan book has changed due to a higher concentration of new customers. 

The directors believe, therefore, that for the year to 25 February 2023 - which is a transition year in which legacy issues can be largely resolved - it will be unable to make a profit. Because of this, the board will not recommend a 2022 financial year final dividend to shareholders in order to protect the group’s cash position. 

As such, the short-term focus for the company is the establishment of a scheme - the outcome of discussions with the FCA about the company’s business model and securing funding facilities beyond March 2023. 

It does, however, believe the medium to longer-term market conditions are favourable, due to the exit of other significant competitors from the sector and the impact of the current economic situation in the UK on customer demand. Its board, therefore, is confident the group can return to profitability during the 2024 financial year. 

Commenting on this news, Morses Club’s chief executive Gary Marshall said: "As the UK’s leading home collected credit provider, we provide a valuable service to thousands of our customers who are unable to access mainstream credit providers and are likely to need even more support given the current economic climate. 

“A successful scheme of arrangement would provide more certainty to the total liability arising from customer complaints and ensure that we can reshape the business for the future. 

“The potential scheme is intended to provide a fair settlement for all eligible customers, whilst securing the company’s future and enabling us to continue to provide access to credit for an underserved and growing demographic."