Wonga: what happened, and what's next?

Sara Williams, of Debt Camel, looks at what’s happening to payday lender Wonga, now that it’s in administration.

On 30 August 2018, Wonga announced that it was no longer issuing new loans, and that WDFC UK Limited – the company that operated Wonga in the UK – was being placed into administration, together with other group companies. Grant Thornton was appointed as administrator the following day.

Following the progress of an administration

You can see what's happening when a company is in administration in the company profile section of The Gazette. Here is Wonga’s WDFC UK Limited profile:

wonga gazette profile

As you can see from the snapshot above, Wonga’s entry (1) has the label ‘in administration’ beside its name and (2), the registered address has been changed to that of the administrators. The timeline section of a company’s profile shows all official notices that have been filed with The Gazette and at Companies House.  

Administrators must issue a statement of administrator's proposals to all known creditors. This includes an account of the circumstances that led up to the administration, a description of how the administrator is managing the company’s affairs, and how they intend to secure the best possible outcome for creditors.

The statement of administrator’s proposals for Wonga is here. I’ve highlighted some points that will be of interest to Wonga’s customers below.

Why Wonga went into administration

Caroline Clark recently wrote a Gazette piece outlining What is insolvency, and how does a director recognise it?. As the article says, a company is also deemed unable to pay its debts as they fall due if the value of the company's assets is less than the amount of its liabilities, taking into account contingent and prospective liabilities.’

The ‘Background to the Appointment of The Administrators’ section in the proposals for Wonga explains how, at the start of 2018, the directors were planning to secure funds for expanding in the UK. At that point, the directors thought that the costs of resolving legacy borrower claims, which were running at about 4,000 complaints a month, were manageable.

But in March 2018, Wonga was told that the Financial Ombudsman was likely to decide that it could look at complaints about irresponsible lending that were more than six years old. This would significantly increase the refunds Wonga would have to pay, above what it had been expecting. The directors then raised additional equity to improve the company’s position in July.

During July, the number of complaints Wonga received more than doubled to over 8,000 and continued to increase in August. The directors decided that that the cash flow impact of this meant that the business was no longer viable, and it would have to go into administration.

Managing Wonga in administration

Administrators sometimes have an option of selling a business as a going concern, but this was not an option in this instance, as Wonga had stopped lending.

As Wonga loans are so short-term, the administrators decided it would realise more money for creditors if Wonga’s collections operation was continued, rather than selling the recent loans at a discount. When Wonga went into administration, the total value of loans that were not in arrears was about £20 million – of this, over £9 million had been collected in the first six weeks.

Loans that are in arrears would be considerably harder to collect, and the administrators are considering a possible sale of these loans.

Customers owed refunds

An unusual aspect of the Wonga administration is the large numbers of Wonga customers who may be what the administrators call ‘redress creditors’. These are customers – current and former – who say they were mis-sold loans that were unaffordable by Wonga. The standard compensation where this sort of claim is upheld is a refund of the interest paid plus statutory interest at 8 per cent.

At the end of August, there were about 24,000 claims with Wonga awaiting a decision, and over 9,000 with the Financial Ombudsman, where the customer had rejected Wonga’s decision. Further claims have continued to arrive since then at the rate of 200 to 500 per day.

The previous manual complaint procedures would be so costly for large numbers of claims that there would be no money left to pay any refunds. The administrators therefore intend to develop an automated claim assessment tool that will mirror the Financial Ombudsman’s approach to determining affordability complaints.

Redress creditors will not be paid in full

Customers who have their claims agreed will be unsecured creditors. The administrators say there is expected to be enough money to repay all secured creditors, but unsecured creditors will only receive a percentage of their claim.

Until the number of the redress creditors and the value of their claims is known, it won’t be possible to say how much people will receive.

Timescales and future developments

The administrators intend to advertise nationally for any Wonga customers who may be owed a refund to come forward. They will be able to submit their claims directly to the administrators, with no need for a claims management company.

The administrators expect it will take more than a year to complete the administration. Their next report on progress to creditors will be in March 2019.

About the author

Sara Williams is a debt advisor. She blogs about debt advice and debt news at Debt Camel and tweets at @debtcamel, and will be covering further developments at Wonga refunds: latest news.