Avoiding receivership to maximise investor returns
Receivership should be a last resort for peer-to-peer lending platforms, according to Folk2Folk’s managing director Roy Warren (pictured), and for good reason.
Receivership is an expensive proposition which comes with no guarantee that investor capital or interest will be recovered in the end. For this reason, platforms such as Folk2Folk prefer to focus on creative problem-solving as a first alternative to receivership when it comes to working to recover investor funds.
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“Our policy on receivership is to use it strategically as a tool to maximise investor recovery when all other options have been exhausted,” explains Warren.
“We prioritise the best possible outcome for our investors, working to ensure their capital is protected.
“Receivership is initiated when it becomes the most effective means to recover the loan, leveraging the borrower’s property assets to repay their investors.”
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Receivership is a rare occurrence at Folk2Folk due to the platform’s stringent risk management and proactive management of loans. A commitment to ongoing monitoring allows the platform to mitigate potential issues early. However, when necessary, Folk2Folk will pursue receivership if it represents the best chance of recovering investor capital.
“We carefully evaluate each borrower’s collateral and financial health, ensuring that loans are well-secured,” says Warren.
“Our diligent monitoring and early intervention strategies enable us to address issues promptly, with a focus on protecting our investors’ capital, and maximising their returns.”
With more than 40 years within the finance industry and considerable experience in corporate banking, asset finance, risk and portfolio management, Warren is known for his calm demeanour, cautious approach to risk, and his problem-solving creativity. His depth of experience and knowledge has helped Folk2Folk to maintain an enviable zero loss track record over the years.
In the 11 years since the company was founded, just 12 loans have gone into receivership. In all closed cases, investors were able to recoup all their capital, and in nearly all cases interest was also recovered.
“Our primary focus remains on strategies that deliver the best outcomes for investors,” says Warren.
“We evaluate each situation to determine the most effective recovery method, always prioritising the protection and recovery of investor capital.”
Warren believes that exploring all possible recovery avenues first can often result in better outcomes for Folk2Folk’s investors. Before a loan reaches the receivership stage, the platform might seek to refinance or restructure the loan, or to facilitate the sale of assets.
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“Immediate receivership can sometimes lead to a rushed liquidation of assets, or the perception of a distressed sale, which can very often depress the sale price, resulting in lower recovery values,” Warren says.
“By initially pursuing options like loan restructuring, third party refinance, or asset sales, we aim to maximize the value recovered.
“Only when these alternatives have been exhausted do we move to receivership, ensuring that we have taken all steps to protect and optimise investor returns.”
By treating receivership as a final option, Folk2Folk has been able to protect its investor funds even during rocky economic times. This approach has helped it to become the largest P2P platform in the UK, with a loyal and engaged investor base.
“Driving down the value of the asset together with expensive receivership costs can place investor capital at risk,” adds Warren.
“That’s why it is a last resort for us.”
