Wonga, the payday lender which was once one of Britain's fastest-growing consumer finance companies, is on the brink of collapse this weekend following a deluge of customer compensation claims.

Sky News has learnt that the company has lined up Grant Thornton, the professional services firm, to act as administrator if its board decides in the coming weeks that it is unable to avoid becoming insolvent.

Sources close to Wonga said that it could appoint Grant Thornton as soon as this week.

The fall into administration would underscore Wonga's remarkable decline just five years after it harboured ambitions of pursuing a New York stock market listing that could have valued it more than $1bn and turned it into a British technology 'unicorn'.

Wonga's decision to explore the appointment of administrators comes three weeks after Sky News revealed that the company had received an emergency £10m cash injection to keep it afloat.


One insider said on Sunday that the cash call had prompted a fresh surge in compensation demands from claims management companies (CMCs).

Image: Wonga raised its profile by sponsoring Newcastle United in a deal which ended two years ago

Executives from Wonga are understood to have been in detailed talks with the Financial Conduct Authority, the City regulator, in the last few weeks to discuss the company's options.

Their priority was said to be an outcome reflecting the needs of both customers and creditors, with a pre-pack administration process similar to that used recently by House of Fraser a possibility.

That would involve a buyer acquiring some of Wonga's operations, potentially preserving a chunk of the company's 500-strong workforce.

Grant Thornton is said to have been working with the payday lender, which is chaired by the former RSA Insurance boss Andy Haste, for several months.

Wonga, which launched in 2007 and became a byword for sky-high interest rates on short-term loans, is owned by a collection of the venture capital industry's best-known names, including Balderton Capital, Accel Partners and 83North.

It grew its loan book rapidly, using technology to tailor offers to customers, but ran into difficulty in 2014 when the FCA introduced a cap on the cost of short-term credit for consumers.

The company's recent fundraising is understood to have taken place at a valuation of just $30m (£23m) prior to the injection of the new money - a stunning decline for a company that was hailed as one of the UK's leading financial technology prospects.

Image: Protesters demonstrate against Wonga in central London in 2014

Tara Kneafsey‎, Wonga's chief executive, informed fellow directors several months ago that an increase in the volume of complaints about loans made before new rules were introduced in 2014 had triggered a big rise in compensation payouts.

Sky News previously reported that Ms Kneafsey had warned in late May that the company risked becoming insolvent without a capital injection.

Wonga's cashflow had become so tight that its board has also been evaluating the sale of some of its assets, including its valuable Polish subsidiary.

Ms Kneafsey is also said to have highlighted a pending decision by the Financial Ombudsman about the time limit for legacy complaints about irresponsible lending as another headache for Wonga.

The new capital injection was made more complicated‎ by the requirement for Wonga's UK arm to provide cash to its parent company in June.

Directors of the British division could have risked breaching their ‎legal duties if they had sanctioned the transfer of funds to an insolvent company.

Wonga, which employs about 500 people, has been loss-making for the last few years after encountering a string of regulatory hurdles such as the City watchdog's cap on the cost of short-term loans.

The company, which lost about £65m in 2016, had been targeting a return to profitability last year, although it is unclear whether that objective was met, with its 2017 results not expected to be published for several weeks.

Image: The company recently received an emergency £10m cash injection to keep it afloat

Wonga declined to expand upon a comment made earlier this month in which it said: "Wonga continues to make progress against the transformation plan set out for the business.

"In recent months, however, the short-term credit industry has seen a marked increase in claims related to legacy loans, driven principally by claims management company activity.

"In line with this changing market environment, Wonga has seen a significant increase in claims related to loans taken out before the current management team joined the business in 2014.

"As a result, the team has raised £10m of new capital from existing shareholders, who remain fully supportive of management's plans for the business.‎"

Wonga, which raised its profile by sponsoring Newcastle United in a deal which ended two years ago, continues to trade in countries including South Africa and Spain.

Its board had been targeting a return to profitability this year.

It has been trying to improve its image by launching a flexible loan product as it seeks to diversify away from the short-term lending activity that sparked political and public controversy.

The entire payday lending sector has been hit by the Financial Conduct Authority's price cap, with dozens of providers going bust since its introduction in 2014.

In 2014, Wonga was ordered by the City watchdog to pay more than £2.6m in compensation to 45,000 customers who were sent letters purporting to be from law firms but which in fact did not exist.