LENDY investors have been thrown into disarray amid a legal dispute with a borrower and high levels of arrears on the platform.

One of the peer-to-peer property lender’s borrowers is threatening to sue both the platform and its investors for £10m, claiming Lendy unfairly put £8.2m-worth of loans into default, according to email correspondence seen by Peer2Peer Finance News.

This has resulted in the unusual step of details of individual investors being disclosed to the borrower in the event of a claim being pursued.

The claim – which originated in response to Lendy beginning recovery proceedings against the borrower – has been described by the platform as “vexatious” and with “little prospect of victory.”

Lendy – the main sponsor of Cowes Week – has reportedly contacted the Financial Conduct Authority (FCA) about the issue, according to the Financial Times.

Lendy said this was part of its standard procedure.

Investors have contacted P2PFN with concerns around the legal dispute, and are enquiring as to whether they can obtain insurance to protect themselves.

One investor said they are taking their money off the platform, where possible, as they are concerned about missed repayments and poor communication from the company about the reasons for arrears and defaults on other loans across the platform.

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The legal clash comes amid concerns about the health of Lendy’s loanbook. Almost two thirds of the value of loanbook is overdue for payment, according to analysis of the platform’s data.

Meanwhile, Lendy’s profits declined substantially to £605,126 in its annual results for 2017, compared to £2.6m in 2016.

It recently emerged that co-founder and chief executive Liam Brooke has lent money to the company, with a legal charge registered last month in the form of a debenture secured against Lendy’s assets, according to documents filed with Companies House.

Lendy said it was common to have capital contributed by way of a loan and for it to be secured, claiming it shows Brooke’s “continued commitment to Lendy and our community of investors.”

Industry onlookers have expressed concern about contagion from the Lendy debacle and have been keen to highlight that all platforms should not be tarred with the same brush.

“We don’t want to be tarred with the same brush, our models are very different,” said David Turner, chief executive of P2P property platform Invest & Fund.

“We have an experienced credit team and take our time assessing applications, with at least 85 per cent getting rejected.

“Loans are monitored on a monthly basis and reviewed by our credit committee. If things are looking distressed we will look deeper and investors are updated on a monthly basis.”

He said Invest & Fund is considering increasing its minimum investment from £500 to ensure they target higher-net-worth and institutional investors who are more likely to be aware of the risks of investing.

Stephen Findlay, founder of direct lending specialist BondMason, said he was surprised at the level of late payments.

“My greatest concern is for investors, particularly for smaller investors, who may now be exposed to significant losses from their investments in Lendy,” he said.

“This isn’t good news for any asset class – regardless of how the defaults and losses have arisen.

“It is clear from the nature of the loans offered by Lendy, and the scope of the underlying projects, that Lendy were operating at the riskiest end of the property development market.

“What is potentially surprising though, is the scale of late payments within the Lendy loanbook, particularly given the benign economic environment.

“I’m hopeful that investors will be able to achieve meaningful recoveries, and that Lendy now begins to focus on achieving the best possible outcome for their investors – bearing in mind that the platform has been profitable for its directors and shareholders – but time will tell.”

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Neil Faulkner, managing director of P2P analyst 4th Way, said Lendy needed to be more transparent about its loans.

“Any temporary negative coverage in the press will be overwhelmed by the industry’s overall highly positive record for investors,” he said.

The FCA, which awarded Lendy with full authorisation in July this year, said it was aware of the situation.

“We can confirm that we have received the letter,” a spokesperson told Peer2Peer Finance News.

“We are monitoring the issue but we cannot disclose our discussions with individual regulated firms. We expect all platforms to be properly governed, have in place appropriate systems and controls and provide both lenders and borrowers with clear information to make informed decisions. We are currently consulting on strengthening the requirements in this area.”

Lendy said in a statement that it has a dedicated recoveries team that “works to return as much of our investors’ funds as possible.”

“We have added significant experience to this team over the past 12 months,” the statement said.

“We also spend six-figure sums each year on legal fees purely related to recoveries. These costs are borne entirely by Lendy and not investors.

“Lendy is an asset-based secured lender. All Lendy loans are secured on UK property at conservative loan-to-values. As with any form of lending, there is a possibility of loans defaulting.

“However, the possibility of losses to Lendy investors from those defaults is lower, due to the value of the security held.”

In an effort to reassure investors, the statement said Lendy has made “significant repayments” to investors in the past year, including on recoveries of beyond-term loans.

In the past 12 months alone, Lendy’s investors have received £64.1m in repaid capital and £13.4m in interest, the platform said.

“While we are keen to reduce the number of loans that are beyond term these repayments show our model is working,” Lendy said.

“Over the past year, Lendy has become more cautious as the property market faces headwinds from Brexit and rising interest rates.

“As a result, we have been originating fewer new loans on the platform, and the percentage of the ‘live’ loan book made up of current, ‘within term’ loans has fallen. As more loans are repaid, it makes the percentage of remaining loans that are beyond term look artificially high.

“Measuring non-performing loans as a percentage of the ‘live’ loan book is not meaningful – that percentage has no effect at all on the prospects for recovery on non-performing loans.”