Motor finance litigation funder collapses

Woodville Consultants, which provided loans to UK law firms to pursue car finance misselling claims, has gone into administration with its collapse potentially leaving dozens of investors in its loan notes out of pocket and raising questions about the viability of this type of litigation funding model.

The company, based in Pontypridd, is said to have funded over 300,000 claims since 2019, and is believed to have been working with up to six law firms in the motor finance sector.

It raised funds by issuing loan notes, which were said to attract interest at 10% per annum on one-year bonds, 11% on two-year bonds and 12% on three-year bonds, with “a fixed income (paid quarterly)”.

A group of investors who had invested in Woodville loan notes that later defaulted have successfully applied to the High Court to have the business placed into administration.

The judge hearing the case, which was brought by the London restructuring and insolvency team of US law firm Crowell & Moring, said: “There are plainly unsecured creditors owed sums in the hundreds of millions of pounds, and no clear route to those individuals being paid.”

FCA pause

The court heard that Woodville’s latest filed consolidated accounts, for the year ended 26 December 2024, recorded net assets of around £12.6 million, but cash of approximately £4.3 million against debtors of approximately £261 million, and loan-note and bond liabilities of approximately £243.7 million, of which some £134.4 million fell due within one year.

Woodville’s explanation for the delay in making loan note repayments was the current pause in the rollout of the Financial Conduct Authority (FCA) redress scheme.  This was due to be implemented earlier this year, but a legal challenge from three captive lenders and a consumer group mean that it is unlikely to come into operation until 2027 and may be substantially revised or even withdrawn, creating delays and uncertainty.

Flawed model

Describing Woodville’s investment scheme as “flawed from the outset” the judge noted that: “Even if that is the reason for the company’s inability to make payment in respect of fixed coupon payments or returns of monies invested, that is a problem of the company’s own making, in that its contractual arrangements are inflexible as regards the timing of those payments. In any event, that does nothing to address the company’s insolvency. It is unable to pay its debts as they fall due.”

“The Woodville model was fundamentally flawed because they contracted to pay high, fixed quarterly returns to investors from the outset despite the fact that there was no certainty as to when or whether claims would be successful and how much would be recovered.

“Given these uncertainties, it is difficult to see how the model was ever workable. This position was exacerbated as a result of the intervention of the FCA and the subsequent suspension of the redress scheme, which has effectively put all PCP redress claims on hold, resulting in the suspension of any recoveries on claims.”

Administration

A team from Kroll Advisory have been appointed as administrators, and Muscott said they would be working with the law firms “to assess the status of the loan book portfolio, the progress of the law firms generally and to take actions, where appropriate, to preserve the underlying consumer claims to maximise realisations and repayment to Woodville”.

Muscutt indicated early investigations suggested that Woodville had received more from investors than was currently held to be the case, and that the amount ultimately advanced to law firms to finance litigation and the amount spent on commissions and other purposes is currently under review.

“We will also be looking at the conduct of the directors, associated parties and the introducers who are suspected of wrongdoing and misapplication of investor funds,” he added.

Muscutt pointed out there have been a number of failures in this sector recently, resulting in the Solicitors Regulation Authority (SRA) expressing the need for tighter controls in the sector, to protect clients and ensure solicitors comply with their duties.

The FCA, the SRA, the Advertising Standards Authority and the Information Commissioner’s Office (ICO) have joined forces to tackle the poor handling of motor finance claims by some lead generators, claims management companies (CMCs) and law firms.