The Life Cycle of a Loan Note

We are not fans of unregulated investments but we realise that they look attractive (on paper). In
this blog we explore what makes a Loan Note (LN) look attractive and enticing to potential
purchasers.

The Pot of Money

Often, our clients are hardworking individuals, who have saved all their lives for a retirement savings
amount, or pension. They tell us they just wanted to make the most of this pot of money for various
reasons such as a child’s wedding, a deposit on a house, or a comfortable retirement. They might
have done some searching online and found a loan note opportunity, or a company introducing a
loan note opportunity and pressed the button for “more information”……

The Introducers

Introducers of LN opportunities are never regulated Financial Advisors. This means there is no
recourse if and when things go wrong. However, the introducer will be very friendly and attentive
(sometimes too much so). They will show you a glossy brochure of potential companies to spend
your money on, with big numbers such as 25% returns over 18 months and perhaps a bonus for
rolling up your interest payments to the very end of term (by which time the company is long gone
along with your original sums of money).

There might be logos of reassuring companies on the brochure such as lawyers, accountants,
auditors that the company has “partnered with”, maybe even a mention of a celebrity endorsing the
opportunity. All very exciting.

Do your homework on your introducer. Some of them have very colorful pasts and unethical
practices.

The Company Issuing the Loan Note

The company itself will be bigged up by the introducing company (after all, they want their slice of
the cake aka commission). Glorious stories of past successes of the Directors and their companies.
The company itself will portray itself as irresistible with all its happy previous loan note holders and
completed projects. It will probably have a website too. ….watch out here, be wise to a website with
no names or telephone numbers or in fact, any verifiable detail. Do your homework on the company and Director’s history.

The Security Trustee

A Security Trustee will always get a mention. They are designed to make you feel safe and secure in
the knowledge that in the event of a problem, they will step in and save the day. The reality is, many
are off-shore and unreachable, and those in the UK are not FCA regulated, which again means there
is no recourse in the event of a problem.

Let’s look at Castle Trust & Management Services Ltd (in-Liquidation) (CTMS) – Steven Knight with all
his credentials and his regulated company by the Gibraltar Financial Services Commission (GFSC) was
in a supreme position of authority and responsibility. Lots of people parted ways with their money
because they perceived CTMS as “safe” place.

The GFSC regulates financial services providers in Gibraltar (this included CTMS) and step in the
Auditors Regulatory Committee (ARC) who in turn governs the GFSC. The committee is responsible
for ensuring the GFSC carries out its duties and functions under the Financial Services Act 2019. 
Many of the companies CTMS provided Trustee services for in the UK folded and not a single squeak
of help from CTMS materialized. Worse still, the GFSC has not poked its head over the parapet and
the barrage of complaints and questions have only provoked inadequate copy and paste responses.
We are unaware of any action by the ARC.

We are not aware of ANY situation where a Security Trustee has stepped in and saved Loan Note
Holders – if there any out there, please make yourselves known and seriously, we will promote you
because you are a hero in our book.

Do your homework on Security Trustees.

The Paperwork

No shiny new LN is complete with the administration side of things. You will get a LN Certificate, a
Deed of Accession from the Security Trustee which will probably be rubber stamped with a seal to
make it look even more official. You will probably have contact with someone with a reassuring title
like “Investor Relations” making you feel important.

The Reassuring Updates

If you’re lucky you will then get reasonably routine updates telling you all about where your money
has gone and is being spent, possibly with some photos to support the update. Sadly, the photos are
sometimes stock photos and the updates baseless. More often than not, you get nothing at all,
including your interest payment or redemption payment.

The Washer-Upper

Eventually interest payments wane or disappear altogether, the redemption dates come and go,
emails and calls go unanswered and the LNH’s options narrow. If you are too late, the company
knowing that its time is nearly up, will place itself into a voluntary arrangement with it’s favored
undertaker (Insolvency Practitioner), whereby it escapes thorough investigation, disqualifications or
any sort of reprisal. Eventually it will be dissolved. The LNH money is gone.

Rising from the Ashes

Once the dust has settled and people have moved on, the Director pops up again with a brand new
company, probably a similar venture, and with a new glossy brochure and a team around him to
rinse and repeat. We see it all the time. It’s like the life cycle of a flea…..
Options

1. Do your homework before parting with your savings or pension – Insolvency & Law can
   investigate and provide a fact-based report on Companies/Directors.
2. If a company you have placed funds with has gone into a statutory procedure, a Third-Party
   Action can be investigated and initiated by Insolvency & Law.
3. If you are in time and the company is still trading, you can use our Debt Assignment service
   to recover your money.

Finally:
– If you have a company or person of interest that you would like to have investigated for a fact-
based report, please get in touch investigations@insolvencyandlaw.co.uk.
– If you are owed by money by any company that is refusing to pay for whatever reason, and you believe
the debt to be rightly due to you, please make contact to Insolvency & Law via
investigations@insolvencyandlaw.co.uk to discuss your options.