Godwin Capital Freezing Order Puts Loan Note Losses Back in Focus

Loan notes are a form of debt investment where an investor lends money to a company in return for a promise that the money will be repaid with interest at a later date.

In a property-related loan note scheme, like Godwin Capital’s, investors loaned money to the company to fund residential, student, and commercial property projects across the UK. Investors were promised repayment with interest within a certain timeframe but, as is typical in loan note schemes, repayment depends on the company’s ability to generate sufficient money to meet its obligations, for example by progressing the developments, selling assets, refinancing, or raising further funds.

The marketing of loan note investments can sound reassuring, particularly where investments are described as “secured”, “asset-backed”, “property-backed” or linked to specific developments. However, loan notes (also called mini-bonds) can be high risk and are generally not suitable for ordinary retail investors.

Investor returns can depend heavily on the financial health of the company issuing the notes. If a development does not progress as expected, or the company runs into financial difficulties, investors may face delays, missed interest payments, or capital losses.

The Financial Conduct Authority (FCA) is the UK’s financial watchdog, responsible for regulating financial services firms and markets, setting standards for authorised firms and taking action when firms fail to meet those standards.

The FCA has warned consumers about high-risk investments from unregulated firms, including unlisted loan notes and mini-bonds. These products are often used to finance property developments and can carry a high risk of investors losing all of their money.

High fixed returns should usually be treated with caution. If an investment offers returns significantly higher than those of mainstream savings or investment products, investors should ask why. Higher returns generally mean higher risk.

There may also be questions about what investors understood by terms such as “secured”, “asset-backed” or “property-backed”. Those words can create a sense of reassurance, but investors may still face losses if the security is insufficient, difficult to enforce, ranks behind other creditors, or does not cover the amount owed.

Where the company offering the investment is not regulated by the FCA, investors may have fewer direct protections. They may not be able to complain to the Financial Ombudsman Service (FOS) about the unregulated company itself. FOS is the government-backed, independent body that helps resolve complaints between consumers and regulated financial businesses.

Investors may also be unable to claim directly through the Financial Services Compensation Scheme (FSCS) against the unregulated investment company. The FSCS is the UK’s compensation scheme for customers of authorised financial services firms that have failed.

However, investors should not assume there is no route to recovery simply because the investment company is in administration. The available options will depend on the wider investment journey.

Some Godwin Capital investors may have a claim, depending on how they invested and who was involved.

If a regulated financial adviser recommended the investment, there may be questions about whether the advice was suitable, whether the risks were properly explained and whether the investment matched the investor’s experience, financial position and attitude to risk.

Where pension money was used, the role of any SIPP provider, pension intermediary or adviser may also need to be considered. These cases can involve questions about due diligence, whether the investment should have been accepted into a pension wrapper, and whether appropriate checks were carried out before investor money was transferred.

There may also be issues around bank transfer payments. Authorised push payment fraud (APP fraud) usually involves someone being tricked into sending money from their own bank account to another account. If an investor was persuaded to transfer money as part of a misleading or fraudulent investment opportunity, there may be a possible APP fraud or bank negligence issue, depending on the facts.

In some cases, recovery options may go beyond a refund complaint. Depending on the evidence, civil recovery action and/or private prosecution may also be explored.

Sarah Spruce, Partner at TLW Solicitors, said:

“Property-backed loan notes can sound reassuring, particularly where investors are told their money is linked to development projects, fixed returns or security over assets.

The difficulty is that these products can still be high risk. Investors may not always understand how their money will be used, what security is actually in place, or what happens if the company issuing the notes enters administration.

If you or a loved one invested in Godwin Capital loan notes and have lost money, it is important to look at the full chain of events. That includes who introduced the investment, what was said about risk and security, whether financial advice was given, whether pension funds were used, whether any regulated firm was involved and how payment was made.

Those details can make a significant difference to the recovery options available. Strict time limits can apply to financial complaints and compensation claims, so I would urge you to get in touch with our specialist financial mis-selling team as soon as possible.”