Morses Club Shares Plunged 21% on New Scheme of Arrangement

The Morses Club PLC (LON: MCL) share price plunged 20.8% after issuing a Practice Statement Letter (PSL) and an update regarding the scheme of arrangement it will submit for approval by the courts next year. 

The lender also proposed to fund the scheme of arrangement via an equity raise, where it will issue 19 new shares for each existing share, diluting existing shareholders by at least 95%, which triggered the drop in its share price.

The company noted that if the affected creditors and customers seeking redress from it do not approve the scheme of arrangement, it would have no choice but to commence insolvency proceedings.,

Readers familiar with our coverage of Amigo Loans, another guarantor lender, will notice the similarity between Amigo’s scheme of arrangement and Morses Club’s, given that both serve the same market and had similar fee structures in the past.   

However, while Amigo is about to resume lending activities after the High Court approved its scheme of arrangement a few months back, Morses Club is still in the early stages of its proposed scheme of arrangement.

The most apparent similarity between the two companies' schemes of arrangement is the share issue, which is very similar as both firms intend to issue 19 shares for each existing share resulting in the significant dilution of existing shareholders. 

Morses Club has proposed a £20 million compensation fund for the scheme, with £15 million coming from the equity raise and the remaining £5 million coming from its finances or the realisable value of its assets. 

Failure to adequately fund the compensation pool will lead to the commencement of insolvency proceedings against Morses Club. Therefore, unless the affected customers approve the new scheme, the lender will have no choice but to cease operations. 

Investors’ adverse reaction to today’s announcement underlines the finality of the scheme of arrangement and the significant risk of insolvency for Morses Club baked into the scheme. 

So, would I buy Morses Club shares? The short answer is no. The subprime lender is at risk of insolvency, which could see ordinary shareholders lose everything.

*This is not investment advice. 

The Morses Club share price. 

The Morses Club share price plunged 20.83% to trade at 1.9p, falling from Monday’s closing price of 2.4p.