Intricacies of the TrustBuddy Bankruptcy

By Ryan Weeks on 7th December 2015

P2P/Marketplace Lending

The liquidation of failed Swedish lending platform TrustBuddy is proving uniquely complex.

Intricacies of the TrustBuddy Bankruptcy

TrustBuddy filed for bankruptcy on October 19th, after having suspended services on October 12th, in wake of evidence of “serious misconduct” by the former management team. By early November, it had become clear that the liquidation process – which is being orchestrated by Lindahl – is plagued by complexity. The core issue pertains to the ownership of TrustBuddy’s outstanding loan book, which as of October 8th amounted to approximately SEK 302 million. In short, it is a question of whether the outstanding loans are the segregated property of the platform’s individual lenders, or the property of the bankruptcy estate.

As a means of returning value to the platform’s lenders, Lindahl had mooted the idea of selling off the loan portfolio “to the highest bidder”. This course of action was met with a fair degree of opposition. As one particularly disgruntled individual wrote in an update at the time: “The loans remain the segregated property of (me) the lender.”

That now appears to have been formally recognised by Lindahl. In a letter addressed to TrustBuddy’s lenders which was published towards the end of last week, the liquidator laid out its approach.

First, however, note that this is an immensely convoluted bankruptcy process – owing largely to the fraudulent manner in which it transpires the TrustBuddy platform operated. See, for example, the following quote from Lindahl, which provides some indication of the manner in which lender money was managed:

“… some partial payments from borrowers may not have been reported back to the lenders of current loans (and have instead been lent out again by TrustBuddy).”

But the more interesting story here revolves around what happens next. Lindahl has confirmed that several lenders had been in touch to express the view that their interests would be better served if the outstanding loans were pursued – with the help of debt collection agencies – rather than simply sold off. Following that response, alongside a recognition of the lenders' segregation right, Lindahl has settled upon the following solution:

“We will contact a number of lenders and present the bids we have received and simultaneously make an offer to the lenders where we would set up an organization to collect debts on their behalf. The bankruptcy estate will naturally demand payment for their work and the cost of the debt collection in this option becomes relevant.”

At present, there appears to be no clear time frame for the return of lender funds. The priority in the short term is to determine exactly how client funds ought to be divided and how the outstanding loans should be managed. When these two matters have been cleared up, the liquidator expects to begin making “partial distributions”, but Lindahl has warned that it will be “some time” before this comes to fruition. 



18 Dec 2015 09:53pm

Given that the right of segregation of lenders funds has been accepted I am as a lender entitled to the full amount of interest on each outstanding loan, less any debt collection agency fees. For example say I am now looking at a value still on loan, two months after Trustbuddy ceased trading, of 18,000 GB pounds (it could be 1,800 or 180,000). Also a repaid value that reduced this from my original balance of say 24000 GB Pounds. On the 18,000 that has not been repaid I am now also owed a cumulative sum of 12% per month by the borrowers since October and maybe before. By my calculation of 12% monthly cumulative on 18,000 GBP I am now owed a further 4500 GBP in interest. I am still thinking along the lines of Trustbuddy not wanting as a running business to drag a lot of payday loan suckers through the bankruptcy process because it would have been bad publicity. But there are a lot of stupid people out there who borrowed from Trustbuddy and have legally enforceable contracts with the lenders. My feeling is that the debt collection agencies will see this as manna from heaven. Ultimately kids that use mobile phones to borrow money and already pass credit checks have rich parents and will not go bankrupt for a few hundred or a few thousand dollars. They are however incredibly stupid and will ignore the problem until the baliffs turn up. At which point mum and dad will cough up. Assuming there was a switch from ineffective trustbuddy debt collection to effective independent debt collection most of the outstanding loans could easily be recovered with substantial profits. These profits should accrue to the general benefit of the lenders and not to some opportunistic debt collection agencies. The risk is that the liquidators will seek a quick way out rather than a way of maximizing the returns for the lenders. Because at the moment I am looking at an interest rate on my un-repaid loan value of 400% per year. So in one year's time the value of my Trustbuddy loans against the estates of the borrowers will be 72000 GB Pounds. The only way of truly avoiding the debt is personal bankruptcy which few borrowers will really want t go through for the sake of a few hundred dollars. However it is more interesting in the case of the lenders' funds that were stolen by Trustbuddy directors. The opportunity for lenders was 12% so in practice the Trustbuddy directors, management and staff who 'borrowed' genuine lenders funds should also be liable for a 12% interest rate on the misappropriated funds. I can wait.


10 Dec 2015 11:03am

I note in their letter that not only do they point out that the bankruptcy estate will require payment but also the debt collectors. Not knowing Swedish law I am unclear who will pay these costs. In England the debt collector adds a charge to the sum owed by the debtor and collects their fee via this mechanism, whether this is the case in Sweden is unclear. Further it is also unclear what payment the bankruptcy estate would require over and above the charges due under the platform rules originally applicable? If anyone has a greater understanding of Swedish law I would be interested to hear their take on this?

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