So, the FCA has announced that Link Fund Solutions will have to pay £235 million in compensation to more than 300,000 investors affected by the collapse of Woodford Investment Management.
But what does it actually mean in practice? And what can Woodford investors expect to happen now?
Sadly, if there’s one thing those investors have learned over the last 46 months it’s not to get their hopes up. It’s by no means certain they will receive compensation, and this whole sorry saga may drag on for a long time yet.
Potential stumbling blocks
There are two potential stumbling blocks to investors receiving financial redress. The first is that the proposed compensation package is dependent on what’s called a scheme of agreement to try to resolve Link’s liabilities, and this needs to be agreed by the courts.
The second problem is that Link’s UK and Irish operations are currently being sold to Waystone Group, a company based in Dublin. The sale needs to be approved by investors. If it’s not, we’re back to square one.
If, for any reason, the compensation plan doesn’t go ahead, the FCA has said that it will continue with its “enforcement action” using its statutory powers.
That would entail a fine of £50 million and a likely legal battle between Link and the regulator. If Link wins, it may not have to pay compensation at all; if it loses, and has to pay legal costs on top of a fine, it simply may not have the resources to compensate investors as well.
Also, it could still take a year or two before investors receive any money they are due from the sale of assets in the Woodford Equity Income fund. Progress has been painfully slow and, so far, investors have received far less back than they had been hoping for.
Ongoing legal action
Another factor that adds to the uncertainty is the ongoing legal action against Link being brought on behalf of several thousand Woodford investors by three firms — Leigh Day, Harcus Parker and Wallace. As things stand, Link is expected to present its defence next month, but the legal actions have been subject to constant delays.
By the time those cases are settled it may be that Link will have already paid some compensation, which may have some bearing on the size of any payouts agreed. If those legal cases are successful, it’s not clear whether investors who haven’t specifically registered for those actions will be in line for additional compensation.
There are, then, many unanswered questions. Don’t be surprised if we’re still talking about these issues another two or three years from now.
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