Table of Contents
- WEIF collapsed in 2019 after poor performance led to unmanageable capital outflows
- Some claim the compensation plan is unfair to investors, who are owed more
A High Court judge has given the green light to a redress scheme worth up to £230m for the hundreds of thousands of investors harmed by the collapse of the Woodford Equity Income fund in 2019.
Judge Jonathan Richards said in a statement released Friday that he will sanction the plan at the end of February, after 93.7 percent of the roughly 300,000 affected investors backed it in December.
But Richards dismissed calls for the court to force the Financial Conduct Authority to require WEIF’s investment manager (the now-defunct Woodford Investment run by founder Neil Woodford) to “match” the amount investors receive.
Superior Court Judge Jonathan Richards said in a statement released Friday that he will sanction the plan in late February.
“I doubt my power to issue such an order,” he added. “But even if I had that power, I wouldn’t exercise it.”
Investors will receive up to 77p for every £1 they lost when WEIF closed in 2019, with their first payment due in March, when between £183.5m and £200m will be paid out.
Investors’ approval of the plan effectively blocked class actions brought by several law firms against Link, the manager of the £10bn fund, and possibly other related parties.
Potentially in the firing line of the lawsuits, for example, was Hargreaves Lansdown, which promoted the Woodford fund until the day trading in its shares was suspended.
The FCA announced the size of the compensation package in April last year, but many critics have argued that the £230m sum is unfair to investors.
Some experts suggested that investors are entitled to compensation close to £1 billion.
Many also argued that Woodford, Link and the regulator have not been sufficiently responsible for the fund’s collapse.
The FCA has said it sees the scheme as the “best and quickest opportunity to achieve a better outcome” for investors.
The WEIF prospectus explicitly told investors that they had legal rights to refer complaints to the Financial Ombudsman Service (FOS) for “fair compensation” if something went wrong, as the Financial Services Compensation Scheme will settle liability up to £85,000 in the event that the company then defaults on payment.
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But the FCA successfully argued that the redress scheme could override these rights.
“The scheme delivers an appalling outcome for those trapped in Woodford’s flagship fund when it was suspended in June 2019,” says Andy Agathangelou, founder of campaign group Transparency Task Force.
“Most will recover between four and eight pence in the pound of their outstanding capital losses, with nothing for the lost returns over the last four and a half years, let alone the consequential losses – much, much less than many have had to suffer”. believed by the FCA.
“Removing legal rights against the wishes of data subjects means that the outcome of this case matters for everyone who has ever used, or could ever in the future, use UK financial services.”
The collapse of the WEIF
Neil Woodford was once among the UK’s most famous and popular stock pickers, with billions of pounds from institutions and individuals flowing into his funds when he started his own business.
The collapse of the Woodford Equity Income fund came when a run of poor performance led investors to withdraw large volumes of cash, which the fund was unable to meet without selling assets at a low price.
This ultimately led to Link deciding to suspend the fund, which never recovered and he was forced to close.
The matter sparked fierce criticism of Woodford, Link, the platforms advertising the fund and the FCA, the latter of which was forced to re-evaluate the rules after facing scrutiny in Parliament.