The Bradford-based firm says it has "engaged constructively" with the Financial Conduct Authority (FCA) prior to and since the market was notified of its intention to launch the scheme for its Consumer Credit Division on March 15, 2021.
The scheme is being proposed in response to the rising cost of customer complaints in Provident's Consumer Credit Division for historic lending.
Provident said it believes the Scheme is fair and in the best interests of customers. However, the FCA wrote a letter last night to Provident.
It said: "The FCA has assessed the Scheme by reference to the FCA's statutory objectives and has concluded that the Scheme is inconsistent with the FCA's rules, principles and objectives. Therefore, the FCA does not support the Scheme and has summarised the serious concerns it has regarding the Scheme in this letter.
"However, in this case the FCA has decided not to appear in court to oppose the sanction of the scheme as a matter of company law.
"The FCA's assessment of the scheme against its statutory objectives is a distinct, and necessarily broader, assessment than whether the court will sanction the scheme as a matter of company law.
"In this case, the FCA's decision not to oppose in court is based on two key factors: 1. The Lenders face an imminent insolvency in which many Redress Creditors would receive less than under the Scheme; and 2. The Lenders are not continuing their business and there appears to be no unfair benefit to the group and its stakeholders at the expense of Redress Creditors."
Provident says confirmation from the FCA that it is not going appear in court to oppose the sanction of the scheme is the right decision for customers.
It added that without the scheme, customers of the Consumer Credit Division are "highly likely" to receive no redress payments, as it is "highly likely" that the Consumer Credit Division subsidiaries would commence insolvency proceedings and would therefore not be in a position to make any compensation payments to customers.
The scheme requires more than 50 per cent of all creditors by number who vote on the scheme to vote in favour, and the total value of their claims to represent at least 75 per cent of the value of the claims of all creditors who vote.
If the vote is passed by the statutory majority at the creditor meeting, the scheme will be considered by the High Court at the sanction hearing on July 30, 2021, where the court will either approve the scheme or not.
Since May 10, when Consumer Credit Division was put into managed run-off its receivables book has reduced to £42m as at the end of June, and over 1,000 staff have now left the business.
Provident says its view remains that the scheme and managed run-off is the best outcome for customers and its stakeholders and will present that case to the court.
Malcolm Le May, CEO of Provident Financial said: “Although the FCA has confirmed it does not support the scheme and has summarised a number of concerns, I am pleased that the FCA has decided not to appear in court to oppose the sanction of the scheme.
"We continue to believe that the scheme is fair and in the best interests of Consumer Credit Division customers. As I have said previously, we are committed to delivering the scheme successfully and the FCA deciding to not oppose the sanction of the scheme in court takes us one step closer to being able to do just that.
"The next step in the scheme process is the creditors’ meeting on July 19 and, if approved at that meeting, the court sanction hearing on July 30.”
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