Pioneer Mutual Credit Union went into insolvency and had failed to provide annual accounts to financial regulators since 2018.

Under Financial Conduct Authority (FCA) rules, those that do not submit annual accounts can be prosecuted.

The joint administrators PKF Geoffrey Martin & Co Limited will now be investigating the conduct of the credit union’s board and management, in particular in the period leading up to its insolvency.

The Herald has reported that it was the directors of the credit union, rather than a creditor or regulator, who petitioned the court to appoint administrators.

The collapse of the credit union came despite the launch of a £15m Scottish Government support fund that credit unions could access – including a £2m dedicated fund after the initial lockdown last year. However, according to officials, the credit union did not receive any money.

The Financial Services Compensation Scheme (FSCS) has stepped in to protect the credit union’s 3,500 members and have said compensation cheques have been sent.

The FSCS protects UK authorised banks, building societies and credit unions up to £85,000 per depositor in the event of their insolvency. All borrowers will have to pay back loans – thought to run to over £2m.

However, the administrators say people will not have to pay back their loans immediately and that they are honouring the terms of the loan agreements. As of 2018, borrowers included 12 members of the board and their close family members.

An administrators’ source told The Herald: “Pioneer Mutual didn’t file accounts for a number of years. As a credit union, they need to file on the Mutuals Public Register, which is their equivalent of Companies House.

“I can’t confirm if penalties were levied on Pioneer Mutual. I’m sure, though, that the FCA will have been aware of the multiple breaches and will have been asking questions.”

The Herald reported that neither the regulators, the FCA nor the Prudential Regulatory Authority (PRA) would answer in full questions on what it had done in the past to monitor the state of the credit union in the wake of the auditor’s alert.

The credit union’s last annual accounts for the year to September, 30, 2018, showed it made a pre-tax loss of £178,904.

The senior statutory auditor, Robert Pollock of Hamilton-based Sharles Audit, voiced concerns over the financial state of the credit union in July 2019. The auditor questioned the adequacy of disclosures over the company’s ability to continue operating as a going concern.

The level of a company’s capital to-asset ratio demonstrates its ability to meet its short-term obligations to creditors and the auditor raised concerns that it was at less than three per cent.

He said this indicated the existence of a “material uncertainty which may cast doubt about the company’s ability to continue as a going concern”.

The FCA posted the 2018 accounts of the credit union after The Herald asked about the level of scrutiny there was over the bank and its filings. The regulator said only that it was “closely engaged” with the PRA, insolvency practitioner and FSCS “as the situation with the Pioneer Mutual Credit Union has progressed”.

Caroline Rainbird, chief executive of the FSCS, said: “FSCS is here to protect the members of Pioneer Mutual Credit Union Limited and help them get back on track.

“We want to reassure them that their money is safe. No-one needs to worry or do anything as they should receive their money within a week. We protect people’s savings up to £85,000 and joint accounts up to £170,000.”