Wonga on the brink with Grant Thornton poised to takeover

Grant Thornton is being lined up to act as administrators in the event the business becomes insolvent after a fall that has resulted from the surge in compensation claims against the firm in the wake of a government clampdown on payday lenders.

The firm has held detailed talks with the Financial Conduct Authority about its future, and Sky News has reported that “all options”, which include the sale of assets, including its Polish subsidiary to bolster its cashflow, are on the table.

Established in 2006 by Errol Damelin, who served as its chief executive until 2014, and Jonty Hurwitz, Wonga styled itself in its early days as a tech disruptor in the traditional financial services space. A company that would “break the oligopoly” of the incumbent banks to serve customers better.

However, it has long faced faced criticism for its high cost, short term loans, which some said targeted the vulnerable.

In 2014 the Financial Conduct Authority found its debt collection practices were unfair and ordered it to pay £2.6m to compensate 45,000 customers.

Since then, payday loan companies have faced tougher rules and have their charges capped.

This has hit Wonga’s profits hard and in 2016 it posted pre-tax losses of nearly £65m, despite claiming its business had been “transformed”.

It has continued to face legacy complaints and was forced to seek a bailout from its backers this month amid a surge in claims.

A Wonga spokesman said: “Wonga recently raised £10m from existing shareholders to address the significant increase in legacy loan complaints seen across the UK short-term credit industry.

“Since then, the number of complaints related to UK loans taken out before the current management team joined in 2014 has accelerated further, driven by claims management company activity.

“Against this claims backdrop, the Wonga board continues to assess all options regarding the future of the group and all of its entities.”

Wonga’s apparently imminent demise marks a dramatic fall from grace for the firm which, in 2012, was touted to be exploring a US stock market flotation that would have valued it at more than $1bn (£770m).

The decision on the company’s very different future is expected within weeks.