- WEIF collapsed in 2019 after poor performance led to unmanageable outflows
- Some claim the redress scheme is unfair to investors who should be owed more
A High Court judge has given the green light to a redress scheme worth up to £230million for the hundreds of thousands of investors burned by the collapse of the Woodford Equity Income fund in 2019.
Judge Jonathan Richards said in a statement published on Friday he will sanction the scheme at the end of February, after 93.7 per cent 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 demand WEIF’s investment manager – the now defunct Woodford Investment led by founder Neil Woodford – ‘top up’ the amount that investors receive.
High Court Judge Jonathan Richards said in a statement published on Friday he will sanction the scheme at the end of February
‘I doubt my power to make such an order,’ he added. ‘But even if I had that power, I would not exercise it.’
Investors will be paid up to 77p for each £1 they lost when the WEIF was closed in 2019, with their first payment due in March when between £183.5million and £200million will be paid out.
The investors’ approval of the scheme effectively blocked class actions launched by various law firms against the once-£10billion fund’s administrator Link, and possibly those against other connected parties.
Potentially in the firing line for lawsuits, for example, was Hargreaves Lansdown, which promoted the Woodford fund until the day dealings in its shares were suspended.
The FCA announced the scale of the compensation package in April last year, but many critics have argued the £230million sum is unfair to investors.
Some experts suggested investors are entitled to closer to £1billion in compensation.
Many also argued that Woodford, Link and the regulator have not been held sufficiently accountable for the fund’s downfall.
The FCA has said it considers the scheme the ‘quickest and best chance to obtain a better outcome’ for investors.
The WEIF prospectus explicitly told investors they had statutory rights to refer complaints to the Financial Ombudsman Service (FOS) to obtain ‘fair compensation’ should things go wrong, and to have the liability settled by the Financial Services Compensation Scheme up to £85,000 should the firm then default in payment.
But the FCA successfully argued the redress scheme could overrule these rights.
‘The Scheme offers an appalling outcome for those who were trapped in Woodford’s flagship fund when it was suspended in June 2019,’ claims Andy Agathangelou, founder of campaign group Transparency Task Force.
‘Most will get back between four and eight pence in the pound of their outstanding capital losses, with nothing for the returns forfeit over the past four and a half years, let alone consequential losses, so much, much less than many have been led to believe by the FCA.
‘The removal of statutory rights against the wishes of those concerned means the outcome of this case matters to everybody that ever has, or might ever in the future, use UK financial services.’
The collapse of 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 occurred when a run of poor performance led to investors pulling cash out in large volumes, which the fund was unable to service without selling off assets on the cheap.
This ultimately led to Link’s decision to suspend the fund, which never recovered and was forced to close.
The affair led to fierce criticism of Woodford, Link, platforms advertising the fund and the FCA, the latter of which has been forced to reassess rules after facing scrutiny in Parliament.