Claims management company Rebus Group that targeted investors who had been mis-sold financial products has collapsed into administration.
On 28 January 2016 Simon Harris of ReSolve Partners was appointed administrator of Rebus Investment Solutions, Rebus Investment Group and Rebus Management Services.
According to the Rebus website, it managed 1,700 claims with a value of more than £930m.
Rebus specialised in pursuing claims against companies that mis-sold complex investments, which were later deemed to be tax avoidance schemes by HMRC.
The administration is one of the largest failures of a crowdfunded company in the UK. Last year Rebus raised nearly £817,000 via Crowdcube to fund an expansion that aimed to deliver investor returns of up to 10 times within three years.
The pitch on Crowdcube opened with: “'Rebus seeks to bring hope to ordinary investors who have been misled into buying flawed complex financial products & solutions.”
In its pitch, it also said pre-tax profits would rise to £12m by 2017-18 and investors could anticipate making a multiple of between 6.4 and 10.6 times their cash invested by 2018.
More than 100 individuals who invested in the company from March 2015 now look set to lose their money, along with customers who paid upfront fees to investigate mis-selling claims.
Crowdcube told the FT: “Whilst the failure of any business is disappointing, not all businesses will succeed and therefore highlights the importance of spreading investment risk with a diversified portfolio.
“Investors on Crowdcube can be assured that we are committed to ensuring transparency and have rigorous due diligence processes in place,” it said.
Adam Tavener, chairman of an alternative funding portal ABF said the failure comes as no surprise and that 20% of companies that raise money through crowdfunding go bust.
“We’ve pointed out that some of the storms have not arrived yet in the crowdfunding industry, and that crowdfunding providers need to adhere to a new regime to better protect investors. For instance, almost all P2P funders provide good levels of protection – most offering a pooled approach. If this had been the case with the Rebus failure, investors would have lost a fraction of their investments,” Tavener said.
“Our other recommendations to shore up the crowdfunding industry included a greater level of disclosures so that capacity for loss tests can be undertaken and more closely monitored. For instance, an insured solution could then be levied against crowdfunders. This collective levy could be facilitated by the UKCFA.”
Michael Avient, partner at UHY Hacker Young, said that while crowdfunding was a very useful medium, he had doubts as the nature of Rebus’ work meant it is a very cash hungry business.
“Taking cases involving financial advisers to the Financial Ombudsman or challenging schemes in the courts against HMRC is very expensive. Especially in relation to any tax litigation, the costs can run on for a number of years. It may be that Rebus was looking for a big win and simply ran out of money,” he said.
“Some clients are vulnerable. They have been party to a tax scheme which has either failed or is under investigation by HMRC, and now with the new accelerated payments regime, they could be facing demands for very significant amounts of money,” Avient added.
Rebus was set up back in 2009 after it emerged that many people sold tax schemes may have been mis-sold.
After expanding its business model in August 2012 AccountingWEB spoke to Martin Taylor, head of client relationships at Rebus, a couple of years later to find out about claims for mis-sold investments.
At the time Taylor said they were happening more frequently and that in the previous year Rebus had seen its claim book increase by 500%.
He outlined how the business operated:
“We’ve got a success rate of over 90%. We charge £1,500 per scheme but that’s needed to do the proper research and review the paperwork as this is often very complicated. We also charge a success fee, but only out of an award”
Taylor went on to talk about the role of the accountant and that when things turn sour it’s the accountant who has to deal with investors.
“Accountants are there to pick up pieces, but there may be light at end of the tunnel when it comes to getting back compensation.
“A lot of advisers are now insolvent and investors are left holding the baby,” Taylor said.