We’ve previously published two recovery case studies, which detailed the steps we regularly take on our lenders’ behalf to protect their interests as loans approach the end of their term.
We understand that most lenders need regular information on their investments. And we often get asked why we can’t give out more detail on loans, especially when recovery actions are taking place.
We are often advised by our lawyers to keep information on overdue loans to a minimum, to ensure we are not in danger of damaging our recovery prospects.
So how do we decide what information is suitable to share with lenders?
Behind the scenes
Lendy’s recovery and legal teams put a lot of time and money into protecting lenders’ interests. This is one of our top priorities. In fact, each year we spend six-figure sums on legal fees related to recovery proceedings – these costs are borne entirely by Lendy, rather than out of lenders’ funds.
During the recovery process one thing our external legal advisers are constantly warning us of is the importance of maintaining “legal privilege” over our documents – to do that we have to be extremely careful about what we release to lenders in relation to legal actions against non-performing borrowers. This is because there is a risk that the information falls into the wrong hands, its legal privilege being waived, and is then used against Lendy and investors during the legal proceedings.
If information that our legal teams is quoted out of context in a court it could jeopardise our chances of recovering as much of our lenders’ funds as possible – one of our key responsibilities. In effect, advice from our lawyers is that this information could be used as a weapon against Lendy and lenders.
That puts us in the really unfortunate situation whereby almost any disclosure of information to lenders about a non-performing loan could be considered a waiver of legal privilege and, therefore, significantly risk the prospects of success in relation to a claim.
For example, there could be a scenario where:
- Lendy provides information to lenders - meant for lenders only - on a non-performing loan
- A lender then puts some of this information on the internet, and is publicly available as a result – this happened a couple of weeks ago on a loan, within minutes of a confidential update being published
- This information is then obtained by a borrower or its legal team, who might then misrepresent it or take it out of context
- The information is used against Lendy during legal proceedings, and Lendy is then forced to disclose other related information regarding a particular loan – further reducing the chance of a successful recovery
Legal privilege is a key issue that Lendy, and our lenders, must be aware of when discussing recovery processes. This is because:
- If a document has its privilege waived, it may lead to privilege being waived for many more For example, if a document contained just one sentence containing certain information, a court could order all other documents related to that information be released
- Waiving legal privilege for just one document relating to a transaction could result in all other material relating to that transaction becoming available
We hope that the above explanation underlines the importance of Lendy being very careful with information, and sheds light on why we consider certain information to be extremely sensitive - despite an understandable desire by lenders to be kept up to date on the recovery if non-performing loans.
We feel it is important to make you aware that with lending your capital is at risk and interest payments are not guaranteed if a loan becomes non-performing.
The Lendy Team