Lifemark moves closer to liquidation

The Luxemburg regulator has moved to begin the process of liquidating the Lifemark portfolio, closing an avenue for the Financial Services Compensation Scheme to recoup industry money paid in compensation to Keydata investors.

The Commission de Surveillance du Secteur Financier issued a statement last week saying it intended to withdraw Lifemark’s licence, given its lack of liquidity.

Lifemark was a life settlement vehicle that backed Keydata products. The collapse of Keydata in June 2009 prompted an interim FSCS levy on the industry of £326m, with advisers paying £93m.

It was hoped that a $150m loan facility arranged by Keydata Stewart Ford last year would enable Lifemark bondholders to be repaid.  The FSCS is a principal Lifemark bondholder as it took over investors’ rights when it paid out compensation to Lifemark investors.

The loan was withdrawn in November, though there were suggestions the loan could be resurrected.

However Lifemark provisional administrator Zia Hossen of KPMG Luxemburg has since told the CSSF “that an orderly run-off of Lifemark’s portfolio under the supervision of a court appointed liquidator is currently deemed to  be the only realistic alternative.”

The CSSF says it has withdrawn Lifemark’s licence on the basis that: “Lifemark has experienced, and continues to experience an ongoing shortage of liquidity and was unable to remedy its liquidity problems during the provisional administration.

“The heavily distressed financial situation of Lifemark has continuously deteriorated due to the significantly lower returns realised on the portfolio than foreseen.”

Bondholders are set to vote on the proposal to run off the Lifemark portfolio at a meeting on February 13.

The news that the FSCS is unlikely to be repaid its compensation costs by Lifemark increases the pressure on the scheme to recover money from advisers who sold Keydata products.

Law firm Herbert Smith wrote to over 500 Keydata distributors on behalf of the FSCS in October to begin the legal process of recouping the cost of compensating Keydata investors.

So far only advisers who sold Keydata products linked to the SLS vehicle have been written to. It is expected that claims for recoveries in relation to Lifemark will far exceed the SLS figure.