Britain’s biggest rent-to-own retailer will next week become the latest corporate casualty of the coronavirus outbreak when it collapses into administration, putting 2,400 jobs at risk.
It is understood that BrightHouse is to appoint Grant Thornton, the accountancy firm, as administrator within days after its investors withdrew support for a proposed restructuring.
The insolvency will reinforce fears of a cataclysm on the high street as non-food retailers close their stores – potentially for a period lasting several months.
BrightHouse, which provides loans to consumers to purchase electrical items such as televisions and washing machines, trades from 240 stores across the UK and has roughly 200,000 customers.
Sources said an announcement was likely to be made on Monday.
Its administration is likely to mean that customers with outstanding mis-selling complaints will receive only a fraction of the sums they are seeking.
A spokesman said: “The national response to the COVID-19 pandemic has required us to prioritise the health and wellbeing of our staff and customers, in particular by closing all stores in the last few days.
BrightHouse has described itself as ‘leading by lending responsibly’
“While we continue to actively engage with our stakeholders, these developments have made the task of finding a future for BrightHouse more challenging.”
Although BrightHouse’s problems are long-standing, insiders said that discussions with regulators and other stakeholders about restructuring its liabilities had evaporated after the COVID-19 outbreak.
Administrators are expected to put the business into effective run-off by continuing to collect outstanding loans from customers.
Some new lending activity may also continue for a limited period, sources indicated.
BrightHouse has been hit a surge in customer compensation claims in recent months, continuing a trend which has seen other short-term lenders including Wonga and QuickQuid disappear.
A previous restructuring in 2017 was designed to put the business on a more stable footing.
That deal resulted in two big US-based investors, Apollo and Highbridge Capital, and retail turnaround specialist Alteri Investors becoming the largest shareholders in BrightHouse.
One of the options which had been explored in recent months was a scheme of arrangement to deal with mis-selling claims, although discussions with the Financial Conduct Authority (FCA) about such a move proved inconclusive.
Separate conversations also took place with the Financial Ombudsman Service (FOS), which adjudicates on complaints.
Claims have been costing BrightHouse about £1m every month, although executives are understood to believe that the eventual toll will be far greater as claims management companies deluge it with complaints.
In results issued to bondholders last month, BrightHouse said it was conducting a strategic review to maximise value for stakeholders.
This included a shift away from rent-to-own activity and towards cash loans.
“We have disclosed a contingent liability with respect to the uncertainty around the future volume of claims and the potential outcome of the test cases under discussion with FOS,” the company said.
“The level of redress claims from customers is putting increasing pressure on the available liquidity in the group.”
The entire rent-to-own sector has been struggling since the imposition of a price cap by the FCA last year.
This means customers cannot end up repaying more than double the cost of their loan, a move that the regulator said would save British consumers up to £22.7m annually.
Christopher Woolard, the acting boss of the City watchdog, said in his role as executive director of strategy and competition last year that rent-to-own firms were frequently overcharging their customers.
“We will review the impact of the price cap in 2020 and if further work is needed to protect these customers we are prepared to intervene again,” he said.
In 2017, the FCA ordered BrightHouse to repay nearly 250,000 customers for failing to act as a “responsible lender”.
More than 80,000 people had not been properly assessed by BrightHouse for their ability to repay their loans, which accrue interest at such a rate that the cheapest washing machine available to customers ended up costing them more than £1,000.
Anth Mooney recently stepped down as BrightHouse’s chief executive, and was replaced by Alan Gullan, an experienced turnaround executive.
