The FSCS has denied claims Lifemark investors will forfeit their rights to compensation if they reject a planned rescue deal for the fund.
Former Lifemark director Stewart Ford says PwC is warning bondholders they could be denied compensation because, by refusing the rescue loan, they have not done everything to mitigate their losses.
Bondholders are due to vote in February on the loan for Keydata-backer Lifemark, which is being developed by CarVal and Norwich & Peterborough Building Society (N&P), and brokered by PwC.
Ford says: "This puts bondholders in a Catch 22 situation, faced with having to accept the rescue deal proposed, no matter how unfavourable it may be."
But an FSCS spokesperson has denied the claim, saying there is "nothing in the FSCS rules" which states investors need to mitigate their loss.
"The most important thing when making a claim is to include as much information about your situation as possible," it says.
Interest on a rescue loan would be set at about 14.5% above LIBOR, and would be paid ahead of bondholders. Stakeholders suggest the fund needs about $30m to keep it afloat long term.
Lifemark is struggling with a severe liquidity crisis, which risks forcing it into insolvency if no loan is agreed. At the same time, the FSCS has said investors in the fund are 'eligible' for compensation, up to the scheme's £48,000 limit.
PwC is the administrator for Keydata, which sold bonds in the UK backed by Luxembourg firms Lifemark and SLS.
Since 95% of Lifemark's investors are Keydata investors, PwC partner Dan Schwarzmann has said he will be "actively seeking" a solution on their behalf and working closely with Lifemark's provisional administrator and trustees.
Lifemark is in default as a result of not meeting the coupon payments on its underlying traded life policies.
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