The Luxembourg court is 'unlikely' to extend the provisional administration period of Keydata-backer Lifemark beyond February, says PwC, raising serious questions about whether the fund can be restructured in time to avoid bankruptcy.
Last August, the Luxembourg District Court extended the appointment of KPMG's Eric Collard to continue managing and administering Lifemark by an additional six months, in a bid to restructure the troubled fund and stave off its liquidation.
However, PwC, the administrator of insolvent Keydata which promoted Lifemark-backed bonds in the UK, says in its latest six month update report it understands further extensions are "unlikely to be permitted".
The August 2010 extension order stated Collard's appointment was not made on the basis of any insolvency proceeding, including bankruptcy.
But failure by the court to renew "the most extensive powers" over Lifemark it has given Collard, including to acquire and realise assets, raises serious questions about the fund's future.
Lifemark is facing severe liquidity problems which will force it into bankruptcy and a firesale of its assets, second-hand life polices, without refinancing or significant policy maturities.
Lifemark investors with more than £50,000 in the fund had hoped a financial restructuring, including the provision last November of a £5m emergency loan facility from Norwich & Peterborough (N&P) and US hedge fund CarVal, would enable the fund to right itself.
They face thousands of pounds worth of losses if Lifemark is forced into bankruptcy before its bonds mature.
It had been thought N&P would engage in a long-term rescue plan for the fund once the terms of its initial loan expire, also in February, but sources close to the situation say that was "never the plan".
Investors with less than £50,000 in the troubled fund have been told they can apply for compensation from the FSCS if they can prove they relied mainly on flawed Keydata literature to invest.
However, hundreds of N&P customers who bought Lifemark-backed Keydata products after meetings with the building society's financial advisers are lodging a complaint with the Financial Ombudsman, claiming N&P gave them poor advice at the point of sale.
Keydata has not received any commission payments from Lifemark since on 8 June 2009. The total amount outstanding at the end of November 2010 was £12m, according to the PwC report.
It says Keydata has not waived any of its rights to receive payment from Lifemark and has submitted all due invoices to the provisional administrator in the event monies are available to meet Lifemark's contractual obligations in the future.
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