Companies liquidated over £11.9m pension liberation scheme

The liquidation was ordered following an investigation by the Insolvency Service.

The investigation found that clients were encouraged to obtain a loan from Windermere-based G Loans Ltd, on the condition that they used their existing pension funds to purchase shares in the Liverpool-based KJK Investments Ltd.

Clients were led to believe that their investment in KJK Investments Ltd would increase in value by 6% each year and that these returns would be sufficient to enable the client to repay their loan from the proceeds of their pension upon retirement. Over a 2½ year period, KJK Investments Ltd received £11.9 million worth of investments from 209 clients.

The loans made to clients by G Loans Ltd were typically in the region of 50% of the amount invested by the client in KJK Investment Ltd shares. G Loans Ltd provided £6.3 million of loans to the same 209 clients.

The investigation found that KJK Investments Ltd was not a commercial lender (as it claimed to be), but that a significant portion of the funds invested by the clients were, in fact, lent by KJK Investments Ltd on uncommercial terms to G Loans Ltd. This was the only means by which G Loans Ltd was able to provide loans to the clients – meaning that the loans which clients received from G Loans Ltd were funded from their own pension funds invested in KJK Investments Ltd. This was not made clear to clients.

The loans provided by both KJK Investments Ltd and G Loans Ltd were on terms that allowed interest to be accrued rather than paid, such that G Loans Ltd was not in a position to repay its liability to KJK Investments Ltd, and that KJK Investments Ltd, in turn, could not pay a dividend to the clients that had invested in it. The remaining funds invested in KJK Investments Ltd were used to make loans to other associated companies on uncommercial terms and to pay substantial commissions, fees and salaries to those involved in the operation of the companies. Sales commissions totalled in excess of £900,000 whilst the directors received payments totalling £490,000.

The court was satisfied that the companies acted with a lack of commercial probity in the way in which they marketed the scheme to clients and that the scheme itself was lacking in any proper commercial basis – with the result that there was no realistic prospect of clients getting back the funds which they had originally invested in KJK Investments Ltd.

Colin Cronin, Investigation Supervisor, said:

"Pension liberation is being widely promoted as an easy way of gaining early access to pension savings, particularly given the recent changes in pension legislation. Any schemes offering such benefits should be viewed with caution and independent financial advice should always be sought before entering into such a scheme.

"In this case clients were not told that they were obtaining loans funded directly from their own pension pots. The Insolvency Service will investigate and bring to a halt the activities of companies that mislead clients in this way and that are found to be operating against the public interest."