What are we doing about our TLC Cars Loan Default? Every default case is different, but our approach is always to focus on three key areas: recovery, accountability and lessons learnt. We previously wrote about the lessons that we learnt. In this article, we’ll focus on the recovery and accountability aspects.
Slim chances of loan recovery
Last week, we wrote about our first p2p loan default with TLC Cars Pte Ltd. We analyzed the situation and believe that the chances of loan recovery are very low.
This does not seem to be a straightforward case of business difficulties or cashflow issues. Instead, it hints at severe issues lurking beneath the surface. If the company has indeed borrowed substantial amounts of new money before the director’s disappearance, fraud cannot be ruled out.
Can TLC Cars be rehabilitated and nursed back to health? Can the loan be restructured? Unlikely. The car dealership business is transactional and highly dependent on reputation. The director is uncontactable. Its business reputation is destroyed. There is practically no way for TLC Cars to recover.
How about liquidating TLC Cars? At some point, liquidation will happen but it is also unlikely to fetch much value for p2p investors. Most of its assets lies in the car stock due to customers. But if it had sufficient cars to deliver, it wouldn’t have been in this situation in the first place. Even if all its assets are liquidated, unsecured p2p lenders will probably get very little after secured creditors and legal fees.
The crowdfunding platforms that are affected have referred the case to debt collectors. We don’t disagree. Since the court option is unlikely to yield much, the hope is that debt collectors are able to work their magic. It is still a long short, but probably worth a try.
Who should be held accountable for TLC Cars default?
In the TLC Cars case, the problem clearly lies with the director, Timothy Gay. If the company faces cash-flow problems, he should negotiate with creditors to work out a solution. If there are other issues that could threaten the company, he has an obligation to disclose fully to creditors. His disappearance simply makes things worse.
What about the crowdfunding platforms? So far, we don’t think there are anything wrong with their due diligence processes. We relooked at the loan sheets and do not see any red flags. Yes, the track record is short, the margins are low and debt ratio is high. But these are not reasons why the company failed. The main reasons, in our view, are the actions and character of the director.
Character assessment is very difficult – and this is probably why banks insist on SMEs with established track records. Also, problems that are buried beneath the surface usually stay undetected for years.
We don’t always agree with crowdfunding platforms. But in TLC Cars case, we think they are doing a decent job.
What can investors do?
There are some discussions at the Let’s Crowd Smarter forum. Several investors have also written to us separately. At this stage, we think the best option is give the debt collectors some time to do their work.
Should investors make a police report? We’re ambivalent to this option. When our loan to TLC Cars was extended earlier in the year, repayment was prompt for 7 months. There is nothing to indicate foul play. But if what was reported is true – that TLC Cars borrowed substantial amounts of new money in the months before the director’s disappearance, then the possibility of fraud against this later group of lenders cannot be ruled out.
The crowd is watching.