BrightHouse, Britain’s biggest rent-to-own retailer, is teetering on the brink of collapse this weekend following a surge in customer compensation claims.
Sky News has learnt that the company has been forced to put administrators on standby, with insolvency possible in a matter of weeks.
If it did fall into administration, roughly 2,400 jobs could be put at risk.
BrightHouse has been struggling financially for years, with its most recent restructuring in 2017 designed to put the business on a more stable footing.
The company, which provides loans to consumers to purchase electrical items such as televisions and washing machines, trades from about 240 stores across the UK.
Sources said on Saturday that Grant Thornton has been asked to handle a potential insolvency.
The accountancy firm has overseen the administrations of payday lenders including Wonga and QuickQuid in recent years.
Other advisers including EY and Freshfields Bruckhaus Deringer have been working with BrightHouse to explore alternative options in recent months, according to a source close to the chain.
An insider close to one of BrightHouse’s shareholders said an insolvency was not inevitable but that it had become more likely in recent weeks.
One of the options being explored is a scheme of arrangement to deal with mis-selling claims, although discussions with the Financial Conduct Authority (FCA) about such a move are said to have been inconclusive.
Separate conversations are also taking place with the Financial Ombudsman Service, which adjudicates no complaints.
Claims are currently 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.
Similar surges have triggered the demise of dozens of short-term lenders, the most prominent of which were Wonga and, more recently, QuickQuid, which fell into administration last autumn.
In results issued to bondholders on Friday, 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.”
BrightHouse also told employees that it was in talks to sell its logistics and engineering business, which account for about one-fifth of its workforce.
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.
BrightHouse’s last financial restructuring saw bondholders pump new money into the company in exchange for taking control.
That left Apollo Management and Alteri Investors, an Apollo-backed turnaround firm, as the largest individual shareholders, with approximately 40% of the equity.
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.
Last month, Anth Mooney stepped down as BrightHouse’s chief executive, and was replaced by Alan Gullan, an experienced turnaround executive.
A BrightHouse spokesman said: “BrightHouse is exploring a range of options to cap its exposure to claims for historic mis-selling.
“Recent updates, most recently on 28 February, have quantified the provisions raised against the cost of these.
“To be successful in this, BrightHouse needs the support of its stakeholders and is currently in active discussions with them.
“Naturally, the protection of value in the business and safeguarding of customers’ interests are core to our planning.”