High Court Closes Insolvent Mini-bond Group

The High Court has closed Magna Group, which operated seven mini-bond companies.

Mini-bonds are high risk investments, often marketed to retail customers. Magna Group mis-sold over £20 million of loan notes and took £2 million from investors after the companies were insolvent. Magna Group, was run from an office in London’s Mayfair and the principal directors of all the companies were Christopher John Madelin and Oliver James Mason. 

The business was subject to an Insolvency Service investigation, which led to the High Court Action. It was found that the marketing of the mini-bonds, which were used to fund property development projects, was misleading and that directors continued to take money, even after the companies were insolvent.

All seven companies were incorporated between December 2014 and March 2019, and were registered at the same address in Berkeley Square in Mayfair, London. The companies were:

• Magna Investments X Ltd
• Mix2 Ltd
• Mix3 Ltd
• Mixg Ltd
• Magna Asset Management Ltd
• M Project Management Ltd
• Mix Ops Ltd

Regulator the Financial Conduct Authority (FCA) has recently banned the mass-marketing of mini-bonds to retail investors, following serious concerns that they were being promoted to investors who had limited understanding of the risks and who could not cope with the potential losses.

The Insolvency Service investigation into the Magna group of companies found the marketing of the mini bonds was misleading, with marketing material overstating both the levels of security being offered and the true protections offered to them from the appointment of a ‘Security Trustee’.

Madelin and Mason, secured deposits from investors and are believed to have been the beneficiaries of £2.5 million through director loan accounts.

MIX3 and MIXG took over £2 million in deposits from loan note creditors between 1 December 2019 and 25 February 2020, a period when the directors ought to have known that all of the companies were insolvent.

MIX2 had, by then, failed to pay its loan note holders when due, leading to a Default Event in all 4 MIX to MIXG Loan Note Instruments.

During this period, however, the directors paid themselves £425,021 with a further £370,471 lent to a non-UK company of which they were shareholders.

Edna Okhiria, chief investigator at The Insolvency Service, said: “Investors in the Mix companies were systematically given false comfort that their investments were to be ‘asset-backed’ by tangible ‘bricks and mortar’ security when in reality this was not the case and highly misleading.”

Marketing material circulated to investors presented a false picture of the group’s strong financial health and the companies induced investors to invest over £2 million after December 2019 at substantial risk. The business had by then stopped repaying existing investors and therefore there was no reasonable prospects of repaying these sums.