Loan Notes: Too good to be true?

MDM Solicitors are currently acting on behalf of multiple clients in respect of Dolphin Trust/German Property Group investments. These investments are grounded or secured by way of loan note. An investor transfers funds to a company, and in turn is issued with a loan note certificate. The status of this lone note is of some concern, however it’s security is further diluted if there are multiple companies involved, leading to a complex corporate structure. Compounding the issues in respect of these investments are the high risks, which are more often than not never outlined to the investor, coupled with the unregulated nature of the investment.

Since the last financial crash, hundreds of millions in cash have been transferred into unregulated loan note investments. These funds are not made up by the super-rich, but from the ordinary person whom is investing their life savings, nest egg, or pension for themselves or for their families future safe keeping. The difficulty is that these projects give little protection for small investors when things go wrong. The use of loan notes is common in many investment projects to raise funds, however this does not mean they are suitable for ordinary investors.

In most cases, the cash goes into commercial or residential property projects at home or abroad. However, we have recently seen investments in relation to fintech and renewable energies attract this type of structure, i.e. the investment being secured by way of loan notes. The dazzling nature of these modern investments gives the allure that they are extremely sophisticated and secure.

The attractiveness of these investments is twofold. The investor is promised amazing returns and those who advise the investor to part ways with their funds is handsomely rewarded. The majority of the investments are likely to be a viable, however investors appear to be taking on risks they would never have contemplated in the past. The question will always arise, whether they were aware and advised of these risks.

investors may be confused as the investment firms and entities involved are normally heavily regulated by the Central Bank when they sell regular investments. However, these firms are also selling loan note investments that are unregulated. Small investors have no easy come back to seek compensation if it is found they were exposed to unacceptable risks.

The blur between regulated entities and unregulated investments, the type of security offered, as well as the advice in relation to risk, are all factors involved in assessing whether a client has a potential avenue for recourse when these investments go wrong.

The difference between investor naivety and advisor negligence is never clear, however at MDM Solicitors we are in a position to consult with clients in relation to these types of investments and whether there is a potential avenue for recourse in the unfortunate event that these investments fail.

If you are an investor in any type of fund and concerned in relation to the nature of the investment, please do not hesitate to contact our offices on 021 2390620 or email us at info@mdmsolicitors.ie for more information.

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