The Times - UK (2021-12-06)

38 Monday December 6 2021 | the times

Business

As details of an alleged fraud at Arena
Television emerged last week, some
onlookers expressed shock, both at the
scale of the supposed scam at the
outdoor broadcast company and the
number of banks and non-bank credit
providers caught up in it.
The business, which had turnover of
£30 million a year and worked on
events such as the Glastonbury music
festival, Six Nations’ rugby and the
Euro 2020 football championship in
the summer, is thought to have
borrowed £280 million from at least 20
lenders, with administrators under-
stood to have been called in when an
auditor acting for one of Arena TV’s
lenders tried to verify serial numbers
for company-owned equipment used as
security for loans. When the auditor
called the equipment supplier, they
were told that the numbers did not
exist.
Arena has outstanding charges in
favour of Clydesdale Bank and Nat-
West, while its holding company, also
bust, has outstanding charges in favour
of Close Invoice Finance and Barclays.
Other high street banks and non-bank
lenders are caught up in the collapse,
including HSBC, Shawbrook, Santan-
der and United Trust.
It is also embarrassing for the
government. The Times revealed last
week that millions of pounds of loans to
the company comprised emergency
pandemic credit underwritten by the
state. The Sunday Times reported that
furloughed staff at Arena had com-
plained of being told to return to work
at the business while being paid by the
government-backed wages scheme.
The scandal is thought to be one of
the biggest alleged frauds in the history
of asset-based lending. While casual
observers were surprised at how what is
ultimately a small business appeared to
have received hundreds of millions in
credit from such an array of lenders,
some in the leasing and asset-based
lending industries said they were sur-
prised only that something like this had
not happened before.
Nic Conner, a former finance broker,
said: “With asset finance, the lender
doesn’t look at the company at all. All
they care about is the asset and its
residual value. Some lenders, the good
ones, will want a site visit and even have
their own serial number welded on; but
so many will just ask for a photo.”
A senior finance executive in the

industry who has run large asset

finance loan books said that he had

been expecting a large fraud. The exec-

utive, who asked not to be named,

claimed that “standards slipped” in the

sector as it became more competitive,

with more non-bank credit providers

and smaller banks entering the market,

and that several lenders had watered

down procedures that normally would

involve physically checking the equip-

ment against which finance has been

provided.

“Many don’t do inspections and, if

they did, they did it on a retrospective

basis after the loans were drawn down,”

he said. “This opens the door for fraud.

There will be more cases like this, for

sure.

“It is a cost of having a branchless,

remote offering. When I was running

[an asset-based lender], we would insist

on asset inspections on all higher-value

items and/or where the borrower had a

reasonable credit line comprising lots

of lower-value items.” Staff would visit

the customer’s site and inspect the asset

and the equipment supplier’s invoice on

delivery of the kit borrowed against.

that as competition had increased,

some smaller lenders might be less cap-

able of absorbing losses from big frauds.

“In their drive to grow their books, they

got aggressive on price and won’t have

adequately factored this cost into their

lending margins,” he said.

Adrian Walsh, chief executive of

CheckVentory, a business that digitally

validates assets before, during and after

the underwriting process, said: “The

asset finance market has been fairly

benign in terms of risk for several years

and that may have led to complacency.

We find it fairly easy to get in front of

lenders, as they have an interest in this

area but most stick with their tradi-

tional methodologies.”

Interest may soon increase. Will

Wright, head of restructuring at Inter-

path Advisory, told The Sunday Times:

“This is pretty unprecedented stuff and

the finance industry will be looking

hard for lessons to learn.”

As well as physical checks, increased

vigilance on data could help lenders to

spot future scams. Katrin Herrling,

chief executive of Funding Xchange, a

small company lending marketplace,

said that the “data is already out there”

to help lenders to spot potential frauds,

but added that the challenge for organi-

sations was whether they were set up to

act on red flags.

Ben Sher, leader of Funding

Xchange’s technology division, said:

“There is an awful lot of data. The diffi-

cult part is creating actionable insights,

which requires recognising patterns

amongst the noise.” Funding Xchange

hopes to convince lenders of the power

of data to make better decisions. It has

launched a “portfolio monitoring” tool

that tracks thousands of data points to

establish patterns, such as a jump in

lending contracts signed by a borrower.

Andrew Holgate, a commercial

finance expert and chief executive at

Equitivo, a financial technology advis-

er, said that lenders would face awk-

ward questions over whether they had

verified assets and checked that they

did not have debts linked with them. “It

seems some basic fundamentals were

missed,” he said, adding that although

there may be increased scrutiny of

borrowers, “banks lose money all the

time. This is just larger than normal.”

“This meant we knew the asset actually

existed and the invoice had the [len-

der’s] name on it, which helps prevent a

borrower taking out lots of loans on the

same asset.”

Lending against kit plays a big role in

business finance. There are two ways of

doing so: leasing, in which equipment

effectively is owned by the bank and

leased to the business; and asset-based

lending, where equipment is pledged as

security but is owned by the customer.

Arena appears to have been doing both.

There was £27 billion of new leasing

finance in 2020, £16 billion of which

went to small and mid-sized compa-

nies. Invoice and asset-based lenders

advance £22 billion to 42,000 UK busi-

nesses.

The former finance executive said

Katrin Herrling, of

Funding Xchange,

says the “data is

there” to help spot

potential frauds

Investment in property technology has
reached record levels as the industry
seeks to harness enthusiasm for the
sector.
Investors have poured £1.6 billion into
British “proptech” companies this year,
according to data from Pi Labs, a
property technology backer. That is
more than four times the £348 million it
attracted last year and 15 times higher
than the £106 million achieved in 2016.
Britain is home to a growing number

Big players join race to back new hot properties in technology

of businesses looking to bring new

technology to a famously slow-moving

industry. The biggest fundraising in the

sector this year was by Proportunity,

which pulled in more than £100 million

in a mixture of debt and equity in

October. The company claims to offer

an equity loan to homebuyers, similar

to the government’s Help to Buy

scheme “but with fewer restrictions”.

Plentific, which raised £73 million in

a fundraising round over the summer,

has built an online marketplace where

landlords and homeowners can adver-

tise jobs that need doing to tradesmen

and women. Mubadala, the huge Abu

Dhabi sovereign wealth fund, took part

in the fundraising.

Other companies have latched on to

the need of landlords and developers to

improve their sustainability creden-

tials. The built environment is esti-

mated to account for 40 per cent of the

UK’s carbon footprint and investors are

putting pressure on companies to

address shortcomings in this area.

Among them is the London-based

Satellite Vu, which tapped investors for

£15 million in October. It plans to send

seven thermal and infrared imaging

satellites into space. The cameras,

which are being assembled in Guild-

ford, Surrey, can take pictures of build-

ings several times a day. In theory, that

will allow businesses, insurers and

lenders to see how energy-efficient a

building is.

“Proptech investment is growing

significantly year-on-year, as the real

estate sector is increasingly aware of

the operational performance gaps that

have been unaddressed for a number of

years,” Faisal Butt, chief executive of

Pi Labs, said. “As the UK real estate

sector wakes up to the changes

required to reach net-zero targets,

landlords, investors and occupiers are

realising that technological adoption

will play a crucial role in future-

proofing assets and meeting sustain-

ability pledges.”

Butt, 44, added that “generalist

venture capital firms, particularly tech-

nology-focused Silicon Valley inves-

tors, are also now starting to get in on

the action”.

Tom Howard

Glastonbury broadcaster’s collapse leaves

experts up in arms over lack of oversight

The Glastonbury music festival in Somerset was among the events worked on by the collapsed Arena TV, which borrowed about £280 million from at least 20 lenders

Arena TV was an

accident waiting to

happen. More will follow,

write James Hurley and

Katherine Griffiths

JOSEPH OKPAKO/GETTY IMAGES