More than 11,600 investors lost over £236m when LCF collapsed in 2019 and only a small proportion have so far been compensated.

Hearing a judicial review on the compensation issue, Mr Justic Bourne decided that due to the ‘non-transfer’ clauses in the bonds they were not a “transferable security” for regulatory purposes and therefore not subject to FSCS compensation.

The FSCS, which has so far paid out £56.3m in compensation to 2,878 LCF bondholders who held 3,815 regulated LCF bonds, said it was pleased that the judge had agreed with the FSCS and had helped to resolve a legal issue about whether the majority of the mini-bonds were regulated or not.

In a statement the FSCS said: “We are still able to pay compensation to LCF bondholders who received regulated advice from LCF, and the compensation payments that FSCS has made so far are not affected by the court’s decision. 

“We are continuing to look at LCF claims for misleading advice on a case-by-case basis and we’ll write to bondholders individually if we can pay compensation.”

The FSCS said the court’s decision means it can move forward and give “clarity” to the remaining bondholders who have not yet heard from the FSCS as soon as possible. It expects to be able to provide an update in three weeks’ time.

Solicitors representing some of the LCF bondholders said they welcomed some aspects of the judgment but were disappointed that the bonds were not held to be a transferable security and not eligible for compensation and were planning to appeal this decision.

Thomas Donegan, partner at Shearman & Sterling (London) LLP, who are representing some of the bondholders on a pro bono basis, said: "We are pleased that the judge found in our favour that the non-transfer provisions of the LC&F bonds were unfair and unenforceable.

“However, and with respect, we were disappointed that the bonds were then found not to be a "transferable security" for regulatory purposes meaning their issuance was not subject to FSCS compensation.  Our clients intend to seek permission to appeal the decision."