Woodford Equity Income Fund: suspension, wind-up and redress

The Woodford Equity Income Fund was frozen and later wound up. If you had money in it, you could not take it out once the suspension took hold. The fund had too much invested in illiquid assets, which are difficult to sell, and that is what triggered the freeze¹.

The wind-up and a compensation scheme followed. The scheme was set to pay back up to around £235m in total, recovering approximately 77p in the pound for investors in the fund. The first pay-out was an amount between £180m and £200m, expected in April 2024¹.

Eligible investors, meaning those who did not take out their investments before the fund was suspended, should not need to actively seek compensation. If you invested directly, Link Fund Solutions should contact you. If you invested through a platform or broker, they receive the communications and should pass them on¹.

The Woodford Equity Income Fund was frozen: what it meant for investors

A suspension is not the same as a fund closing. When a fund is suspended, units can no longer be bought or sold, so the money already in it stays where it is. For an investor, that means the value shown on a statement is still moving with the market, but it cannot be turned into cash.

The Woodford Equity Income Fund was a popular holding. A lot of people invested in it because it appeared in Hargreaves Lansdown's Wealth 50 list of recommended funds, up to the day of the fund's closure¹. That matters for anyone trying to work out whether they were affected: the fund was widely held through platforms and brokers, not only by people who bought it directly.

What investors could not do during the freeze was withdraw. What they could do was wait, and the wait was long. The fund's holdings had to be sold down over time, and the money returned in stages rather than in one payment.

If you hold other funds and want to understand how suspensions work more generally, see fund suspensions: when you cannot sell. For the wider picture on how funds are structured and priced, investment funds explained covers the basics.

Why the fund was suspended: too much in hard-to-sell assets

The cause was concentration. Too much of the fund was invested in 'illiquid' assets, which are difficult to sell¹. A fund that holds mostly large, listed companies can meet withdrawals easily: there is a ready market, and sales settle in days. A fund holding a large slice of unlisted or thinly traded companies cannot do that.

When too many investors want out at once, a fund has two bad options. It can sell the liquid holdings first, which leaves the remaining investors holding a portfolio skewed towards the hard-to-sell assets. Or it can try to sell the illiquid holdings quickly, which usually means accepting a lower price. Suspending the fund avoids both, at the cost of locking everyone in.

This is a structural risk in any fund that holds assets without a ready market, not a one-off. The rules around what can be held where reflect that. A stocks and shares ISA can hold investment funds including equity funds, tracker funds, unit trusts and OEICs, but alternative assets such as classic cars, fine wine and art cannot be held within an ISA wrapper². Peer-to-peer investments are also excluded from that wrapper³.

The regulatory boundary has moved since. Rules introduced in the Supplementary Regime set out how payments firms can safeguard relevant funds by investing in an unchanged range of secure, liquid assets⁴. Separately, legislation in 2024 allowed certain investments to be held in an innovative finance account where those investments are subject to a notice period⁵, and later legislation removed the provision that allows long-term asset funds to be held under an innovative finance account⁶. These changes shape where illiquid holdings can sit, but they do not remove the underlying problem: an asset with no ready buyer cannot be turned into cash on demand.

What 'illiquid' assets are and why they trapped investors' money

An illiquid asset is one you cannot sell quickly at a fair price. Listed shares in a large company are liquid: there is a market, and a seller can find a buyer in minutes. Unlisted company stakes, property and some specialist holdings are not. Finding a buyer can take months, and the price depends on who is interested.

For a fund, illiquidity is a mismatch problem. The fund promises investors they can withdraw, usually on short notice, but it holds assets that cannot be sold on short notice. As long as withdrawals are modest, the mismatch does not bite: the fund sells its liquid holdings and carries on. When withdrawals are large, the mismatch becomes the whole story.

That is what trapped investors' money. The fund could not sell enough of its illiquid holdings quickly enough to pay everyone who wanted out, and selling them slowly meant the money came back in stages.

How the suspension stopped withdrawals

Once suspended, the fund stopped accepting instructions to buy or sell. That is the mechanism: not a penalty, not a queue, but a halt. Investors could not redeem, and new money could not come in.

The Financial Ombudsman Service, which handles complaints about financial firms, looks at how restrictions are applied when a customer believes account terms were incorrectly or unfairly applied. It considers what the terms say and whether they are clear, how the customer has used the account, how long the restriction lasted, the justification for not releasing money if an account has been frozen, and the effect on the customer⁴.

That framework is about accounts rather than funds, but it shows the shape of the question a complaint raises: was the restriction justified, was it explained, and how long did it last. For a fund suspension, the equivalent questions are whether the fund's holdings were disclosed clearly enough and whether the suspension was handled in investors' interests.

Where a fund is wound up, the rules on what happens to contributions are set out in legislation. Under the Stakeholder Pension Schemes Regulations 2000, any contributions made to a scheme after the date of commencement of any winding-up must be repaid to the member to the extent of his contributions, and any remainder to his employer⁷. That provision concerns pension schemes rather than this fund, but it illustrates the principle that money paid in after a wind-up begins is returned rather than absorbed.

From suspension to wind-up: what happened to investors' money

The fund did not reopen. It was wound up, and the money came back through the sale of its holdings and then through a redress scheme.

The scheme's numbers are the clearest picture of what investors received. It was set to pay back up to around £235m in total, recovering approximately 77p in the pound for investors in the fund¹. The first pay-out from the settlement was an amount between £180m and £200m, with the first redress payment expected in April 2024, though an appeal of the judge's ruling could have pushed that further out¹.

Investors had a say. When investors in the fund were called to approve or reject the scheme, more than 54,000 voted and nearly 94% backed it¹.

A recovery rate of approximately 77p in the pound means investors got back roughly three-quarters of what the scheme measured as their loss. It is not a full return, and it is not a figure that applies to every investor identically: the amount depended on when they invested and what they held.

Redress: how investors could seek compensation and where to get help

There are two routes, and they are different.

The first is the scheme itself. If you invested directly into the fund, Link Fund Solutions should contact you about the scheme. If you invested through an investment platform or broker, they receive these communications, which they should then pass on to you¹. Eligible investors, meaning those who did not take out their investments before the fund was suspended, should not need to actively seek compensation¹.

The second is a complaint about the advice or the recommendation that led you into the fund. The Financial Ombudsman Service can look at complaints about investments. If it thinks you lost money because you received the wrong investment advice, it will tell the firm involved to put things right and pay compensation for distress or inconvenience⁸. In one case involving an investment fund within a personal pension plan, the ombudsman told the business to compare the actual return the investor had achieved with a benchmark return comprised of lower risk investments⁹.

The principle behind that kind of remedy is to put people back in the financial position they would have been in had the bad advice not been given¹⁰. In practice that means a comparison, not a flat refund.

For the wider subject of mis-selling and how complaints work, see mis-sold investments and bad investment advice. If you are checking what protection applies to investments generally, your rights as an investor sets out the framework, and what happens if an investment platform or pension provider fails covers the failure case.

What protects investors, and where that protection stops

The protections that applied here were not a guarantee of the fund's value. They were a route to redress once things went wrong.

The Financial Ombudsman Service is free to consumers and can order a firm to compensate. Its remedies include putting things right and paying compensation for distress or inconvenience⁸. Where a complaint concerns an investment fund held within a pension, the ombudsman has ordered firms to benchmark actual returns against lower risk alternatives⁹.

Where a firm fails altogether, compensation schemes can step in. Legislation allows a compensation scheme to make provision about the effect of a payment of compensation on rights or obligations, and to give the scheme manager a right of recovery in respect of those rights or obligations¹⁰. That is the mechanism by which a scheme pays investors and then pursues recoveries.

What protection does not do is prevent a suspension. No rule stops a fund from holding illiquid assets within its stated mandate, and no rule guarantees an investor can withdraw on demand when those assets cannot be sold. The protection comes afterwards: a scheme, an ombudsman, or both.

If you think you were affected

Start with the platform or broker you invested through. They hold the record of what you held and when, and they are the route through which scheme communications reach you¹.

If you believe you were given advice to invest and that advice was unsuitable, the ombudsman route is separate from the scheme. Complaints about investments can be brought to the Financial Ombudsman Service, which can require a firm to put things right and pay compensation for distress or inconvenience⁸.

If you are trying to establish what you held and when, your annual statements and tax certificates are the record. Statements, valuations and tax documents explains what providers must send you.