Investors who put money into bonds and income plans issued by failed investment company Keydata can now apply for compensation from the Financial Services Compensation Scheme (FSCS).

On Friday, the FSCS declared Keydata Investment Services formally “in default” – which means the scheme can start sending application forms to customers of the firm, and begin processing their claims.

Keydata was placed into administration on 8 June 2009, after a Financial Services Authority (FSA) investigation into tax liabilities on its products concluded that it could not continue trading. PwC, the administrator appointed by the FSA, later discoved that £103m-worth of life insurance policies backing several Keydata Secure Income bonds had been sold, and the proceeds misappropriated in a suspected fraud.

An FSCS statement has now confirmed two categories of potential claims:

Category One: Secure Income Bond issues 1, 2 and 3. As the underlying assets backing these bonds have been liquidated, and many of the bonds were mis-sold as investments that qualified for tax-efficient individual saving accounts (Isas), the FSCS anticipates that “the vast majority of these customers will be eligible for compensation.” Investors who did not buy via Isas may also able to bring a claim for compensation, if it can be established that Keydata caused them to suffer a financial loss. Investors who do not receive a claim form by the end of November are advised to call the FSCS helpline on 020 7892 7300 or 0800 678 1100.

Category Two: Secure Income Bond issue 4, the Secure Income Plan issues 1 to 12 and 14, the Defined Income Plan issues 1 to 8 and the Income Plan issues 1 to 12 and 14, if held within Isas. These investments did not qualify for inclusion in an Isa, so the FSCS says that the majority of the 16,000 investors will be eligible for compensation for any tax losses incurred as a result of the mis-selling. Investors will receive letters from the FSCS by the end of December, giving details of the claims process.

Dan Schwarzmann, joint administrator and partner of PwC said: “We are extremely pleased to hear that the FSCS is going to make compensation available for eligible investors and also delighted with HMRC’s announcement that Keydata investors in products that do not comply with Isa regulations will be able to retain their Isa wrapper. The announcements will come as welcome news for investors in Keydata.

“We will continue to do all that we can to help investors and will work together with the FSCS and HMRC to assist in the process for the payment of compensation from the FSCS in due course.”