- February 27, 2019
- Posted by: Josiah Hincks Solicitors
- Category: News
One good reason why it makes sense to use the services of properly regulated professionals is that, in the event of insolvency, the law kicks in to ensure that clients’ funds are returned to them. In an example of the system in operation, the High Court closed the book on the demise of a stockbroking company which held £23.5 million of its customers’ money when it entered administration.
The company ceased trading following an intervention into its affairs by the Financial Conduct Authority. By operation of the Financial Services and Markets Act 2000, clients’ funds were thereafter pooled and held in a statutory trust by the company. Special administrators were appointed to supervise the distribution of those funds.
Following an exhaustive investigation that lasted over six years, the administrators managed to trace the majority of the company’s 11,000 clients and settle their claims. About 97 per cent of the pool had been successfully distributed, but there remained a rump of around 22 per cent of the company’s clients who had not responded to the administrators’ inquiries.
The potential claims of the unresponsive clients amounted to over £800,000. The majority of them were believed to have entitlements of £1 or less, although a few were more substantial. Under the terms of the statutory trust, however, a final distribution of the sums remaining in the pool could not be made until all of the claims, however small, had been settled.
In those circumstances, the Court’s approval was sought for a scheme which would involve some modification of the statutory trust but which would bring finality to the distribution process. It would also protect the company from any suggestion that it had acted in breach of trust, or that the administrators had procured or participated in such a breach.
In granting the application, the Court noted that it was undoubtedly time for the book to be closed and for a final distribution of clients’ funds to be made. The scheme provided a cut-off date by which claims on those funds would have to be lodged. Provided certain conditions were met, the company and the administrators were also empowered to have no regard to claims below a certain threshold value.