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Premier FX - 'asset status' will be key

justiceRegarding the appointment of administrators to deal with the shock collapse of Premier FX, Jeremy Boyle of Summit Law LLP writes, "This is potentially welcome news but please forgive me for being cautious - it’s my job!

"For nearly 3 decades I have been advising numerous trustees in bankruptcy, liquidators and administrators and creditors such as yourselves on all aspects of insolvency law.

Nightclubs, restaurants, sportsmen, TV personalities to name but a few and of course folk like me and you.

Only recently we were appointed by the High Court to represent the interests of creditors caught up in a fine wine fraud where assets were all ‘mixed up’.

How is that relevant to the Premier FX Ltd. debacle, you may be asking yourselves.

One of the key issues facing the Joint Administrators is the question of trust assets.

Investors will assert arguments of trust status over the cash deposits. Trust assets do not belong to the insolvent company. Instead, they sit outside the insolvent estate.

The question is:- whose function it is to investigate those trust claims. The powers and functions of administrators are clearly defined by insolvency legislation and broadly stipulate that the officeholders are empowered to administer and realise the assets of the company for the benefit of the creditors, since trust assets are not assets of the company.

The question of assets held in trust is therefore problematic, both in terms of the officeholder’s ability to investigate the alleged trust status (and the administration of those assets if they are deemed to be trust assets) and the recovery of professional fees for undertaking that investigation (and administration).

The UK Courts have recognised that, even though the officeholder has no statutory powers for dealing with trust assets, there is a residual equitable jurisdiction vested in the Courts to allow the office holder to carry out this exercise.

The equitable jurisdiction arises from the proposition that the beneficiaries of the assets could gather together (or even act separately) and appoint a trustee(s) to realise or administer their assets.

In the famous case of Berkeley Applegate (Investment Consultants) No 2, the Court concluded that it could authorise the insolvency officeholder to act as a quasi trustee in order to realise the assets. That conclusion is sensible because it limits the cost and expense of any number of trustees becoming involved.

The administrator will have access to the records of the company as well as the computer operating systems.

He is likely, therefore, to be in a position to determine trust status and administer them, and repatriate the assets more quickly and economically than a separately appointed trustee or trustees.

As a consequence, and again based on equitable principles, the liquidator in the Berkeley Applegate case was able to recover fair compensation for his efforts in determining trust status. In a subsequent case (Berkeley Applegate (Investment Consultants) No 3), the Court held that equitable charges of this sort could not be levied against the company’s assets (which should be distributed through dividends to the unsecured creditors) but, instead, should be charged on and deducted from the trust funds which had been investigated.

That could mean your savings.

From our experience of making Berkeley Applegate type applications on behalf of insolvency officeholders, it seems clear that the issue to focus on, from a counterparty’s point of view, is the question of the fairness of the officeholder’s compensation request in relation to the work which he has undertaken.

In some cases the insolvency practitioners costs can be stratospheric. Accordingly it’s important to appoint lawyers who know what they are doing and who can challenge these costs if they are high and unreasonable.

As stated above, the compensation sought must be fair and in accordance with equitable principles.

The question therefore is what work was it fair for the administrator to undertake in the particular circumstances of the assertions of trust status made by the counterparties.

In addition, if there is a dispute as to the trust status, the Courts have determined that the officeholders’ requests for compensation for their investigation should not attach to those disputed trust assets.

Accordingly the terms of the application should clearly identify how the costs have been incurred and allocated, so that creditors can be assured that none of the administrators’ time spent dealing with trust assets will be charged against the company’s assets.

If you would like to discuss any of the issues or concepts referred to above, please do not hesitate to contact www.summitlawllp.co.uk and complete an enquiry form.

Or email Jeremy Boyle at:  jb@summitlawllp.co.uk

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Comments  

0 #1 Robert. H.Collins 2018-09-02 17:09
Maybe some .uk citizens should check if one of their grandparents was born in Ireland. If so they may qualify for an Irish passport. I'm sure that this could apply to quite a few people

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