Court approval for the distribution of trust money and payment of remuneration and expenses

The Company was a debt management firm that advised individuals on their financial problems. Its assistance included implementing debt management plans between the Company and its clients under which clients made monthly payments. The Company then paid the client’s creditors and placed a balance in a pool for negotiation of full and final settlements with creditors.

The pool money was misappropriated and transferred to two US companies. On the application of the FCA, a provisional liquidator was appointed and freezing orders secured. Subsequently, the liquidator applied for an order approving a Distribution Plan for recovered client funds and the payment of his remuneration and expenses. The application was made with notice to creditors and clients having only been given in general terms, but no formal notice of the application other than to the FCA.

The FCA’s Client Asset Rules (CASS) Chapter 11 applied, so the failure of a debt management firm is a “primary pooling event” whereby all client money forms a notional pool and the liquidator must calculate the amount the Company holds for each client and distribute a sum that is rateable to their entitlement to the notional pool.

The court referred to its inherent jurisdiction to direct trustees to distribute trust property following the decisions in MF Global UK and Worldspreads and approved the Distribution Plan (the terms of which is set out in full in an annex to the judgment). The court also approved the costs and expenses of the provisional liquidation and liquidation, including CFA uplifts of 65% for solicitors and counsel, from either the Company’s funds or money held on trust for the Company’s clients.

In the matter of Total Debt Relief Limited [2019] EWHC 2018 (Ch)

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