Money in the hands of an FCA-regulated financial services business might belong to the business itself; or to its clients; or to the counterparties with which it deals.
An administrator appointed to that business must carefully identify the nature of any sums in the hands of the company and, where they are held on trust for another person, distribute them to their owner rather than subjecting them to the usual collective waterfall in which general creditors participate. The FCA’s Client Asset Sourcebook rules will be in play: client moneys are to be pooled and shared pro rata amongst the clients with valid claims to them.
The administrators of an insurance broker made a directions application, seeking approval of the basis on which they proposed to assess entitlement and distribute funds. The broker’s books and records were not sufficient to identify many of the entitlements clearly. There was potential competition between insurer-counterparties to the broker and the broker’s clients. The proposed distribution scheme would make presumptions about funds with an unclear nature, with the benefit of the doubt being given to clients sharing in the client money pool, to the detriment of insurers.
It is well-known that a court will not “bless” what it sees as commercial matters falling to the professional judgment of the administrators (although the courts will entertain applications to review administrators’ conduct after the event!) Here, the court went on to give additional guidance on the use of directions applications under paragraph 63, Schedule B1 of the Insolvency Act 1986:
- Directions applications should not be used if there is a more specific, relevant procedure for seeking the court’s assistance. Para.63 is not a short-cut.
- The directions sought must be consistent with the administrators’ statutory duties and functions, and with the purpose of that administration.
- The application must not give rise to a conflict of interest for the administrators.
- Any directions given must be consistent with the law.
Whilst most IPs will see this as common-sense, it is helpful to have more express guidance from the courts.
The judge went on to approve the proposed distribution scheme, finding that it was an appropriate request for directions given the difficulties which the facts of the case presented to the administrators. Where entitlements to funds are uncertain, it can (as it was here) be appropriate to make (rebuttable) presumptions to ensure that there can be an efficient and fair distribution.
And importantly, the court ruled that it was appropriate for the administrators’ remuneration and costs in dealing with this issue to be paid out of the trust assets - bringing together various authorities in the cases and the CASS rules.
Re EC3 Brokers Ltd (In Administration) [2026] EWHC 829 (Ch)
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