Worldspreads Ltd, Re

The court may make a special administration order for an investment bank where it is satisfied that the statutory status requirement is met and either the institution is, or is likely to become, unable to pay its debts, or it is fair to place it into special administration. In the statutory context, fairness bears an extended meaning including just and equitable considerations.

The special administration regime is directed particularly to protecting and distributing client money. It also requires continuing co-operation between the administrators and the relevant regulator. Urgency, the protection of clients, orderly resolution of claims, possible rescue or sale, and independent investigation may justify making the order without delay.

The directors of Worldspreads Limited applied urgently for a special administration order under the Investment Bank Special Administration Regulations 2011. The company provided spread betting and contracts-for-difference services and held client money subject to segregation requirements. An apparent substantial deficit had emerged following the discovery that client money reconciliations had been falsified.

The issues were whether the company was an investment bank within the statutory definition, whether the statutory grounds for special administration were met, whether the proposed administrators were qualified, and whether the order could properly be made without prior notice to secured creditors or the company.

1. The application was granted and a special administration order was made with effect from 5.30 p.m. London time. The court was satisfied that it had jurisdiction and that the order should be made without further delay.
2. Under regulation 7(2), read with regulations 6(1)(a) and 6(1)(b) of the Investment Bank Special Administration Regulations 2011, the court had to be satisfied that the company was an investment bank within section 232 of the Banking Act 2009 and either that it was, or was likely to become, unable to pay its debts or that it was fair to place it into special administration.
3. The company satisfied the extended definition of investment bank. It had the relevant Part 4 permissions under the Financial Services and Markets Act 2000, held client assets, and was incorporated in England and Wales.
4. The apparent client-money deficit meant that the company was, or was likely to become, unable to pay its debts within section 123 of the Insolvency Act 1986, on both standard grounds. Independently, it was fair to make the order because special administration offered a real prospect of orderly resolution of client-money claims, mitigation of continuing risks, possible rescue or sale, independent investigation, and structured liaison with the FSA and market infrastructure bodies.
5. The statutory objectives were client-asset return as soon as reasonably practicable, timely engagement with relevant authorities and market infrastructure bodies, and either rescue of the company as a going concern or winding-up in creditors' best interests.
6. The proposed administrators met the requirements in regulations 4(2) and 4(3). Secured creditors did not have to be formally notified under the statutory regime, although it was practically sensible to keep them informed. No competing receiver or winding-up process prevented the order.
7. The court was also prepared to include recitals identifying the special administration and the administrators as falling within the relevant definitions in Article 2 of the UNCITRAL Model Law on Cross-Border Insolvency, to assist recognition abroad.