Worldspreads Ltd, Re Investent Bank Special Administration Regulations 2011

The court’s inherent jurisdiction to supervise trusts permits directions for the distribution of trust property on particular bases where that course is just and expedient. This includes directions allowing distribution despite unresolved or potential third-party claims. In a special administration, the court may also give directions under paragraph 63 of Schedule B1 to the Insolvency Act 1986 where the matter arises within the administrators’ functions. A distribution procedure should balance the interests of established clients in receiving money promptly against the interests of persons with serious unresolved claims. Reasonable safeguards, including notice, provision for disputed claims and preservation of unsecured or compensation claims, may justify a final distribution.

Worldspreads Ltd was in special administration after a substantial shortfall in its client money pool. The joint special administrators had agreed most claims, made an interim distribution and sought directions permitting a final distribution despite non-responsive clients, disputed claims and de minimis claims.

The FCA had modified the relevant CASS 7A rules for Worldspreads, but the administrators sought court directions under paragraph 63 of Schedule B1 to the Insolvency Act 1986 and the court’s inherent jurisdiction over trusts. The central issues were whether the court had jurisdiction and whether the proposed safeguards made the distribution just and expedient.

1. Jurisdiction. The court had jurisdiction under paragraph 63 of Schedule B1 to the Insolvency Act 1986, as applied to special administration by regulation 15(4) of the Investment Bank Special Administration Regulations 2011, insofar as the application concerned matters within the administrators’ appointment. Whether paragraph 63 alone supported every aspect of the final order was left open.
2. The court also had inherent jurisdiction to supervise and intervene in the administration of the client money trust. Following In re MF Global UK Ltd (in special administration) (No 3) [2013] 1 WLR 3874, that jurisdiction permitted directions for distribution on particular bases where just and expedient. It extended to distribution despite existing or potential claims to beneficial interests.
3. The court accepted that regulation 10 of the Investment Bank Special Administration Regulations 2011 required the return of client assets, including client money, as soon as reasonably practicable. Regulation 11 did not apply to client money governed by FCA rules, but that limitation did not reduce the wider objective in regulation 10.
4. The proposed procedure appropriately balanced competing interests. The administrators had taken reasonable steps to identify and notify potential claimants. Further communications and advertisements were required. Provision would be made for disputed claims, and dissatisfied claimants could apply to court. Affected clients retained any proper unsecured claim against the insolvent estate and their rights against the FSCS.
5. The court therefore made the order in Annex 2, permitting a bar date, adjudication of unresolved claims, interim and final distributions, and the disregard of specified non-responsive and de minimis claims, subject to the FCA’s modified CASS rules and the stated safeguards.