Allanfield Property Insurance Services Ltd ("Apis") & Ors v Aviva Insurance Ltd & Anor

Client money held under CASS 5 is impressed with the statutory trust upon receipt. Inadequate segregation or records do not invalidate the trust or restrict participation to clients whose particular contributions can be identified. On a firm’s failure, the client money is pooled and distributed rateably according to client entitlements.

The court may give administrators practical directions for distribution despite imperfect information, including directions modelled on In re Benjamin orders. Costs incurred to identify valid claims and enable distribution are capable of being attributable to distribution under CASS 5.3.2 R. General equitable principles, including tracing, supplement the regulatory scheme unless excluded.

APIS and ICP were insolvent insurance intermediaries whose client accounts contained substantial sums held under CASS 5. Their records were inadequate, and the administrators could not identify all clients or calculate all entitlements reliably.

The administrators sought directions concerning the status and pooling of the accounts, the treatment of commissions and risk-transfer arrangements, the distribution of the pools, a possible tracing claim between the two pools, and recovery of administration costs. Aviva and AXA participated as insurers claiming interests in the APIS pool; Coutts represented the interests of the general creditors.

The central questions were how the statutory trusts operated on the companies’ failure and what practical directions could properly be given in circumstances of imperfect information.

1. Jurisdiction. The court had jurisdiction under paragraph 63 of Schedule B1 to the Insolvency Act 1986 to give directions concerning statutory trust money held by companies in administration. The court could also exercise its inherent equitable jurisdiction to approve a practical distribution scheme without varying beneficial interests.
2. Status and pooling. The client accounts were statutory trust accounts. The trust arose when client money was received, not when it was segregated. Poor records and mixed funds did not invalidate the trusts. On administration, the balances were pooled under CASS 5.6.7 R. All clients with valid entitlements could participate, whether or not their particular contributions were identifiable. The reasoning in Lehman Brothers International (Europe) v CRC Credit Fund Ltd was applied by analogy to CASS 5.
3. Entitlements. Distribution could proceed on the basis that risk-transfer arrangements transferred the relevant entitlement to the insurer where the circumstances supported that conclusion. Gratuitous continuation of insurance cover did not, without more, extinguish the policyholder’s statutory trust claim. Intermediary claims were not necessarily excluded, but had to be justified on the particular facts.
4. Commission. For an insurer client, commission was deductible only if it had become contractually due to the intermediary under the relevant terms of business. The court rejected a general deduction of commission without analysing the contractual arrangements.
5. Tracing and distribution. A CASS 5 trust could in principle trace into another CASS 5 trust following a breach of trust. The possible claim between APIS and ICP was not determined summarily. The administrators were authorised to negotiate separately, subject to later court approval and cost control. Distribution schemes involving bar dates, adjudication by administrators and rights of appeal were approved in principle.
6. Costs. “Costs properly attributable to the distribution” included costs incurred to identify claimants and valid claims, as well as the costs of making payments. The administrators’ costs were recoverable in principle, but the amounts required close scrutiny by the Companies Court Registrar.

First-instance applications for directions by the administrators of APIS and ICP. The judgment gives directions concerning the administration and distribution of the statutory trust pools.