SVS Securities Plc, Re The Investment Bank Special Administration Regulations 2011

This was an application by the special administrators of SVS Securities plc and by SVS in its capacity as trustee of client monies for approval of a distribution plan under Regulation 11 of the Investment Bank Special Administration Regulations 2011 and Rule 146 of the Rules, for a court direction permitting transfer of pooled client money under CASS 7A, and for an order under the court's inherent jurisdiction to adopt a dispute-resolution / proof-like procedure for client money claims. The court approved the distribution plan, directed that the pooled client money could be transferred to the nominated FCA-regulated broker subject to the FCA waiver, and made the proposed dispute-resolution order under its inherent jurisdiction.

The court's decision was grounded on the statutory framework for special administration (in particular Regulations 10, 10B, 10C, 11 and 12B and the Rules, especially Rules 135, 137 and 144–146), the purpose of Objective 1 to return client assets as soon as reasonably practicable, the consultation and approval process involving the creditors' committee, and the lack of effective objection by clients, the FCA or the FSCS. The court accepted that the partial property transfer mechanism (with reverse-transfer rights) and the CASS 7A transfer regime (with an FCA waiver of client consent) permitted the proposed transfers, and that the court had inherent jurisdiction to approve a dispute-resolution procedure for client money claims.

Background and parties. SVS Securities plc was placed into special administration on 5 August 2019. The administrators applied for (1) court approval of a distribution plan under Regulation 11 and the Rules to transfer the bulk of client assets and related client contracts to an FCA-regulated nominated broker; (2) a direction permitting SVS as trustee to transfer the pooled client money (c. £23.7 million) to the nominated broker under CASS 7A on the basis of an FCA waiver of client consent; and (3) an order authorising a proof-like dispute resolution procedure for client money claims under the court's inherent jurisdiction.

Facts and procedural posture. At appointment SVS held client assets with an indicative value of c. £286 million for about 11,100 clients and client money in excess of c. £23.7 million for about 16,600 clients. The administrators had set a soft bar date, prepared a distribution plan and explanatory statement, obtained creditors' committee approval, consulted the FCA and FSCS, published notices and received no material client objections at the remote hearing.

Issues framed. The court considered: (i) whether the distribution plan was fair and reasonable and should be approved under Rule 146; (ii) whether SVS could transfer pooled client money to the nominated broker under CASS 7A (and whether an FCA waiver satisfied the client-consent requirement); and (iii) whether the court had jurisdiction to make an order creating a dispute-resolution / proof-like process for client money claims.

Reasoning and disposition. The judge reviewed the statutory special administration regime and Rules, the nature and purpose of Objective 1, and relevant authorities (including MF Global and earlier distribution-plan jurisprudence). He concluded that the plan had been properly formulated and consulted on, the creditors' committee had approved it, and the FCA and FSCS were not opposed; weight was given to the administrators' professional judgment. The court therefore approved the distribution plan permitting the partial property transfer (with reverse-transfer rights) and novation mechanisms under Regulations 10B/10C. As to client money, the FCA had granted a waiver under section 138A of FSMA permitting transfer without individual client consent and the nominated broker had given necessary undertakings; the judge gave a direction permitting the transfer. Finally, relying on prior authority and the court's inherent jurisdiction in relation to trusts, the judge made the order adopting a dispute-resolution procedure for client money claims modelled on the MF Global order, permitting distributions to be made only in respect of claims notified by the extended bar date and agreed or admitted by order, with provision for reserves for unresolved claims.

Wider context. The court observed that the Regulations and Rules respond to difficulties exposed by earlier investment bank administrations and noted the utility of the special regime in facilitating speedy bulk transfers of client assets and a procedure to resolve client money claims.

This was a first-instance application and the court granted the relief sought. The court approved the distribution plan under Regulation 11 and Rule 146 as a fair and reasonable means of achieving Objective 1; it directed that SVS as trustee may transfer the pooled client money to the nominated FCA-regulated broker (the FCA having granted a waiver under section 138A FSMA); and it made an order under the court's inherent jurisdiction adopting a proof-like dispute-resolution procedure for client money claims. The judge's rationale was that the plan and transfers promoted the statutory objective of returning client assets promptly, the procedural conditions in the Rules had been satisfied, interested parties had been consulted and had not objected, and the court had jurisdiction to fill the procedural lacuna for client money claims.