Supercapital Ltd, Re Insolvency Act 1986

The Payment Services Regulations 2017 create a statutory trust over relevant funds received by an authorised payment institution. The conclusion follows from the requirements that such funds be identified, recorded and segregated from the institution’s own money, together with the statutory priority given to payment service users on insolvency.

General trust law supplies the framework for operating a statutory trust where the regulations do not provide complete machinery. The court has jurisdiction, under paragraph 63 of Schedule B1 to the Insolvency Act 1986 and its inherent jurisdiction, to direct administrators on the administration and distribution of trust assets. It may approve a practical pari passu distribution scheme without altering beneficial interests.

Supercapital Ltd was an authorised payment institution providing international payment and currency exchange services. Following the appointment of joint administrators, approximately £12.6 million was identified as client money, subject to an estimated shortfall.

One administrator applied for directions and approval of a distribution plan for funds said to be held for clients under the Payment Services Regulations 2017. The issues were whether the regulations created a statutory trust, whether the court had jurisdiction to give directions, and whether the proposed distribution plan should be approved.

1. Statutory trust. The relevant provisions of regulation 23 of the Payment Services Regulations 2017 created a statutory trust. The court considered the nature of the funds, the mandatory segregation requirement, the obligation to keep records, the prohibition on treating the funds as company money, and the priority given to payment service users on an insolvency event. Taken together, those features showed that the funds were held for beneficiaries and were not subject to an ordinary debtor-creditor relationship.
2. Role of general trust law. Whether a statutory trust exists depends on the statutory language considered alongside general trust and equitable principles. Once a statute creates a trust but leaves aspects of its operation unregulated, default trust-law rules may supplement the statutory provisions, provided they do not displace or vary an express statutory rule. The approach in Lehman Brothers International (Europe) v CRC Credit Fund Ltd [2010] EWCA Civ 917 was applied.
3. Jurisdiction. The court had jurisdiction to give directions concerning the trust assets. That jurisdiction arose under paragraph 63 of Schedule B1 to the Insolvency Act 1986 and, preferably in the judge’s view, under the court’s inherent equitable jurisdiction. The authorities established that administrators may seek directions on how to perform their functions as trustees and distribute trust property.
4. Distribution scheme. The inherent jurisdiction permits directions for distribution on a practical and fair basis without varying beneficial interests. An order may protect administrators while preserving the rights of persons who later establish a beneficial entitlement. The proposed scheme, which distributed admitted claims pari passu and contained procedures for proving, appealing and retaining funds, was approved with amendments clarifying that all claims would be distributed on that basis.
5. The issue of the administrators’ remuneration, costs and expenses was adjourned.