IN THE MATTER OF ALLIED WALLET LIMITED

Although the court’s detailed analysis supported the conclusion that the Electronic Money Regulations 2011 and Payment Services Regulations 2017 created statutory trusts of safeguarded customer funds, the court was bound by the later High Court decision in Re ipagoo LLP. The operative conclusion was therefore that no statutory trust arose under the Regulations.

The judgment nevertheless explains that, absent the binding decision, the Regulations would have been interpreted purposively in light of the relevant EU directives. The court considered that protection would arise on receipt of relevant funds, extend to funds which should have been safeguarded, and require pari passu distribution. Those conclusions were not operative because of the binding contrary authority.

The joint liquidators of Allied Wallet Limited sought directions under section 168(3) of the Insolvency Act 1986 concerning the interpretation and operation of the Electronic Money Regulations 2011 and Payment Services Regulations 2017.

The principal questions were whether the safeguarding provisions created statutory trusts, when any trust arose, which assets formed the asset pool, how the pool should be distributed, and which costs could be charged against it. The application was heard after an earlier directions hearing had identified the dispute but had not resolved it. Before judgment, Re ipagoo LLP held that the EMR did not create a statutory trust. The central issue became the effect of that binding decision on the present application.

1. Jurisdiction. The court had jurisdiction under section 168(3) of the Insolvency Act 1986 to determine questions arising in the winding up. If a statutory trust existed, the court could also exercise its inherent equitable jurisdiction to give directions concerning trust property.
2. Detailed analysis. Applying the two-stage approach in Lehman Brothers International (Europe) v CRC Credit Fund Ltd, the court considered the relevant directives first and then interpreted the UK implementing legislation purposively. The safeguarding scheme required customer funds to be kept separate from the institution’s own funds and protected from other creditors. The court concluded in its detailed reasoning that the EMR and PSR contained the essential characteristics of an English-law statutory trust, arising when relevant funds were received.
3. The court further concluded, as part of that analysis, that the asset pool should include funds which ought to have been safeguarded but were not, and that the pool should be distributed pari passu among the relevant electronic money holders or payment service users. The liquidators were considered best placed to investigate and, where justified, seek to reconstitute the asset pools.
4. Binding authority. Before the judgment was finalised, Re ipagoo LLP held that the EMR did not create a statutory trust and required a different insolvency treatment. As a High Court judge, Judge Burton was bound by that decision. The judgment therefore concluded that no statutory trust arose under either Regulation, despite the contrary detailed analysis. Counsel were invited to address the consequential steps for the liquidators. The proposed conclusions on costs and foreign-currency claims were not finally determined.