Simon Ashley Rowe (as Liquidator of ONESTOPMONEYMANAGER Ltd) v Redbones Limited & Ors

Safeguarding provisions for electronic-money and payment-services institutions do not create a statutory trust where the institution may choose insurance or guarantees instead of segregation and may use the funds in its business. The relevant provisions must be read as a whole. An electronic-money institution authorised under the Electronic Money Regulations 2011 remains so authorised where it never applied for authorisation under the Payment Services Regulations 2017; however, the latter’s safeguarding provisions may apply to payment services through regulation 20(6). Unclaimed identifiable merchant funds may be paid into the Insolvency Service Account after a fair, specified opportunity to claim.

The liquidator of an electronic-money institution sought directions under section 112 of the Insolvency Act 1986. The company had been authorised under the Electronic Money Regulations 2011, had not applied for authorisation under the Payment Services Regulations 2017, and held residual funds attributable to four merchants who had not completed due diligence.

The court was asked which regulatory regime applied, whether the residual funds were held on statutory trust, what further time should be given to the merchants, and how the funds should be dealt with if they remained unclaimed.

1. Regulatory status. The company was authorised and governed by the Electronic Money Regulations 2011. Treating it as regulated under the Payment Services Regulations 2017, despite no application for authorisation under those Regulations, would be perverse. Regulation 20(6) of the 2011 Regulations nevertheless made the 2017 Regulations’ safeguarding provisions applicable to payment services provided by the company.
2. No statutory trust. The safeguarding provisions in both Regulations provided substantially the same alternatives. Relevant funds could be segregated, or covered by insurance or a comparable guarantee. The reasoning in Re ipagoo LLP was followed. Segregated funds formed a fluctuating pool, while the insurance alternative did not require funds to be set aside and did not prevent their use in the institution’s business. The provisions therefore lacked the characteristics of trust property and did not confer a proprietary interest on merchants.
3. Opportunity to claim. The merchants were to receive a fair opportunity to provide the required due diligence. The practical steps were registered or recorded-delivery letters, a short advertisement in a relevant daily newspaper, and other known communication methods. A 42-day period from service of the order was allowed. Claims completed within that period could be processed; partial compliance could justify a further extension while due diligence was underway.
4. Unclaimed funds and order. If a merchant failed to respond within the 42-day period, the liquidator could pay the value of that merchant’s fund into the Insolvency Service Account and proceed with the liquidation. The Applicant was invited to provide an order.