Rational Foreign Exchange Limited (in Special Administration), Re

The court may approve a distribution plan under rule 114 where the statutory notification and committee-consultation requirements are met and the plan provides a fair and reasonable means of returning relevant funds as soon as reasonably practicable. Proper weight should be given to the administrators’ professional judgment, the creditors’ committee, customer representations and the regulator’s position, although the court must exercise its own discretion.

Contractual status depends on the ordinary principles of offer and acceptance. Acceptance by conduct must be unequivocal and consistent with the stipulated method of acceptance. A regulatory breach does not prevent monies provided for a payment transaction from being treated as relevant funds where the statutory regime requires their safeguarding.

Joint special administrators of Rational Foreign Exchange Limited applied for approval of a distribution plan under rule 114 of the Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021. They also sought directions under paragraph 63 of Schedule B1 to the Insolvency Act 1986 concerning whether European customers using several post-Brexit contractual models were customers or creditors of the company with claims to relevant funds.

MLS-Multinational Logistics Services Limited intervened, contending that it had contracted with the English company and that its funds were safeguarded. The central issues were the contractual identity of the relevant parties, the effect of regulatory non-compliance, the classification of different funds, and whether the proposed distribution plan should be approved.

1. Distribution plan. The court approved the distribution plan. Rule 114 confers a discretion, subject to the prescribed notification and committee requirements. The governing question is whether the plan provides a fair and reasonable means of returning relevant funds in accordance with Objective 1 of regulation 12. Proper weight is due to the administrators’ judgment, the creditors’ committee’s approval, the opportunity given to affected persons to make representations, and the FCA’s position. None is conclusive, and the court must exercise its own judgment.
2. Directions jurisdiction. Paragraph 63 of Schedule B1 permits administrators to seek directions on legal questions affecting the adjudication and treatment of claims, including whether a person is a customer or creditor.
3. Contractual arrangements. Existing EU customers had not unequivocally accepted the PayrNet terms or contracted with PayrNet and RFX EU merely by receiving the amended-terms email and continuing to use the company’s services. The email was inconsistent with the contractual terms and did not identify the new counterparty or agency arrangement. Those customers were nevertheless properly treated as having claims to relevant funds because their monies were provided for payment transactions, notwithstanding the regulatory breach.
4. New EU customers who completed the registration process and accepted the PayrNet terms contracted with PayrNet, with RFX EU acting as agent for payment services. The same conclusion applied to MLS. The relevant contractual terms and the recorded acceptance displaced the contention that MLS had contracted with the English company.
5. During the Currencycloud period, no customer funds were received by the company or RFX EU. During the Freemarket period, customers using the Collections Model were customers of the company and their funds were relevant funds; customers using the Payment on Behalf Of Model were customers of Freemarket. Reverse solicitation did not restore passporting rights, but the funds received from those customers remained funds provided for payment transactions and were treated as relevant funds.
6. Deposit and variation margin were not relevant funds because they were not provided for use in a payment transaction at the time of deposit. Unallocated funds were treated as relevant funds on the administrators’ informed and reasonable assessment, given the circumstances and the short period before administration.
7. The application costs were costs incurred in pursuit of Objective 1. The provisions for future costs of pursuing further realisations were approved because they preserved an incentive to recover additional funds without imposing an unnecessary further reduction on customer returns.
8. The declarations sought by MLS were refused. Its request for relief concerning a rule 106 decision was premature because no such decision had yet been made, and the remaining relief was otiose or answered by the directions granted to the administrators.

First-instance decision. No appellate history is stated in the judgment.