EC3 Brokers Limited (In Administration), Re

An administrator may seek directions under paragraph 63 of Schedule B1 to the Insolvency Act 1986, supplemented where necessary by the court’s inherent jurisdiction. Directions must remain within the administrator’s statutory functions, promote the purpose of the administration, comply with the law, and avoid conflicts of interest. The court should give practical and fair assistance, but should not substitute its commercial judgment for that of the administrator. In a client-money administration, a distribution scheme may use reasonable reconstruction methods, presumptions and a bar date where these fairly approximate entitlements and provide an efficient route to finality. The court approved such a scheme and allowed proportionate remuneration and expenses properly attributable to distribution.

The joint administrators of an insurance broker in administration applied under paragraph 63 of Schedule B1 to the Insolvency Act 1986 for directions approving a scheme for distributing approximately £13 million of client money held under the FCA’s Client Asset Sourcebook regime. Deficiencies in historic records made it difficult to identify clients, quantify entitlements and establish whether risk-transfer arrangements applied. The scheme provided for insurer and non-insurer proofs, a best practical reconstruction, a rebuttable presumption favouring non-insurer clients, treatment of unallocated and unclaimed balances, a bar date and proportionate handling of small claims. The administrators also sought approval of remuneration, costs and expenses. The central issues were the scope of the paragraph 63 jurisdiction, whether the scheme was lawful and fair, and whether the proposed costs could be paid from the client-money pool.

1. Jurisdiction and limits. Paragraph 63 of Schedule B1 provides the statutory gateway for directions, supplemented by the court’s inherent jurisdiction. The permissible directions must be consistent with the administrator’s functions and duties and promote the purpose of the administration. The court should provide practical and fair assistance while minimising delay and cost. The jurisdiction is not a shortcut where statutory remedies are available, and it cannot convert the court into the administrator’s commercial decision-maker.
2. The court should generally defer to commercial decisions within the administrator’s statutory powers. It must be satisfied that the proposed exercise is within power, genuinely considered beneficial to the company and creditors, rational and free from conflict. It should not withhold approval merely because it would have acted differently. The directions must also comply with the laws of England and Wales.
3. Client-money scheme. The CASS 5 regime creates a pooled client-money trust on administration and requires rateable distribution according to client-money entitlements, with non-insurer clients protected ahead of insurers. Where records are incomplete, administrators may use a best practical reconstruction. Where risk transfer cannot be established and the insurer cannot produce contrary records, they may proceed on the basis that no risk transfer applies. A rebuttable presumption favouring non-insurer clients was consistent with CASS 5’s protective policy.
4. The proposed two-stage proof process, bar date, arrangements for late claims, transfer of unclaimed money to the Insolvency Service, treatment of unallocated balances and omission of disproportionate notice for balances below £100 were fair, practicable and rational. The scheme complied with the FCA Rule Modification, CASS 5 and the law.
5. Remuneration. Costs properly attributable to distributing client money could be paid from the pool. The remuneration and expenses incurred to 27 February 2026, amounting to £1,084,949 plus VAT, were fair, reasonable and proportionate. Estimated further costs of £702,068 plus VAT were justified.
6. The company was permitted, and the administrators were directed, to distribute the client money in accordance with the scheme. The costs incurred and estimated further costs were allowed.