CR-2023-002766 - [2025] EWHC 2818 (Ch)

I have been given a great deal of evidence of the strenuous and expensive steps that the JSAs, have been obliged to follow in the special administration. First of all, dealing with the position of the “Relevant Funds”, they have had to identify and to safeguard those funds. To date they have recovered approximately €18.1 million or about 65% of the Relevant Funds which were held in individual and multi-client IBAN accounts with nine different overseas banks from jurisdictions as different as Jordan, Switzerland, Malta and Bulgaria to name but a few. That has itself involved local law firms being involved, in some cases recognition of the joint administration being applied for in local courts and there have been various other complicating factors.

In addition to the Relevant Funds, the JSAs have also recovered general assets of the Company from multiple sources including, among others, foreign corporate accounts, two subsidiaries (in Bulgaria and the British Virgin Islands) and sums from the Company’s sole shareholder.

So far as entitlement to Relevant Funds is concerned, under Regulation 13 a special administrator has to carry out a reconciliation exercise immediately after appointment using the company’s records to identify shortfalls or excesses in the assets pool. In this particular case, a reconciliation in the manner prescribed by Regulation 13 was not possible for a number of good reasons. These include an inability to restore the Company’s banking system despite instructing specialist IT agents to deal with it, the fact that there had been regular cash sweeps between various accounts and the information posted on the banking systems which clients could see did not mirror the actual movements of funds and did not properly reconcile. However, the JSAs have taken the course of identifying or seeking to identify and get in touch with customers to identify the claims that they would have against the Relevant Funds and in effect to achieve the same end as the Regulation 13 reconciliation exercise.

The matter has been reported on regularly to customers and to the FCA and the court therefore has comfort that the approach that the JSAs have taken has been sensible, proportionate and reasonable. As regards customers, the JSAs, in their progress report dated 28 June 2024, confirmed that a reconciliation exercise was not viable or proportionate and set out their suggested approach for identifying Relevant Funds and claims to them and that approach has not been challenged or questioned. The overall result of the investigation has been that, in broad terms, the JSAs have determined that there is a shortfall of about €10 million on the basis that, as at 4 May 2023, the Company’s records indicated it should have been holding about €27.6 million in customer funds. That latter sum, on further review, has slightly increased to about €28.1 million and following the first supervisory notice issued by the FCA and the investigations of the directors’ position, the Company records show that only about €18.8 million was in fact held.

The position now, and in broad terms, is that, as I have said, the JSAs have recovered about €18.1 million by way of Relevant Funds but have received claims or identified claims to Relevant Funds of about €25.6 million which, subject to final review, have been agreed and admitted. This leaves a revised shortfall of about €7.5 million. That revised shortfall does not take into account, first of all, a claim that has been rejected (the time for appealing against that rejection has run out) and also what was described in the evidence as “Unresponsive Claims” and “Silent Claims”. Unresponsive Claims are, for this purpose, claims which are known about and where a claim has been lodged at some point but either no formal claim has been lodged following the setting of a soft bar date or the unresponsive claimant has not taken the matter any further forward. Silent Claims are, for this purpose, claims where there has simply been no communication from the would-be claimant or potential claimant despite the best efforts of the JSAs to contact them and encourage them to respond.

Under the Regulations the position is that in the event there is a shortfall, the Company is required to transfer an amount equal to the shortfall from the Company’s own funds to “top up” the Relevant Funds. In the event that there still remains a shortfall that is to be shared amongst the claimants.

In this particular case, as well as the recoveries I have already mentioned in respect of the Company’s own funds, there are outstanding potential claims against professionals, in particular accountants and auditors of the Company and against a former director and company secretary of the Company. There is a claim for some $300,000 or so against a company referred to as “FTX” (FTX Digital Markets Limited) which is also in an insolvent regime but where the officeholders have accepted the claim of the Company and indicated that distribution should be made fairly shortly. There is also a question of potential corporation tax refunds.

The current estimate is that the “Top Up” to the Relevant Funds from the Company’s own assets is likely to be in the region of €3.1 million, taking into account receipts and payments to date and estimated future receipts and payments (after allowing for realisation costs). That figure, as a matter of prudence, does not take into account recoveries on pre-appointment tax refunds or the litigation claims that I have referred to.

To the extent that there are further recoveries in respect of the Company’s own assets then these too will be available to “Top Up” the Relevant Funds to the extent that any shortfall remains. At present, it seems likely that there will be a shortfall in the Relevant Funds available to meet relevant claims. If, however, future recoveries of assets for the Company result in there being no shortfall in Relevant Funds, the excess in the Company’s own funds will be available to unsecured creditors. Rules 116 and 143 would be engaged and the JSAs would then have to make distributions to unsecured creditors.

I have referred to the statutory objectives as set out by Mellor J in his judgment. There are, as regards Objective 1 of making a return to customers, further workstreams being pursued that could ultimately be for the benefit of customers. As I have explained, that includes the litigation claims and, as regards those, I have been taken through both the updated position as to the response of the potential defendants or recipients of those claims from the Company and the insurance position. Going ahead, if litigation emerges, that will be funded on some form of conditional fee basis or I suppose it is possible that the claims may be sold.

Because it is relevant both to jurisdiction to approve a distribution and because it is also relevant to discretion and the setting of the hard bar date, I should record that what is referred to as a “soft bar date” that has been set under Regulation 20. Regulation 20 provides:

“(1)

The administrator may, if they think it necessary in order to expedite the return of relevant funds from an asset pool, set a bar date for the submission of relevant funds claims.

(2)

The bar date must be set out in a notice.

(3)

A reasonable time must be given after the notice has been published for persons to be able to calculate and submit relevant funds claims before the bar date.

(4)

The administrator must, as soon as reasonably practicable after the bar date, make a distribution of relevant funds from the asset pool to persons who are entitled to them under their claims.”

As regards that, the relevant requirements under Rule 110 have all been satisfied and notice of that date was advertised on 23 October 2023 in the international editions of the Financial Times and in the London Gazette. That publication is relevant to the likelihood of further claims emerging.

In circumstances where the soft bar date has passed but the administrator has evidence that an eligible customer has not made a claim but the administrator has a means of contacting the customer, Rule 111 requires that the administrator write to the customer in prescribed terms referred to as a “Rule 111 Notice”. That procedure has also been followed.

Since giving of the Rule 111 Notice, the JSAs have adjudicated relevant fund claims in relation to the 396 customers of the Company. They have reviewed 346 claims totalling over €27 million constituting about 96.5% in value of all potential fund claims disclosed in the Company records. As I have indicated, these claims have been broken down into (a) 304 accepted claims of about €25.6 million; (b) one rejected claim, being a claim that has been rejected for just over €319,000, being 1.14% or so in value of all potentially relevant fund claims; (c) 41 relevant fund claims being Unresponsive Claims which have been submitted but not progressed and together amounting to about €1.1 million, being about 4.18% in value of all potentially relevant fund claims.

In addition, there are about fifty relevant fund claims being Silent Claims that have not been submitted despite the efforts to contact the claimants, amounting together to almost €974,000 and constituting about 3.46% in value of potentially relevant fund claims.