High Court clarifies special administrator asset reconciliation timing (Re Strand Capital Limited and in the matter of the Investment Bank Special Administration Regulations 2011 [2017] EWHC 3561 (Ch))

High Court clarifies special administrator asset reconciliation timing (Re Strand Capital Limited and in the matter of the Investment Bank Special Administration Regulations 2011 [2017] EWHC 3561 (Ch))

Jen McCormick of Pinsent Masons LLP looks at this recent High Court case, which says that the requirement for special administrators to carry out a client money reconciliation 'immediately' after being appointed means that they must begin the process immediately, not that they must complete it straight away. The judgment clarifies Regulation 10H of the Investment Bank Special Administration Regulations 2011 and should remind prospective special administrators of the urgency and importance of the client asset reconciliation exercise.

What was the background?

Following the collapse of Lehman Brothers in 2008, the investment bank Special Administration Regime (SAR) was introduced to deal with failed investment banks or other firms that deal with client assets.

Investment management firm Strand Capital Limited, operated mainly as a discretionary fund manager. It applied to court to formally initiate insolvency proceedings under the SAR. As part of the application, clarification was sought as to whether the special administrators, once appointed, would be able to comply with the inherently contradictory obligation to undertake a reconciliation of client assets 'immediately' on their appointment in accordance with regulation 10H of the Investment Bank Special Administration Regulations 2011, SI 2011/245 (IBSAR 2011). This requires that: ‘immediately after being appointed as the administrator[s], the administrator[s] must carry out a client money reconciliation…’.

What did the High Court decide?

The High Court said that special administrators should be appointed for Strand, and considered the trickier question of the interpretation of IBSAR 2011, Regulation 10H.

The requirement to carry out a reconciliation arises because, on appointment, the special administrators take control of two separate types of asset classes: i) firm money and assets, which belong to the firm and can be used to pay-off creditors in line

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.