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How should office-holders of trusts deal with the management and distribution of funds? Matthew Weaver, barrister at St Philips Chambers, considers the court’s inherent jurisdiction following the decision in Re Allanfield Property Insurance Service Ltd (in administration) and others.
Re Allanfield Property Insurance Services Ltd (in administration); Re Industrial and Commercial Property Insurance Consultants Ltd (in administration); Allanfield Property Insurance Services Ltd (in administration) ("Apis") and others v Aviva Insurance Ltd and another  EWHC 3721 (Ch),  All ER (D) 198 (Dec)
The Companies Court held that directions for the administration of the statutory trusts could be given on an application under paragraph 63 to Schedule B1 to the Insolvency Act 1986 (IA 1986) and, on the application of the administrators, it gave directions regarding the distribution of money in the client accounts of insurance intermediary companies which had gone into administration.
As with all applications by office-holders regarding trusts and how they should be managed and distributed, this case is highly fact specific. However, there were some general observations which will prove helpful to insolvency practitioners (IPs) faced with similar or analogous situations.
Applications under IA 1986, Sch B1, para 63 can cover trusts and issues in respect of trusts. The Civil Procedure Rules 1998 (CPR), SI 1998/3132, Pt 64.2 does not apply to these applications and the court’s inherent jurisdiction allows a wide range of directions to be made.
Office-holders should attempt to deal with trusts even if the lack of information creates an imperfect solution which could prejudice one or more classes of creditors. The court will look to balance all interests as fairly as possible.
There is no principle why trusts ought not to be able to trace into other trusts in cases of breach of trust and, therefore, benefit the beneficiaries of that trust. If the tracing claim is not unanswerable, joint office-holders can each adopt the position of the competing trusts, take separate legal advice on the issue, agree a compromise of any claim and then seek the court’s approval of the same. However, proportionality in respect of costs spent doing so will be an important consideration and courts may cap such costs.
The Re Berkeley Applegate jurisdiction (arising from Re Berkeley Applegate (Investment Consultants) Ltd; Harris cv Conway and others  3 All ER 71) in respect of remuneration and expenses incurred dealing with trust property was not removed by the simple existence of express rules governing the costs incurred dealing with trust property and the court was entitled to exercise that jurisdiction to allow remuneration and expenses even if the express regime did not extend to the costs in question.
Two insurance intermediaries went into administration and the same joint administrators were appointed over both.
Both companies had client accounts which held monies paid to them by customers which had not been paid over to insurers.
Under Financial Conduct Authority (FCA) rules, the accounts were trust accounts with the sums being held for each customer and, upon administration, the sums were pooled so that each customer had a claim to the sums held. The companies had not maintained accurate records for the accounts and, as such, it was impossible to determine with any certainty for whom the sums had been held. Further, the sums in at least one of the accounts was insufficient to pay those for whom monies were being held in full.
This wasn’t so much a case involving legal argument advanced by the administrators (save for a couple of issues where interested parties took a contrary view to the administrators, particularly in respect of remuneration). As such, the administrators identified the issues they faced and the decisions that the court needed to make while suggesting what they considered to be the most appropriate solution to those issues. It was then for the court to decide to what extent those solutions were correct and needed any changes implemented.
Many of the judge’s decisions were particularly fact sensitive and were dependent on the specific facts of the trusts involved and the issues faced by the joint administrators. However, the judge made the following decisions which could be said to have more general application:
Dealing with monies which are arguably held on trust is always an issue which requires care by an IP. In this case, matters were complicated by two different trusts existing, holding monies for different classes of beneficiaries and having transferred monies between the trusts so as to create an arguable case for tracing from one trust into the other.
However, in all trust cases, the IP must balance the costs of investigating the trusts and the sums within the trust. There will not always be a simple way to determine trusts and how to distribute the funds therein and an application to court to resolve issues is appropriate and helpful. The fact that all of the relevant information is not available will not prevent the court from endorsing what it considers to the most appropriate way of dealing with the trust property.
Obtaining sanction for costs in advance (or, at least, as early as possible) reduces the risk of not recovering such costs from the fund after the event but is not an absolute requirement.
Matthew Weaver has developed an impressive chancery/commercial practice with a particular specialisation in insolvency. He regularly appears in the specialist courts in both Birmingham and London. While Matthew’s commercial practice is founded on significant insolvency and company law expertise, he also specialises in the areas of banking and finance law, commercial fraud and professional liability.
Interviewed by Nicola Laver.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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First published on LexisPSL Restructuring and Insolvency
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Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.
Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.
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