Supercapital Ltd, Re Insolvency Act 1986

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Factual and Procedural Background

The Company A, a provider of international payment services regulated by the FCA as an Authorised Payments Institution and subject to the Payment Services Regulations 2017 (PSRs), suspended trading on 12 September 2019 following a request from the FCA. On 27 September 2019, the Joint Administrators were appointed to the Company A. The Company held approximately £12.6 million in client funds segregated in accordance with the PSRs, representing a shortfall of about £585,000 to clients, excluding administrators' costs. The shortfall is attributed to unrecovered duplicate payments. The administrators identified that client funds were held with two banks, one domestic and one foreign, as well as with three other entities involved in currency conversion. The administrators sought directions and approval of a proposed distribution plan concerning these client funds, which they consider to be held on a statutory trust under the PSRs, alongside approval of their remuneration, costs, and expenses. The court heard the application on 20 April 2020 and made the order sought with some modifications, reserving the issue of costs and remuneration for a later hearing.

Legal Issues Presented

The legal characterisation of the funds held in the accounts by the Company A under the PSRs.
The court's jurisdiction to give directions regarding the status of the client funds.
The consideration and approval of the proposed distribution plan for the client funds.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Lehman Brothers International (Europe) (in administration) v CRC Credit Fund Ltd [2010] EWCA Civ 917	Trust law provides the analytical framework for statutory trusts imposed by regulation; default trust principles apply where statutory trusts are not fully detailed.	The court relied on this precedent to confirm that the PSRs create a statutory trust and that general trust law principles apply to fill gaps in the statutory scheme.
Attorney General of Belize v Belize Telecom Ltd [2009] Bus LR 1316	On implication of terms in instruments; generally nothing is implied unless expressly intended.	The court distinguished this approach as inappropriate for statutory trusts, which impose default equitable principles regardless of express terms.
In re Bucks Constabulary Widows' and Orphans' Fund Friendly Society (No 2) [1979] 1 WLR 936	Application of equitable maxims such as "equality is equity" in distribution of assets upon dissolution of a fund.	Referenced to support equitable principles applicable to distribution of pooled client funds held on trust.
Re Allanfield Property Insurance Services Ltd [2015] EWHC 3721 (Ch)	Exercise of court's directions jurisdiction and inherent jurisdiction in relation to distribution plans involving statutory trusts.	Supported the court's jurisdiction to grant directions regarding distribution of client funds held on trust by administrators.
Hunt (Liquidator of Total Debt Relief Ltd) v Financial Conduct Authority [2019] EWHC 2018 (Ch)	Recognition of court's inherent jurisdiction and directions jurisdiction in insolvency contexts involving statutory trusts.	Used to confirm the court's jurisdiction to give directions on distribution plans and administration of client funds.
Re Pritchard Stockbrokers Ltd (in special administration) [2019] EWHC 137 (Ch)	Paragraph 63 of Schedule B1 of Insolvency Act 1986 is the appropriate vehicle for directions on how administrators should discharge trust duties.	The court found clear authority that directions jurisdiction applies for distribution of trust assets by administrators.
Re MF Global UK Ltd (in special administration) (No 3) [2013] EWHC 1655 (Ch)	Inherent equitable jurisdiction to give directions to trustees to distribute trust property fairly and practically, including use of In re Benjamin orders.	The court cited this to support inherent jurisdiction to grant directions for distribution despite uncertainty or known claims, protecting trustees/administrators.
In re Benjamin [1902] 1 Ch 723	Allows courts to grant directions to trustees to distribute trust property on assumptions where facts about beneficiaries are uncertain.	Referenced as an example of inherent jurisdiction enabling practical distribution of trust assets while preserving beneficiaries’ rights.
In re Green's Will Trust [1985] 3 All ER 455	Clarifies that In re Benjamin orders do not vary beneficial interests but facilitate distribution based on practical probabilities.	Supported the principle that directions can protect trustees without affecting substantive trust rights.

Court's Reasoning and Analysis

The court first examined the relevant provisions of the Payment Services Regulations 2017, focusing on Regulation 23, which mandates segregation of client funds, prohibits third-party interests, and prioritises payment service users' claims on insolvency. The court analysed whether these provisions create a statutory trust over the client funds. Drawing on the analytical framework established in Lehman Brothers International (Europe) and related trust law principles, the court concluded that the PSRs do establish a statutory trust, given the segregation, identifiability, and restricted use of the funds, as well as the prioritisation of client claims upon insolvency.

The court then considered its jurisdiction to grant directions regarding the distribution plan. It identified paragraph 63 of Schedule B1 of the Insolvency Act 1986 and the court’s inherent equitable jurisdiction as bases for such directions. The court referenced authorities including Re Allanfield, Hunt v FCA, Re Pritchard Stockbrokers, and Re MF Global to confirm that the court has clear jurisdiction to give directions to administrators acting as trustees, enabling them to distribute trust assets fairly and practically even in the face of uncertainties or ongoing claims.

Finally, the court analysed the proposed distribution plan, which treats all claimants pari passu and includes mechanisms for proving claims, appeals, interim distributions, and retentions pending resolution of disputes. The court found the plan appropriate and similar to previously approved schemes, directing some amendments to clarify pari passu treatment. The issue of remuneration and costs was adjourned.

Holding and Implications

The court GRANTED the application for directions and approved the proposed distribution plan with modifications, confirming that the client funds held by the Company A are held on a statutory trust under the PSRs. The court held that it possesses jurisdiction under paragraph 63 of Schedule B1 and its inherent jurisdiction to give such directions to administrators acting as trustees.

The direct effect of this decision is to authorise the administrators to proceed with the distribution of client funds on a pari passu basis according to the approved plan, thereby facilitating the practical and equitable resolution of client entitlements. The issue of administrator remuneration and costs remains pending. The decision does not establish new legal precedent but applies established principles of statutory trusts and court jurisdiction in insolvency contexts.

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