The English High Court has approved a distribution plan despite it not honouring clients' strict rights to the assets.

Background

WealthTek LLP (WealthTek), an investment bank, was placed into special administration after an intervention by the Financial Conduct Authority due to suspected criminal activity and operating outside of its regulatory permissions. 

There were significant shortfalls in the assets and money which should have been held by WealthTek and the special administrators applied to the Court for approval of a distribution plan for the return of the available assets and a proposed retention for costs and a potential litigation reserve (PLR).

Distribution plan

WealthTek's books and records were unreliable, with significant discrepancies and mismatches and honouring the clients' strict rights would be expensive and time consuming. Instead, in accordance with a reconciliation process, the plan was designed to return a fair approximation of each client's interests back to them.

Whilst noting there were "winners and losers" this approach was approved by the judge as fair and reasonable in avoiding significant costs and promoting the objective of a speedy return of assets to clients. 

Proposed litigation reserve

The court allowed a retention for costs but did not approve the PLR. The administrators had provided no information to the court about the potential claims and had not consulted with clients who might suffer a shortfall. It would have been wrong to force clients to fund litigation rather than receive funds now and while some decisions, such as the method of distribution under the plan, could be made on behalf of the clients, the proposed litigation reserve did not fall under this category. 

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.

Re Wealthtek LLP (In Special Administration) [2024] EWHC 2520 (Ch)