Distribution plans and the failure of debt management companies

Background

A debt management company had collected client money into a pool which was then misused by the company. The liquidator obtained a worldwide freezing order, recognition under Chapter 15 of the US Bankruptcy Code and successfully recovered most of the money.

The Financial Conduct Authority (FCA) rules provide that the failure of a debt management company triggers a "primary pooling event" of the recovered money, with each client entitled to a share based on the value of their claims.

The liquidator applied to the Court for approval of his plan to pay clients, and also for his fees and expenses of the complex and international recovery actions, including conditional fee arrangements with lawyers, to be paid from the pool of money collected. The Court approved the plan and the payment of the costs and expenses.

Comment

The Court's decision should give some confidence to those who have assets held by businesses which are regulated by the FCA. The decision demonstrates that the FCA and the courts aim to ensure distribution plans achieve a fair result for the clients of FCA regulated businesses. The Court also recognised that there may need to be asset tracing and international legal action, undertaken by lawyers on success fee arrangements, to achieve this outcome.

Stephen John Hunt (as liquidator of Total Debt Relief Ltd (in liquidation)) v FCA [2019] EWHC 2018 (Ch)