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Judgment Title: Custom House Capital Ltd (In Liquidation) -v- Companies Acts 1963-2009 Neutral Citation: [2012] IEHC 382 High Court Record Number: 2011 219 MCA Date of Delivery: 09/10/2012 Court: High Court Composition of Court: Judgment by: Finlay Geoghegan J. Status of Judgment: Approved |
Neutral Citation Number: IEHC 382 THE HIGH COURT [2011 No. 219 MCA] IN THE MATTER OF CUSTOM HOUSE CAPITAL LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF THE EUROPEAN COMMUNITIES (MARKETS IN FINANCIAL INSTRUMENTS) REGULATIONS 2007 AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2009 JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 9th day of October 2012 1. This judgment is given in an application brought by Kieran Wallace, official liquidator of Custom House Capital Limited (In Liquidation) (the “Liquidator” and “CHC” respectively) seeking certain directions and the determination of issues relating to the quantum and discharge of his remuneration, fees, costs and legal expenses associated with the administration and reconciliation of certain client accounts comprising equities and/or segregated cash accounts. 2. The application of the Liquidator raises difficult and unusual issues in this complex liquidation. The issues, as originally presented, have been refined in the course of the application. The issues which require determination can only be understood in the context of the business of CHC, the facts giving rise to the winding up order and the work done by the Liquidator relevant to this application. Business of CHC 4. In March 2011, CHC had assets in excess of €1.1 billion under management on behalf of its clients and €24m in cash held in designated client accounts. It had approximately 1,500 clients, the majority of whom reside in Ireland. 5. Since 2007, it had been authorised under Regulation 11 of the European Communities (Markets in Financial Instruments) Regulations 2007 (the “MiFID Regulations”). It was also an approved Qualifying Fund Manager in relation to the provision of Approved Retirement Funds (“ARFs”) and Approved Minimum Retirement Funds (“AMRFs”). CHC was also a PRSA provider for the purposes of the Pensions Act 1990, as amended. It had three PRSA products approved by the Pensions Board and the Revenue Commissioners. Facts Leading to the Winding Up 7. The Central Bank had been engaged with CHC since 2009. During 2009 and 2010, concerns were raised that some clients’ monies were being invested without their knowledge or consent in the Mezzanine Bond Fund. Authorised officers were appointed to investigate a sample of property transactions which included the mezzanine financing. Following this investigation, directions were issued by the Central Bank under the MiFID Regulations which included a requirement for CHC to clarify the financial position of each syndicated SPV. Directions were given between April 2010 and July 2011, which remained in force at the date of commencement of the winding up. The Liquidator, at s. 3 of his first report to the Court, states that such directions required CHC, inter alia, to:
• Suspend the making of payments to any person where the payment includes sums received from clients or other customers of the Firm; • Suspend the making of any transfer or disposal of assets to any person where the transfer or disposal includes assets of or held on behalf of a client of the Firm; • Suspend transactions on any account held (a) by the Firm or (b) by any other person on behalf of the Firm or (c) by any other person under the direction or control of the Firm where such account contains assets or money of or held on behalf of a client of the Firm. • Refrain from granting to any person control or security or a power of attorney over any client assets or client money. • Suspend the issuing of any statements to any client describing clients’ investments or holdings; and • Take all steps necessary to secure and preserve the records of the Firm.” 9. The inspectors presented their final report to the High Court on 19th October, 2011. The version of the report authorised for publication was before the Court on this application. 10. The inspectors, in their final report, found “that there was a practice of CHC effecting transactions on behalf of clients in a manner which could not have been envisaged by those clients and for which no mandate or authorisation had been given by such clients to CHC. In many cases, these transactions were not only authorised but also improper” (para. 1.9). They further stated, at para. 23 by way of general conclusion:
12. On 21st October, 2011, the High Court (Hogan J.) made an order pursuant to Regulation 172(1)(a) of the MiFID Regulations and the provisions of the Companies Acts 1963 to 2009, that CHC be wound up by the Court and appointed Kieran Wallace as official liquidator of CHC. Mr. Wallace was also appointed administrator of CHC for the purposes of s. 33A of the Investor Compensation Act 1998, as amended. 13. The winding up is a winding up by the Court pursuant to the provisions of the Companies Acts 1963 to 2009. Whilst Regulation 172 of the MiFID Regulations authorised the Court of its own motion to make an order for the winding up following the presentation of an inspector’s report, it does not appear that any different winding up regime is to apply once the order for winding up has been made, save in one potential respect. As appears below, the MiFID Regulations contain certain specific provisions in relation to a liquidator’s remuneration which may apply to this application. That apart, it does not make any specific provisions in relation to windings up. Post-Winding Up 15. The assets of CHC were, in relative terms, small. A draft estimated balance sheet at the date of commencement of the liquidation was prepared. The Liquidator understandably raises concerns about its accuracy. It discloses a cash balance of approximately €400,000 at the bank and estimated trade debtors of €5.6 million. A statement of affairs sworn by directors of the company estimates trade debtors at just in excess of €3 million. The Liquidator, in his affidavit of 8th May, 2012, states that realisations to that date total €413,635.97. This appears to be principally the bank balance and interest earned thereon. 16. However, as already referred to, CHC, at the commencement of the winding up, had under its management or under its control client funds with an estimated nominal value of €1.1 billion. 17. The client funds, in broad terms, were divided into three types of investments, namely: equities, property investments and cash funds. Included amongst the equity and cash funds were what have been referred to as segregated client asset accounts. Within such segregated client asset accounts, in addition to privately held funds, there were funds held in ARFs, AMRFs and PRSA products. Such investments have transfer restrictions explained below. 18. The Liquidator, having taken advice, determined that he should, as liquidator, assist in the transfer of segregated client funds to those entitled or, where required, to another qualified person or product. Further, he determined that it was necessary for him to be satisfied in relation to the segregated client funds that the relevant client was beneficially entitled to the funds before he could make a distribution either to the client or transfer the ARF, AMRF or PRSA to an appropriate person or product. The Liquidator, therefore, carried out a reconciliation process for the purpose, primarily, of ascertaining that the relevant client was the person beneficially entitled to the monies or equities stated to be in his account. 19. The necessity for the Liquidator to carry out a reconciliation process is disputed by certain of those who appeared on the application and I will return to this. 20. The Liquidator ascertained, initially, that there were 678 clients who held investments with CHC in equities and/or segregated cash accounts and the reconciliation process was carried out in relation to each of those clients. Having obtained a consent of the Central Bank to a variation in directions, he then communicated with each of the holders of those client accounts. 21. Following the completion of the reconciliation of the 678 client accounts, the Liquidator states that it was discovered that 233 of those clients either held accounts, which although they still appeared on the CHC system, were now closed or in relation to which funds were moved prior to his appointment. 22. The Liquidator formulated his claim for remuneration, costs and legal expenses the subject of this application as follows. He estimated that the costs incurred by him and his team in carrying out the reconciliation prior to 30th March, 2012, was €235,022.95 (excluding VAT) applying the appropriate charge-out rates for the individuals in KPMG. However, he indicated that he only proposed charging a fee of €115,000 (excluding VAT) to the individual clients for the work done (a discount of 51%). In addition, his solicitors provided a binding estimate of their costs for advice given and work done in connection with the work carried out in relation to the equities and segregated cash accounts in the sum of €68,000 (excluding VAT). This was supported by a letter from a cost accountant. The Liquidator consequently proposed charging a total fee for his own remuneration and legal costs inclusive of VAT of €225,000. He states that having regard to his estimate of the then value of the equities and segregated cash assets as at 20th January, 2012, he proposed charging to each client a fee of 0.5% of the total value of that client’s equity and segregated cash assets. There is undoubted confusion in the affidavits of the Liquidator as to the basis upon which he decided to seek 0.5% of the value of the client’s account and as to whether or not that was intended to be inclusive or exclusive of VAT. It is not necessary to resolve this at present. 23. The Liquidator identified 78 clients in respect of whom a fee of 0.5% of their equities and cash assets as at 20th January, 2012, would result in a fee of less than €10 and did not seek payment from those clients. 24. The number of clients from whom the Liquidator sought payment of fees for the work done in reconciling their client account was 350. The Liquidator wrote to all 350. By May 2012, he states that he received responses from 172 clients making payments to him totalling €185,176.89. The Liquidator, having obtained appropriate directions from the Central Bank, transferred the cash and investments beneficially held by those paying clients as required. Those clients are not the subject of this application. 25. 149 clients did not respond to the correspondence from the Liquidator or advertisements and the Liquidator has not sought any further relief in this application in respect of such clients who were in the papers referred to as “non-dissenting clients”. 26. In the period leading to the hearing of the application, nine clients were identified as “dissenting clients” i.e. persons who had not agreed to pay the requested fees. I wish to make clear that this term was used as a matter of convenience and is not intended in any way to be critical of those persons who decided not to agree to the request of the Liquidator. As they were entitled to do so, they sought to have the Liquidator’s entitlement to seek a payment from them or to deduct an amount of 0.5% from the value of their equities or cash determined by the Court. Two further dissenting clients were added in the course of the application. 27. I am conscious, in setting out the above numbers that they do not appropriately add up. They have been taken from the Liquidator’s affidavits and nothing turns on the detail. Procedure 29. At the hearings, Mr. Conway, Mr. Shannon, Mr. O’Meara, Mr. Ticher, Mr. Day and Mr. Nugent, being six of the dissenters, all appeared and made submissions to the Court. In addition, Ms. Delaney, solicitor to the Pensions Board, made submissions and Mr. Cahir of Messrs. A&L Goodbody, solicitors to the Investor Compensation Fund, made brief submissions. 30. It became necessary to adjourn the hearings from time to time and there were additional affidavits filed in the course of the adjournments. Further information in relation to the attitude of the Revenue to the taxation of any distribution from a PRSA for the purpose of discharging the Liquidator’s fees was provided to the Court. 31. The dissenting clients may be divided into three classes:
(b) Four dissenting clients held PRSA products of CHC. They held two types of non-standard PRSA products. Each client entered into a PRSA agreement and an investment management agreement with CHC. The client is the beneficial owner of the assets in the PRSA but there is a restriction on transfer out of a PRSA product. It may only be to another PRSA product or to an approved occupational pension scheme or statutory scheme of which the client is a member or to a pension arrangement outside the State. (c) There were three dissenting clients who held ARFs, one of whom also held an AMRF. In respect of each client, there are applications and declarations in respect of an ARF or AMRF, as appropriate, and also an investment management agreement with CHC. Similarly, the beneficial ownership of the assets is with the holder of the ARF or AMRF. However, the ARF or the AMRF was held with CHC as a Qualifying Fund Manager for the purposes of s. 784 of the Taxes Consolidation Act 1997, and, if the assets are to remain within the ARF or AMRF, they may only be transferred to another Qualifying Fund Manager. Any distribution out of the ARF or AMRF to the client has significant tax consequences. 33. The Liquidator prepared for the Court by way of separate exhibit the contractual documentation relating to each of the nine dissenting clients. That was provided to the Court and to each of the relevant dissenting clients. It discloses the personal amounts and arrangements in respects of each client and it is not proposed to refer to these, save insofar as might become necessary. The above general facts are taken from that documentation. 34. On the facts, it was commoncase by the end of the hearing that in respect of each of the dissenting clients, when the accounts were set up, regardless of their nature, the funds advanced by the client for investment were initially paid to CHC. Further, it was not disputed that those funds were, when received by CHC, paid into a pooled client account and CHC then, as appropriate, transferred the monies either to the relevant stockbroker to purchase the equities or stock or to another financial institution. 35. Certain of the dissenting clients, subsequent to the initial hearing, have reached further agreements with the Liquidator. This does not affect the issues of principle which require to be determined. 36. Counsel for the Liquidator made clear in the course of submissions that whilst this application ultimately related only to a relatively small amount of fees sought from a limited number of persons or their assets that it raised important questions of principle which were relevant to the ongoing work in the liquidation. Issues
(ii) If the answer to the first issue is in the affirmative, whether the Liquidator’s remuneration and the fees, costs and expenses, including legal expenses associated with such reconciliation and administration of the segregated client accounts may properly be charged to or deducted from the funds held in those accounts. (iii) If the answer to each of the above is in the affirmative, whether the Court has jurisdiction to or should make an order that each of the dissenting clients pay or their funds be charged with 0.5% plus VAT of the value of their accounts on 20th January, 2012, in respect of their share of the payment for remuneration, costs, fees and expenses to which the Liquidator is entitled. This third issue includes a number of sub-issues, both in relation to the quantum of the fees sought and the manner of apportionment between clients. Official Liquidator’s Role in the Winding Up of CHC
40. It is true that many descriptions of the duties of a liquidator refer to the administration of the assets of the company, in particular, their realisation and distribution of the proceeds to those entitled, normally creditors in accordance with the relevant priorities. A liquidator has, in addition, currently a number of statutory duties which go beyond the core function of realisation and distribution. 41. However, it appears to me that what is required of a liquidator to wind up the affairs of a particular company will always depend upon the nature of the business or other activity conducted by the company prior to the making of the winding up order. Having regard to the business of CHC, the obligation to wind up the affairs of CHC requires the Liquidator to engage in an orderly termination of the involvement of CHC in the investment and management of the client funds formerly under its control. A general description of such a task involves the return to the clients or transfer at their direction of the investments or cash to which they have a beneficial entitlement. The precise work done will depend, firstly, upon the nature of the investments and the contractual arrangements between CHC and the clients (which may have been terminated by the winding up order) and third parties. Secondly, it will depend upon what is required to be done to identify the investments or cash to which each client is beneficially entitled. 42. On the facts herein, this task is complicated by two factors. First, the findings of the inspectors and the abuses disclosed in the final report to the Court, including the unauthorised removal of an estimated €56m of client funds and its unauthorised use in connection with property investments. Secondly, the fact that certain of the investments managed or held by CHC either as a Qualifying Fund Manager (in relation to ARFs and AMRFs) or in an approved PRSA product which may not, by their terms, be transferred to the client beneficially entitled or, if they were to be so distributed, would result in significant adverse tax consequences for the client in question. The orderly transfer of such investments from CHC to another appropriate authorised person or product required the involvement of the Liquidator. 43. Accordingly, I am satisfied that the Liquidator is correct in the decision he made that as part of the winding up of CHC, he is obliged to arrange for the orderly distribution of client funds held in investment vehicles provided by or under the control of CHC, either to those beneficially entitled or, where appropriate, to a qualified person or product at their direction. 44. The dissenting clients, in submission, contended that even if that general proposition was correct, on the facts herein, it was unnecessary for the Liquidator to carry out the reconciliation of the equities or segregated cash accounts to which they were beneficially entitled. The dissenting clients submitted that the letters written by the Liquidator to them following the process of reconciliation did not tell them anything new. They submitted that, all along, they had been receiving from the relevant stockbrokers a statement of the equities and cash held by the stockbroker and that the Liquidator simply confirmed what they already knew. 45. The Liquidator, in his affidavits, and counsel on his behalf, submitted that having regard to the findings in the inspectors’ final report to the Court, including in relation to the segregated client asset accounts, that the Liquidator could not make transfers of segregated client asset accounts without being satisfied that the client in question was beneficially entitled the equities and cash in those accounts. In particular, reliance was placed upon the fact that when a client made his initial investment, the monies were paid to CHC; placed by CHC in a pooled client account and then transferred out to the relevant stockbroker for purchase of equities or to be placed other financial institution if being placed on deposit. 46. The inspectors, in their report to the Court in the section dealing with segregated client asset accounts, state in their conclusions at para. 5.4:
This practice was facilitated by the backing out of real transactions (transferring cash to property funds) that had taken place and fictitious cash holdings being substituted in their place. This appears to have occurred regularly on clients’ cash accounts. In some instances where valuation statements were issued to clients and the backing out of transactions did not take place the clients raised queries with CHC. This led to further instances of backing out real transactions and replacing them with fictitious cash transactions to show a misleading cash position on client statements. Within CHC this practice was managed and facilitated by the use of a flag system on CHC’s internal systems whereby client accounts where such unauthorised transactions took place were flagged as ‘Please contact Harry or Paul before running this valuation’. Further details are set out in Part B12. It is also clear that a practice existed whereby money being held by CHC on behalf of specific clients was taken and used to fund shortfalls arising on CHC property funds. In circumstances where a request for cash from a client was received and that money had already been placed in a CHC property fund without his or her knowledge, the request to repay the cash was facilitated by taking money from other client cash accounts.” 48. Whilst I can understand that the dissenting clients who held equities and segregated cash accounts with stockbrokers may consider that this work was unnecessary as it did not tell them anything new, nevertheless, in my judgment, having regard to the facts referred to in the inspectors’ reports and the practice within CHC of receiving initial investments into pooled client accounts and then paying the money out to a stockbroker or financial institution, the reconciliation process undertaken by the Liquidator was a reasonable and appropriate step for him to have taken prior to distributing or transferring equities and segregated cash accounts. His obligation, as part of the winding up of the affairs of CHC, is to facilitate or effect the transfer of investments or cash to or at their direction of those beneficially entitled. He had to be satisfied that it was the relevant client’s money and not another client’s money which had been transferred to the stockbroker or other financial institution from the pooled client account. 49. The other aspect of the work undertaken related to the identification of the different nature of the investments and certain valuations and the clarification of tax positions arising from the nature of ARF, AMRF and PRSA products. This work also appears to be necessary for the orderly and appropriate transfer of such products. Payment of Liquidator’s Fee 51. In a winding up by the Court, the primary jurisdiction of the Court is that conferred by the provisions of the Companies Acts 1963 to 2009, and in its detailed implementation, the Rules of the Superior Courts. Section 228(d) of the Companies Act 1963, provides that a person appointed liquidator shall receive such salary or remuneration “as the court may direct”. It does not address the assets or fund out of which such remuneration may be payable. 52. Section 244 of the 1963 Act, is the only section addressing that issue. It provides:
54. Counsel for the Liquidator accepted that the general position is as stated by McPherson’s Law of Company Liquidation (Keay, Andrew R. (Ed). 2009, Sweet & Maxwell, London), para. 8.034:
57. There was a subsequent application on that latter issue in which a judgment was given by Peter Gibson J., namely, Re Berkeley Applegate (Investment Consultants) Ltd. (No. 3) [1989] 5 BCC 803. In that judgment, he rejected the contention that any part of the expenses and remuneration which the liquidator was awarded by the Court in respect of work done in administering the trust property which the company held as trustee could be payable out of the company’s assets pursuant to s. 115 of the Insolvency Act 1986. This provides:
59. As appears fundamental to the reasoning of Peter Gibson J. is that the work done by the liquidator in that case in administering the trust property was not work done as liquidator in the winding up of the company, and accordingly, could not be the subject of an order under s. 115 of the Insolvency Act 1986. Insofar as Peter Gibson J. expressed the view that a winding up only involves the getting in of the assets of the company, ascertaining its creditors, paying its liabilities and distributing a surplus, I respectfully disagree for the reasons already set out. 60. The broader view of a liquidator’s tasks which I have taken is similar to that taken by McLelland J. in the Supreme Court of New South Wales in Re G.B. Nathan & Co. Pty Limited (In Liquidation) [1991] 24 NSWLR 674. In that application, the liquidator sought directions pursuant to s. 479(3) of the relevant corporation law as to whether he was entitled or bound to deal with certain monies and securities held on trust by the company for certain of its clients and as to whether the liquidator was entitled to deduct therefrom the costs, charges and expenses of the winding up. 61. On the latter issue, the judge considered the two English High Court judgments in Re Berkeley Applegate (Investment Consultants) Limited, and having referred to the extract from the judgment of Peter Gibson J. referred to above, stated at p. 688:
63. McLelland J. further concluded at p. 689:
65. As was pointed out in submission by the dissenting clients and accepted on behalf of the Liquidator, CHC did not hold any of the relevant segregated equities or cash funds on trust for any of the dissenting clients. On the contrary, the relevant contractual documents expressly provide that CHC is not acting as trustee. Counsel for the Liquidator sought to rely upon the above principles by analogy and what he contended was the necessity of those dissenting clients, in particular, those with ARF, AMRF and PRSA investments, to have the assistance of the Liquidator in effecting the transfer of their investments either to Qualifying Fund Managers or into another PRSA product. 66. Whilst I have decided this is work which the Liquidator is required to do as part of the orderly winding up of the affairs of CHC and on the facts pertaining to CHC, the reconciliation work was necessary before he could properly organise the transfer of the relevant investments, I also recognise that this is work which has been done for the benefit of those clients holding the equities and segregated client funds and not for the general creditors of the company. Counsel for the Liquidator sought to rely upon equitable principles analogous to those relied upon in Re Berkeley Applegate (Investment Consultants) Ltd. to contend that the relevant clients or their funds should bear the cost of doing the work which was for their exclusive benefit. The dissenting clients, inter alia, pointed to the losses suffered by the alleged wrongdoing of CHC and the winding up and submitted they should not have to bear this additional deduction. Both submissions have merit. However, I do not have to address them, as on the facts of this application, I have concluded that the Court has no jurisdiction to make the order sought. There are two principal reasons for my conclusion. 67. First, the relationship between CHC and the dissenting clients is not one of trustee and beneficiary as was the position in Re Berkeley Applegate. The contractual documents expressly so provide. The relationship was a purely contractual one according to which CHC had a right and obligation to control and manage certain investments and funds. It follows from this that the dissenting clients are not either expressly or implicitly asking this Court to exercise an equitable jurisdiction for their benefit. The Court is not exercising an equitable jurisdiction; it is exercising its supervisory jurisdiction in a winding up by the Court. 68. Secondly, and perhaps more importantly, the Oireachtas in the Investment Intermediaries Act 1995 (as amended), and the Minister in making the MiFID Regulations, has expressly addressed a liquidator’s right to recourse to client assets, including where a liquidator of an investment firm may be involved in the distribution of client monies and client investments. In that situation, the Court is given a statutory jurisdiction to make orders in certain circumstances that a liquidator have recourse to client funds or investments for the purpose of discharging reasonable expenses. Having regard to that statutory jurisdiction potentially applicable in this winding up, the Court is not faced with the lacuna presented to the English courts in Re Berkeley Applegate where a liquidator administered trust assets. This Court is constrained to exercise the relevant statutory jurisdiction given it. 69. In the course of the hearing, my attention was drawn to s. 52(7) of the Investment Intermediaries Act 1995 (as amended) as inserted by s. 64 of the Investor Compensation Act 1998, as the applicable section. This provides:
(b) Notwithstanding paragraph (a) of this subsection, a liquidator, receiver, administrator, examiner or official assignee may have recourse or right against client money or client investment instruments or documents of title relating to such investment instruments received, held, controlled or paid on behalf of a client by an investment business firm in respect of such reasonable expenses as are incurred in the carrying out of their functions under this Act or under the Investor Compensation Act, 1998, or incurred in the distribution of client money and investment instruments to clients of the investment business firm where the assets of the investment business firm have been exhausted. (c) A liquidator, receiver, administrator, examiner or official assignee shall apply to the Court before seeking recourse or right against client money or client investment instruments or documents of title relating to such investment instruments received, held, controlled or paid on behalf of a client by an investment business firm under paragraph (b) of his subsection and the Court shall determine the matter and make such order as it sees fit.” 71. The Liquidator, at para. 33 of his third affidavit sworn on 8th May, 2012, states:
73. In reaching this view, I recognise the difficult temporal issue and potential difference of treatment of client funds raised by s. 52(7) of the Act of 1995. The Liquidator is correctly now proposing to effect the relevant transfers of the equities and segregated cash assets. The Liquidator has made clear that he is continuing to carry out work in connection with the pooled client assets and funds which may give rise to a future application under s. 52(7)(c) of the Act of 1995, or Regulation 158 of the MiFID Regulations, if applicable. Notwithstanding this potential difference in treatment between clients of CHC, it does not appear to me, having regard to the express wording of the statutory provisions and the evidence now before the Court, that the Court has any discretion to make an order at present. 74. It is necessary to add that whilst I have formed the above view on the basis of s. 52(7) of the Act of 1995 (as amended) which was drawn to my attention in the course of the hearing, it appears to me that it may no longer apply to the winding up of CHC, and rather, that an analogous provision in Regulations 157 and 158 of the MiFID Regulations applies. My reason for this potential view is as follows. CHC is stated in the inspectors’ reports to be the holder of an authorisation under Regulation 11 of the MiFID Regulations. It is therefore, presumably, an investment firm as defined in Regulation 3 of the MiFID Regulations. Regulation 6(1) of the MiFID Regulations (as amended by Regulation 6(a) of the European Communities (Market in Financial Instruments) (Amendment) Regulations 2007 (S.I. 663 of 2007) provides that:
(2) Notwithstanding paragraph (1), a liquidator, receiver, administrator, examiner or official assignee may have recourse or right against client money or client financial instruments or documents of title relating to such financial instruments received, held or paid on behalf of a client by an investment firm in respect of such reasonable expenses as are incurred –
(b) in the distribution of client money and financial instruments to clients of the investment firm where the assets of the investment firm have been exhausted.” 76. I have not considered it necessary to reassemble the parties seek submissions as to whether s. 52(7) of the 1995 Act, or Regulations 157 and 158 of the MiFID Regulations apply, as even if the latter do apply, Regulation 157(2) contains the same stipulation in relation to the assets of the investment firm having been exhausted. Accordingly, regardless of which statutory provision now applies, in my judgment, for the reasons set out, the Court does not, on the present facts pertaining to the winding up of CHC, have jurisdiction to make any order in favour of the Liquidator giving him recourse to the equities or segregated cash funds of the dissenting clients. Further Submissions Conclusions
(ii) the Liquidator may have recourse to client funds for the discharge of reasonable expenses incurred in the distribution of client money and investment instruments pursuant to s. 52(7) of the Investment Intermediaries Act 1995 (as amended) or Regulations 157 and 158 of the MiFID Regulations; (iii) the Court, on the evidence on this application, has no jurisdiction to make an order that the Liquidator’s remuneration and the fees, costs and expenses, including legal expenses associated with such reconciliation and administration of the segregated client accounts may properly be charged to or deducted from the funds or investments held in the accounts of the dissenting clients. 79. It follows from the conclusions on the above issues that the Court refuses the orders sought permitting the Liquidator to deduct any sum from the funds of the dissenting clients in respect of his remuneration and fees, costs and expenses for the work carried out in relation to the segregated client assets. I will hear counsel and any other relevant party in respect of any of the other reliefs sought in the notice of motion, having regard to the terms of this judgment. Final Observations 81. This judgment does not address what constitutes “reasonable expenses . . . in the distribution of client money and investment instruments to clients” for the purposes of s. 52(7)(b) of the Act of 1995, or Regulation 157(2)(b) of the MiFID Regulations and whether the expenses sought by the Liquidator come within such definition. That will be for any future application.
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