Under the Payment and Electronic Money Institution Insolvency Regulations 2021, SI 2021/716, regulation 21 (“the Regulations“), the High Court approved the first distribution plan relating to special administration.
Xpress is an authorised payment institution (“API“), and subject to specific regulations governing its insolvency (specifically, the Payment and Electronic Money Institution Insolvency Regulations 2021, the “Regulations“, and the Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021, the “Rules“). These include a requirement to safeguard funds held on behalf customers either by way of segregation or insurance.
Xpress was part of a group of companies headed by Finablr and ceased trading on 19 June 2020 as a result of restrictions imposed by the Financial Conduct Authority (“FCA“). After ceasing to trade, Xpress held a large sum of money relating to uncompleted transactions. These transactions were high in volume and low in amount.
To review who was entitled to relevant funds for uncompleted transactions, Xpress carried out a tracing exercise. As a result, the relevant funds held by Xpress reduced from around US$1m to around US$574,000, by 28 October 2021.
On the application of the FCA, the court put Xpress into special administration on 11 February 2022.
The special administrators undertook another tracing exercise to notify those who were eligible for claims. A small number of further claims were made, for no more than $5,411. The special administrators sought approval of a distribution plan which would allow them to bring the special administration to an end.
The court was satisfied that the special administrators should fix a hard deadline for creditors to submit additional claims to the funds as there was no reasonable prospect of further claims being made. The court highlighted that administrators had taken all reasonable measures to identity and contact eligible creditors. In the circumstances, it was appropriate to set an end date for the special administration.
Consequently, the Court made orders setting a hard bar date for the submission of claims by entitled creditors under the Regulations and authorised a distribution plan under the Rules.
This was the first time the Court had made such orders under the Rules and the Regulations. However, the Court referred to guidance on hard bar dates and distribution plans in relation to other similar legislative regimes (see Re MF Global UK Ltd [2013] EWHC 1655 (Ch); Re Beaufort Asset Clearing Services Ltd [2018] EWHC 2287 (Ch); and Re Strand Capital Ltd [2019] EWHC 1449 (Ch)) and relied on the professional judgment of the special administrators.
The court approached the Rules and the Regulations in a consistent way similar to other special administration regimes.
Special administration regimes are significant as they provide specific and targeted alterations to the regime that applies in a “standard” administration under Schedule B1 of the Insolvency Act 1986. Their aim is to offer a higher level of protection for a class of people, such as the purchasers of electronic money or users of payment services.
Relying on precedents from other, similar legislative regimes, the Court has endorsed a practical and unequivocal way to approach the conclusion of special administrations of APIs in which excess safeguarded funds cannot be returned to relevant creditors.
The insolvency of e-Money institutions is a relatively new and fast-moving area of law. For further information on recent developments in this area, please see our previous articles in relation to Re Ipagoo and Allied Money.
