Administrators tackle quandary of pooled funds in insolvency

Ken Stangoe | Feb 2016

Administrators were left in a quandary after two insurance broking companies went bust with £1,275,000 in their client accounts but with no record of exactly who was entitled to the funds. However, in coming to their assistance, the High Court gave detailed directions for the distribution of the money.

The companies’ client accounts contained premiums which had not yet been passed on to insurers or other insurance intermediaries. Neither company had kept proper records of entitlement to the funds, which had simply been pooled. In those circumstances, the cost of ascertaining with certainty the correct apportionment of the money would probably consume most, if not all, of the available assets.

In broadly approving a scheme suggested by the administrators, the Court found that the contents of the accounts were held on statutory trust. The administrators would stipulate a cut-off date by which all claims to entitlement would have to be submitted. On proof of such entitlement, and prior payment of the administrators’ remuneration and expenses, priority would be given to non-insurer clients over insurer clients. Only after all such claims were satisfied would any remaining funds become available to the companies’ general creditors.

It is not unusual for a ‘broad brush’ approach to have to be taken when a company fails, and the courts will always try to achieve a fair and cost-effective approach for the creditors. We can advise on any aspect of insolvency law or assist you to ensure your interests are properly represented.
Says Ken Stangoe, “It isn’t at all uncommon for the accounting records of insolvent businesses to be in a mess. In such cases, the back stop is to obtain a ruling of the court.”

Partner Note
Allanfield Property Insurance Services Ltd. and Another v Aviva Insurance Ltd. and Another [2015] EWHC 3721 (Ch).

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