The special administrators for collapsed discretionary fund manager (DFM) Strand Capital have put the firm’s professional indemnity (PI) insurer ‘on notice’ over claims made against the DFM as a number of new issues have arisen in the administration.
By moving to put pressure on the PI insurer, the special administrators could limit the number of Financial Services Compensation Scheme (FSCS) payouts over the firm, as the insurer could be liable to pay clients who have lost money. This would be good news for advisers, who fund the FSCS through a levy.
However the administrators have also revealed that, where it is available, the FSCS will cover the cost of client asset distribution, resulting in more potential lifeboat payouts.
As first revealed by New Model Adviser®, Strand entered special administration last spring, plunging 3,000 clients into uncertainty over their £100 million of assets. At least nine IFAs and one now-closed master trust used the DFM.
Since their appointment, the special administrators, Adam Stephens and Henry Shinners of Smith & Williamson and Virgil Levy of LA Business Recovery Limited, have faced a number of obstacles including a lack of full client records and £8.5 million of funds that was not under full control of the DFM.
In their latest report, the special administrators said Strand’s investment manager's insurance policy was extended beyond 28 June 2017 and they will be speaking with the PI insurer over any claims made against the DFM.
‘The joint special administrators have taken appropriate steps to place the insurance provider on notice of claims lodged against the company, and continue to do so. The joint special administrators, in conjunction with their lawyers, continue to liaise with the insurance provider and their lawyers,’ the report said.
New Model Adviser® understands this PI cover would be for any claims made against the DFM by any IFA or client before it went into administration.
The latest administration report also revealed:
- A number of companies have contacted Strand clients claiming they can return their assets faster than the administrators. ‘This is unfortunately untrue’ the administrators said.
- Client custody assets have been reconciled following a previous discrepancy over the Optima Worldwide Group (OWG) Series D bond.
- Additional client custody holdings have been discovered by the administrators for ‘previously unknown clients of the DFM’ in a new custodian. These holdings are 37,509,586 units of Menasat Gulf Group Holdings – what appears to be a weapons and defence manufacturer.
- The FSCS will pick up the costs of distributing client assets, although no date has been set for when. Those who are not eligible for FSCS compensation (because they have already reached their £50,000 limit) will have to pay their own distribution costs.
- Client asset distribution will come either by transfer to a new custodian, returning directly to the client or liquidating and transferring the proceeds to the client.
Missing bond payments
As previously reported by New Model Adviser®, the return of £12.5 million in client money has been delayed over a dispute between the former Strand directors and parent company OWG over who should pay a £491,836 interest coupon on the OWG Series D bonds.
The OWG bonds were issued by OWG, an investment company that acquired Strand in 2014.
OWG has previously told New Model Adviser® it had an agreement with Strand’s former directors that any profits the DFM earned would be used to pay the bond coupon.
However the administrators now say: ‘The records and information provided to the joint special administrators indicate OWG's liability has not been settled and the joint special administrators' position is that it remains an outstanding obligation of OWG.’
They also note, ‘despite demand being issued on OWG’ no payments to the administrators have been made for subsequent coupons due in July and December 2017 with the bonds.
The special administrators said it is ‘likely’ it will need to go court to get directions on how to proceed with this missing coupon payment.
‘The joint special administrators are working hard to resolve this dispute, and we are mindful this position may generate frustration among those parties whom do not hold investments with OWG and therefore do not consider they are affected by this position,’ the report said.
A spokesman for OWG said: ‘The administrators have set out very clearly OWG’s cooperation in resolving a number of problems. The administrators are correct to say that they and OWG have different views on who is responsible for paying some of the coupon interest due for the period ending December 2016.
'Our legal advisers are seeking to resolve the issues between us. We hope these matters can be resolved amicably; reference to a court would be a last resort.’