The High Court has considered the application of the statutory trust regime in chapter 5 of the Client Assets Sourcebook (CASS) to accounts held by two insurance brokers (APIS and IPC) that entered into administration. The administrators sought directions as to how they should distribute the money, in the absence of any proper records showing entitlement to the funds. The judge agreed the accounts were client money. On this basis, he considered that:

  • the relevant company was not entitled to make deductions from these accounts in respect of any of (i) non-client money elements of mixed remittances, (ii) commissions or other payments due to it from clients or (iii) interest accrued on those accounts;
  • one of the companies had transferred funds from one of its own accounts into one of its client accounts. The administrators had been unable to establish why. They sought, and the judge agreed to, a direction that no deduction should be made in respect of that payment;
  • no deductions should be made in respect of premiums the relevant company received as agent for insurers where there was no CASS-compliance risk transfer agreement in place;
  • all clients with an entitlement, and not only those whose contributions were identifiable, should be entitled to participate in the relevant pool;
  • the company should distribute on the basis that a policyholder has no client money entitlement where a suitable risk transfer agreement was in place with an insurer, except if there was evidence that the relevant insurer did not in fact provide that risk transfer;
  • claims should not be affected by any gratuitous provision of cover by insurers;
  • the administrators could deal with claims in respect of commissions or fees as simple proofs of debt in the absence of any evidence to suggest the claims fell within CASS 5;
  • the administrators could in principle proceed on the basis that a claim exists for the benefit of a customer and not an intermediary, unless the intermediary contends otherwise, in which case the administrator should try to deal with the claim and allow the intermediary to refer to court if it wished to pursue a rejected claim;
  • in relation to claims by APIS or ICP to commission in respect of premiums in the client pools, in principle commissions cannot be deducted where the client is a policyholder or insured and the commission relates to a premium which is liable to be returned. But where the client is an insurer, the correct treatment will depend on many factors, not least the insurer’s terms of business;
  • on the issue of whether and, if so, how, the administrators should distribute the pool in the case of imperfect information, a process similar to that used in MF Global should apply, but proportionately so that reasonable opportunities for representations are given. There should be rights of appeal;
  • one statutory trust pool can in principle assert a tracing claim into another in relation to a breach of trust committed prior to pooling and that, in the event of a claim across companies, the administrators should take separate advice and seek to negotiate a settlement for the court to approve; and
  • in relation to payment to the administrators, necessary work must be capable of being remunerated, and the Companies Court should assess the reasonableness of the costs.

(Source: Allanfield Property Insurance Services & Ors v. Aviva Insurance Ltd)