Two insurance intermediaries entered into administration. Although heavily insolvent, they had significant funds held in client accounts. Those funds represented insurance premiums collected from customers but not yet paid on to the insurers. The issue therefore arose as to whether the insurers, the customers or the unsecured creditors of the intermediaries were entitled to those funds.
The judge considered the administrators were right to treat the accounts as subject to the statutory trust regime of CASS 5 in the FCA Handbook. The administrators also formed the view that, since no proper records were maintained by the intermediaries regarding the client accounts, any attempt to ascertain with certainty who is entitled to the funds would probably consume most of the funds in issue. They therefore proposed distributing the funds (after the payment of remuneration and costs) to non-insurer clients with admitted claims first, then to the insurers with admitted claims, and finally any remaining funds to be applied as the company's own funds.
The judge held that he had power to give directions to the administrators. Arguments that some monies in the accounts belonged to the intermediaries (and so their general creditors) were rejected by the judge. He also accepted that, where insurers had maintained gratuitous cover for clients (despite no premium having been received), that should not affect an insured's claim against the pooled fund. Finally, he determined that the administrators were entitled to recover their costs and that the amount of those costs should be determined by a Registrar of the Companies Court.