Beaufort clients face covering £100m liquidation costs

Clients of collapsed Beaufort Securities could lose up to 40% of the value of their holdings to cover liquidation costs, bringing into question the whole system of regulatory and legal protection of investors in the UK, according to campaign group ShareSoc.

The Financial Conduct Authority (FCA) declared London stockbroker Beaufort Securities Limited (BSL) and sister company Beaufort Asset Clearing Services Limited (BACSL) insolvent on 2 March 2018.

PwC was subsequently appointed as administrators of BSL and special administrators of BACSL.

Cost of administration

Now ShareSoc, a group which campaigns for beneficial share ownership registration in the UK, has released a statement saying it plans to mount a legal challenge against PwC’s administration proposals.

ShareSoc said it was particularly concerning that PwC has noted that about 700 clients with assets valued higher than £150,000 ($203,066, €170,833) may experience a loss of up to 40% on their ring-fenced assets.

In addition, ShareSoc said it is “incredible” that PwC is proposing to charge £100m for the wind-down over a four year period.

“They have provided no justification of either the amount or timeframe for the simple task of transferring an electronic registry of client assets/money to one or more replacement brokers.

“Over 14,000 clients invested through Beaufort Securities, an FCA regulated entity, on the assurance that their assets were fire-walled per FCA rules precisely to protect them in the event of the broker’s insolvency.

“The suggestion that PWC as special administrator can seize client property and treat the owners as creditors of the failed entity makes a mockery of regulatory protections for investors in the UK,” a ShareSoc spokesperson said.

On 15 March, PwC confirmed that ringfenced property totalling £850m in client assets was being held in accordance with FCA requirements.

However, on 12 April, the professional services giant noted that it had reduced the initial estimate of £850m to £500m as a result of illiquid/nil value positions.

PwC hits back

PwC told Portfolio Adviser sister publication International Adviser that ShareSoc’s claim that it plans to charge up to £100m for the administration is simply not true.

“What we have said is that the total cost of the administration could be as high as £100m.

“This includes the costs of legal advisers; the ongoing operations – so paying the retained Beaufort staff, office space and related expenditure and IT infrastructure – which is critical to support the client records; the costs of the administrators; and VAT,” the spokesperson said.

Further, PwC said administrators will make a “very significant distribution” to clients in September.

“If that happens then the costs estimate will be reduced by a favourable amount,” the spokesperson said.

According to PwC, the four year wind-down period is not a hard and fast timeframe but rather an outer limit, to allow for factors outside the administrators control.

“For example, any litigation requiring judicial resolution (which can take years rather than months) and the fact that criminal inquiries are ongoing in the US.

“Unfortunately, the cost of the administration has to be covered from somewhere. In the absence of other funds, the only place is from clients themselves, as hard as that is to accept,” the spokesperson said.

ShareSoc’s legal challenge

ShareSoc plans to mount a legal challenge against current administration proposals, specifically:

  • Refuting the special administrator’s right to seize ringfenced client property;
  • Ensuring proper separation of the liabilities of BSL from those of BACSL;
  • Questioning the special administrator’s cost and time estimates in relation to the wind-down of BACSL;
  • Seeking a transfer of the business of BACSL to an alternative custodian;
  • Reviewing the actions and motivations of the FCA in this matter; and
  • Lobbying for legislative change to ensure that assets in custody are properly protected.

It is appealing to Beaufort investors to join the campaign, so it can launch a collective legal response to PwC’s proposals as soon as possible.

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