Furious Beaufort clients laugh down PwC in stand-off over £100m liquidation plans

Furious clients of collapsed UK stockbroker Beaufort Securities clashed with liquidator PwC in a meeting on Thursday, laughing when the firm claimed ‘our reputation is more important than our fee’. Hundreds of people convened in London to vote on PwC’s proposals to use up to £100m of client fees to wind down the former broker, which was shut by the FCA in March following a highly-publicised US sting operation.

PwC told clients that voting against its proposals could lead to more costs and delays. Results of the vote are expected today and could result in the appointment of a new administrator if clients fail to approve PwC’s proposals.

Ahead of the vote, PwC rejected a proposal to cap administration and legal fees arising from Beaufort’s liquidation at £35m. Instead, it stood by its controversial worst-case fee of £100m to return £550m of assets and cash to Beaufort clients. The cost of PwC’s liquidation has been subject to much controversy, with ValueTheMarkets.com campaigning to secure full representation for Beaufort’s retail clients who voiced legitimate concerns about the process., with ShareSoc even launching a campaign against the fees over what it called a ‘mockery of regulatory protections’. In yesterday’s meeting, the firm said it had faced angry and threatening behaviour over the past few weeks.

When asked by angry clients how fees of up to £100m could be justified, PwC said that figure was only likely to to be reached if the insolvency took four years to complete, adding that it is ‘absolutely convinced fees will come in lower’. PwC suggested a best-case fee of between £20-£25m, based on a six-month period at current spending. So far, the company has racked up charges of around £6m in around two and a half months, working out at around £2.4m a month. Comparatively, one source close to the situation told us that the cost to PwC of running Beaufort (i.e. staff, rent, and IT) has come in at just £150,000 a month

PwC’s speaker also pointed out that 20pc of their fees are not recoverable due to the VAT chargeable and that the £100m ‘reserve’ allowed for further investigation should additional discrepancies be found between clients accounts. It is also worth noting that PwC is yet to reveal any details about the equity discrepancies in Beaufort’s records and it is still not clear whether the estimated £100m figure is just to cover PwC fees or whether it includes a reserve to cover any shortfall in client assets.

Attendees then met the speaker’s revelation that he was on an hourly rate of £900 an hour plus VAT with fury. This was followed by a client shouting out that PwC was using ‘the most expensive lawyers’ in magic circle firm Linklaters. Another questioned how fees could be so high when PwC charged complex international firm Royal Dutch Shell a comparable £35m for an audit.

PwC also said it had rejected offers from other brokers for Beaufort Securities’ client book, adding that it will revisit these at a later time. This point was a key factor in a campaign by ShareSoc, which asked ‘how can costs of £100 million be justified just to transfer an electronic registry of client assets/money to another broker?’

Once the bar date of 8th June comes into force, it will not be possible to complete a deal with a broker for at least three months, which forms a consultation period. One attendee pointed out that clients had not had the chance to consider these offers, given that they would provide income and a more economical way of returning assets.

The meeting also saw PwC reveal that no former Beaufort directors were in attendance at the meeting and had also declined to make a statement for its customers.

Compensation

PwC has previously revealed it has found 150 lines of stock with mismatches between that held and that assigned to clients’ records. It reiterated this at the meeting and added that it believes this could affect thousands of customers.

Despite this, it said it was in ‘good dialogue’ with the Financial Services Compensation Scheme (FSCS) and expects 90pc of customers to have their compensation claims met by the body. The FSCS can pay back up to £50,000 per person.

With the co-operation of the FSCS seemingly secured, one client questioned why the body could not just pass its share of the compensation to PwC to allow the administrator to ensure that all clients get their assets back. PwC has previously estimated that around 700 Beaufort clients with assets valued over £150,000 may experience a loss up-to a maximum of 40pc. PwC said it had been in numerous conversations with the FSCS about how they can come up with a ‘smart solution’ to fully compensate as many clients as possible, adding ‘it should all come together neatly’.

PwC expects the first distributions to clients to arrive in September and has launched an online portal which allows customers to confirm their claim to assets and opt-in to compensation with the FSCS by 8 June.

 

It said that liquidating client assets would be a last resort and said it was ‘acutely aware’ of the impact a large sell-off of illiquid stocks would have. PwC previously wrote down the value of the assets recoverable from £800m to £500m after discovering ‘a number of highly illiquid and potentially nil value positions’.

Committee 

The meeting also saw David Kipling elected as a co-opted observer on the Beaufort Securities creditors’ committee, on behalf of small clients, following a campaign by ValueTheMarkets.com. A five-person committee was voted in at the meeting with an additional five non-voting observers, with Allen Chandler being nominated to represent the interests of small clients.

Clients with up to £1m will be represented by Clive Brook, those with up to £10m will be represented by Robin Binks and those with more than £10m will be represented by Nick Moser and Robert Lee. Kipling, who is well-known among retail investors, has said he is willing to receive questions from clients collated by ValueTheMarkets.com.

Author: Stuart Langelaan & Daniel Flynn

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