Majority of Beaufort clients spared insolvency bill following committee action

Most former clients of Beaufort Securities will not make a loss from the broker’s collapse following a meeting between creditors and court-appointed administrator PwC last week. PwC and the Financial Services Compensation Scheme (FSCS) have agreed to cap costs at £10,000 per client. According to PwC, 94pc of retail and corporate clients will receive their assets back in full, with the FSCS directly reimbursing PwC for the administration costs.

According to PwC, fewer than ten retail clients will face any cost exposure, and the remaining 6pc of costs will be borne by corporate clients, although this percentage may reduce as the distribution plan evolves. The UK regulator shut Beaufort in March following a highly-publicised US sting operation that led to criminal charges against the company for alleged securities fraud and money laundering.

Today’s resolution follows a period of dramatic conflict between Beaufort’s former clients and PwC. PwC had initially proposed using up to £100m of client fees to wind down the former broker, but nearly halved this to £55m following a fiery meeting in May. May’s meeting also saw the formation of a Beaufort Securities creditors’ committee. Well-known retail investor David Kipling was elected a co-opted observer on the committee on behalf of small clients following a campaign by ValueTheMarkets.com.

Russell Downs, BACSL joint special administrator and PwC partner, said of today’s news: ‘The special administrators held a constructive and wide-ranging discussion with the creditors’ committee on Wednesday 6 June. The creditors’ committee supports the development of the distribution plan, with the aim of receiving all necessary approvals in July before the intended block transfer of the majority of clients to a nominated broker in September.’ 

Speaking to ValueTheMarkets.com today, Kipling said the key focus will now be returning money to Beaufort’s clients. The first step is like to be the transfer of clients’ money to a new, as-yet-unspecified, broker. The so-called ‘bar date’, which was 8th June has triggered a three-month-long review period in which a court must approve PwC’s distribution plan.

Kipling told us: ‘Provided that there are no hiccoughs along the way, PwC is probably working towards getting a court date in July before carrying out a distribution in September, covering most client assets. There are several steps left to take, but, most importantly, most clients should be able to get back the entirety of their portfolios. Most will get out of this with their assets intact, which is fundamentally what the FSCS is there to do.’

He added that he believes this week’s solution represents the best option for clients and administrators alike:

‘The committee has been working very effectively and professionally to come up with a solution that is in everyone’s best interest. Since the fees are effort based rather than value-based, it seems fair to charge everyone the same amount.

‘The £10,000 cap is suitable for most clients, who will be covered by the FSCS compensation. It is also good news for the AIM market, where a lot of the Beaufort money is presumably tied up. There has been a notable lack of liquidity of late on AIM that may have arisen because there has been this chunk of capital locked away. People are keen for that to come back.

‘More broadly speaking, if this had not been properly sorted, then it would have hurt the perception of London as a trading destination, and that lack of trust would not be good. The last thing we want is an unwillingness to participate. Knowing your assets are safe is a critical part of being an investor.’

Author: Daniel Flynn

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