Beaufort Client Campaign: Update 4

Following much hard work by the creditors’ committee, PwC has now drafted an official distribution plan, in line with our previously stated understanding. Full details of the plan can be found here: It was approved by the creditors’ committee on 13th July and by the Court on 26th July. I attended the court hearing – more on that later.

It is anticipated that the vast majority of client assets will be transferred to another broker in September, without loss or costs payable by individual clients, and Beaufort clients will regain access to their assets at that time, via the new broker. On 8th August PwC announced that most client accounts will be transferred to The Share Centre.

Court Hearing

I attended the hearing at the high court on 26th July, to approve the Beaufort distribution plan. The plan was duly approved, without opposition, with a modification requested by PwC to allow them to return physical share certificates before the “Transfer Date” – without cost to the certificate holders.

I will report on details of the hearing below but first, I believe that an important legal precedent was set, as I will explain. PwC’s QC petitioned the judge to allow the certificates to be returned outside the Distribution Plan, arguing that as they were in the name of registered shareholders, they belonged directly to the shareholders, there was no dispute about legal title, or reconciliation process required, so the cost of returning them was no more than the cost of a stamp and envelope. The judge approved this petition, thus setting a precedent for the return of physical certificates, putting them outside the SAR regime.

IMO this has a significance beyond simply physical certificates, in that I believe in any future cases it could be argued that dematerialised CREST holdings, registered in shareholders’ names in personal CREST accounts, should be treated the same way, as there is no possible dispute about the ownership of the securities and the cost of returning such holdings is even less than that for returning a paper certificate, requiring purely an electronic change of sponsor for each client’s CREST account. Personal CREST holdings are simply the electronic equivalent of share certificates and hence should be treated the same way.

The process of the hearing, which I will detail below, made it abundantly clear that the complexity of the SAR regime and all the massive costs PwC has incurred are due entirely to the omnibus nominee account system, where the ownership of the underlying assets is not clear, as they are not segregated by client. The SAR would not be necessary if client assets were individually segregated. I believe that this fact adds further weight to our argument with the government for reform of the nominee account system.

The Hearing

It was held before Mr Justice Arnold. Some 9 lawyers or PwC representative plus PwC’s QC sat in court, with some 15 observers present (no wonder Linklater’s racked up a £1.4m bill up to 31st May, as reported in PwC’s witness statement). I was sat next to a representative from the FCA. The hearing lasted just over two hours (despite there being no objections to the petitions!). Unfortunately I had to dash immediately after the hearing, due to a prior engagement, so did not have a chance to speak to any of the participants afterwards.

Most of the hearing was taken up by PwC’s QC making his arguments. These began with the QC walking the judge through the relevant SAR regulations and rules. He pointed out that there were only two precedents for such hearings, where distribution plans had been put before the court for approval: the cases of MF Global and of Hume Capital Securities. Because PwC had chosen to set a soft bar date (which they are not required to do), this sets in train a whole costly and complex legal machinery (including the need for this hearing). This brings no benefit to clients, but minimises the legal risk to PwC themselves and maximises their fees and those of their legal advisers. That is especially so, when PwC’s witness statement confirms that the total shortfall was £370,000, less than 0.1% of total asset value – and hence that the scope for dispute over asset ownership is minimal.

It has been argued that it was necessary for PwC to set a bar date and obtain court approval for the distribution plan, to forestall any claims on client assets arising out of the US litigation and remove the risk of retrospective claims being made. However, the witness statement reveals that there were only three “tainted” accounts (out of 15,000), so this risk seems small to me, not justifying the cost and delay to all the other clients.

After walking through the relevant parts of the Banking Act 2009, the Special Administration Regulations 2011 and the Special Administration Rules (which, apparently, were amended in 2017 – see ), the QC covered the principal points of the Distribution Plan and PwC’s witness statement, successfully arguing the they were in compliance with the SA rules and regulations. Key factors, which the judge also commented on, were that PwC had given adequate notice of proposals to clients, that there were no objections and that that plan had been approved by the creditors’ committee.

The judge expressed surprise at this point from PwC’s witness statement (p18):

“55 Some clients (approximately 700 of them) have positively indicated, via the Portal or otherwise, that they do not wish to receive FSCS compensation. The Administrators consider that such an election is directly contrary to the interests of the relevant clients and have begun the process of contacting them in order to find out why they have given such an indication. As part of this process, the relevant clients will be afforded an opportunity to confirm that they do in fact wish to receive FSCS compensation. Insofar as any client does not wish to receive FSCS compensation in the manner described above and meets its Claimant’s Share of Costs separately prior to any Transfer or other distribution, the Administrators will exclude the relevant client from the process described immediately above.”

This suggests that at least some of these clients may have engaged the services of claims management companies. ShareSoc has taken the view in this particular case the the direction and pace of discussions with PwC have meant that investors are unlikely to benefit from such services, and we believe that this view has been vindicated by the court decision.

We also note that the FSCS has made early compensation payments to clients suffering genuine hardship as a result of the Beaufort debacle, again suggesting that the involvement of third parties was unnecessary in this case.

Accepting the FSCS offer facilitates the efficient transfer of accounts to The Share Centre (or another broker in certain cases), without cost to Beaufort clients (unless they had an outstanding debt to Beaufort).


A particular concern has been the costs incurred by the administrators in this case. PwC’s witness statement, laid before the court, revealed that the total asset shortfall was just £370,000 (out of over £550m of assets) and that just 3 accounts out of more than 15,000 were “tainted” by involvement in the illegal activities that were prosecuted by the US authorities. Yet, to resolve this PwC have levied fees of £5.1m and their legal advisers, Linklaters, additional fees of £1.4 in the period to 31st May alone. PwC have reserved a sum of £55m for the ultimate total costs (though the final figure is expected to be significantly less than this). 70% of this figure is expected to comprise PwC and Linklater fees + VAT.

These disproportionate sums illustrate the flaws in the current Special Administration Regime. Whilst they will not be borne directly by most Beaufort clients, investors will end up paying this cost indirectly, because they will be largely funded by the FSCS. In turn, the FSCS is funded by a levy on financial services firms, which is ultimately likely to find its way into client charges.

Meeting with John Glen

On 18th July, John Lee, Mark Northway and I met with City minister John Glen and government Lords Treasury spokesman Lord Bates, who were accompanied by three Treasury officials, to discuss the Special Administration Regime. The meeting was reasonably positive and Mr Glen expressed his concern about the damage to confidence that the Beaufort case and revelations about Special Administration Rule 135 had done. Our case was undoubtedly boosted by the number of letters sent to MPs by ShareSoc and Beaufort Campaign members, as well as the unfavourable press coverage, and we wish to express our thanks to those that wrote to their MPs.

It is not yet clear precisely what action the government will take to address the loss of confidence, but we were left with the impression that action will be taken. I have followed up with a letter to the Treasury and we expect a response in due course. In the absence of a satisfactory response, we will continue to pursue the matter.

Amongst others, we have garnered the support of Richard Stone, CEO of the The Share Centre and of Andy Bell, founder and CEO of AJ Bell for a revision of the Special Administration Regime.

July has been an eventful month for our Beaufort client campaign!

Mark Bentley