Quote:
Kate Beioley May 10, 2018

Customers of collapsed UK stockbroker Beaufort Securities clashed with administrators PwC on Thursday over its plans to use client funds to pay the insolvency bill, which could top £100m.

At a fiery meeting in London, PwC rejected a proposal from customers and creditors to cap administration and legal fees at £35m.

PwC held to its contentious worst-case estimate of £100m in costs to return the £550m in assets and cash to Beaufort clients, although it forecast the likely eventual cost to be in the tens of millions. Client assets will be used to cover the cost of insolvency proceedings and irate investors have criticised the scale of the bill.

The rejection angered many of the 200-300 people at the meeting, convened to vote on PwC’s proposals to wind down the former broker closed down by the UK regulator in March.

Hours after it was put into insolvency, the US Department of Justice brought criminal charges against Beaufort and several employees for allegedly manipulating US penny stocks via so-called “pump-and-dump” schemes and orchestrating money laundering.

PwC said no former Beaufort directors were at the meeting, and revealed £6m had been spent so far on the administration. It estimated costs were likely to be £20m by September, when PwC may distribute some funds, according to two people present.

“People were furious,” said Beaufort customer Anthony Breton. “It was very hard to find anyone in the room who was voting for the proposals but people are confused too. They were very frightened by PwC telling them it could take longer and cost more if we rejected them.”

The results of the vote are expected on Friday. It could result in a return to the courts to appoint a new administrator if PwC’s proposals are rejected. Customers have until June 8 to confirm their claims to assets, via an online portal.

PwC has written down the value of the assets recoverable from £800m to £500m, after discovering a “number of highly illiquid and potentially nil value positions”.

Some 700 clients with larger portfolios of more than £150,000 in cash and assets could lose up to 40 per cent of their ringfenced assets. Customers can claim from the UK’s Financial Services Compensation Scheme but only to a maximum value of £50,000.

The case has concerned customers of UK brokers who believed their money could not be used in the event their broker collapsed. Campaigners and high-profile critics, including Lord Lee of Trafford, have railed against PwC’s plans. Lord Lee has tabled questions in parliament over the legal precedent of using customer funds in an insolvency.

“Customers are angry. They want to know how PwC was chosen and how the amount of £100m [for the administration cost] was reached,” he told the Financial Times earlier this week. “I think that’s an extraordinary figure. This isn’t Carillion, which had multimillion-pound contracts, it is a small stockbroking firm.”

Responding to Lord Lee’s question, Lord Bates pointed to powers granted to administrators after the collapse of Lehman Brothers.
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