SVS Securities Plc (SVS or the Company) was a full-service investment firm offering a range of services to its clients including advisory stockbroking, online share dealing, foreign exchange trading and discretionary fund managed services to both retail and institutional clients. The Company was authorised by the Financial Conduct Authority (FCA) and was also a member of the London Stock Exchange.
Prior to our appointment the FCA had identified serious concerns about the way the business was operating and had imposed requirements (by way of a VREQ and later an OIREQ) on SVS preventing it from conducting regulated activities and restricting it from disposing of its own or its clients assets. As a result, the directors of SVS had to consider the viability of the business and sought solvency advice from Leonard Curtis. Shortly thereafter the directors of SVS applied to the High Court for the Company to be placed into Special Administration. Andrew Poxon, Alex Cadwallader and later Andrew Duncan, all of Leonard Curtis, were appointed Joint Special Administrators over the Company.
The collapse of Lehman Brothers in 2008 highlighted deficiencies in applying the normal corporate administration regime to investment banks and in particular in protecting client assets. This led to the introduction of the Investment Bank Special Administration regime in 2011. SVS was the 16th Special Administration within the UK.
In a Special Administration, Administrators have three objectives to follow:
• objective 1: to ensure the return of client assets as soon as is reasonably practicable;
• objective 2: to ensure timely engagement with market infrastructure bodies and the Authorities; and
• objective 3: to either rescue the investment bank as a going concern, or to wind it up in the best interests of the creditors.
At the time of our appointment, SVS held client assets of over £250 million and client money of over £24 million on behalf of over 18,000 clients.
In order to return client assets, the Administrators:
‚Ä¢ took steps to safeguard all client assets and client money including dividends, coupon payments and corporate action monies that continued to be received following our appointment in excess of £5 million.
• secured funding to ensure that all critical non-trading operations and IT systems could be maintained.
• undertook a reconciliation of all client assets and client money from the Companyes records to market systems and Company bank accounts. This identified no material discrepancies between the Companyes records and the client assets and client money actual held.
• commenced a process to reverse all unsettled transactions in the Companyes records of which there were 676. Due to the restrictions placed upon the Company in relation to conducting regulated business activity and the disablement of its CREST access, the Administrators were not in a position following their appointment to complete any of the unsettled transactions. As such, the Administrators declared the Company in default to Euroclear UK & Ireland, the London Stock Exchange and NEX Stock Exchange, triggering their respective default rules.
‚Ä¢ developed a new online client portal to enable clients to agree their holdings of client assets and client money. This was a very important step to undertake as if the Administrators returned client assets and client money solely on the basis of the Companyes records, clients could have been exposed to the risk of competing claims from other clients or third parties who could argue that the Companyes records were not correct. The regulations provide for a process that offers protection against such claims by setting a Bar Date and clients would therefore receive good title to their client assets and client money. In total over 11,000 clients submitted claims during this process and around 300 clients raised disputes in relation to their holdings all of which were resolved. During the claims process six client asset shortfalls were identified totalling £70,000 which affected around 40 clients and steps were taken to rectify these asset shortfalls.
• developed communication lines to keep clients informed with regular updates and for clients to contact the Company to raise questions. We received over 12,000 client calls and emails within the first year of the Administration.
• engaged with a specialist marketing company to undertake a sale and marketing process to identify an appropriate single regulated broker to whom the client assets and client money held by the Company could be transferred. The Administrators considered that this would be the quickest and most cost-effective way for client assets and client money to be returned to clients.
• prepared a Distribution Plan, a detailed document, setting out how the Administrators proposed to transfer the client assets and client money which was subsequently approved by the Creditors Committee and the Court.
• worked closely with the Financial Services Compensation Scheme (FSCS) to ensure clients interests were protected. The FSCS assisted with clientes claiming hardship prior to the transfer of their assets and client money and also opened their own claims process for clients making a negligence or mis-selling claim against SVS. The Administrators also reached agreement with the FSCS in relation to the strategy and timing of compensation to be paid to clients to cover the shortfall which would otherwise be created by deducting the costs of the Administration from client assets and client money. This has meant that for the vast majority of clients their client assets and client money has been returned to them without any deduction to meet the costs of the Administration.
• worked closely with the preferred broker, to agree terms of sale as well as the operational mechanics to transfer all client assets and client money held by the Company. The transfer successfully completed in July 2020, within a year of our appointment, with over 99.5% of the Companyes clients transferring.
Achieving a single bulk transfer was the first of its kind within the Investment Bank Special Administration regime.
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