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Battle to save collapsed DFM’s assets continues

Administrators are continuing their battle to return money to clients of a collapsed discretionary fund manager as they raise the prospect of going to court for bond interest payments.

London-based DFM Strand Capital had around £86m in funds under management when it was declared in special administration by the FCA last May.

In a progress report from special administrators Smith and Wiliamson and LA Business Recovery, they say that they have had multiple difficulties in winding down the firm that mean they have not been able to return money to investors.

The report says that when the adminstrators took over Strand, “access to the online trading platform was not immediately forthcoming, little activity was being undertaken at the company’s premises, and it had no current employees.”

At the time of writing the report, which covers the six months to 16 May 2018, the administrators say there was still a client cash discrepancy of more than £121,000, as well as unpaid bond coupon interest payments of nearly £500,000.

FSCS pays out £5.7m compensation to Strand Capital customers

£18,000 of the discrepancy is down to a miscalculation of Strand’s management fees for the last quarter of 2016, and will be funded from management fees due to Strand up until the time it collapsed and thereafter, along with the rest of the shortfall.

The administrators estimate that management fees will not quite cover the client money shortfall, however, with a £3,800 gap remaining at the end. While Strand is legally allowed to charge management fees after the date of its administration, clients can claim some of those fees back if, for example, particular services have not been provided.

Meanwhile, a fight continues over who will repay the outstanding interest on the bonds. Asset management conglomerate Optima Worldwide Group purchased Strand in 2014, and Strand arranged investments in Optima bonds, according to the administrators, who say discussions over how to reconcile the interest payments have not reached a resolution.

Optima claims that it has settled any obligations over unpaid balances to bondholders because of a deal it made with Strand.

The adminstrators’ report reads: “[Optima] and the joint special administrators acting on behalf of [Strand]…have different interpretations as to which of them is responsible for paying the outstanding interest amount under the bonds…Should it become clear that the difference in position cannot be resolved in correspondence, it is likely that the joint special administrators will need to apply to court to seek directions.”

Until this is finalised, the administrators say they are bound by regulations not to start a full repayment to clients.

Because of all these outstanding issues, the administrators opted to work with the Financial Services Compensation Scheme “to enable an expedited payment to be made to clients.”

The lifeboat fund said last week that customers of two Sipp providers connected to Strand – Easy Sipp and The Wise Sipp – have had payments returned to them directly back into their Sipps.

More than £5.8m has now been returned to Strand clients by the FSCS.

The FSCS is footing the bill partly due to the lack of insurance the DFM held. The administrators note that Strand did not have enough money to settle its premium, so is continuing to discuss any potential recoveries the insurer could make with the provider having also paid an amount towards its policy.

The administrators hint that claims management companies had made false promises to speed up the return of client assets, which can’t be met as the administrators need to go through court proceedings to approve a formal distribution plan.

The report reads: “[We] have been made aware of a number of companies reaching out to underlying clients, claiming they are able to expedite the return of their assets. At this stage, it would be prudent to inform you this is unfortunately untrue.”

The administrators are still trying to find out who owns two Euro bank accounts at Strand valued at €6,158 (£5,447), and what the funds relate to.

They are also continuing to investigate, under their legal obligations, whether the conduct of the directors in the run up to the administration would justify recoveries from them personally or further investigation by other bodies.

The report says: “Investigations in to matter brought to our attention and more generally in to the demise of the company continue.”

The administrators and lawyers working on Strand’s collapse have been paid £171,000 to date, which was funded from the client money pool, with a further £73,000 in bills yet to be met.

They say that when the administration is process, it is “likely” that they will file to dissolve Strand, rather than try and rescue it through a voluntary arrangement.

Managing director at consultancy AKG Guy Vanner says: “The key message has to be about trying to avoid disruption to adviser businesses and anxiety to both clients and their advisers, through considered, robust and repeated due diligence.”
He says: “While such research and due diligence exercises may sometimes seem like a chore this isn’t an academic consideration or box ticking exercise – it matters in terms of genuine risk to client experience and risk to the health of adviser businesses and their profitability. Very much illustrated by this case.” 

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