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Dividend prospects for Keydata creditors ‘poor’, says PwC

Administrator PricewaterhouseCoopers is still assessing potential litigation for Keydata investors with missing assets in SLS Capital but says dividend prospects for creditors in the insolvent firm are currently ‘poor’.

Speaking after yesterday’s Keydata creditors meeting, PwC joint administrator and partner Dan Schwarzmann says the firm has not yet made a decision to pursue litigation against Keydata directors, auditors or the custodian of assets placed with Luxembourg investment vehicle SLS Capital which could affect the outcome for investors.

He says: “At the moment I’m looking at what cash Keydata has got and looking at the size of the liabilities and it doesn’t look like creditors will get much money.”

At the end of June PwC became aware that income from £103m invested in Keydata plans with SLS Capital had not been paid since October 2008. The income shortfall to investors had been filled by Keydata’s own corporate funds.

PwC was unable to satisfy itself as to the safe custody of the second-hand life insurance policies backing Keydata’s secure income bonds 1,2 and 3 invested with SLS and received information which suggested the £103m of assets had been liquidated and “may have been misappropriated”.

At the beginning of this month, the Serious Fraud Office confirmed that it had launched an official investigation into the firm.

Schwarzmann says no further progress has been made in locating the missing SLS policies, in which around 5,500 individuals are invested and even if traced there is no certainty investors would be entitled to them.

Schwarzmann says once formed, the Keydata creditors committee will debate what legal action is worth pursuing on a cost-benefit basis.

He says: “On SLS, there are some actions that the company will be able to take and there are some that the investors will have to take. There are no easy answers here.

“Without this decision on possible litigation made at the moment the dividend prospects for creditors look poor. We still want to make that decision with the creditors committee but it is still too early to say where we will get to on that.”

By law, only five people can sit on the Keydata creditors committee and PwC said yesterday that results of the vote will be announced in a week.

Schwarzmann says he will consider allowing ‘observers’ onto the committee to help ensure smaller private creditors receive a fair representation. He says this would be limited to a maximum of 10 and they would not be able to vote on decisions made but their views would be listened to very carefully.

He says: “I have said I will look at the constitution of the committee and if I felt it was not a fair representation of the creditors I would allow observers to come onto it.”

At the end of last week, PwC learned that a few hundred clients had not been properly invested in Keydata plans due to administrative errors.

PwC says these clients have either been invested in the wrong plan or their money has not been invested at all but the latter have been treated as normal and paid out of company funds.

Schwarzmann says the problem affects a very small number of clients out of tens of thousands of investors and he will be contacting affected investors and IFAs over the next few weeks to inform them.

He says: “I was a bit worried about this when we first found out but we seem to have compartmentalised it to a very small number. We will have to go back to the investor and tell them what they have actually invested in and as income comes through we will pass that on.

“For a very small number of cases where the individual has not got a product at all then they are effectively a creditor for their investment but it hasn’t been invested so there is nothing we, as insolvency practitioners, can do.”

Meanwhile, he says HMRC has recently issued the firm a tax claim of £12.7m for non-Isa compliant plans.

Schwarzmann says he expects to complete its review of Isa arrangements on Keydata plans in September when income will flow for all investors.

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