Minutes of the Clients and Creditors meeting on the 10th May 2018
5 weeks ago by
Meeting started at 11:45am
Venue of meeting
The Platinum Suite, ExCeL London, One Western Gateway, Royal Victoria Dock, London E16 1XL.
Registration of attendees started at 10:30am and there was a separate desk for attendees who had not confirmed attendance previously. Between 250-300 attended the meeting.
I had a chance to distribute leaflets to various clients and listen to their thoughts; one theme common to all were the ridiculous £100m costs that PwC wanted to charge and a strong opinion that the proposals must not be allowed to go through. Everyone was very angry, and the atmosphere right up-to the end was charged.
The meeting started at 11:40am with Russell Downs making some opening remarks:
- The directors were invited but declined to attend and did not avail a statement either
- FCA / FSCS were not present
- The PRESS had not been invited.
- The purpose of the meeting is to form a creditors committee to work with PwC in agreeing on a distribution plan to meet the objective of returning client assets / money expeditiously.
- Encouraged all stakeholders (clients and creditors) to vote FOR the proposals as it would be the best way to keep all the costs under control.
He acknowledged that he was aware that many clients had the intention of rejecting the proposals and the consequences of this would be to inevitably increase costs and delay the return of assets beyond September 2018.
As per his perspective, BSL and BACSL tried to grow organically and by way of acquisitions. There were a number of companies in the group; the shareholding company is Beaufort International Associates which is not insolvent and provided equity to both BSL and BACSL. A Beaufort Mauritian company was also mentioned.
Most of what Russell mentioned has already been covered in the Proposals and various letters to clients.
Nigel Rackham said that a lot of work had been done to reconcile the firms’ several systems and with those of the custodians. There were several key uncertainties due to the nature of the records and the systems migrations in the later part of 2017. He gave several examples:
- Some rogue data (not assets) found its way into particular client accounts. That data was viewed on the company portal and acted on by some clients who chose to sell assets to which they had no entitlement. And that has created short positions in certain stocks and will no doubt affect other clients who had positions in those stocks.
- A number of compliance weaknesses, absence of customer checks, manipulation of records, presence of potential fraudsters in the books
- The firms were charged by the DOJ and it’s anticipated that more enquiries will ensue.
- The company’s records cannot be relied upon to ascertain clients’ entitlements, and hence the need for a proper verification process. The portal opening, bar date and legally sanctioned distribution would help in the transfer of assets by September 2018 with legal certainty.
The distribution plan is still being worked on, will be developed with the clients and in consultation with the committee who will have a key role in signing it off. PwC hopes to have the distribution plan sanctioned in June before the court recess and there will be a 3 month period between bar date and distribution of entitlements.
PwC aims to get vast majority of clients by number and value out in September 2018, however complex client positions will need more work such as deceased clients, untraceable clients, struck-off corporate clients, non compliant clients and tainted assets.
Costs and cost reserving
He also mentioned that they are acutely aware of the concerns regarding costs, but PwC is working under the regime of the SAR Rules and regulations and costs must be deducted from client assets / money as there is no solvent house estate. There is no other route for costs to be paid.
Regarding the allocation of costs, he mentioned the three options below and that they are still in the process of consulting.
1. Have considered a flat allocation across all clients but this will unfairly penalize clients with smaller portfolios
2. And a pro-rata allocation will penalize larger portfolios
3. Have considered a sliding scale
If costs are based on valuation, valuation will be a tricky issue and hence they have taken a prudent view on the value of illiquid stocks, and that’s where the 40% shortfall mentioned in the proposals is from. If the value of stocks is higher, the percentage of costs will come down. Distributions of client money will incur a flat rate charge.
It would be necessary to make a prudent early reserve for costs as the only place to get costs is from client assets.
He quoted several operational costs including but not limited to:
1. 35 ex-Beaufort employees
2. IT costs
3. Legal and advisors costs (They are using one of the most expensive law firm in the country, Linklaters)
4. Costs of PwC team. Over the previous 8-9 weeks, a team of 30 PwC full-time staff were working on this assignment.
5. Funding costs for the loan taken out to fund the administration
6. VAT is irrecoverable, so that would be an extra 20%
In the case of lower costs, a mechanism for returning unnecessary reserves back to clients will be put into place. Fees are subject to committee approval and he also mentioned that they are open to processes to align fees to clients’ objectives.
There was a Q&A session afterwards. Questions & Answers are at the end.
Once the Q&A session was done, attendees were informed that 29 clients had sent in requests to be on the committee and others present at the meeting indicated they were interested as well. Due to the huge interest in being on the voting committee, an additional observation committee without voting powers was allowed.
Possible nominees were split into categories of Small Client, Upto £1m, £1m - £10mm and over £10m.
Community: Beaufort Clients