The directors of a firm which was declared in default by the Financial Services Compensation Scheme (FSCS) last year used an insolvency practice called pre-pack administration to buy the assets of the collapsed firm and continue trading as an advice firm.
The story raises questions about the role of legal practices such as pre-pack sales and phoenixing in seeing claims land on the FSCS, as well as the FCA's ability to address the matter.
Alderley Asset Management was declared in default by the FSCS last May.
As New Model Adviser® reported this morning, the lifeboat fund had paid out £440,000 in relation to 13 mis-selling claims against the firm as of June. Since then, the FSCS has paid out a further £51,000 over complaints against Alderley, pushing the total to £491,000.
Three of the latest complaints concerned the Ethical Forestry investment scheme in some way, leading to £33,000 in compensation payouts. Investors were left uncertain about their investments when the UK firms promoting the scheme collapsed earlier this year.
Documents filed at Companies House indicate how the directors of the firm were able to buy the assets of Alderley Asset Management and continue trading under the name TPD Wealth Management.
The tactic known as pre-pack administration is when a business agrees to sell its assets before appointing an administrator. After this the assets are sold either when the company enters administration, or soon afterwards.
In this case a deal was agreed to sell the business to TPD Wealth Management, a company owned by two of the directors of Alderley Asset Management at the time it entered administration.
The Alderley story again raises fears expressed by IFAs that not enough is being done to stop firms from using legal administrative practices, such as pre-pack administration or phoenixing, then leaving the FSCS to pay out the claims.
In this case Companies House documents suggest the Financial Conduct Authority (FCA) was at least aware of the process that was going on.
This raises questions about whether the regulator is adequately equipped to address an issue that more and more IFAs want sorting out.
According to the FCA register, TPD Wealth Management was authorised in January 2014. At the time it had two directors, classed as CF1, Robert and Pamela Angel who are both shareholders at the firm, with 41% of its shares.
The couple were previously directors of another regulated firm called Alderley Asset Management, which they joined in 2011. The only shareholder in Alderley was a firm called Soja Limited, which was owned by Robert and Pamela Angel.
Documents filed at Companies House show Alderley appointed Leonard Curtis as an administrator in March 2014.
According to the administrator’s proposal statement, two reasons were given for the business entering administration.
The first was related to payouts from complaints against the firm.
According to the statement Alderley had 18 mis-selling claims against it which threatened the company’s capital adequacy position. The statement said this could lead to 'exceptional losses in excess of £250,000'.
The second reason given was that 'it was considered that administration would best prevent enforcement action being commenced against the company'.
No further information was given about the nature of this potential enforcement action. Leonard Curtis did not respond when asked about this.
The FCA also declined to comment.
The report said the successful claims against the company relate to advice given before the Angels took over the business in 2011.
‘The majority of the claims related to advice given prior to the acquisition. None of these potential claims were identified during the due diligence process,’ it said.
However New Model Adviser® understands some of the Financial Ombudsman Service (FOS) complaints against the firm stem from advice given in 2013, after the Angels took over the business.
Also, in one FOS decision listed on its website Ombudsman Roy Milne partially upheld a complaint which stemmed from advice given by Alderley in 2012. The advice was to a client known as Mr A to invest a lump sum of £18,000 into a personal pension, a transaction which saw £4,050 deducted in commission payments.
According to the complaint, this advice was given in February 2012, after the Angels took over the business. Milne said this recommendation was ‘unsuitable’.
In total 17 complaints against the firm have been referred to the FOS. The complaints relate to a mixture of unregulated collective investment schemes and pension investments. These complaints have all been handed from the FOS to the FSCS.
As a result of the claims against Alderley, Leonard Curtis recommended Alderley enter administration but seek a 'quick sale' of the business to ensure the company would not lose out on revenue.
In doing so they went through 'pre-packaged sale', whereby the administrator agreed a deal to sell the assets of the business before entering administration.
The statement said a bid of £155,000 was accepted for the assets of the company on 3 March 2014 from a company called TPD Wealth Management.
Companies House documents for TPD Wealth Management show that the company was incorporated on 25 April 2013. It only had two shareholders: Robert and Pamela Angel.
Pre-pack procedures are legal, but many advisers have raised concerns about the use of the practice alongside the similar practice of phoenixing -a widely used administration tactic that allows company directors to escape personally footing the bill for a failed firm’s liabilities.
A later report by the administrator filed at Companies House showed why advisers might be so concerned about the practice and its impact on the FSCS levy.
‘Any claims which are upheld against the company will be referred to the company’s previous professional indemnity insurer or the FSCS, who may make any payments due,’ it said.
When contacted, Robert Angel declined to comment on the story.
The administrator's proposal statement said that it consulted with the regulator during the pre-pack administration process, alongside secured creditor Lloyds Bank.
'The proposed administrators did discuss the position with the secured creditor and the FCA and explained the considerations taken into account when considering the insolvency options,' it said.
This suggests the regulator could have been aware of the pre-pack process that was going on.
When asked by New Model Adviser® whether it had indeed been aware of the process to sell the assets of the business to the Angels, and if so why it had not stepped in, the FCA said it could not provide a comment or further information on the case.
Leonard Curtis did not respond to a request for comment.