Rational Foreign Exchange - Case Update

The High Court has approved a distribution plan proposed by the joint special administrators (JSAs) of Rational Foreign Exchange Limited, while rejecting an application by MLS-Multinational Logistics Services Limited (MLS), an entity claiming to be a customer or creditor of the company entitled to the return of $3.6 million.

Rational Foreign Exchange, a London-based foreign exchange and payment services provider, entered special administration in late November 2023 after the firm’s directors concluded that it was insolvent and applied to court for a special administration order due to its inability to serve EU customers post-Brexit after losing passporting rights. Ed Boyle and Kristina Kicks of Interpath Advisory were appointed JSAs.

The JSAs encountered various regulatory and contractual issues in their administration of the firm, particularly with respect to the treatment of EU customers’ funds, given the company’s post-Brexit efforts to transact business through agents like PayrNet and Freemarket. The JSAs worked to identify and reconcile the funds held by the company, establishing a single pool of relevant funds, including funds held in 134 bank accounts at 10 different banks in 58 different currencies. The JSAs also undertook an extensive process to determine which clients qualified as “customers” and provisionally adjudicated upon claims to relevant funds. Their work culminated in a proposed distribution plan which provided for the distribution of funds pro rata once all valid claims were adjudicated.

The Court approved the distribution plan and the JSAs’ proposed treatment of various categories of customers based on how they transacted with the company, finding that the plan was the result of a long and detailed reconciliation exercise in which the JSAs did all they could to achieve a fair and reasonable result. The form of the distribution plan was one that the JSAs considered to be the most effective way of returning client funds, and their views on that point were to be given considerable weight.

In relation to MLS’s application seeking declarations that it was a customer or creditor of the company entitled to the return of $3.6 million, the Court held that MLS had in fact contracted with PayrNet via RFX EU acting as agent, not with Rational Foreign Exchange. This was based on clear evidence that MLS had accepted PayrNet’s terms and conditions in August 2022. Accordingly, the declarations sought by MLS were refused.

Interestingly, despite rejecting MLS’s application, the Court took the opportunity to emphasise how MLS’s application “provides a good example of how an entity claiming to be a creditor or customer of the Company can apply to the Court for a decision as to their status, if the JSAs remain unpersuaded, even though this should be done after a rule 106 decision has been made. The entity in question can bring evidence of exactly how they say they became a customer or creditor of the Company and the Court will be able to determine the issue, if it is required to do so.”

Read the decision HERE.

Professionals involved:

• Kate Rogers of Radcliffe Chambers (instructed by DLA Piper) for Ed Boyle and Kristina Kicks of Interpath Advisory, the joint special administrators

• Timothy Higginson of 9BR Chambers (instructed by Bivonas Law) for MLS