WealthTek - Case Update

The High Court has released a judgment setting out its reasons for approving a distribution plan proposed by the joint special administrators of collapsed wealth management firm WealthTek, minus the inclusion of a reserve for potential litigation, which the Court refused to approve.

Shane Crooks, Mark Shaw and Emma Sayers of BDO were appointed as joint special administrators of Newcastle upon Tyne-based WealthTek in April 2023 following an urgent application made by the FCA. By that point, serious regulatory and operational issues had come to light regarding the firm and its principal, John Dance, who was arrested around the same time as the administrators’ appointment.

In November 2023, the administrators revealed that they were working with Norton Rose Fulbright to prepare a distribution plan setting out the process for returning client securities, but that they had encountered issues and delays due to client asset shortfalls and inaccuracies in the firm’s books and records.

In June and July 2024, the administrators sought approval of a proposed distribution plan in respect of approximately £148m in stocks, shares and other client assets. In summary, the plan will enable clients to access their assets via either a transfer to a nominated broker or by an alternative mode of distribution (a transfer to a different broker, the liquidation of the assets or the actual return of physical share certificates). Save for dividends and income which has accrued on stocks and shares since the appointment of the administrators, the distribution plan does not deal with client money (cash of approximately £2.7m held on accounts for clients), which will be returned by the administrators in accordance with the relevant rules of the FCA's Client Asset Sourcebook in a process that will run in parallel to the return of securities. The plan was developed in consultation with the FCA and FSCS. It was also approved by WealthTek's creditors committee.

Following an independent review of the reconciliation exercise conducted by the administrators to determine what assets and money belong to each beneficiary, the Court approved the distribution plan, except for a reserve of approximately £7.2m for potential litigation which the administrators are considering pursuing. After receiving further submissions on the reserve, the Court refused to approve it.

The Court was satisfied that it was fair and reasonable for the distribution plan to be based on the reconciliation exercise, notwithstanding that it involved some departure from the strict rights of some of the clients. The plan was as fair an approximation of each client's interest as can be practically achieved if there is to be a speedy return of assets.

However, the Court found that the potential litigation reserve, in its current form, held indefinitely by the administrators with no timetable for reporting to clients or the Court on the potential litigation or obtaining the periodic consent of affected clients to the continued retention of their funds, should not be approved. The Court stated that this would not be fair and reasonable, and would be “positively contrary” to a special administrator’s duty to ensure the return of client assets as soon as reasonably practicable.

The decision can be found HERE.

Daniel Bayfield KC and Paul Fradley of South Square (instructed by Norton Rose Fulbright) represented the special administrators.