SPECIAL ADMINISTRATION – PSAR DISTRIBUTION PLAN ALONGSIDE DIRECTIONS
On 28 July 2025, Mr Justice Mellor handed down judgment approving a distribution plan in the special administration of Rational Foreign Exchange Limited (the Firm), sanctioning the joint special administrators’ proposed plan to return safeguarded funds to customers of the Firm.
Alongside the distribution plan, the joint special administrators (Kristina Kicks and Edward Boyle of Interpath) (JSAs) applied for directions pursuant to paragraph 63 of Schedule B1 to the Insolvency Act 1986, seeking declaratory relief as to the status of European domiciled customers and creditors.
Post Brexit, the sections of the Payment Services Regulations 2017 that gave authorised payment institutions the power to passport their services into the European Union, were repealed. As a consequence, firms in this space have developed ways of continuing to transact European business, such as white labelling the products of a European regulated firm or offering payment services alongside a European e-money business. However, when these processes are not properly understood and executed, it can result in the domestic firm simply continuing to service European domiciled customers, without a statutory or regulatory basis to do so. The JSAs found themselves having to analyse several different methods adopted by the Firm to service European domiciled customers, in order to determine whether those customers were customers of the Firm, or customers of another, European regulated, entity. The Court granted the declaratory relief sought by the JSAs.
The question of who was a customer of the Firm (and who was the customer of another entity) was particularly relevant in circumstances where there was a significant shortfall in safeguarded funds held by the Firm.
Whilst this is only the second reported judgment approving a distribution plan in respect of a payment services firm, under r.114 of the Payment and Electronic Money Institution Insolvency Rules 2021 (the Rules) (although there have been unreported special administrations of payment services firms), it was the first in which the Firm was holding funds of European domiciled businesses, some of whom were not customers of the Firm, and there was a shortfall in the safeguarded funds held.
The Rules do not provide any guidance as to the Court’s exercise of its discretion in approving a distribution plan, however, the Court agreed that guidance could be taken from authorities decided under the Investment Bank Special Administration Rules 2011, including Re Strad Capital [2019] EWHC 1449 (Ch); Re Hume Capital Securities Plc [2015] EWHC 25 (Ch); and Re SVS Securities Plc [2020] EWHC 1501 (Ch).
Kate Rogers was instructed by Peter Manley and Aimee Harper of DLA Piper on behalf of the joint special administrators, Kristina Kicks and Edward Boyle of Interpath.
Read the full judgment here.
