Client Money Update - Client Money Application - Substantive Hearing - 25/11/09

This update concerns the application issued by the Joint Administrators on 1 May 2009 seeking directions from the Court concerning LBIE's obligations in relation to the handling of client money received prior to the time of administration (the "Client Money Application").

The substantive hearing in the Client Money Application commenced before Mr. Justice Briggs on 9 November 2009. Whilst the hearing was listed for 15-20 days, it concluded ahead of schedule on 24 November 2009. 

At the request of Mr. Justice Briggs, the parties produced a statement of assumed facts (the "SAF"), setting out those facts which the Joint Administrators and the respondents to the Client Money Application agreed could be assumed for the purposes of the application.  For the most part, the assumed facts reflect the Joint Administrators' current understanding of the relevant facts (as set out in Andrew Clark's first witness statement and exhibit and in his fourth witness statement and exhibit) and/or that of the respondents although, in certain instances, facts were assumed where the position was not clear or to facilitate representative respondents' appointments in respect of particular issues. The SAF[1] can be viewed here .

In the run up to and during the course of the hearing, some amendments were made to the list of issues in respect of which the Joint Administrators are seeking directions from the Court. These amendments consisted of some additional issues, together with some limited refinements to existing issues. The existing issues therefore remain largely unchanged from the version appended to the order dated 25 September 2009. The amended list of issues is available to view here. Those issues in respect of which there appeared to be consensus among the respondents are shown in red and include an indication of the direction which the Court has been invited to make on those issues.  The main changes made (which are shown in green, blue and bold black type[2], with deletions struck through) are the addition of issues seeking directions relating to:

• the status of money held by LBIE on client transaction accounts for clients with whom LBIE traded on a principal-to-principal basis (Issue 4B);
• the pre-requisites of any proprietary claim to client money outside of CASS (Issues 4A, 5A, 5B and 5C);
• whether CASS 7 requires LBIE to top up the client money pool for credit loss shortfalls (Issues 11A and 11B);
• how any money segregated for clients who are found not to have a client money entitlement should be treated (Issue 16A); and
• set-off (Issues 23C-F).

Judgment is anticipated in late 2009 or early 2010. As soon as the judgment is available, a copy will be posted online, together with a summary of its implications for client money claimants and creditors and anticipated next steps. These next steps will depend on what is decided in the judgment.

Please direct any questions you may have with respect to the above to clientpositionresponses@lbia-eu.com.

[1]    Note: Paragraphs 4.5 and 4.6 have been redacted at the request of GLG Investments plc: GLG European Equity Fund.
[2]    The different colours for the changes denote the different times at which changes were agreed.