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Gone into Administration? Declared in Default? Why Does it Happen and how can you Claim Against a Failed Financial Firm?

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If your investment firm has failed, the Financial Services Compensation Scheme (FSCS) can step in to pay out any claims against it.

If you read any of the financial services news websites, you will see news of firms going into administration or being declared in default on what seems like a daily basis. By looking at some recent examples, we explore what causes a firm’s demise and under what circumstances the Financial Services Compensation Scheme (FSCS) steps in to handle claims against it.

The FSCS is an independent, Government-backed scheme set up to protect customers when regulated financial firms fail.

The lifeboat scheme can step in and declare a firm that is regulated by City watchdog, the Financial Conduct Authority (FCA), in default when they are satisfied that there is at least one valid claim against the firm and that the firm is unable to pay out the compensation due. Once that happens, other claimants can submit claims directly to the FSCS for consideration. The FSCS will pay compensation, subject to a number of eligibility criteria and have a compensation limit of up to £85,000 per person, per bank (up to £170,000 for joint accounts).

On 9 August, national advice firm LEBC Group announced it had been placed into administration and sold its assets (including its client book) to a sister company called Aspira Corporate Solutions. The firm is reported to have struggled financially since 2019 when it was no longer allowed to advise on Defined Benefit Pension Transfers.

A number of claims were made against the firm and six have been upheld by the Financial Ombudsman Service (FOS) since September 2022. FOS is an impartial Government backed scheme to investigate and resolve disputes between consumers and financial services businesses. The FSCS has said it is investigating LEBC Group and will now accept claims against the firm, even though LEBC is still trading.

Another firm, Dundee-based wealth manager Chryson Wealth Management (also known as IQ Money or Sharewatch), was declared in default on 23rd August and the FSCS said its clients can check to see if they are eligible for compensation. When Chryson Wealth Management failed, there were 14 open claims, relating to investment bonds, secured bonds and contracts for difference – a form of advanced trading aimed at experienced investors.

On the same day, a third firm, Consero Capital LLP (trading as Green-ifisa.com and Renewable-bonds.com) also failed. Again, it was linked to a number of investment bond and secured bond claims and the FSCS opened its doors to investors seeking compensation. A total of 16 claims had been received by the FSCS at that time, relating to investment bonds and secured bonds.

Like any business, if a financial services firm has debts and can’t pay out the money it owes, the firm can be placed ‘in administration’, at which time an insolvency practitioner takes over its management (administration) and day-to-day running. The administration process allows time for a rescue attempt, so a buyer might be sought, the firm restructured, or assets sold to raise money to keep the business going.

A financial services firm may have received a number of complaints against it, resulting in operating restrictions being imposed by the FCA. At this stage, the firm itself would have to pay out any compensation due, which could prove costly.

If a firm is in administration but not yet insolvent, the FSCS can step in and implement its Default Policy.

FSCS claims can be complex and time-consuming. At TLW Solicitors we have a team of FSCS claims specialists who can ensure your claim is dealt with quickly and with the best results achievable for you. We know what information the FSCS is looking for and how to get it. We make sure the FSCS has all the information it needs to promptly and accurately assess a claim. And we can help you understand legal and financial jargon along the way.

Sarah Spruce, who heads up the professional negligence team at TLW Solicitors, comments:

“It can be a very worrying time when you hear that a company you have invested with, sometimes over many years and with considerable sums, has failed. If you have lost out on an investment and have no other way of seeking redress, the FSCS can look at your claim and award compensation.

Our knowledge of these claims and, indeed, the complex appeals process, means we can advise on what to do next to ensure you have the best chance of success.”

If you are concerned about your, a friend or a loved one’s investment and are considering making a claim through the FSCS, please get in touch with TLW Solicitors. Call 0800 169 5925, email or complete one of the callback forms below.

It is important to get advice as soon as possible as strict time limits can apply.

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