A judge has approved the appointment of a single person to represent the interests of 2,148 ‘innocent investors’ caught up in the FundingSecure Quistclose fiasco, in which a disgruntled creditor of the failed peer-to-peer lending firm FundingSecure has alleged its £500k investment was misappropriated and should be returned.
In 2022 this site exclusively reported on retail lenders who were raising money for legal advice after being faced with the prospect of being joined to this claim.
Read ‘FCA silent on client account cash grab‘ for a background to FundingSecure and why a large hole was said to have existed in the client account.
Since then the mouseinthecourt has reported on investors anger as the FCA closed their investigation into the firm — with no public action taken.
We also reported the issuing of the claim, including links to the underlying court documents in “FundingSecure administrators to remain neutral on £500k claim against “innocent investors”“
Investors were invited to formally join the claim. You can read our coverage in ““innocent investors” given March deadline in 500k Quistclose claim“
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Reporting by Daniel Cloake
As a result of the invitation to join the claim an investor called Mr Paul Mundy decided to take up the mantle and appointed David Johnson of PCB Byrne LLP solicitors to assist.
Mr Mundy is no stranger to the affairs of FundingSecure having sat on its creditors committee since the firm went bust in 2019. One of the other members of the committee is Mr Spencer Tarring who owns the company that brought this claim.
In 2021 Mundy appeared, and won, at the High Court in connection with a challenge against the joint administrators’ of FundingSecure’s decision to deduct certain fees. The judgment in that matter can be read here.
Mr Mundy, along with three other investors, also took over recovery of the infamous art loans, winning not only in the High Court but also subsequently at the Court of Appeal.
At a remote hearing before Deputy District Judge Hassall, sitting at the Business and Property courts in Manchester, the court was told that Mr Mundy was “initially reluctant” to participate in these proceedings as he “was concerned about the legal consequences … the legal costs of engaging in the Proceedings would clearly be substantial”.
The administrators’ had apparently confirmed to the defendants that up to 2,148 General Investors may have claims which compete with the Quistclose Claim for £500k.
With just £25k held up in frozen funds on the platform, frozen in case the claim were successful, Mr Mundy told the court in written submissions that “whilst that is not an insignificant amount, it is vastly outweighed by the costs and adverse cost risk I would be exposed to if I engaged in the Proceedings in my individual capacity“.
He explained “I am nevertheless engaging with the Proceedings with a view to being appointed as a representative of the General Investors. I am doing so as I believe it is unfair for the Quistclose Claim to be unopposed, and for the interests of General Investors not to be represented, simply because the circumstances of the case prevent individuals from engaging in the Proceedings.“
Emphasising that the platform was utilised by retail investors Mr Mundy said:
“This is not a case where sophisticated/institutional investors have failed to assert their rights. The failure of General Investors to engage with the Proceedings could be down to many factors, including the financial consequences of litigation, a lack of familiarity with (or trust in) the legal process, or simply an appreciation that the costs (financial and otherwise) of engaging in litigation in their personal capacity are not worth it.“
By way of introduction, Timothy Collingwood KC, the barrister representing the claimant JC Starr Holdings Ltd, explained that in this claim they sought resolution of a “limited and simple issue” in the form of the Quistclose issue. The mouseinthecourt found his comment that “the administrators’ refused to concede our claim” to be a touch presumptive.
The claimant was also critical of the costs incurred to date explaining that “just for this two-hour-hearing, £53k of costs have been incurred … just to get a foot in the door“.
Mr Collingwood also said their claim had appeared to have “stirred up a hornets nest of others” seeking to raise claims, including those critical of the conduct of the Joint Administrators’.
On this topic Jon Colclough, the barrister representing FundingSecure, referred the court to a section in the written submissions prepared by barrister Jessica Brooke, on behalf of Mr Mundy, which asserted that “it should be immediately clear that the JAs have drastically mismanaged the administration” which was followed by a list of eight items. It was said that these were not relevant to the claim.
Mr Colclough said that the correct forum for discussing such issues would be in the insolvency courts where the administrators would be named as parties. He was keen to stress that he represented the platform and not the administrators. They “are not parties, are not represented, and do not appear at this hearing” he said. He later added that as professional office holders they “are used to being criticised“.
Decision
Deputy District Judge Hassall not only decided to appoint Mr Mundy as a representative on behalf of all the affected lenders, but also acceded to a request that his legal costs should be paid for out of sums held by FundingSecure.
The judge explained that the “safety mechanism of challenge” existed for any costs ultimately claimed, for instance on the basis that they had been unreasonably incurred, by the use of a formal review by a court in a process known as detailed assessment.
The claimants were given 7 days to provide details of the claim, along with other legal files, to Mr Mundy.
He will then have 14 days to serve a defence to the claim.
A one-day-hearing will be held, on a date to be determined, to set a road map for trial.
At the conclusion of the hearing Timothy Collingwood KC thanked the judge “and any court staff” for sitting 25-minutes into lunch. The Judge replied commenting that “these things often over run“.
This site will keep a close eye on events going forward.
Case Files
06/09/2023 – Claim form issued
06/09/2023 – Particulars of claim filed
16/10/2023 – Filing of defence deadline extended
09/11/2023 – Defence statement filed
13/01/2024 – Court order filed
03/02/2024 – Court order filed
Hearing Details
JC STARR HOLDINGS LIMITED – Claimant
-v-
FUNDINGSECURE LIMITED (in administration) – Defendant
Case number: BL-2023-000078
In the High Court at Manchester
Friday, 19 April 2024 10.30am
Manchester CJC
Before: Deputy District Judge Hassall
Court 41, Level 9
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