WorldSpreads Limited. (in Special Administration) Joint Special Administrators Proposals for achieving the purpose of the special administration

Transcription

1 ABCD WorldSpreads Limited (in Special Administration) Joint Special Administrators Proposals for achieving the purpose of the special administration KPMG LLP 4 May 2012 This report contains 45 Pages SB/JM/HM/RT

2 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 Notice: About this Proposal This Proposal has been prepared by Samantha Bewick and Jane Moriarty, the Special Administrators of WorldSpreads Limited, solely to comply with their statutory duty under Rule 59 of the Investment Bank Special Administration (England and Wales) Rules 2011 setting out the objectives of the special administration, and for no other purpose. This Proposal is not suitable to be relied upon by any other person, or for any purpose, or in any other context. This Proposal has not been prepared in contemplation of it being used, and is not suitable to be used, to inform any investment decision in relation to the debt of or any financial interest in WorldSpreads Limited (in special administration). Any estimated outcomes for creditors included in this Proposal are illustrative only and cannot be relied upon as guidance as to the actual outcomes for clients, creditors or other stakeholders. Any person that chooses to rely on this Proposal for any purpose, or in any context, other than under Rule 59 of the Investment Bank Special Administration (England and Wales) Rules 2011 does so at their own risk. To the fullest extent permitted by law, the Special Administrators do not assume any responsibility and will not accept any liability in respect of this Proposal. Samantha Bewick is authorised to act as an insolvency practitioner by the Institute of Chartered Accountants in England and Wales. Jane Bronwen Moriarty is authorised to act as an insolvency practitioner by the Institute of Chartered Accountants in Ireland. The Joint Special Administrators act as agents for the Company and contract without personal liability. The appointments of the Joint Special Administrators are personal to them and, to the fullest extent permitted by law, KPMG LLP does not assume any responsibility and will not accept any liability to any person in respect of this Proposal or the conduct of the special administration of WorldSpreads Limited. 1

3 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 Content Glossary 1 Executive summary 4 2 Background and events leading to the appointment of 6 Special Administrators 3 Purpose of the special administration 7 4 Management of the Company since appointment 8 5 Other matters 13 6 Clients and creditors 14 7 Costs of the special administration 16 8 Proposals 18 Appendices 1 Statutory information 2 Receipts and payments account 3 Analysis of Special Administrators time costs, including schedule of charge out rates 4 Analysis of Special Administrators pre-appointment time costs 5 Directors statement of affairs 6 Information regarding the initial meeting of clients and creditors and the voting process 2

4 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 Glossary Act Authorities Brokers CFD The Insolvency Act 1986 (as amended) The FSA, the FSCS and the Bank of England Third party brokers (including affiliates) Contracts for Difference Company/WorldSpreads WorldSpreads Limited Directors FSA FSCS MiFID Directors of the Company as at 18 March 2012 included Dominic Bacon, Michael Foley, Roger Hynes, Geoffrey Langham, Lindsay McNeile, Polly Williams The Financial Services Authority The Financial Services Compensation Scheme Markets in Financial Instruments Directive Proposals Statement of Special Administrators proposals under Rule 59 of the Rules ReedSmith ReedSmith LLP Regulations The Investment Bank Special Administration Regulations 2011 Rules Secured Creditor Special Administrators The Investment Bank Special Administration (England and Wales) Rules 2011 Royal Bank of Scotland Samantha Bewick and Jane Moriarty of KPMG LLP Special Administration The Special Administration Order granted by the High Court of Order Justice, Chancery Division, Companies Court, No of 2012 The references in this Proposal to sections, paragraphs or rules are to the Insolvency Act 1986, Schedule B1 of the Insolvency Act 1986 and the Insolvency Rules 1986 (as amended), the Investment Bank Special Administration (England and Wales) Rules 2011 and The Investment Bank Special Administration Regulations 2011 respectively. 3

5 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May Executive summary Samantha Bewick and Jane Moriarty of KPMG LLP were appointed as Special Administrators of the Company at 5.30 pm on 18 March 2012, by order of the High Court following an application by the Directors of WorldSpreads. The Company was incorporated on 15 September 2003 and its principal activity was that of a spread bet provider, registered with the FSA (registration number ). The Company could not continue to trade due to a substantial deficit in the client money balances, and indeed would not have been permitted to continue trading by the FSA. Following the Joint Special Administrators appointment and after discussions with the FSA, the Joint Special Administrators concluded that it was appropriate to close transactions with clients in accordance with the terms of the customer agreement between WorldSpreads Limited and each client. Accordingly, in order to ensure all clients were treated equally, immediately upon appointment the Special Administrators closed out positions using the closing prices following close of business on 16 March Additionally, the appointment of special administrators to WorldSpreads Limited triggered an event of default under agreements between WorldSpreads Limited and the parties with which it hedged its exposure arising from transactions with clients. Such an event of default triggered termination rights in favour of those parties which had the potential to result in WorldSpreads Limited effectively being unhedged. If WorldSpreads Limited were to have open and unhedged client transactions, the potential losses to WorldSpreads Limited, clients and creditors would have been difficult to quantify and subject to constant changes due to fluctuations in market prices. The uncertainty this would create made the closure of client transactions both necessary and desirable. Final statements were ed or posted to the Company s clients on 30 March Since their appointment the Special Administrators have met regularly with both the FSA and the FSCS and continue to co-operate closely with the UK and foreign regulatory bodies. Based on the expected level of realisations, funds are likely to be available for clients and all classes of creditors. Certain assets and monies are likely to be returned to clients and the secured creditor earlier than the payment of dividends to unsecured creditors will occur. Further information is provided in section 6. This document in its entirety constitutes the Special Administrators Proposals, with a summary list of proposals shown in section 8, and provides an update on progress in the special administration to date. 4

6 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 Creditors meeting The Special Administrators have convened a meeting of creditors and clients with claims, pursuant to Rule 61, to enable creditors and clients to consider their Proposals and to decide whether a creditors committee should be formed. The meeting will be held at 11:00am on 23 May 2012 at Methodist Central Hall, Storey's Gate, London, SW1H 9NH, United Kingdom. The voting process is different depending on whether you are a client entitled to a claim on the segregated client money pool, a client who is claiming client assets or an ordinary unsecured creditor, which will also include clients of the Company that do not have rights to claim against the segregated client money or client asset pools. Different forms have been provided for each. A full explanation of the conduct of this meeting is attached at Appendix 6. Special Administrators Objectives and Strategy The Regulations set out the statutory objectives of the special administration, being: 1. to ensure the return of client assets as soon as is reasonably practicable; 2. to ensure timely engagement with market infrastructure bodies and the Authorities; and 3. either to rescue the Company as a going concern or to wind it up in the best interest of the creditors. There is no significance to the order of the objectives, and as set out in this report, the Special Administrators have focussed on all three. Samantha Bewick Joint Special Administrator 5

7 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May Background and events leading to the appointment of Special Administrators The Company was incorporated in September 2003 and is a wholly owned subsidiary of WorldSpreads Group plc, a company registered in Ireland. WorldSpreads was an online financial markets trading business whose principal activity was spread betting. The Company s registered office and main administrative headquarters was situated at 3 Minster Court, Mincing Lane, London, United Kingdom. WorldSpreads also had branches in Denmark, France, Germany, Ireland, Spain and Sweden, as well as offices in Israel and Portugal and exclusive arrangements with tied agents in Greece, Hungary and Slovenia. The Company is authorised in the UK by the FSA and all branches were regulated under the passporting provisions implemented pursuant to MiFID. Additionally WorldSpreads has a wholly owned subsidiary in South Africa, WorldSpreads SA (Proprietary) Limited. This entity is not currently in an insolvency procedure. Clients in South Africa entered into agreements with WorldSpreads SA (Proprietary) Limited and not with WorldSpreads. WorldSpreads also has a wholly owned subsidiary in Israel, WorldSpreads Israel Limited. This entity is not currently in an insolvency procedure. WorldSpreads also entered into white label agreements with a number of third parties to provide financial spread betting on their behalf. The third parties that WorldSpreads had agreements with were: TwoWaySpreads Victor Chandler Financials TrendWatch Asset Management Agincourt Spreads Ladbrokes Financial Spreads Spreads.gr Sterling Markets Fitzdares Financial Spreads JN Spreads Alpash Patel Spreads Squaremile On 16 March 2012 the Company became aware that there was a substantial deficit between the amount of client money which ought to be held by the Company and that which was held. Following an initial review, it appeared that this deficit had existed for some time. 6

8 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 Immediately after becoming aware of the position relating to client money, the Company sought legal advice from ReedSmith LLP, solicitors, and notified the FSA and relevant stock exchanges. Instructions were given to the Company not to accept new trades, not to make payments and not to move any cash. After considering the options for the Company, the Board concluded that it had no alternative but to place the Company into special administration and an application to Court was made on 18 March FSA consent was provided. Insolvency practitioners from KPMG LLP became involved with the Company on the afternoon of Friday 16 March 2012 when it became apparent to the Directors that insolvency might not be avoidable. Staff from KPMG LLP attended at the Company s head office over the weekend immediately prior to the appointment to commence contingency planning and, ultimately, to assist the Directors in seeking the appropriate court order. Samantha Bewick and Jane Moriarty, both of KPMG LLP, were appointed Special Administrators of the Company on Sunday 18 March We confirm that prior to our involvement on 16 March 2012 neither the Special Administrators nor KPMG LLP had a prior professional relationship with the Company. 3 Purpose of the special administration Pursuant to Regulation 10, the Special Administrators of the Company have three special administration objectives: a) Objective 1 is to ensure the return of clients assets as soon as is reasonably practicable. b) Objective 2 is to ensure timely engagement with market infrastructure bodies and the Authorities pursuant to Regulation 13. c) Objective 3 is to either: I. Rescue the investment bank as a going concern; or II. wind it up in the best interests of the creditors. The Special Administrators are entitled to deal with and return client assets in whatever order they think best achieves Objective 1. The Regulations state that the order in which the objectives are listed is not significant, however the Special Administrators are required to commence work on each objective immediately after appointment, prioritising the order of work on each objective as they think fit in order to achieve the best result overall for clients and creditors. With regard to Objective 3, there was no reasonable prospect of rescuing the Company as a going concern, so the Special Administrators are pursuing Objective 3(II) to wind up the Company in the best interests of the creditors. 7

9 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 The Special Administrators propose to continue to pursue all three objectives equally, subject to creditors and clients approving their Proposals. The special administration is still in its early stages and it is difficult to determine the precise exit route from special administration at this time. The most likely scenario is that the Special Administrators will apply to Court seeking an order for the winding-up of the Company. Exit via dissolution is also a possibility. The decision will be based on which is the most appropriate and cost effective route in the circumstances at the relevant time. 4 Management of the Company since appointment Over the weekend of 17/18 March, a buyer was considering an offer for the whole or part of the business. By the time of the Special Administrators appointment the interested party had declined to make an offer, instead expressing an interest solely in the trading platform (see below). As the business was not in a position to continue to trade, the Special Administrators key focus on appointment was the protection of clients, the position of the Company s employees and realisation of its assets in order to obtain the best outcome for the Company s clients and creditors. Below is a summary of the work undertaken to date. 4.1 Closing out of open positions All clients with open positions were closed out on 18 March 2012 using the bid/offer prices on that day, which in practice were those prevailing at the close of markets on Friday 16 March The appointment of Special Administrators triggered an event of default under agreements between the Company and the parties with which it hedged its exposure. Such an event of default triggered termination rights in favour of those parties which had the potential to result in WorldSpreads being effectively unhedged. If WorldSpreads held open and unhedged client transactions, the potential losses to WorldSpreads, its clients and creditors would have been difficult to quantify and subject to constant changes due to fluctuations in market prices. The uncertainty this would create made the closure of client transactions necessary. Accordingly, and following discussions with the FSA, the Special Administrators concluded that the close out of the positions immediately following the Special Administrators appointment was required to ensure all clients were treated equally, with none advantaged or disadvantaged over another. Transactions with clients were closed in accordance with the terms of the customer agreement between WorldSpreads and each client. Since the positions have been closed out, the Special Administrators have worked closely with those Company employees who were retained to assist with the production of final statements for all clients. The majority of clients received their final statements by on 30 March 2012 with the remaining clients receiving them as soon as possible 8

10 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 thereafter. The Special Administrators have asked clients to confirm whether they agree or disagree with their final closing statements as soon as possible. A final statement query form is available on the website ( and should be submitted, one per account, if not already done so, where clients do not agree with the final closing statement sent to them. The Special Administrators are currently working to collate all the replies and request more information, where required, from clients to confirm their balance. 4.2 Client money The Company operated some 70 bank accounts with 18 different banks, in the UK and overseas. From the work we have undertaken to date, we consider the balance of funds held in designated client money or trust accounts to be some 5.2 million. The trust status of these accounts has been identified by way of trust notification letters provided by the banks or third party brokers and / or cash accounts which were separately identifiable as relating to client. All banks were contacted immediately following the appointment of Special Administrators with a request to place the accounts on stop with immediate effect. A number of the overseas banks required further proof of the Special Administrators authority to issue instructions in relation to these accounts, which was provided in the form of notarised and apostilled documents. Work remains ongoing in relation to establishing the trust status of monies which are held in overseas banks. Separate trust accounts are being set up within the Administration to facilitate the repatriation of client monies into appropriately designated client accounts in the administration estate. Please note that of the client monies mentioned above, some 467,000 is held with a third party broker which is currently in administration. There will therefore be a delay in the repatriation of these monies and confirmation of the quantum that will be available to the administration estate. There are also important legal decisions affecting the treatment of client money which have been litigated through the English courts. The impact of this will need to be further considered in the context of the Company s circumstances. The operation of the FSA client money rules means that client monies are subject to pooling on insolvency. Accordingly there is a requirement to ensure the quantum of client monies and relevant costs is known before the entirety of the client money pool can be distributed pro-rata to clients with claims. This will not prevent an interim distribution to such clients. Further information on the potential outcome for clients is included in section Client assets We understand securities with a value of c 295,000 (valuation as at 23 March 2012) were received by the Company from its clients in the course of carrying out its CFD business. 9

11 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 These securities relate to 11 clients. The Special Administrators are working with the Bank involved as well as with their lawyers to establish the completeness of securities received and held by the Company and the client equity balance which was secured by these securities. This information is required in order to ascertain how these securities should be treated in the special administration. 4.4 Property and other assets Leasehold property The Company operated from modern leasehold premises at 3 Minster Court, Mincing Lane, London. This remained operational for a short period after the Special Administrators appointment whilst the few remaining employees closed out client positions. The property has now been handed back to the landlord. As an FSA regulated entity, the Company had a disaster recovery plan in place. The disaster recovery site was located in Southwark. The Company held a short term licence to occupy these premises which was terminated on appointment as the Company ceased to trade and no longer required the facility. The Company occupied further premises in Docklands where the majority of the computer servers were located. We occupied this property for a short period whilst data was transferred and preserved, however it has now been handed back to the landlord. There are no realisable values in any of the above mentioned leases IT equipment, software, office furniture The Company owned IT and office equipment consistent with its trading operations. The Special Administrators appointed Edward Symonds LLP, a firm of independent agents and valuers, to value, produce an inventory and sell this equipment. The sale was completed in advance of vacating the premises for some 25,000. These funds will shortly be remitted to the administration estate by Edward Symonds. The Company operated a trading platform, although the system was maintained by WorldSpreads Malaysia with ownership of the asset vesting in WorldSpreads International Limited, an associated company. The Special Administrators facilitated a sale process with a view to protecting any realisable value of this asset. A number of expressions of interest were received and a buyer found. However the deal did not complete and it was not possible to re-market the business as by this time the Malaysian entity had entered an insolvency process Goodwill On appointment the Special Administrators considered a sale of the Company s client list with a view to realising any value in the Company s goodwill. However, following a review by ReedSmith of the terms and conditions incorporated in the client contracts the Special Administrators concluded that the list could not be sold. 10

12 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May Debtors The debtor balance according to the Statement of Affairs, of approximately 2.5 million, mainly comprises money due from clients and betting duty. The Special Administrators are writing to all clients who have outstanding balances requesting payment of monies owed. With regard to the betting duty (c 180,000), this balance is irrecoverable as it can only be utilised to offset future losses, and as there is no future trading there will be no losses to offset against Cash at bank Included in the c70 bank accounts referred to in section 4.2 are accounts that were operated as house accounts, which represent Company money. As noted above, we continue to communicate with the various banks where accounts were maintained to establish which accounts are not subject to trust status. Instructions to remit funds to the special administration estate have been issued to the banks in relation to accounts that have been confirmed as being house accounts. To date we have identified 10.9 million as house monies, of which 7.7 million has been received to date. 4.5 Employees There were 50 employees working for the Company when the Special administrators were appointed. The majority of employees were made redundant on appointment with 11 retained for a short period to close out client positions, complete financial statements and assist the Special Administrators with their duties. 1 employee remains. 4.6 Communications Since their appointment, the Special Administrators have sought to provide information to clients, creditors, other stakeholders and the media at regular and timely intervals, mindful at all times of their need to understand what had happened to the Company and the impact that the special administration has, in particular regarding the return of client monies. The Special Administrators have provided clients with as much information as possible. In order to assist with the supply of information to the Company s stakeholders, the Special Administrators took the following steps: Established a website relating to the special administration of the Company to include frequently asked questions and updates to clients when available ( Established a dedicated enquiry address to handle all enquiries (worldspreadsenquiries@kpmg.co.uk); Set up a dedicated call centre; Utilised the media to provide updates to stakeholders. In the first two weeks of the special administration approximately 2,500 s were received and all but the most complex s were replied to within seven days. 11

13 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 Final statements were sent by to clients on 30 March 2012 which resulted in a substantial increase in the number of s received. Since the statements were sent we have received approximately 8,800 s. We will continue to provide updates on the dedicated website as and when we have further information. These proposals and all associated documents are available on the website. 4.7 Regulatory matters The Financial Services Authority The FSA consented to the Special Administrators appointment. We have liaised closely with the FSA in relation to a number of matters including: the close-out of client and house positions; our work relating to client money and assets; reporting requirements; money laundering; compliance with other relevant FSA rules and Know Your Client regulations (to which WorldSpreads is still subject). We have also removed unnecessary FSA permissions, retaining only those which are specifically necessary for the conduct of the special administration. The FSA has also been of considerable assistance in dealing with the overseas regulators relating to the overseas branches (see below). We have provided the FSA with the information which it has requested relating to WorldSpreads and its clients. This is an ongoing process which we expect to continue for the duration of the special administration. The Special Administrators will continue to co-operate with the FSA in all matters where that is necessary or desirable for the purposes of the special administration Financial Services Compensation Scheme The FSCS is a statutory compensation scheme which may, among other things, compensate eligible parties who have lost money as a result of the insolvency of a regulated entity. Compensation depends on many factors and is limited to a maximum of 50,000 per person. Since our appointment we have ensured that the FSCS is apprised of progress in agreeing client claims and we have supplied it with the information it has requested. As clients claims are agreed, we will provide these to the FSCS on a timely basis. The FSCS will update consumers online at once it has more information on the claims process it will use Overseas regulators WorldSpreads had branches or offices as discussed in section 2. We wrote to all known regulators immediately after our appointment and have answered their initial enquiries as these arise. 12

14 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 Following discussions with the FSA we have co-ordinated the provision of information to the overseas regulators with them. We have also been able to remove the permissions which WorldSpreads had relating to overseas branches ( passporting permissions) as the branches are no longer conducting any business. We are providing these regulators with information as they request it and will continue to co-operate with them in all matters where that is necessary or desirable for the purposes of the special administration. 5 Other matters 5.1 Directors statement of affairs In accordance with the Rules the Directors are required to prepare and submit a statement of the Company s affairs. Following a request from the Directors, the Special Administrators granted an extension of time to submit a statement of affairs for the Company to 30 April The Directors have complied with their statutory duty and submitted their statement of affairs to the Special Administrators on 30 April The Special Administrators made an application to Court and have obtained an order allowing a redacted version of the statement of affairs to be filed at Companies House and attached to this Proposal. The order was requested to allow the Special Administrators to redact sensitive information in relation to the Company s clients and employees. Accordingly this information has been withheld from this Proposal, with all other information attached as Appendix Electronic transmission The Special Administrators made an application to Court and have obtained an order allowing the Special Administrators to give, deliver or send any notice or other document to one or more of the Company s creditors and/or clients by electronic means. 5.3 Directors conduct and investigations The Special Administrators are required by The Insolvent Companies (Reports on Conduct of Directors) Rules 1996 to submit a report or a return to the Department of Business Innovation and Skills on the conduct of any person who has been a director or shadow director of the Company at any time in the three years immediately preceding their appointment. If creditors or any other party wish to bring any matters they believe to be relevant to the attention of the Special Administrators, they are invited to do so in writing to Samantha Bewick and Jane Moriarty at KPMG LLP, 8 Salisbury Square, London EC4Y 8BB or alternatively by at: worldspreads-enquiries@kpmg.co.uk. Such comments, if required, can be treated in the strictest confidence. The Special Administrators have commenced their investigations into the Company s affairs and have ensured that the Company records have been preserved. Work undertaken to date includes: 13

15 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 imaging the Company s two file servers and exchange server; securing PC s and server equipment located at the Company s premises; taking a back up of the XEQT trading system used by the Company; obtaining details of customer accounts; completing schema and reports for the FSCS; obtaining backups of the ITAS trading system and Navision as the Company s last backups of each were corrupt; working with Bloomberg to extract data; seeking to extract data from the Red Box and AIT phone system; interviews with a number of the current and previous directors of the company. We are considering all aspects of the Company s activities prior to its insolvency. However, as you will appreciate due to the sensitive nature of investigations into preappointment transactions we are restricted in our ability to comment on any findings at this stage. 5.4 Future reporting In accordance with Rule 122, we intend to provide clients and creditors with our next report by 17 October As previously mentioned we will continue to provide relevant information via the dedicated website. 6 Clients and creditors 6.1 Clients Based on the application presented to the High Court on 18 March, the amount owed to clients is 29.7 million. We will be unable to determine the return to clients precisely until the position regarding bank accounts designated as client accounts has been determined. Based on our current understanding of the client money position we estimate clients will receive a dividend of approximately 10 15p in the. However, a deficit in client money will rank as an unsecured claim against the non-client money and assets, and therefore clients will also receive a dividend from this source (see section 6.4 below). 6.2 Secured creditors The secured creditor, Royal Bank of Scotland Plc, holds a fixed and floating charge over the Company s assets created on 20 June We are reviewing the validity of the security. As at the date of the Special Administrators appointment, the secured creditor was owed circa 1.65 million. We anticipate that the secured creditor will be repaid in full from realisations in the special administration. The secured creditor is not entitled to claim on client money or assets. 14

16 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 Two further charges have been registered relating to rent deposits. We are reviewing the validity of these charges. 6.3 Preferential creditors Claims in respect of certain arrears of wages and holiday pay rank preferentially. Preferential creditors at the date of our appointment were made up of employee arrears of wages and holiday pay claims, amounting to some 93,000. Funds will be available in the administration to pay these claims in full. 6.4 Unsecured creditors In their statement of affairs, the Directors estimate that the Company has the following unsecured liabilities: Unsecured creditors Client accounts Bank loans Suppliers PAYE and NIC Total Source: Directors Statement of Affairs Total outstanding balance ,038 2, ,318 Based on current estimates, there will be a distribution to the unsecured creditors of this Company, which will include the maximum prescribed part distribution, where the Administrators are required to reserve a fund (up to a maximum of 600,000) from floating charge assets for unsecured creditors. Based on our current understanding of the client money position, we envisage the return to creditors, including clients with unsecured claims in relation to the client money deficit, to be in the region of 20p in the. Please be aware that the return to creditors is dependent on determining which bank accounts were designated client accounts and is therefore subject to change. 6.5 Creditors meeting As we anticipate that there will be a distribution to the Company s clients and unsecured creditors we propose to hold a meeting for both clients and creditors simultaneously at am on 23 May 2012 at Methodist Central Hall, Storey's Gate, London, SW1H 9NH, United Kingdom. Details of the two resolutions to be considered at the meeting are set out on the creditor and client proxy forms. 15

17 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 The sole purpose of the meeting is to discuss the Special Administrators proposals as set in this report and invite a Creditors Committee of three clients, one creditor and one representative of the FSCS to be appointed. Proxy forms are available at for your use. If you wish to vote at the meeting, please return your completed statement of claim if not already provided (see Appendix 6) which must be received by 12 noon on 22 May 2012 in order to be counted. Any proxies that are intended to be used must be submitted to the Special Administrators by the date of the meeting. The Special Administrators have provided all clients with their statements according to company records. No further statements will be issued prior to the meeting, however, work is ongoing to respond to queries raised by clients in relation to their statements. Any client who has already responded does not need to resubmit their claim for voting purposes. In the interim period, claimants will be permitted to submit claims on an estimated basis. If you are unable to determine your claim value with any certainty, the Special Administrators request that you submit an estimated claim for voting purposes and submit a formal claim for distribution purposes at a later date. 7 Costs of the special administration 7.1 Special Administrators remuneration The statutory provisions relating to remuneration are set out in Rule 196. Further information is given in the Association of Business Recovery Professionals publication A Creditors Guide to Administrators Fees, a copy of which can be obtained at Nov2011.pdf. However, if you are unable to access this guide and would like a copy please contact +44 (0) or by at worldspreads-enquiries@kpmg.co.uk. It is for a creditors committee, if one is formed, to determine the basis on which the Special Administrators remuneration is to be fixed. However, if there is no committee the basis of the Special Administrators remuneration may be fixed by resolution of a meeting of creditors and clients. In respect of the Special Administrators remuneration incurred in pursuit of Objective 1 it is to be paid out of client assets and monies held by the Company. It is proposed that the Special Administrators remuneration will be fixed by reference to the time properly given by the Special Administrators and their staff in attending to matters arising in the special administration. Additionally a resolution will be sought allowing the Special Administrators to draw category 2 disbursements should they arise. These are costs that are directly referable to the appointment in question but not to a payment to an independent third party. They may include shared or allocated costs that can be allocated to the appointment on a proper and reasonable basis, for example, business mileage. A full explanation of these disbursements is set out in the Creditors Guide to Administrators Fees referred to above. 16

18 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 Attached as Appendix 3 is a detailed analysis of time spent, and charge out rates, for each grade of staff for the various areas of work carried out to 20 April 2012, as required by the Association of Business Recovery Professional s Statement of Insolvency Practice No. 9. In the period to 20 April 2012, the Administrators have incurred time costs of 903, representing 2, hours at an average hourly rate of This includes work undertaken in respect of forensic, IT, tax, VAT, pensions, health and safety advice and other relevant advice provided to the Special Administrators from KPMG LLP in-house specialists. This report sets out the key areas where time costs have been incurred to date. 7.2 Pre-appointment costs Pre-appointment costs incurred by the Special Administrators and their staff prior to the appointment at 5.30pm on 18 March 2012, but with a view to the Company entering special administration, amount to 46,265 plus VAT. A breakdown of this cost is attached as Appendix 4. These costs remain unpaid and we confirm that no previous remuneration in connection with this Company has been paid to the Special Administrators. It should be noted that the Court confirmed that the costs of and incidental to the special administration order can be paid as an expense of the special administration. The agreement to draw remuneration in respect of these costs will be sought from the creditors committee once appointed. If there is no committee approval to draw the Special Administrators pre-appointment costs will be sought by resolution of a meeting of creditors and clients. These costs are not part of the Proposals subject to approval under Paragraph 53. In summary, the work undertaken prior to the Special Administration order covered the following areas: Attending the Company from 16 March 2012 and understanding the issues it faced, consulting with the FSA, attending board meetings at which the solvency issues of the Company were discussed along with possible solutions, including consideration of the interest in the Company from an interested party; This work was conducted in the three days, including Saturday and Sunday, immediately prior to and including the day of appointment. It included briefing a team to attend the Company s premises on 19 March 2012; Preparing and reviewing appointment documentation and attending the Court hearing. Representatives from the law firm ReedSmith also attended the Company from 16 March through to 18 March 2012 and incurred costs of 51, plus VAT, with disbursements relating to Counsels fees of 32,500. These costs have not been paid to date, however, the Special Administrators propose to seek the appropriate approval to pay these from the administration estate. No other person qualified to act as an insolvency practitioner is charging fees or expenses in this period. 17

19 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May Other costs Details of costs paid in the special administration to date, including wages and salaries to the retained employees, are set out in the receipts and payments account attached as Appendix 2. The figures are shown net of VAT, however please note the Company is not registered for VAT and VAT will be an additional cost, as shown in the receipts and payments account. 8 Proposals In addition to the specific itemised proposals below, this document in its entirety constitutes the Special Administrators proposals. The Special Administrators of the Company propose the following: To pursue the special administration objectives being: Objective 1 - to ensure the return of client assets as soon as is reasonably practicable; Objective 2 - to ensure timely engagement with market infrastructure bodies and the Authorities pursuant to Regulation 13; Objective 3 - to rescue the investment bank (i.e. WorldSpreads) as a going concern or wind it up in the best interests of the creditors. It has not been possible to rescue WorldSpreads as a going concern. Certain assets and monies are likely to be returned to clients earlier than payment of dividends to unsecured creditors. To seek the election of a creditors committee, to consult with it regarding significant issues in the special administration and to seek resolutions from it where appropriate. To hold regular meetings of the committee to discuss progress in the special administration and to seek fee approvals (where required). The Special Administrators propose a five-person committee (the maximum allowed) and propose that three of those persons will be elected by the clients, one of them will be elected by the unsecured creditors and one will be a representative of the FSCS. To move funds collected on behalf of clients into bank accounts controlled by the Special Administrators in their original currencies or converted into Sterling as considered appropriate in the circumstances. To move funds collected as part of the estate into bank accounts controlled by the Special Administrators and convert them into Sterling. In accordance with Rule 166, debt in a foreign currency, the liabilities to creditors in a currency other than Sterling shall be converted into Sterling at the official exchange rate prevailing on the date the Company entered into special administration. To continue to do all such things reasonably expedient and generally exercise all their powers as Special Administrators as they, in their discretion, consider desirable in 18

20 ABCD WorldSpreads Limited (in special administration) Statement of Proposals 4 May 2012 order to maximise returns to clients and the realisations from the assets of the Company in accordance with the Objectives set out in this report. To investigate and, where appropriate, pursue any claims the Company may have. That the Special Administrators will take steps to extend the special administration if they should deem such an extension necessary to achieve the objectives of the special administration. That the Special Administrators be permitted to make distributions to secured and preferential creditors. That the Special Administrators be authorised to draw fees on account from the assets of the Company (and client assets in respect of Objective 1) from time to time during the period of the special administration based on time property spent at KPMG LLP charge out rates that reflect the complexity of the assignment. Also that the Special Administrators be authorised to draw disbursements from time to time to include category two disbursements as defined in Statement of Insolvency Practice 9. That the costs of KPMG LLP in respect of IT, forensic, tax, VAT, pension and other relevant advice provided to the Special Administrators be based upon time costs and paid out of the assets of the Company (and client assets in respect of Objective 1). If the Special Administrators should think fit to place the Company into liquidation, a conversion of the special administration to a creditors voluntary liquidation not being an option available pursuant to Regulation15, the Special Administrators shall petition the Court for a winding-up order and shall apply for the appointment of Samantha Bewick and Jane Moriarty as joint liquidators of the Company taking such steps as are required under the Act as modified by the Regulations and Rules. The joint liquidators appointment shall be on terms that any act required or authorised under any enactment to be done by the joint liquidators may be done by any one or both of them. The Special Administrators will be discharged from liability under Paragraph 98 as modified by Regulation 15 upon their appointment as Special Administrators ceasing to have effect at a time specified by the Court and, subject to any order to the contrary that the Court might make, immediately upon their appointment ceasing to have effect. In the event that the Special Administrators deem that there are no other outstanding matters that require to be dealt with in a liquidation and client assets are no longer held by the Company, upon completion of the special administration (once the objectives have been met) the Special Administrators shall file the appropriate notices at Companies House and to take such steps as required to send a copy of that notice to all creditors and clients of whom they are aware and to the FSA. The Company will then be dissolved without further recourse to creditors and clients of the Company. 19

21 Appendix 1 Statutory information Company name WorldSpreads Limited Company number FSA registration number Administration Order The Special Administration Order granted in the High Court of Justice, Court No 2505 of 2012 Date of appointment 18 March 2012 Special Administrators details Samantha Bewick is authorised to act as an insolvency practitioner by the Institute of Chartered Accountants in England and Wales Para 100(2) statement EC regulations Jane Moriarty is authorised to act as an insolvency practitioner by the Institute of Chartered Accountants in Ireland In accordance with Rule 8(3)(e), any acts required or authorised under all enactment to be done by either or all the Special Administrators may be done by any one or all of the persons for the time being holding that office The EC Regulation on insolvency proceedings does not apply Company Directors From: To: Dominic C. Bacon Michael J. Foley Conor M. Foley Roger N. A. Hynes Geoffrey J. Langham Lindsay J. McNeile Niall S. O Kelly Michael I. O Loan Polly A. Williams 08/02/10 24/05/10 15/09/03 08/02/10 08/02/10 15/09/03 01/06/08 24/04/10 07/01/11 Present Present See note 1 Present Present Present See note 1 See note 1 Present Company Secretary Dominic Bacon 08/02/10 Present Quaysecco Limited 24/05/11 Present Date of incorporation 15 September 2003

22 Previous registered office 3 Minster Court, Mincing Lane, London EC3R 7DD Present registered office Trading address KPMG LLP, 8 Salisbury Square, London EC4Y 8BB 3 Minster Court, Mincing Lane, London EC3R 7DD Trading styles/white label agreements Notes 1 Director resigned in March 2012, but not yet registered at Companies House. Details of the Company s trading results are shown below: Agincourt Spreads, Alecto Spreads, Alexander David Spread Betting, Alpesh Patel Spreads, Alpha Markets, Aurora Global Markets, BetVictor Financials, Financialspreadbetting.co.uk, Fitzdares Financial Spreads, Guardian Trades, JN Spreads, Ladbrokes Financial Spreads, Oakleaf Markets, Spreads.gr, Squaremile, Star Financials, Sterling Markets, Tam Spreads, TM Fleming Spreads, Tower Spreads, TrendWatch Asset Management (TAM), TwoWaySpreads, Victor Chandler Financials, WorldSpreads Private Client Services Year ended 31/03/2011 (audited) 000 Year ended 31/03/2010 (audited) 000 Year ended 31/03/2009 (audited) 000 Turnover 13,665 11,420 5,809 Gross profit 9,668 8,141 3,366 Operating profit/(loss) (504) 2, Profit/(Loss) after tax, before dividends (416) 1, Source: Company s annual accounts as filed at Companies House Details of the Company s share capital and holdings Authorised share capital 8,061,898 ordinary shares of 1 each Issued share capital 8,061,898 Shareholders WorldSpreads Group Plc 8,061,898 ordinary shares

23 Appendix 2 Special Administrators receipts and payments account

24 WorldSpreads Limited (in special administration) Special Administrators' Abstract of Receipts & Payments Statement From 18/03/2012 of Affairs To 20/04/ ,469, , ,072, ASSET REALISATIONS Leasehold property NIL Computer software NIL Office Equipment NIL Furniture & Fittings NIL Client Debtors NIL Computer Equipment NIL Prepayment and other Debtors NIL Intercompany NIL Cash at Bank - house 7,636, ,636, COST OF REALISATIONS Irrecoverable VAT Sundry Expenses Professional Fees 9, Payroll Costs Re-direction of mail Wages & salaries 119, PAYE & NIC 35, Bank charges (166,653.06) (93,190.00) (1,600,000.00) (32,318,192.00) (351,682.00) (8,061,898.00) PREFERENTIAL CREDITORS Preferential creditors FLOATING CHARGE CREDITORS Floating charge UNSECURED CREDITORS Unsecured creditors Banks/Institutions DISTRIBUTIONS Ordinary shareholders NIL NIL NIL NIL NIL NIL NIL NIL NIL (25,867,122.00) 7,469, REPRESENTED BY Floating charge current 812, Floating charge account no 2 6,656, ,469, member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the United Kingdom.