The administrators handling Berkeley Burke SIPP Administration have blocked the firm’s upcoming Court of Appeal hearing following a judgement made against it last year.
The firm’s administrators, RSM Restructuring Advisory, said its wider responsibility was towards Berkeley Burke’s creditors and the safeguarding of the funds from the estate for the benefit of the creditors. As a result, it had decided not to continue with the appeal.
RSM said: “Having considered the position in detail with their professional advisers, the joint administrators have resolved not to continue with the appeal of the judicial review.”
On 18 September Adrian Allen and Diana Frangou of RSM Restructuring Advisory were appointed as joint administrations of Berkeley Burke SIPP Administration. The administration of the business followed an interim costs order of £1m in respect of a group litigation order, which Berkeley Burke was unable to pay.
High Court judgement
In February, Berkeley Burke SIPP Administration was granted permission to appeal the judgment delivered against it in October 2018. That court judgment rejected Berkeley Burke’s claim against a Financial Ombudsman Service (FOS) decision.
In the original decision, the ombudsman ruled the SIPP administrator had to compensate a client after it failed to carry out appropriate due diligence on their investment.
Berkeley Burke, which facilitated the investment, argued it carried out the due diligence expected of it at the time, according to Conduct of Business Sourcebook (COBS) rules, and that the FOS subsequently placed undue responsibility by applying Financial Conduct Authority (FCA) Principles 2 and 6 in a way that created a new and unexpected duty of care on the part of SIPP operators.
In February, when Berkeley Burke was granted the right to appeal the decision, Lord Justice Hickinbottom in the Court of Appeal, who granted the appeal, said: “I am persuaded that this decision is potentially of considerable and wider importance within the industry and for customers, and that the issues raised by it should be considered by this court, which has not considered them before.”
‘Could have mitigated FSCS costs’
In response to the joint administrator’s decision not to go ahead with the appeal, Berkeley Burke Group – which now has no financial interest or ownership of Berkeley Burke SIPP administrator – said more than £100,000 had been secured towards the appeal. It argued this was enough to cover Berkeley Burke’s own costs, but it fell short of the total potential legal costs liability for both its and its respondents in the event of an adverse Appeal Court ruling. Nevertheless, the firm felt there was a strong case for appeal to mitigate the costs on the Financial Services Compensation scheme (FSCS).
Berkeley Burke Group said: “It is understood that Berkeley Burke SIPP Administration in administration has under its own separate control significant cash reserves which are being managed on behalf of creditors, the largest of which is potentially the FSCS and which has been fully engaged as a stakeholder in the administration process.
“It is thought that a successful appeal at the Court of Appeal may have mitigated the need for the FSCS to make pay-outs in relation to the company in administration. There were therefore compelling and legitimate grounds for creditors and potential creditors to want to see the preservation of separately held cash reserves while independent third parties spent their own cash to preserve a legal appeal that could only serve to protect and enhance the interests of all creditors and stakeholders.
“The costs of FSCS pay-outs are borne ultimately by FCA-regulated financial services firms through their annual licensing levies and such costs are in the end legitimately passed onto consumers by way of higher charges for services.”
The group said the appeal “may have finally dealt with the extent of any new extra duties owed by regulated firms” and it would be of “considerable regret” to many FCA-regulated firms to hear it would now not go ahead.
‘Armageddon’
In October 2018, SIPP expert Martin Tilley, who worked for Dentons Pension Management at the time and has since moved to Hurley Partners, said there would be “Armageddon” in the market if the court judgements went against SIPP provider.
“We need to see a consistent approach,” he said. “If the judgements go against the SIPP providers we could see as many as 25% to 33% of the market wiped out – and not just the smaller providers, as the potential problems spider up.”
Tilley was referring to both the Berkeley Burke case and the ongoing Carey Pensions case, in which lorry driver Russell Adams alleged Carey Pensions mis-sold him a SIPP. His lawyers accused Carey of using a Spain-based unregulated introducer to facilitate investments in Store First unit pods and being “in bed with scammers“. There is yet to be a judgement on the Carey Pensions case.