Isle of Man
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Foundations Program plc - in liquidation
FPA Limited - in liquidation

Update November 2013


Foundations Program plc - in liquidation ("FPP")
FPA Limited - in liquidation ("FPA")
Joint Liquidators and Joint Official Receivers ("JL&JORs")


The JL&JORs are mindful that they have not published a major update since the end of May. For the reasons set out in this update, there have been issues that the JL&JORs have not been able to comment on because of the numerous and complex legal issues affecting the liquidations which require resolution and/or court determination. These issues will be addressed later in this update.

Points Re-calculations

A significant workstream was started in May and communicated by way of email and web, relating to the consultation with Participants regarding the re-calculation of Participation Points.

Participants will recall that in order to perform a complete recalculation of points it was necessary to request a historical monthly valuation of every asset within each policy from the inception of the Program. The consultation with the Participants strongly favoured the alternative strategy of basing a re-pointing exercise on quarterly policy valuations.

There are 208 policies in total and to date the life companies responsible for 104 of these policies have responded with the necessary information.

Of the remaining 104 policies, 70 are with one company. This company has confirmed that it will be providing the information as soon as possible.

Information relating to the balance of 34 policies is being followed up on an ongoing basis.

The systems to perform the re-calculations are in place and the re-pointing exercise can be undertaken as soon as all the valuations have been collected.

Legal issues

The JL&JORs have referred to various legal issues in previous updates. The issues are complex and inter-related. The key subjects are as follows:

  • 1. the status of Participant policies when released by Barclays Bank
  • 2. the status of Participants as claimants against FPP and FPA
  • 3. the status of Loan Note Holders as claimants against FPA
  • 4. the status of unsecured creditors of FPP
  • 5. the legal actions that the JL&JORs may take in relation to asset preservation and recovery

Before commenting on the above, it is important to note that the JL&JORs have concluded that any actions or consequences under items 2, 3, 4 and 5 are dependent upon the settled legal position under item 1.

The status of Participant policies when released by Barclays Bank

The JL&JORs have taken legal advice from Isle of Man advocates and Queen’s Counsel in London on a variety of issues (the “Advice”). Without waiving their rights to privilege the JL&JORs having considered the advice have concluded that the assigned policies of the Participants are properly assigned and that Barclays Bank has full legal and beneficial ownership of them.

Accordingly, at the appropriate time the liability to the bank will be discharged by the surrender or partial surrender of the policies. On discharge, the Bank is obliged to reassign the assets back to FPA.

Having considered the Advice received by the JL&JORs it appears to the JL&JORs that when the assets are returned to FPA those assets will be held by FPA as legal and beneficial owner and, in effect, be held in a single pool of assets.

If this analysis is correct, then this pool will be available to all unsecured creditors of FPA, and that group of creditors will comprise the Participants, the Loan Note Holders and the other unsecured creditors.

However having considered the Advice the JL&JORs have concluded that there is a possible legal argument that might be put by the Participants (or a representative of them) that when the assts are returned to FPA, they are held by FPA in a form of trust for the benefit of each individual Participant.

The consequences, if such a trust were to be established, are that the Loan Note Holders and other unsecured creditors of FPA would not be able to share in those assets held by FPA to settle their claims as those assets would not then form part of the liquidation estate. Plainly, this would be significantly to the advantage of the Participants.

The status of Participants as claimants against FPP and FPA

Having considered the Advice, the JL&JORs have concluded that the Participants have no claim against FPP but are contingent creditors of FPA. If the assets of FPA were held to be trust assets as described above, the Participants would not be creditors of FPA, but would be beneficiaries of the trust created. There would still be consequences and obligations before the assets could be released, but in principle the monies released as part of the Barclay’s reassignment to FPA would be to the benefit of the Participants only.

If the assets are not held in a trust capacity by the JL&JORs, the JL&JORs will continue to treat them as contingent creditors of FPA for the reasons already explained.

The status of Loan Note Holders as claimants against FPA

The JL&JORs have concluded that, subject to the receipt of properly completed proof of debt forms, Loan Note Holders are eligible to be admitted as creditors of FPA.

If the Participants’ policies are held in trust, then notwithstanding that the Loan Note Holders may be admitted as creditors, the Loan Note Holders will not have access to any of the assets held in trust for the Participants.

If the Participants’ policies are not held in trust, then the Loan Note Holders, Participants and other unsecured creditors of FPA will share in all the assets held by FPA, (including the life policies or the reassigned assets previously forming the life policies as released by Barclays).

The status of unsecured creditors of FPP

In relation to unsecured creditors of FPP the JL&JORs recognise that the losses or legitimate costs of the Program must be made good by the Participants as a contractual obligation that must be met prior to the Participants’ exit from the Program. At this point it is not clear to the JL&JORs whether a determination that the life policies might be held on trust for the Participants would detrimentally affect the unsecured creditors’ ability to satisfy their claims.

Further advice on this point will be sought, if necessary, when the trust question is resolved.

The actions that the JL&JORs may take

In the proceedings of the two liquidations to date, the JL&JORs have focused their attentions to the activities and issues surrounding the Program as a whole. To this extent the primary focus has been FPP, albeit there is an inevitable and unavoidable mixing of issues with FPA.

The identification and significance of the trust issue has material consequences. If the life policies come to be held in trust by FPA, then any matters that require action solely in the name of FPA (and potentially for the benefit of Loan Note Holders) could not be undertaken because the JL&JORs of FPA would not be entitled to utilise the trust funds to pursue those issues.

Conversely, if the life policies are not held in trust, the JL&JORs of FPA will have access to the funds to pursue any matters that they believe to be in the interests of all the creditors, including the Loan Note Holders.


Participants and Loan Note Holders will now recognise that the trust issue is fundamental to the future path of the liquidations. The financial interests of the two primary groups of potential creditors of FPA (Participants and Loan Note Holders) in the outcome of the trust issue are opposite to each other. The JL&JORs, had there been a sufficiently clear legal position and precedent, would make a clear decision in relation to the trust issue. In the absence of a level of certainly required to make such a decision, the JL&JORs must look to alternative methods to resolve the matter.

It is appropriate for the JL&JORs to remain disinterested in the outcome – in other words they cannot take a partisan view. However, the normal approach in such circumstances would be for one or more Participants to bring the matter to Court and for one or more Loan Note Holders (and possibly unsecured creditors) to argue the opposing case.

This is problematic - there is likely to be a very significant cost to each side because of the legal complexity and because new independent legal advisers for both parties would need to be engaged, not by the JL&JORs, but by each Participant and Loan Note Holder who wishes to be represented. The JL&JORs recognise that this is likely to be a highly unattractive proposition for each side.

The JL&JORs have concluded that the trust issue must be resolved now, as once the valuation exercise has been completed any further meaningful steps in the liquidations depend upon the outcome.

The JL&JORs are therefore now working closely with their legal advisers to seek the most cost-effective legally satisfactory resolution of this issue. The JL&JORs will make an announcement as soon as possible explaining the planned next steps.

November 2013