Adrian Hyde
| Jurisdiction | England & Wales |
| Judge | Robin Vos |
| Judgment Date | 08 June 2021 |
| Neutral Citation | [2021] EWHC 1542 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: CR-2021-000510 |
| Date | 08 June 2021 |
[2021] EWHC 1542 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
INSOLVENCY AND COMPANIES LIST (ChD)
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Robin Vos
(SITTING AS A JUDGE OF THE CHANCERY DIVISION)
Claim No: CR-2021-000510
Lexa Hilliard QC (instructed by Bird & Bird LLP) appeared for the Applicants
Anthony De Garr Robinson QC and Michael Kotrly appeared for H&J Director Services 1 Limited as representative of certain beneficiaries of a trust
Hearing date: 21 May 2021
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to BAILII. The date and time for hand-down is deemed to be 8 June 2021 at 10.30am.
DEPUTY JUDGE Robin Vos
INTRODUCTION
BetIndex Limited is a Jersey company. It carries on business as a betting operator and is regulated by the Jersey Gambling Commission and the UK Gambling Commission.
Following a letter of request from the Royal Court in Jersey, Deputy ICC Judge Kyriakides made an administration order on 26 March 2021 appointing the applicants as joint administrators of BetIndex.
In order to safeguard funds belonging to its customers, BetIndex maintained a separate client money bank account held for the benefit of its customers (of which there are approximately 280,000) under the terms of an express trust set out in a Deed of Trust dated 18 February 2020. At the date the administration order was made, the amount in that bank account was approximately £4.5 million which is now held by the Viscount's Office of the Royal Court in Jersey.
The administrators have made an application for directions under paragraph 63 of schedule B1 Insolvency Act 1986 for directions in relation to the distribution of the funds held subject to the trust. For reasons which will become apparent, the timing of any distributions and the way in which the amounts due to each customer are calculated will have an impact on the amount each customer receives.
I am acutely conscious that, whatever I decide, there will be winners and losers. However, the court's task is to determine objectively the correct interpretation of the trust deed and to make appropriate directions in the light of that. In this context, it is important to note that neither the administrators nor the representative mentioned below have any financial interest in a particular outcome. I am satisfied that, between them, they have properly put the competing arguments before the court.
PROCEDURAL BACKGROUND
The administrators' application was made on 30 April 2021. On 10 May 2021, ICC Judge Jones ordered that the application should be heard on an expedited basis before a High Court Judge. Judge Jones was satisfied that the joint administrators could put forward arguments on behalf of those customers who would be better off if the date for calculating entitlements to the trust assets is 26 March 2021 (or earlier) and that a representative should be appointed under CPR Rule 19.7 to represent the interest of those customers who would be better off if the date for calculating such entitlements were some later date.
Judge Jones made an order on 11 May 2021 appointing the representative, H&J Director Services 1 Limited to represent those customers. Although he recognised that there are different sub-groups of customers who would be represented by H&J and who will be affected differently by the outcome of the application, he was satisfied that it was both just and proportionate for there to be a single representative to put forward the necessary arguments. One effect of this order is that all those customers will be bound by the decision of the court.
The order made by Judge Jones on 10 May 2021 included provision for publicising the proposed hearing on BetIndex's website and for receiving representations from any customers who wish to do so. A number of representations have been received which have been included in the bundle of documents prepared for the hearing and which I have reviewed. It is clear from those representations that there are opposing and strongly-held views based on the circumstances of each individual customer.
At the start of the hearing, I made on order under CPR Rule 19.7 appointing the administrators as representatives of those customers with an interest in arguing that the date for calculating the entitlements to the funds held subject to the trust should be the date of the administration order (26 March 2021) or earlier. Given the order already made by ICC Judge Jones for publicising this hearing and the positions which would be put forward at the hearing, I considered it would further the overriding objective of dealing with cases justly and at a proportionate cost to do so in order to ensure that the decision of this court would be binding on all customers in relation to the trust.
BETINDEX'S BUSINESS
BetIndex operates a betting platform under the name Football Index. It is a slightly unusual arrangement which, whilst clearly betting, is designed to have some similarities in appearance with buying and selling a portfolio of shares.
Customers are known as traders (I use both those terms in this judgment but they mean the same thing). A trader places a bet by buying a three year share in a football player. The winnings come in the form of dividends which are paid depending on the player's performance on the field and on the number of mentions they get in the media. Traders can sell their share in a player to another trader, the price of a share fluctuating as a result of the performance of the player (and therefore the likelihood of winning dividends).
BetIndex's income derives from the amount initially paid by a trader for a share as well as a 2 per cent commission charged when shares are sold by one trader to another.
Each trader holds an account with BetIndex. That account holds the shares in the players which they have purchased as well as a cash balance. The cash balance consists of money deposited by the trader which has not yet been used to place bets (i.e. to purchase shares in players), winnings in the form of dividends and the proceeds of sale of shares. Traders are free to withdraw cash from their account at any time. Dividends are typically credited to the trader's account the day after they become due although it can take longer than this.
Clause 11 of BetIndex's terms of use explain the protections in place in relation to a trader's cash balance and provides as follows:
“ 11. YOUR FUNDS
11.1. We are required under the terms of our British licence to inform you about what happens to funds which we hold on account for you, and the extent to which funds are protected in the event of insolvency, according the British Gambling Commission's rating system (which can be seen at http://www.gamblingcommission.gov.uk/for-the-public/Your-rights/Protection-of-customer-funds.aspx).
11.2. Your Cash Balance is held within a standalone trading account held in the name of BetIndex Limited and in reserve funds which we hold with our payment processors. This account is separate to BetIndex Limited's general trading account and is used for all of BetIndex Limited's users. Only trading deposits and withdrawals will be processed within this account. We have also put in place trust arrangements with our bank to ensure funds in this account are distributed to customers in the unlikely event of insolvency. This means that steps have been taken to protect your funds but that there is no guarantee that all funds will be repaid in the event of insolvency. This meets the regulatory requirements for the segregation of user funds at the level: Medium Protection.
11.3. However, once you have purchased Shares, the applicable value of your Shares have been ‘wagered’ and are not stored in any account or otherwise protected as they are sums at risk.”
Although the terms of use give the impression that deposits and withdrawals will be processed through the client account held under the terms of the trust, in fact such deposits and payments have in practice been made through BetIndex's general trading account. Instead, BetIndex carries out a regular reconciliation of client funds and, on a weekly or monthly basis, transfers an appropriate amount from its general trading account to the client account or from the client account to the trading account. The amounts to be transferred are calculated so that there is a buffer in the client account over and above the aggregate amount of the traders' cash balances at the relevant time. This ensures that, even though the transfers only take place periodically rather than on a daily basis, the amount in the client account would not fall below the amounts due to the customers (which would result in BetIndex being in breach of its licence conditions).
Due to BetIndex's financial position, it suspended the platform on 11 March 2021 and its licences were withdrawn. As part of this, BetIndex prevented traders from depositing any further funds, froze their ability to withdraw funds and prevented any further sales of shares between traders.
It is unnecessary for me to go into any detail about BetIndex's business model and the reasons for the administration order. One important point however is that, following the administration order, the contracts between the traders and BetIndex remain in place with the result that traders continue to be entitled to winnings in the form of dividends on an ongoing basis until the three year period of the share in the player which...
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Application Of Post Insolvency Funds?
...with the principles in Re Berkeley Applegate. Adrian Hyde, Richard Toone and Adrian Rabet (joint administrators of BetIndex Limited) [2021] EWHC 1542 (Ch) The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your ......
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Application Of Post Insolvency Funds?
...with the principles in Re Berkeley Applegate. Adrian Hyde, Richard Toone and Adrian Rabet (joint administrators of BetIndex Limited) [2021] EWHC 1542 (Ch) The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your ......