Liquidators acting on behalf of the collapsed Connaught Income Fund Series 1 have been given permission by the High Court to pursue the fund’s ‘operators’ Capita Financial Managers and Blue Gate Capital Ltd for breach of duty.
In a hearing today (5 November) at the Royal Courts of Justice, Judge Mackie ruled that the fund could pursue a claim against the operators, as he told the defendants arguments over whether the action in this case was “necessary” were an “unpromising starting point”.
The ruling was procedural and based on a number of technical points of law as to whether the claimants were able to bring an action and did not consider the substance of the arguments.
The particulars of the claim allege that the two firms “unlawfully” promoted the fund to the investors, who became partners, and that they were “responsible” for promotional literature which was “misleading”.
Capita was the authorised corporate director of the fund from its launch in April 2008 until it removed itself from the role in September 2009, at which point it was succeeded by Blue Gate until being wound up in March 2012.
The fund, through the liquidators, is seeking compensation for losses sustained by “assigning” investors. Any recoveries made will be regarded as an “asset in the winding up” and will be distributed in accordance with the statutory insolvency scheme.
Capita and Blue Gate put forward a range of technical arguments as to why the claim should be nullified, including that it was brought under the fund’s revised name rather than the original legal title. It was rebranded from the Guaranteed Low Risk Income Fund series 1 in October 2009.
The case seemed to hinge on a technical point as to whether a claim could be brought by a dissolved entity that is no longer a ‘partnership’.
Capita said that the vehicle is not a partnership due to its insolvency, and that as investors had accumulated claims in a personal capacity, their case could not be brought through the fund.
Blue Gate added that the fund does not have a separate legal personality and is not “capable” of acting as legal assignee. It also argued the fund’s liquidators “acted outside” statutory powers granted in taking assignments on behalf of the fund.
The judge said: “The assessment of what is or is not necessary for the winding-up of the fund made by the defendants... is an unpromising starting point.”
A Capita Financial Managers spokesperson said: “Today’s judgment relates to an application brought by the fund’s liquidators on a procedural, technical issue between the fund and its operator and former operator. It has no bearing upon the substance of any claim.”
Earlier today, the regulator announced it would continue to “support” discussions seeking a negotiated settlement for investors in the Connaught Series 1 Fund until January 2015, after intensive talks through the summer failed to reach consensus.
Blue Gate were unable to comment at the time of writing.
donia.o’loughlin@ft.com
