IFA forced into administration due to £1.5m Arch liabilities

IFA Willow Financial Management has been driven into administration over its £1.5m liabilities in Arch Cru but has been bought back by its directors for £40,000.

The statement of the joint administrator’s proposals revealed the group started to encounter problems in 2012, following the withdrawal of the Arch Cru funds.

Then regulator the Financial Services Authority found the fund was making high risk investments, despite being marketed as low-risk, and suspended it in March 2009,

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In March 2012, the FSA ruled that advisers who had recommended the product were liable as each firm was responsible for its own due diligence.

Last year, the FSA launched the Arch Cru consumer redress scheme which kicked in on 1 April 2013. This scheme requires existing advisers to contact clients within one month to give them the opportunity to ‘opt in’ and have their case reviewed.

The joint administrator said that Willow expected a “significant number of claims”, amounting to £1.5m, and the “potential financial burden to repay investors would leave it exposed to significant current and future claims”.

This is in addition to two former clients who put claims against Willow into the Financial Ombudsman Service. The Fos ordered the group to pay combined compensation of £70,000. The report said that Willow did not have the funds to pay this and believed that insolvency advice was required.

In total the firm owes £1.6m to creditors, including the £1.5m Arch Cru liability and a £23,000 tax bill to HM Revenue and Customs.

According to Companies House, Willow is now in administration but former partners Ian Morris, Peter Holden and Calum Cameron have bought the business, ongoing client remuneration and the company’s physical assets for £40,000, under two new firms My Wealth Management Limited and Dynamic Wealth Limited.

Each FCA-registered firm has purchased 50 per cent of the assets listed.

Gillian Cardy, managing director of trade body IFA Centre, has been spearheading a campaign to hold Capita Financial Managers, Arch Cru’s authorised corporate director, to account for its part in the failure of Arch Cru.

The legal action is being taken by Harcus Sinclair against Capita Financial Managers on behalf of investors in the fund seeking compensation in respect of their losses arising from the suspension and other failings in the management of the funds, Ms Cardy told FTAdviser.

Last year the regulator issued a public censure against Capita Financial Managers for its failings in relation to the CF Arch Cru funds, but the group was not fined due to capital limitations.

Capita has maintained throughout that it it is not ultimately responsible for the failure of the funds after it stepped in to suspend them in March 2009.