Failed broker sees client assets plummet by £13m

London-based broker and small-cap equity dealer City Equities has entered administration and seen its client assets fall from more than £20m to approximately £7m since 2012, FTAdviser can reveal.

A special administration order in respect of City Equities Ltd was granted on 16 October during an out of hours hearing after the directors made an urgent application on the same day, special administrators UHY Hacker said. It added that Bird & Bird have been appointed adviser to the administrators.

FTAdviser revealed last month that City Equities could trigger a wave of compensation claims after a section 166 skilled persons report ordered by the regulator found that it needed an immediate cash injection of £1.1m to enable the firm to meet capital requirements for more than 12 months.

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The special administration application was made following previously unsuccessful attempts to recapitalise City Equities under the FCA’s capital adequacy rules.

Joss Hargrave, partner and head of Bird & Bird’s UK restructuring and insolvency group, told FTAdviser that City Equities surpassed this order and managed to raise £1.25m. However, Mr Hargrave added that the capital that was raised is “no longer available... in full” and that this is something the administrators are “looking into”.

Mr Hargrave said: “The only option was a wind-down as the directors were not able to rectify issues the FCA raised.”

The S166 report stated the firm has no “competence framework” or up-to-date job descriptions against which to assess new directors, senior managers or key roles it may seek to recruit, and nor does it have a competent CF11.

Mr Hargrave said that City Equities has approximately £7m in client assets. In 2012, client assets amounted to a little less than £20.2m and in 2011 £27m in 2011. Mr Hargrave added it was thought the £13m drop in the last year would be accounted for by monies returned to clients as part of normal trading and also as part of the wind-down plan.

When asked whether it is likely investors will receive the full £7m that remains, Mr Hargrave said it was “too early to say” but added: “Clearly we are working towards a goal of returning as many client funds as possible”.

In its 2012 accounts, seen by FTAdviser, City Equities posted a loss of £1.48m for the year ending 30 November 2012, compared to a loss of £542,728 in the previous year.

The firm’s directors were previously thought to be looking for buyers. Marcus Cumberland, director of Ikon Capital Ltd, said he was approached to buy the firm but that the deal fell through.

The special administration order is only the fifth such order to have been made since the Investment Bank Special Administration Regulations 2011 came into force in February 2011, according to Mr Hargrave.

City Equities is still listed as being ‘active’ on Companies House. It is also still authorised according to the FCA register, however its permissions were varied on 17 September to state that it must not “without the prior consent of the FCA, in any way dispose of, deal with or diminish the value of any of its assets”.