InvestmentsApr 26 2017

Connaught advice row court case is scrapped

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Connaught advice row court case is scrapped

An advice firm embroiled in a legal battle after it was accused of not paying compensation due has dropped its court case, because its insolvency practitioner decided against it.

An ombudsman had ruled that Devonshire Asset Management, which is now in liquidation, was wrong to advise a client to invest in Connaught and ordered the company to calculate whether the client had lost out and – if he had – to pay him back.

But the adviser and his client disputed the amount which needed to be paid and the matter ended up in court.

Devonshire had paid only £300 to the client but in November a county court judge ruled that it should pay £56,800.

The firm had intended to appeal the decision. But now the firm's insolvency practitioner has decided against this course of action.

Omar Salam, the company’s director, said: “The insolvency practitioner did not see any value in appealing the courts initial recovery order as it would further reduce funds due to creditors (and also reduce his own fees).

“I believe that the initial recovery order was issued by the court based on inaccurate and misleading information with certain key facts being withheld from the court.

“I have also been legally advised that the Form COT3 used to request the initial order was incorrect and not fully completed.

“The only way to prove this would be through litigation that the insolvency practitioner does not wish to enter.”

Mr Salam has insisted he calculated the compensation according to the ombudsman’s guidelines and has said the client did not accept the ombudsman’s ruling within the timeframe.

He said that only £20,000 of the original £99,000 investment went into Connaught and that even if this was valued at nil, the whole portfolio would have made a positive return.

But Philip Milton, the client’s current adviser, has said the compensation should be calculated on the basis of the single Connaught investment rather than the whole portfolio.

Mr Milton said: “For the client this means that he has not been paid and will be approaching the Financial Services Compensation Scheme direct.

“The Financial Services Compensation Scheme will have to declare Devonshire Asset Management in default and then claims will be open.”

According to a letter seen by FTAdviser, The Insolvency Service is looking into what happened with Devonshire but a spokesman for the service said this happens in all liquidation processes.

damian.fantato@ft.com