The news came to light after the UK regulator, the Financial Conduct Authority (FCA), refused to authorise a new business set up by Strabens Hall directors Adam Benskin and John Halley.
The regulator said Benskin and Halley’s application to create a new company called Independent Family Advisers (IFAL) had all the “hallmarks of phoenixing”, a widely used administrative tactic of setting up a new firm to allow company directors to escape personally footing the bill for a failed firm’s liabilities.
Strabens Hall is currently facing up to £1.05m of liabilities to eight customers who complained to the Financial Ombudsman Service (FOS) about advice to invest in the unregulated Connaught Income Series 1 Fund. The firm invested a total of £7.9m in the beleaguered fund.
In its application to the FCA, Benskin and Halley admitted that Strabens Hall is facing bankruptcy. The pair wanted permission for IFAL to acquire the firm – including its assets, staff and clients – so it could pursue an ongoing legal dispute with its professional indemnity (PI) insurer, which has so far cost the firm £100,000.
Although it expects to lose the case, Benskin and Halley said in their IFAL application that a win agains their PI insurer would fund the compensation to clients ordered by FOS, rather than having the Financial Services Compensation Scheme (FSCS) pick up the tab.
“It lacked an appropriate recognition of the gravity of the anticipated circumstances of Strabens Hall’s failure and the consequences it could have for consumer creditors.”
However, if the buyout was authorised it would also mean IFAL would not have to pay the firm’s anticipated liabilities.
Not 'fit and proper'
Describing IFAL as not “fit and proper”, the FCA accused the directors of undermining “public confidence” in the compensation system operated by the FOS and the FSCS.
“It also lacked an appropriate recognition of the gravity of the anticipated circumstances of Strabens Hall’s failure and the consequences it could have for consumer creditors,” the regulator said in its final note.
Strabens Hall was not available for comment.
Hong Kong office
In early 2015, the company expanded its UK business by setting up a majority-owned operation in Hong Kong.
In an exclusive interview with International Adviser in November last year, the firm’s Hong Kong director David Benskin said the office charged a RDR-style fee servicing an average client that has over $10m in assets.