Priority status for electronic money holders

Electronic money institutions (EMI) differ from traditional banks as they cannot retain deposits of money nor pay interest. EMIs are governed by the Electronic Money Regulations 2011 (the Regs). The Regs were made to implement the EU’s Electronic Money Directive 2009/110. An EMI must safeguard the monies that its customers, called electronic money holders (EMH), pay to it in exchange for e-currency.

Ipagoo had failed to safeguard the EMHs’ monies per the requirements in regulations 20-22 of the Regs. 

The court held that even if the monies had not been safeguarded, an equivalent amount should be set aside from Ipagoo’s asset pool for distribution to the EMHs. The asset pool could consist of a mixture of EMH monies and Ipagoo’s other funds. The court held this protection was not by virtue of a charge nor a statutory trust but arose due to regulation 24 of the Regs. The Regs therefore modified the priority of creditor claims as set out in the Insolvency Act 1986.

The court relied on the decision in Lehman Brothers International (Europe) (In Administration), Re [2012] UKSC 6 (and Lord Dyson’s comments that regulations passed to implement a directive should be interpreted to give effect to said directive), for comfort that regulation 24 could override the priority rules in the Insolvency Act 1986.

Ipagoo LLP, Re (In Administration) [2021] EWHC 2163 (Ch)