Vol 4 (2007) - Issue 1

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Farepak Food and Gifts Ltd

Introduction
On 15 December 2006, Mr Justice Mann heard an application for directions by the administrators of Farepak Food and Gifts Ltd (‘the Company’). The application turned on whether certain monies held by the administrators were held on trust for the customers who had provided them and how, if at all, these monies should be distributed. The administrators felt that if customers were entitled under some trust, then those monies should be paid to them to be enjoyed during the Christmas period. The matter was argued in one day under heavy media scrutiny.
Background
The Company operated a Christmas savings scheme under which customers could spread their Christmas savings over the year. Customers would place orders through a system of Agents for vouchers, hampers and gifts. Agents were typically colleagues, friends or family, and would collect and forward customer monies.
Each of the 26,000 Agents would usually have no more than 6 or 7 customers. The Agents were responsible for distributing the vouchers, hampers and gifts to customers. The Company did not keep details of the customers, other than for marketing purposes, which meant that their records were neither accurate nor complete. The Company’s dealings were almost entirely with the Agents.
During mid-2006 the Company’s parent company came under financial pressure. The Company ceased trading on 11 October, with administrators appointed on 13 October. In the three days leading up to administration the directors sought to ring-fence monies received during that period to protect them from the general creditors. A deed of trust was executed, though it was later found to have identified the wrong bank account.
The administrators’ application had previously come before Mr Justice Briggs, who had ordered the joinder of HM Revenue and Customs (to represent unsecured creditors) and a customer (to represent customers generally).
The administrators primarily sought directions on whether:
1) monies paid by Agents to the Company whilst it continued to trade were held on trust for Agents and/or customers;
2) monies paid by Agents and credited to the Company’s current account after it ceased trading on 11 October were held on trust for Agents and/or customers;
3) monies transferred into various accounts of the Company both immediately before and after the commencement of the administration were held on trust for Agents and/or customers.