THE CENTRAL Bank has secured an unprecedented High Court order appointing a special manager to manage the entire business of Newbridge Credit Union amid serious concerns about its financial position.

Those concerns arose following draft financial statements for 2011 indicating the credit union does not hold the reserves required under the Credit Union Act and considerable uncertainty about its true financial position, the court was told.

The president of the High Court, Mr Justice Nicholas Kearns, made the special management order yesterday evening after being told by Paul Gallagher SC, for the Central Bank, it was being sought with the agreement of the Minister for Finance and was considered to be in the interests of depositors. The credit union has about 37,000 members, the court heard.

The intention was that it would be “business as usual” following the appointment of Luke Charleton of Ernst Young as special manager, counsel said. The bank believed the order would facilitate the reorganisation of the credit union, restore its financial position and provide reassurance to depositors.

The application to the court, made on an ex parte basis (one side only represented), is the first of its kind made under the relevant provisions of the Central Bank and Credit Institutions (Resolution) Act 2011. The order was made under section 58 of the Act.

Asked earlier by the judge why the order was considered necessary, Mr Gallagher said the bank had identified serious issues regarding the financial situation of Newbridge Credit Union with draft financial statements for 2011 showing the credit union did not hold the regulatory reserves required under the Credit Union Act and its position had deteriorated.

The fact that the 2011 annual general meeting of the credit union, usually held before December 31st of the relevant year, had not yet been held had also heightened concerns about its position, he said. The board had failed to address the concerns in a timely manner, the court was told.

The true financial position of the credit union, one of the larger credit unions in the State, had yet to be identified, counsel also said.

In correspondence with the bank read to the court, the board of the credit union disputed there was a need to appoint a special manager and said it failed to see how there could be the alleged uncertainty about the credit union’s financial position. No issues had been raised by its auditors and it had a business plan, the board said.

The board also said it was dismayed at the bank’s proposal and it had put measures in place to address the situation at the credit union. It said allegations of regulatory breaches were unreliable and also sought a meeting to discuss an alternative to the proposed special manager appointment.

Following the making of the order, Mr Charleton is appointed with immediate effect. He will review and report to the Central Bank within one month on the credit union’s loan portfolio, with particular emphasis on arrears, provisions and security, with a view to ascertaining the financial position.

Mr Charleton will also develop a plan to restore the credit union’s financial position, considering all available options, However, any decisions on acquiring assets of the credit union, its winding up or on holding annual general meetings or extraordinary general meetings will be taken by the Central Bank.

Mr Charleton will be paid €423 an hour, while his assistants will be paid remuneration ranging from €150 to €423 an hour.

The court heard the governor of the Central Bank had written to the credit union on January 9th last stating he believed a special manager should be appointed having reviewed the contents of a report of Anthony McKeon, head of the prudential analytics and resolution division of the bank, concerning the credit union.

Under the 2011 Act, the board had 48 hours to make submissions about that proposal but, having considered its submissions, the governor still believed the order was necessary, the court heard.

Mr Gallagher said Newbridge Credit Union had a history of regulatory breaches and the bank believed the board was not capable of taking the necessary action to address the situation in a timely manner. The bank believed an immediate and urgent intervention by a suitably qualified and experienced person was necessary to address the deteriorating position.

Problems identified by Mr McKeon in his report included inappropriate lending practices, the court heard.