The liquidator of Custom House Capital has welcomed a court ruling last week that would lead to the Investor Compensation Company (ICCL) unlocking more than €12 million of compensation payments to former clients of the failed investment firm.
The ICCL filed an application with the High Court in late 2019 following a disagreement with the liquidator, Kieran Wallace of KPMG, over the extent to which it can be reimbursed for payouts to clients affected by the collapse of Custom House Capital a decade ago this month.
ICCL, established in 1998 and funded by levies from investment firms, had argued it was entitled to seek reimbursement – or pursue a subrogated claim – against not only the Custom House Capital assets but also certain client assets held by the failed company. It feared its clients might otherwise recover more than what they lost – amounting to “unjust enrichment”.
‘Oversimplification’
Mr Justice Mark Heslin rejected the ICCL's arguments in a 226-page ruling issued last Wednesday, saying the compensation company's submission "wholly ignores the materially important element" of how long clients of Custom House Capital have been deprived of their assets.
He said: “It is a complete oversimplification on the part of the ICCL to suggest that someone ‘lucky’ enough to receive, a decade after a winding-up order, their original investment and who has also received a compensation payment is ipso facto someone who has been ‘overcompensated’.”
While the ICCL has not yet said whether it will accept or appeal the ruling as it continues to review the contents, the liquidator told The Irish Times that he welcomed the decision.
“Hopefully it will lead to an acceleration of compensation to affected clients of Custom House Capital,” Mr Wallace said.
The ICCL had paid aggregate compensation of €7.4 million to 574 Custom House Capital investors up until 2019. However, the liquidator has been unable to certify any of the remaining 1,400 outstanding claims since then, because of the disagreement over the scope of reimbursement. The ICCL has a provision of €12.3 million ring-fenced for these individuals.
The ICCL can pay up to 90 per cent of an amount lost, subject to a maximum of €20,000, to each investor in the event that a Central Bank-authorised investment firm goes out of business and cannot return money to clients.
Jonathan Haynes, senior consultant at economics advisory firm Oxera, which was hired as experts on behalf of a group of investors affected by the case, said that the ruling will set a precedent for future investor compensation scheme cases in the Republic.
“The ruling highlights the importance of quick and speedy compensation payments,” he said. “The key objective of any investor compensation scheme is to maintain market confidence. If a compensation scheme is to be a success, it must pay compensation quickly.”
‘Real loss’
Mr Justice Heslin said investors “suffer loss” if they are not able to access their funds when a winding-up order of an investment firm is made.
“It is impossible for this court to calculate the loss which each and every investor has sustained, but it is fair to say that the evidence demonstrates that relevant investors have suffered a very real loss of this type,” he said.
“This is so, even if, a decade after the winding-up order was made, the investor in question ultimately receive their original investment (in addition to such payment of compensatable loss as they received at an earlier stage). In other words, based on the evidence before this court, it is not accurate to say that an investor who eventually gets their investment back a decade after a winding-up order suffered no actual loss and, thus, any compensation they received from the ICCL must be regarded as ‘overcompensation’ or ‘overpayment’.”
