Progress into the liquidation of Custom House Capital has been significantly delayed by a technical legal issue, which has effectively tied the hands of the State’s investor fund to compensate impacted investors. It means that nine years after the broker was found to have misappropriated about € 61 million from customers, the majority of potential claimants are still awaiting compensation.
According to the Investor Compensation Company (ICCL)'s annual report published on Friday, the State's investor compensation fund didn't certify any claims related to the collapse of Custom House Capital (CHC) in the 12 months to July 31st, 2020, with about 1,400 claims, or 70 per cent, awaiting validation by the liquidator.
So far, the ICCL said it has forwarded 1,982 claims to the administrator, and paid compensation of €7.4 million on foot of the certification of 574 claims, or an average €12,891 per claim. It is expected that total compensation for the case won’t exceed € 19.7 million.
Progress
The ICCL said progress has been impacted due to a court hearing on a technical legal issue put forward by the liquidator, Jim Wallace of KPMG, around the area of subrogation, and the ICCL's rights in this regard. Subrogation involves claiming the legal rights of another that it has reimbursed for losses.
As the liquidator has maintained that certification of CHC claims can’t be progressed until the issue is resolved, the ICCL sought judicial adjudication to determine the scope of its statutory right of subrogation in December 2019 . However, this ruling has been delayed due to the impact of Covid-19 restrictions on the courts.
Chairwoman Jane Marshall said the delay in the largest compensation event to affect the ICCL "remains a source of regret".
“I very much hope that progress can be achieved early in 2021 to facilitate the settlement of outstanding compensation claims,” she said.
It’s a frustrating position for the ICCL, given, as Ms Marshall said, it has been operating on the same basis for 20 years, and also for the investors, who are still waiting to receive their claims.
“Once they’re certified, we can pay each verified claim within two weeks,” Ms Marshall said, adding, “But we have been waiting, waiting, waiting”.
Elsewhere, the ICCL said that no new compensation cases arose in the past year.
Established in 1998, the ICCL is a statutory body that offers compensation to eligible clients of failed investment firms. It pays up to 90 per cent of the amount lost, subject to a maximum of €20,000, to each investor, and is funded by levies from its 3,100 or so members.
Overview
The ICCL also said the liquidation of Money Markets International Stockbrokers Limited (MMI), which dates from 1999, is ongoing. The ICCL said compensation of over €775,000 was certified and paid to 313 clients, the most recent payment back in 2008.
Overall, the fund reported a surplus for the year ending July 31st 2020 of €3.5 million, down by €803,000 on 2019. Investment firms participating in the scheme paid levies of €5.8 million, or 99.7 per cent of the total amount due, with 4.9 million coming from larger investment firms (such as banks, asset managers and stockbrokers) and €0.9 million from smaller investment firms, including insurance brokers, retail intermediaries and accountants.
Accumulated reserves stood at €65.2 million at year-end, and have since risen to €69.8 million. The ICL has capacity to deal with claims from affected investors of some €219 million, without the need for the imposition of top-up levies on contributing investment firms.
Ms Marshall said that the renewed “strong support” for the scheme from the investment firm sector, as evidenced by the high level of annual levy payments, has enabled the ICCL “to buttress its funding capacity in the past year”.
“This commitment is laudatory given the current very challenging and uncertain environment being experienced by investment firms and the wider economy,” she said.
