Re: Customs House Capital (In Liquidation), [2019] IEHC 43 (2019)

Docket Number:2011 No. 219 MCA
 
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THE HIGH COURT[Record No: 2011/219 MCA] In the Matter of Custom House Capital Limited (in liquidation) and

In the Matter of the Companies Acts, 1963 – 2012

BETWEEN/

THE INVESTOR COMPENSATION COMPANY DACAPPLICANTAND

KIERAN WALLACE, OFFICIAL LIQUIDATORRESPONDENT

Judgment of Ms. Justice Finlay Geoghegan delivered on the 31st day of January, 2019.

Application

  1. The Investor Compensation Company DAC (“ICCL”) has applied to the Court to direct the official liquidator to bring an application for directions pursuant to s. 231 of the Companies Act 1963 or alternatively, to permit it to bring an application for directions in relation to a dispute concerning its claim to be entitled to be subrogated to the right (or certain of the rights) of clients of Custom House Capital (in liquidation) (“CHC”) to whom it has paid compensation (“a compensated client”) in relation to client assets still under the control of CHC or the liquidator.

  2. This application was heard following initial directions when the matter was mentioned by ICCL before the Court. There is no formal notice of motion as yet. The Court has had the benefit of written submissions on behalf of ICCL and the official liquidator and oral submissions from Counsel on their behalf. It also briefly heard from Counsel for Mr. Nugent, who was a client of CHC who has participated in many applications to date and who was notified by the liquidator that he is a client who would be potentially affected by the application sought to be made.

  3. By agreement, ICCL handed into court at the hearing a booklet which included the correspondence which has passed between the solicitors for the liquidator and ICCL in relation to the subject matter of this application since February 2018.

    Statutory Framework

  4. The Investor Compensation Act 1998 (as amended) (“the 1998 Act”) gives effect to Directive No. 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor compensation schemes (“the Directive”). The Directive obliges Member States to have an investor compensation scheme which, in accordance with Art. 2 thereof, requires cover to be provided for claims arising out of an investment firm’s inability to repay money owed to or belonging to investors or to return to investors instruments belonging to them, each in connection with an investment business. It is primarily aimed at small investors and requires a minimum cover of not less than €20,000 for each investor in respect of claims covered and permits, subject to this minimum, Member States to impose a limit on compensation.

  5. Article 12 of the Directive provides:

    “Without prejudice to any other rights which they may have under national law, schemes which make payments in order to compensate investors shall have the right of subrogation to the rights of those investors in liquidation proceedings for amounts equal to their payments.”

  6. The 1998 Act established ICCL. Part III provides for the payment of compensation to investors in the amount of what is termed “compensatable loss”. This is defined in s. 30(1) as 90% of an eligible investor’s net loss or €20,000, whichever is the lesser. A “net loss” is defined in s. 30(1) as:-

    “‘net loss’, in relation to every client of an investment firm, means the amount of the liability of the investment firm in respect of—

    (a) money owed to or belonging to the client and held on behalf of the client by the investment firm in connection with the provision of investment business services by the investment firm, and

    (b) investment instruments belonging to a client of the investment firm, and held, administered or managed by that firm for the client, in connection with the provision of investment business services by that firm to the client, the value of those instruments being determined, so far as possible, by reference to their market value

    on the day of a determination made under section 31(3) or a ruling, as appropriate, which the investment firm is unable to discharge in accordance with the legal and contractual conditions applicable but shall not include—...”

    [The exclusions are not relevant to this application]

  7. Section 33A provides for the Court to appoint the person appointed as liquidator of an investment firm also as administrator for the purposes of the 1998 Act. Hence Mr Wallace, the official liquidator of CHC, is also the administrator for the purposes of the compensation scheme under the 1998 Act. As administrator, he is obliged pursuant to subss. 33(3) and (3A) to provide to ICCL a statement or interim statement specifying the names of eligible investors and either the net loss (if any) and the compensatable loss (if any) or, in the case of an interim...

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