The High Court has directed that money remaining in pooled bank accounts connected with Custom House Capital be distributed pro rata, after rejecting the “first in, first out” rule in Clayton’s case. It also directed that recovered misappropriated money be pooled and returned rateably to the accounts and funds from which money had been taken.
In a judgment delivered on 26 July 2017, Ms Justice Finlay Geoghegan was dealing with an application by the company’s official liquidator for directions in the court-supervised winding up. The application concerned how to distribute pooled funds, how to distribute any recovered misappropriated money, and whether liquidation expenses could be charged against client assets under the MiFID Regulations.
The judgment said about €6.5 million was then available in 11 pooled bank accounts, with approximately €145 million to €150 million in pooled assets overall. The court noted that the accounts had very different numbers of clients and transactions. One account held about €5.7 million for 1,050 clients and had more than 42,000 transactions.
The judge concluded that clients’ equities in the pooled bank balances were equal. She found that Clayton’s case distribution would not be just or convenient in the circumstances, while the lowest intermediate balance method would be impractical and costly. Pro rata distribution, based on each client’s claim on the account, was the fairest workable method. The court also rejected distribution according to CHC’s Unity records, saying wrongful debits had been assigned arbitrarily and without disclosure to clients.
For money recovered from property funds, special purpose vehicles and other destinations, the court chose the liquidator’s “Recovery Option 2”. Recovered sums are to be pooled and allocated to the relevant accounts, unit trusts and funds in proportion to their total misappropriations. The court said clients should not receive different treatment simply because their money had been transferred to a fund that later performed better or worse.
The direction applies only if and when the liquidator receives a payment from a fund or special purpose vehicle in respect of misappropriated money. It does not authorise or require the liquidator to sell property or take particular steps to procure a recovery. The judgment also excluded possible recovery of certain Mezzanine Bond advances from its direction and stated that it did not apply to claims by the Beades or O’Callaghan Trusts.
On liquidation expenses, the court made a conditional declaration: if CHC’s own assets are exhausted, the liquidator may later seek recourse against recovered misappropriated money for reasonable expenses of necessary reconciliation, recovery and distribution work. The declaration did not set an amount or percentage; both were left for a future application. The liquidator was directed to keep a separate record of those expenses. The court said it would hear the parties on further consequential orders and costs.