The High Court ordered Custom House Capital Ltd (CHC) wound up with immediate effect in the public interest, appointing Kieran Wallace as liquidator after inspectors found the company was insolvent and had misused client funds on a widespread basis.
In a judgment delivered on 28 October 2011, Mr Justice Hogan said the inspectors estimated the misuse of funds at about €66 million. They concluded that CHC could not pay its debts as they fell due and that its recoverable assets were worth less than its balance-sheet liabilities.
The inspectors’ report, delivered to the court on 19 October, described systematic misuse of client money, false accounting and other serious misconduct. Hogan said the company did not dispute the inspectors’ findings and conclusions. A separate confidential report about matters that might indicate criminal offences was sent to the relevant authorities. The judge said he would make no further comment on possible criminal liability at that stage.
CHC had been authorised to provide asset, portfolio and investment management and pension advisory services. It acted as promoter and investment manager for CHC Investment Property Funds plc. The judgment said CHC had about 1,500 clients, most living in Ireland. Its core business involved buying investment properties, mainly in France, Switzerland and Germany. Some investors, the inspectors found, did not know their cash was being used for property investments; in other cases, funds from accounts with positive cash balances were used to meet redemption payments due on other accounts.
Investors’ counsel urged the court to wait about two weeks so clients could read and consider the report. Hogan acknowledged that submission but found the circumstances required immediate action. He said winding up was in the interests of creditors as a whole and would protect assets and ensure payments to creditors were made according to law.
The judge distinguished the case from an earlier National Irish Bank decision, citing the inspectors’ request for liquidation, CHC’s lack of systemic importance to the financial system, and the risk of a disorderly collapse and unequal repayments without court-supervised protection. He described features of CHC’s later trading as resembling a Ponzi scheme, while noting that CHC had also engaged in legitimate trading and that investors were not promised or expecting implausibly high returns.
The order followed an earlier appointment of two inspectors on 15 July 2011 and the publication, on 21 October, of a redacted version of their report. The redactions were intended to protect investors’ identities and bank account details.