Most Custom House Capital investors to be compensated by end of next year

The "vast majority" of investors impacted by the liquidation of Custom House Capital (CHC) a decade ago are expected to be compensated by the end of next year following the resolution of a legal issue, which had effectively tied the hands of the State's investor fund when it came to paying out.

The Investor Compensation Company (ICCL), which published its annual report on Friday, is a statutory body that offers compensation to eligible clients of failed investment firms.

CHC is the largest failure of an investment firm dealt with to date by the ICCL. The liquidation of the firm commenced in October 2011 and almost 2,000 claims for compensation were received by the ICCL from clients of the firm.

The delay has meant that a decade after the broker was found to have misappropriated about €61 million from customers, the majority of potential claimants are still awaiting compensation.

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According to the ICCL’s annual report, the State’s investor compensation fund didn’t certify any claims related to the collapse of CHC in the 12 months to July 31st, 2021, leaving 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 will not exceed €19.7 million.

Technical issue

Progress had been impacted due to a court hearing on a technical legal issue put forward by the liquidator 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 had maintained that certification of CHC claims could not be progressed until the issue was resolved, the ICCL sought judicial adjudication to determine the scope of its statutory right of subrogation in December 2019.

In a judgment issued in October, the High Court ruled that the liability of an insolvent investment firm to return assets to clients and the calculation of compensatable loss must be determined as at the start of the liquidation of the firm.

Any subsequent recoveries and distributions of client assets are “not relevant to that calculation”. Furthermore, the ICCL’s right of subrogation under the Act is limited to the investment firm’s own assets.

ICCL said these “important court decisions” have enabled the recommencement of the certification of claims and the associated payment of compensation to clients of the firm.

Since the judgment was received, the ICCL has been engaging with the administrator to ensure the claims certifications/payment processes are advanced.

The ICCL has received more than 200 certified claims and is validating these claims “as quickly as possible”.

To date, the ICCL has paid out more than €300,000 in compensation to eligible investors. It is anticipated that the “vast majority” of the remaining claims will be certified and paid in 2022.

Separately, the ICCL’s annual report shows it grew its reserves by more than 26 per cent last year as it shrugged off “persistent challenges” stemming from the Covid-19 pandemic.

It recorded a surplus for the year to July 31st, 2021, of €17.3 million, which was an increase of €13.8 million on the previous year.

Risk equalisation

The increase was mainly attributable to receipts of risk equalisation levies. This boosted the company’s accumulated reserves to €82.5 million, up from €65.2 million in 2020. The group said no new compensation cases arose during the past year.

ICCL chairwoman Jane Marshall, said: “Despite the persistent challenges stemming from the impact of the pandemic, the ICCL’s operations continued without undue disruption in the past year.

“The recent comprehensive High Court judgment in the Custom House Capital case has brought necessary clarifications for how the compensation scheme should operate in this and future compensation cases.”