London court rules against €6.6m `windfall' for MMI liquidator

A London court has ruled against the liquidator of MMI Stockbrokers in a court case which involved a potential windfall of £4 million sterling (€6.6 million) for creditors of the stockbroking firm.

The liquidator, Mr Tom Kavanagh, was trying to secure the windfall arising from the demutualisation of the London Stock Exchange.

However, the court ruled that MMI Stockbrokers ceased to be a member of the exchange in February 1999, the month Mr Kavanagh was appointed provisional liquidator.

Under stock exchange rules the firm was deemed to in default once a liquidator was appointed and therefore could no longer be a member. The liquidator argued that the exchange could remove membership but should not remove the single largest asset available to the company in trying to meet its debts. The asset concerned was the B share MMI held in the LSE.

The London Stock Exchange demutualised last year. Yesterday's ruling will come as a disappointment to MMI's creditors. Mr Kavanagh was given leave to appeal and will now consider such a move.

Mr Kavanagh took the case in the London High Court after the exchange decided MMI was not entitled to a payment, despite its former membership.

The exchange had nearly 300 members, including 13 in the Republic, when it demutualised and some became eligible for windfalls of many millions of pounds. When shares in the exchange started trading in July 2000, the exchange was valued at about £1.1 billion. Irish members of the exchange included W&R Morrogh, the collapsed Cork stockbroking firm.

The London case taken by Mr Kavanagh was heard a few weeks ago and lasted three days. It is the latest in a series of complex court hearings arising from the firm's collapse. Further hearings are expected in the autumn when a number of the firm's debtors are being sued by Mr Kavanagh.

Following the declaration that MMI Stockbrokers was in default, some parties owed money were allowed to try to collect unsettled debts directly from the parties they had done business with via MMI Stockbrokers. It is understood some £14 million may be at issue here and that there have been only a few successes. In some cases the matter is expected to end up in court.

MMI Stockbrokers was ordered to cease trading by the Central Bank in September 1998. The firm had been heavily involved in trading in Dana Petroleum shares and when the price collapsed from 24p sterling to 8p sterling it found itself in severe difficulties. In February 1999, when Mr Kavanagh was appointed as a provisional liquidator, the High Court was told the firm had liabilities of about £14 million. Its principal assets were its debtors.

Mr Kavanagh subsequently initiated fraud proceedings against the firm's directors, who strongly contested the charges. The case collapsed before it came to trial and may have cost creditors up to £1 million in legal fees.