Registrar warned credit union board about £27m ISIS liability

The Registrar of Friendly Societies warned last year that members of the board of the Irish League of Credit Unions (ILCU) could end up liable for losses arising from the disastrous £27 million (#34 million) ISIS project.

The registrar also complained to the board that criticisms he had made concerning the ill-fated project to a league committee were not passed on to the full board.

The registrar supervises organisations such as building societies, co-operative credit unions and trade unions. Copies of correspondence between the registrar and the league, released under the Freedom of Information Act, show a difficult relationship.

In May 2000, the registrar, Mr Noel Martin Sisk, wrote to the league president Mr Jim McMahon saying he was, "to say the least, surprised" to learn that comments he had made to the league's administration committee earlier in the year had not been passed on to the full board. He asked that the contents of his letter be brought to the board's attention.

Mr Sisk said he had raised the ISIS project with the committee in February, in particular the use of funds from the league's Savings Protection Scheme, which he considered imprudent. He then quoted from a minute of the meeting which stated the registrar expressed "serious concerns".

"He was of the view that it was not prudent for savings protection scheme monies to be lent, bearing in mind the reasons for which the SPS fund was established." At a further meeting with the committee in April, Mr Sisk again raised the ISIS project and the position of ILCUTECH Ltd, a company owned by the league, which ran the technology project. Its directors include league board members and representatives of some credit unions.

The minutes, quoted in Mr Sisk's letter, read: "The registrar expressed ongoing concern in relation to ILCUTECH and its future . . . Company law requirements exist and reckless trading should not be comtemplated. Board members could end up being personally liable.

"Under the Companies Act 1990, if a board were knowingly aware of serious financial difficulties in the company and if the company collapsed, the liquidator could go after the directors of the company on the grounds that they continued to trade even though they were aware of the financial difficulties and implications."

Mr Sisk told the meeting that in such a situation the ILCUTECH directors would certainly be liable but that he was unsure what the position of the directors of the holding company, ILCU Holdings, would be.

"Finally the registrar indicated that it seemed to him that if ILCUTECH ultimately collapsed, the ILCU itself would be in serious difficulty." In his letter, Mr Sisk said affiliated credit unions stood to lose £22.5 million in the event of the collapse of the ISIS project.

Mr Sisk said that during the league's annual general meeting in Belfast a month earlier, Mr McMahon had made the point that the savings protection scheme is owned by the Credit Union movement and not by the registrar. This was factually correct. "However, the expenditure of funds out of the SPS, which funds are actually owned by credit unions, is my business as statutory regulator of credit unions."

He said he would require notification if any credit union was to loan funds towards the ISIS project. The use of SPS funds for the project was "fundamentally imprudent", he said.

In a letter to Mr Paul Appleby, a principal officer with the Department of Enterprise, Trade and Employment in July 2000, Mr Sisk said the league board and ILCUTECH were "initially slow to discuss their difficulties with me".