Compensation fund forced to set aside €22m to repay CHC and IBRC investors
A compensation fund backed by the Central Bank has been forced to set aside €22.3m to repay hundreds of investors caught up in the collapse of Custom House Capital (CHC) and the liquidation of IBRC.
This year, the compensation fund set aside €2.6m to cover claims related to IBRC – far less than the amount related to CHC because ordinary savings held by IBRC were protected by the government-backed deposit scheme and other schemes.
Two years after the collapse of CHC, former clients have received €5.9m of an estimated €19.7m due in compensation from the Investor Compensation Company Limited (ICCL), according to accounts due to be published today.
ICCL is the statutory body set up to compensate eligible investors when an investment firm fails. It is financed from levies on regulated financial firms and its chairman and deputy chairman are appointed by the Central Bank.
Not all investors are automatically entitled to compensation. In its annual report the ICCL said it determined in April 2013 that no compensation was due to be paid to compensate people who lost money due to the closure of stockbrokers Bloxham last year.
CHC was ordered to be wound up in 2011 after High Court-appointed inspectors found evidence of "systemic and deliberate misuse" of €66m of clients' funds to cover shortfalls in European property investments.
Annual accounts released by ICCL show that claims relating to the collapse of CHC are still being processed.
Of €19.7m set aside last year to provide for the claims, only €5.9m has been paid out so far. Another €680,000 will be paid out by the end of this week.
"CHC is taking a very long time to reconcile," said ICCL chief operations office George Treacy. "A lot of this relates to the company's very poor record keeping, and the nature of the case – that assets were misappropriated – which means that, in some cases, records are false."
Delays also stem from the fact that claims must be processed via the administrator of the insolvent company – in this case Kieran Wallace from KPMG – rather than by investors.
After 10 years of calm, the collapse of Customs House Capital marked the start of a spate of claims for ICCL.
It was quickly followed by the failure of Bloxham Stockbrokers and the liquidation of IBRC.
The increase in compensation payouts did force the organisation to raise levies it charges to member firms. For investment firms, these will almost double over the next three years.
Its annual accounts also reveal that the number of investment firms and insurance intermediaries operating in Ireland fell significantly during the year.
"This is down to difficult trading conditions," said Mr Treacy. "Many smaller intermediaries have failed, amalgamated or been abandoned, while some larger investment firms and stockbrokers are now dealing with consecutive years of unprofitability."
The number of participants in its Fund A – which concerns larger investment and stockbroking firms – fell by 19pc to 194. The number of participants in Fund B – which relates to insurance and investment intermediaries – fell by 29pc to 4,081.