A group of stockbroking firms, which will have to meet multi-million euro demands for compensation by clients of the collapsed Cork stockbroking firm W & R Morrogh, have told the High Court they believe a claim for £1.3 million by Anglo Irish Bank against Morrogh should not be paid.
Some 2,500 claims have been made against Morrogh which collapsed in April 2001 with liabilities of some £12 million. Mr Justice Murphy is hearing an application by the firm's receiver, Mr Tom Grace, for a determination as to how its €6.2 million in assets should be allocated.
There are insufficient assets to meet the claims and stockbroking firms which are members of the Stock Exchange must contribute 50 per cent of the amount which the Investor Compensation Company will determine is payable to its fund to meet the claims. The figure is likely to total several million euro. The remaining 50 per cent will be funded by the other members of the fund.
In an affidavit filed on behalf of five stockbroking firms - Bloxham Stockbrokers Partnership, Dolmen Butler Briscoe Stockbrokers, Davy Stockbrokers, Goodbody Stockbrokers and NCB Stockbrokers - Mr Kevin McHugh, director of compliance and risk with Goodbody Stockbrokers, said the absence of documents about specific claimants meant the stockbrokers could only advance in general terms what they believed should be the general approach of the receiver.
The stockbrokers believed that property which belonged to identifiable investors should be given back to those investors. Where it was not possible to link particular property to an investor, it was likely the remaining property would be capable of being grouped into pools and allocated rateably against the claims of those clients, he said. Other property or cash to hand might also be pooled in pools of appropriate designation.
Mr McHugh said the claimants would have a proprietary claim to the assets in the pool but the assets would be less than the claims. All other property in respect of which no proprietary claim could be advanced, should be amalgamated into a pool for the benefit of investors who had sustained losses that could not be met by proprietary claims against defined assets.
In dealing with clients who are entitled to stock which is no longer available, the stockbrokers said the receiver has the power to manage the failed entity in the manner most advantageous to that entity. The receiver could purchase stock in the market with cash available to him from the receivership and return that stock to the original owning clients. Only investors should be compensated.
In light of that reasoning, and for other reasons, the claim by Anglo Irish Bank against Morrogh, which is on foot of a loan made personally to Mr Stephen Pearson, one of the two partners in Morrogh in April 2001, should not succeed, he said.
The stockbrokers also argued that provisions in the Investor Compensation Act regarding the late admission of claims should be strictly construed.
Mr McHugh's affidavit was read to the court by Mr Paul Gardiner SC, for Mr Richard Noel Gleeson, a retired engineer, with an address at Glounthaune, Co Cork. Mr Gleeson is a client creditor of Morrogh and has been appointed to represent the interests of clients with claims against the client accounts of the firm who contend the funds held in the client accounts should be distributed rateably as between all the claimants to such funds.
Mr Gleeson also represents the interests of clients who are arguing all of the assets of the firm, and not just the funds in the client accounts, should be pooled for the purpose of distributing them rateably between all of the claimants.
The hearing continues today.
