A collapsed investment firm’s failure to maintain proper accounts has made it difficult, and in some cases impossible, to determine where some €56m in misappropriated client funds has gone, the High Court has been told.
The liquidator of Custom House Capital (CHC) says the conduct of its affairs by its chief executive and two other directors was such as to warrant all three being disqualified for a fixed period from involvement in the affairs of any company.
CHC was liquidated in 2011 after a High Court-appointed investigation by two Central Bank inspectors found "systemic and deliberate misuse" of clients' money, the majority of which represented transfers to syndicated property investments.
The firm's liquidator Kieran Wallace has asked the High Court to make orders under Section 160 of the Companies Act which would disqualify the three directors for a fixed period from involvement in the affairs of any company.
The three are: chief executive Harry Cassidy, who was also a director until July 2011; investment director John Whyte and non-executive director John Mulholland. Mr Whyte and Mr Mulholland were both directors from 2001 until the liquidation.
Embezzlement claims
Among various claims, the court heard the liquidator alleges sums in excess of €2.3 million were embezzled for the benefit of Mr Cassidy and Mr Mulholland and this was done with the knowledge of Mr Whyte.
The court heard Mr Cassidy was not represented and had written saying he would not be participating in the case and was not contesting the evidence of the liquidator.
Mr Whyte is opposing the application.
Martin Hayden SC, for Mr Mulholland, said his client accepted he had failed in his corporate responsibility and had expressed his sorrow for what happened. Mr Mulholland sought that the court should impose a restriction order – under Section 150 of the Companies Act – rather than disqualify him.
A Section 150 order restrains involvement of a person with a company unless it meets certain capital requirements.
Opening the case, Bernard Dunleavy SC, for the liquidator, said the liquidation arose out of findings in the inspectors’ report which had not been challenged by any of the three.
The liquidator was required to bring restriction applications but had decided it was an appropriate matter to seek the disqualification of the three from directorships for a number of years, counsel said.
Independent investigation
The findings of the inspectors were confirmed in an independent investigation by the liquidator, counsel added.
They included that client money was wrongfully lent to a property development company and commission from those loans was paid to Mr Cassidy.
Sums of more than €2.3 million were embezzled for the benefit of Mr Cassidy and Mr Mulholland, counsel said. This was done with the knowledge of Mr Whyte, he added.
The failure of CHC to maintain proper books and records, which were kept in such a manner as to conceal what was going on, “rendered difficult, and in some cases impossible, the task of the liquidator of determining the destination of misappropriated client funds”, counsel said.
That had led to a situation where the losses of clients was greater than they otherwise would have been, counsel said.
It is also alleged Mr Cassidy and Mr Mulholland made substantial undisclosed profits from the company.
Mr Whyte made fraudulent representations to at least one client, a matter which has already been the subject of a High Court judgment, it is also claimed.
Mr Cassidy, although not the other two, failed to co-operate with the liquidation, it is claimed.
In his submission on behalf of Mr Mulholland, Mr Hayden argued the purpose of the Companies Act in relation to restriction/disqualification is to protect creditors rather than to punish directors.
The hearing continues before Mr Justice David Keane.
