Bloxham challenge revocation from ISE

The creditors of liquidated stockbroking firm Bloxham could get 40% of what they are owed, rather than 10%, if the liquidator wins his challenge to the Irish Stock Exchange’s decision to revoke its membership, the High Court has heard.

The firm’s largest creditors include National Irish Bank, owed €8.5m, and the Revenue Commissioners, owed €2.3m.

Liquidator Kieran Wallace claims the decision of the Irish Stock Exchange Ltd (ISE) to revoke the membership cost Bloxham €6m, was not made for proper purposes or for the benefit of the company as a whole, and should be set aside as null and void.

His counsel Lyndon MacCann said the revocation had to be seen against the background of ‘Project Chrysalis’ under which the ISE was planning to restructure so as to allow corporate members benefit from its €45m reserves.

The decision to revoke Bloxham’s membership in Dec 2012, when Project Chrysalsis was under way, appeared to arise from a view that, if Bloxham could be “got rid of”, there would be “a bigger cake” to be shared between a smaller number of firms, counsel argued.

Several major firms, including NCB Stockbrokers, Goodbody and Davy stood to benefit from the restructuring under which it was proposed to distribute some €28m excess capital from the reserves capital, the court heard.

The restructuring scheme envisaged rules under which, if any firm was forced out, its shares would be sold at fair value but the revocation of Bloxham’s membership did not involve any reflection of its interest in the ISE, counsel argued.

Bloxham was one of the oldest members of the London and Irish stock exchanges and had made a significant contribution to the reserves built up from the time the ISEL was established in 1995, counsel said. The ISE was originally intended to be a not for profit entity but the restructuring proposals arose because it had built up some €45m in reserves which were not distributable.

The ISEL management and board were actively engaged in progressing the restructuring throughout 2012 and management had taken the view the restructuring was “not just desirable, but essential,” counsel said.

He was opening the challenge by Mr Wallace aimed at overturning the revocation before Mr Justice Peter Charleton in the Commercial Court.

During his opening, Mr MacCann noted the revocation of Bloxham’s membership of the exchange arose after the Central Bank had in late May 2012 had suspended Bloxham from trading as a result of concerns about its financial position, from trading.

Mr MacCann said the partners in the firm were unaware that its capital position had been overstated in its accounts and they had relied on reports from Tadhg Gunnell, its former head of finance and compliance. When the partners learned the true state of the finances, that came as “a total shock,” he said.

Mr Wallace was bringing the action solely for the benefit of the firm’s creditors, counsel said. The €6m which Bloxham stood to gain from implementation of Project Chrysalis represented a difference between a 10% and 40% dividend, he said.

Bloxham, a limited partnership, was ordered to cease trading after it emerged it was undercapitalised. The partners later applied to have it wound up and the High Court subsequently confirmed the appointment of Mr Wallace. Based in Dublin’s International Financial Services Centre, Bloxham also had offices in Cork and Limerick, and more than 17,000 clients.

In his action, Mr Wallace claims the ISE, through its head of regulation, Daryl Byrne, failed to take into account relevant considerations in determining whether or not to exercise the discretionary power of revocation. It was also not given the right to be heard and make representations, it is claimed.

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