Custom House Capital director gets longest ever disqualification

The longest disqualification in the history of company law was handed down yesterday against a director of a collapsed investment firm found to have misappropriated €66.5m in client funds.

Two other directors of Custom House Capital (CHC) were also given lengthy disqualfications by the High Court from acting as directors of firms. Mr Justice David Keane said former chief executive Harry Cassidy should be disqualified for 14 years, the longest ever handed down.

Investment director John Whyte received a ten-year disqualification while non-executive director John Mulholland was banned for 12 years.

Mr Justice Keane said the appropriate disqualification period should be 15 years but he reduced that in each case to take account of mitigating factors. He said the conduct of all three was “deeply dishonest, continued over a protracted period of time until, for a variety of reasons, it could no longer be concealed.”

The case comes back in the New Year for costs and to allow Mr Mulholland apply to have his disqualification period backdated.

CHC was liquidated in 2011 after a High Court-appointed investigation by two Central Bank inspectors found the “systemic and deliberate misuse” of clients’ money, the majority of which represented transfers to syndicated property investments. CHC liquidator Kieran Wallace subseqently sought the disqualification orders.

Mr Cassidy was not represented in the case and had written saying he was not contesting the liquidator’s evidence. Mr Mulholland accepted he had failed in his corporate responsiblity but asked for a restriction on involvement in a company rather than a disqualification. Mr Whyte opposed the application.

Bernard Dunleavy, counsel for the liquidator, said the findings in the Central Bank report had not been challenged by any of the three. That report found CHC had improperly transferred funds of some €56.1m.

It separately invested around €10.4m in a fund of its own creation known as the Mezzanine Bond Fund without informing clients and while furnishing misleading information to both the clients and to the Central Bank.

CHC committed itself to a number of property projects and placed deposits in advance of securing the required equity from prospective investors, the inspector’s report said.

When the property crisis emerged in 2007, CHC found that expected investment was not forthcoming. In fear of loss of the initial deposits, and of damage to reputation, CHC sought to cover investment shortfalls through the creation of products such as the Mezzanine Bond and eventually through misuse of client holdings.

The inspectors found “systematic and deliberate misuse of assets and cash belonging directly or indirectly to clients”.

In his disqualification application, the liquidator also presented evidence of wrongful payments of “commission”, failure to keep books of account and undisclosed profits.

Mr Justice Keane said Mr Cassidy and Mr Mulholland made undisclosed profits in the form of authorised “commission” payments from client funds totalling €2.3m. The court heard this was without the knowledge of Mr Whyte.

The judge was satisfied all three directors had been guilty of a fraud on the company, or on its creditors, or both.


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