-Difficulties ongoing since 2010
The Central Bank had been made aware in 2010 of difficulties at Berehaven Credit Union, which was founded in 1978, counsel for the Central Bank, Patrick Gallagher, told the High Court yesterday.
Mr Gallagher said a report revealed irregularities with the credit union’s corporate governance, relating to its lending practices and reporting irregularities. There was a concern loans to connected parties were not being reported properly to the Central Bank’s Registry of Credit Unions (RCU).
Arising out of the report, the RCU sought and obtained resignations from the board of Berehaven Credit Union in November 2010.
Mr Gallagher said that, since then, the Central Bank sought to correct the serious problems identified in the report. The RCU issued a number of directions to the credit union, including that it should limit its lending, limit the investments it could make, capping expenditure on fixed assets and capping the maximum savings a member could make.
In addition, counsel said Berehaven Credit Union was directed by the Central Bank to restore its Regulatory Reserve Ratio (RRR) to the required 10%, which it has failed to do. The RRR is the amount held in a credit union’s reserves as a percentage of its total assets. Mr Gallagher said BCU’s current RRR is at -3.8%.
Counsel said Berehaven Credit Union required €1.3m in additional capital to comply with the €10% RRR requirement, which it has been unable to obtain. He said currently there is a net deficit in the credit union accounts of more than €50,000.
Due to the financial situation, attempts were made to see if business could be transferred to another credit union. However, this did not prove possible, Mr Gallagher said.
Another review conducted in early July highlighted very serious concerns regarding the high risk of corporate collapse arising out of the material corporate governance failures which had not been remedied.
The concerns included irregular lending practices, inadequate credit control practices and procedures, internal control weaknesses and weaknesses in respect of financial reporting.
Mr Gallagher said the report highlighted that Berehaven Credit Union is at an increased risk of a disorderly collapse that could lead to a run on deposits which could have serious implications for the credit union sector as a whole.
While everything possible was done to allow the credit union rectify the situation, it was difficult to see how it could raise enough capital to allow it comply with its regulatory obligations.
While Berehaven Credit Union is able to meet its day-to-day obligations, the Central Bank did not see the problems being resolved, and the situation may deteriorate.
Given that all the options have been exhausted, the Central Bank thought it essential to deal with the situation as a matter of urgency. Liquidation, counsel said, was deemed the best option.
Mr Justice Kearns appointed insolvency practitioners, Jim Hamilton and David O’Connor, of BDO Ireland, as provisional liquidators.
The judge adjourned the case for a week.
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