The liquidator of MMI Stockbrokers believes he can prove wrongdoing by directors of the company, the High Court was told yesterday. Liquidator Mr Tom Kavanagh could not say at this point, however, whether he could recoup damages for MMI's creditors from that alleged wrongdoing, said Mr Bill Shipsey SC, for Mr Kavanagh.
Because of the alleged "extraordinary" change of position of a Jersey-based company, Cater Allen Nominees, towards the alleged unauthorised debiting of £1.9 million (€2.4 million) from its account and the alleged crediting of that amount to the benefit of two MMI directors - Mr Oisin Fanning and Mr John Curran - and some 20 people associated with these, it was not yet possible to pinpoint the loss and damage sustained via the alleged wrongdoing. Cater Allen was not acknowledging any indebtedness, counsel said.
In an affidavit, Mr Kavanagh said it would be necessary to investigate Cater Allen's position and the connections between it and Mr Fanning. Mr Fanning had indicated to the liquidator he had authority to trade on the Cater Allen account and the minutes of an MMI board meeting indicated that Mr Adrian Lynch from Kilkee, Co Clare, had authorised Mr Fanning to trade on that account. The Central Bank had been told Mr Lynch was the beneficial owner of the Cater Allen account.
Mr Shipsey said Mr Kavanagh wanted to apply to examine, under Section 245 of the Companies Act, Mr Lynch, a bookmaker. Mr Kavanagh believed Mr Lynch could help regarding the operation of Cater Allen's accounts and the circumstances in which that account came to be debited. Mr Kavanagh also believed Mr Lynch could help the liquidator in explaining how Cater Allen was maintaining its present position towards the £1.9 million transactions.
Mr Shipsey said the MMI directors had admitted in replies to the liquidator's inquiries that Cater Allen did not receive the money - £1.9 million - from four different transactions.
Counsel was opening his client's application before Mr Justice Kelly for an adjournment of an action, listed for March 21st, against the seven MMI directors alleging fraud, breach of fiduciary duty and misfeasance.
Mr Shipsey wanted the adjournment to enable him to institute proceedings in Jersey against Cater Allen, a subsidiary of Abbey National plc., which was an MMI client. Mr Shipsey said Cater Allen had executed a discretionary client agreement with MMI regarding the purchase of securities on its behalf.
Mr Kavanagh has claimed Cater Allen had not sufficient funds in its account regarding the £1.9 million transactions. He has said Cater Allen had £1.4 million in its account leaving some £430,000 owing. Counsel said cheque stubs had been filled in with Cater Allen as payee but when the liquidator got certain cheques back from the bank, the cheques were made out to MMI.
Mr Shipsey said if he got the adjournment, the liquidator would seek to take proceedings against Cater Allen to recover the £430,000. Ultimately, he would seek to adjourn the action against the directors pending the determination of any action against Cater Allen. The liquidator also planned to take other proceedings seeking discovery of documents from Cater Allen.
Counsel said there had been a puzzling cooling in relations between Cater Allen and the liquidator from around December 1999 and a change in the company's attitude.
Questions had arisen about the operation of Cater Allen's client account with MMI and the liquidator had asked several questions about the £1.9 million transactions.
Cater Allen had initially said it did not get this money and knew nothing about it. Now it was saying it was satisfied with the principal transactions.
Mr Shipsey read correspondence exchanged between the liquidator and Cater Allen dating from March 1999. He said Cater Allen had initially stated that MMI owed it a substantial amount and the liquidator would be hearing about this from Cater Allen's Irish solicitors, Noel Smyth and Partners.
The liquidator had also been in contact with a Mr Sam Nolan, an Irish citizen living in Jersey and member of the Institute of Chartered Accountants of Ireland, who was responsible in Cater Allen for the handling of its account with MMI. Mr Nolan had named Mr Oisin Fanning and Mr Colm O'Reilly as the persons within MMI with whom he had dealt as well as other persons. Mr Nolan had also said there was no authorisation for the payments.
But the liquidator had later experienced difficulties in speaking to Mr Nolan. Then, in late January, Cater Allen had said it was satisfied with certain transactions referred to by the liquidator while at the same time maintaining it was entitled to sue MMI and its directors for negligence in the handling of their account. They had also said for the first time that Mr Nolan was no longer an employee of Cater Allen. The liquidator looked for clarification but got none from Cater Allen.
It was on the basis of initial correspondence with Cater Allen and other matters that the liquidator had begun proceedings against the MMI directors in October, Mr Shipsey said. Pleadings were exchanged and defences filed from last November.
The liquidator had believed Cater Allen would co-operate and that Mr Nolan could have been called as a witness.
Mr Shipsey said the pleadings did not disclose an explanation for the impugned transactions referred to. All the defendants had denied wrongdoing but none had sought to explain the transactions in their defences. Three of the defendants - Mr John Curran, Mr Paul Boucher and Mr Peter O'Byrne - had pleaded that if certain money was transferred from the accounts of IBI Nominees or Cater Allen, which was denied, then Mr Fanning had represented to them that the transfers were authorised and they had relied on these representations.
Counsel said preparations continued in advance of the proposed March 21st trial of the action. Interrogatories, or questions, were delivered to the defendants and were replied to.
The directors were asked if it was MMI policy to let clients operate their client accounts in debit. Five directors had said No; two said Yes.
Even without Cater Allen's co-operation, the liquidator still believed he could prove the wrongs alleged, Mr Shipsey said. But the liquidator would also have to prove what loss was sustained and, if there was a denial of loss, it would be a high risk to proceed without a witness to deal with the loss issue. At this point, the liquidator did not know if the loss was £1.9 million or £430,000 because of the lack of clarity in Cater Allen's position.
The hearing continues today.
