Custom House Capital Update

I have written three articles on Custom House Capital in the last year. From the emails I have received from investors, they have all asked me the same thing, “What is happening to my money?” So I decided to find out .

Central Bank Freezing Assets

In July 2011, the Central Bank directed that no assets or money would be transferred out of Custom House Capital. In effect, there would be a freeze on everything. This freeze is renewed every year by the High Court.

The Liquidator and Fees

In October 2011, Kieran Wallace of KPMG was appointed as the liquidator of Custom House Capital by the High Court. The liquidator is usually paid from the assets of the company. CHC had relatively few assets, totalling €413,635.97, This is not enough to cover his fees, the legal costs and all other expenses. Remember, CHC had assets under management with an estimated value of €1.1bn. There are 40 properties involved held in 85 Special Purpose Vehicles (SPV’s) in the UK, Denmark and Luxembourg. The was little compliance work or paperwork, so it will take considerable time to unravel everything.

The clients funds are broadly split into three types, property, cash and equities. Some of the cash and equities are managed outside of CHC, in bank accounts or with stockbrokers and are referred to as segregated funds. In the High Court report, it was shown that in the operation of this Ponzi scheme, clients money was shifted around to meet other clients’ calls for cash. So the liquidator has to be satisfied that the assets in the segregated funds actually belonged to the clients in question and wasn’t money transferred in from elsewhere.

In January 2012, the liquidator proposed a charge of 0.5% plus VAT of the value of the segregated assets in order to carry out his reconciliation. This proposal didn’t run as efficiently as he had thought. First of all, some of the money is held in PRSA structures which have very tightly regulated charging structures. Charges on transferring money out is strictly prohibited, so he fell foul of The Pensions Board here. There was 350 clients whom he sought payment from. By May 2012, he had received responses from 172 clients making payments of €185,177. Some did not respond to him at all and there were 9 who did not agree that they should have to pay fees and took a court action.

This matter is still before the courts. The liquidator will not do the reconciliation of the accounts until he knows he will be paid for it and clients are saying they are victims and should not have to pay to clean up the mess and an alternative method should be used to pay the liquidator.

The Central Bank and Updates

The Central Bank, as regulator, has taken the position that no reporting is to be given to clients out of a fear of misleading them. They do not want clients to be told one thing only for it to not happen.

Even though they have admitted to doing a poor job in regulating CHC, the Central Bank have made no comment or offered a solution on fees.

The Properties and the Banks

First off, I do not have any information on individual funds. As mentioned already, there are 40 property funds in total so I looked for an overall update instead of specific properties.

There are 21 different banks involved in providing finance for these property deals. For most of these banks, the fact that there was stolen money was involved is not on their radar as it was used for the deposit. The loans are all performing and the mortgage repayments are being paid to the banks.

What is a bigger cause for concern is the Loan to Value (LTV) of the properties. A LTV of 65% is the norm for non recourse loans and the banks are within their rights to recall the loans if this LTV is exceeded. While most properties didn’t drop in value much, the acquisition costs were all very high with high fees being paid to CHC for these deals. In some cases, funds were taken from one deal to pay the deposit on another.

Most of the loans taken out were for a 5 year fixed term, which have now finished and with interest rates now lower, better deals have been secured by the fund manager. This now means that more capital is being paid off the loans than before. The fund manager is in constant contact with the banks to keep the financing in place and to ensure that there is no forced sale. In one situation, investors contacted a bank and told them of the use of stolen money in the property they were financing. The bank pulled the plug and has forced the sale. It is not expected that the sale price will be much more than enough to cover the loan.

End Date

It is hoped that this mess will be ended in the next 3-5 years. In the last 3 years, the fund manager has got the accounts and compliance requirements almost up to date. They are looking at the markets and will advise on the best time to sell the properties to realise the best value for the investments. Ultimately, the decision is with the liquidator as to when to sell.

If a sale is put through to pay for fees, the liquidator has to get Court approval. It is thought that he will get Court approval for the sale of any assets regardless.

The liquidator is back before the Courts in a few weeks where the judge will look at whether his fees are reasonable. The Judge hearing the case will be moving to a different court shortly after, so it will have to be passed to another Judge to take over, leading to further delays.

It looks as if this is going to rumble on and on.

If you have any questions, please not hesitate to contact me at