High Court makes orders winding up BlackBee investment fund

Some €92 million of BlackBee client assets have matured but will not be paid out until liquidators conclude their investigations into the affairs of the Cork-based investment fund, the High Court has heard.

Barrister Paul Brady said some 1,700 letters have been sent out to investors since his clients were last week appointed as joint provisional liquidators of BlackBee Investments Limited at the behest of the Central Bank.

There has been a “significant” volume of email and telephone communications from clients and brokers in response, and all have been advised there will be no decision made about the investments until a “thorough and comprehensive investigation” of the company’s affairs is complete.

‘Significant concerns’

He said €92 million of investments has matured and a further €87 million is due to mature, of which €64 million will mature before the end of the year.

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The appointments of Luke Charleton and Colin Farguharson of EY as provisional liquidators of Blackbee were sought by the Central Bank over its “significant concerns” about the investment fund, particularly in relation to governance.

On Friday, the High Court made orders winding up the firm and appointing Mr Charleton and Mr Farguharson as joint liquidators.

Although BlackBee’s chief executive, David O’Shea, did not appear in court, Mr Justice David Barniville was satisfied he had been properly notified of the hearing and that it was appropriate to wind up the firm.

The judge made the winding up orders pursuant to the European Union (Markets in Financial Instruments) Regulations of 2017 and the Companies Act of 2014.

The Central Bank, represented by senior counsel Brian Kennedy, wanted the orders in the interest of the proper and orderly regulation and supervision of investment firms and the necessary protection of investors.

The orders were also required due to Blackbee’s failure to comply with a series of regulatory directions given to it last March, the regulator said.

In outlining the provisional liquidators’ report to the court, Mr Brady said Mr Charleton and Mr Farguharson have over the past 10 days had difficulties accessing certain client account information notwithstanding that they have had six meetings with Mr O’Shea.

It appears the client account management system intermingles regulated and unregulated information and a process is under way to separate these two strains before access can happen, counsel said.

There have also been some issues accessing relevant legal agreement in respect of client assets, Mr Brady said

The liquidators are in a “fact-finding” stage of their investigation and were not making judgments about this issue, he added.

The company has been reporting losses and is unable to generate further income, so there is a concern about its solvency, Mr Brady said. There is also some doubt about the recoverability of a €761,000 intercompany receivable, he added.

Failure to comply

In July 2020 the Central Bank directed BlackBee, which is part of the wider BlackBee Group, not to make any dividends or other distributions to shareholders for 12 months. It issued a similar order last September.

In seeking the provisional appointments on behalf of the regulator last week, Mr Kennedy said the investment firm had failed to comply with its regulatory obligations because Mr O’Shea, the ultimate sole beneficial owner of BlackBee, was directing the business of the firm which no longer has a non-executive director or chairman of the board since the resignation of an officer last November.

The court heard this raises supervisory concerns as investment firms are required to have at least two people directing the business of the company and at least one non-executive director to ensure effective governance and oversight. Blackbee’s efforts to engage consultants to carry out these functions on a short-term basis have not been successful, counsel said.

The regulator no longer believed there was a reasonable prospect of a sale of the business.

In a sworn statement to the court, Claire McGrade, head of the Central Bank’s resolution and crisis management division, said the company was in the process of winding down its business since opting to cease taking new clients from October 2020.