The holders of traceable electronically held securities purchased by collapsed Cork stockbroking firm W&R Morrogh should be awarded those securities in the distribution of the firm's assets, the High Court was told yesterday.
To deprive those clients of their shares would be wholly unjust and, as a matter of public policy, be wholly undesirable, as it would undermine confidence in the whole system of electronically held securities, Mr Lyndon MacCann urged.
He also argued that, where shares are held by or to the order of Morrogh and cannot be traced to a particular client or clients, they should form part of the mixed fund of assets (including monies in bank accounts) available for clients generally.
He was making submissions on behalf of Mr Liam Shorten, one of Morrogh's client creditors, who has been appointed as a representative creditor for the purpose of making certain arguments regarding how Morrogh's assets should be distributed.
Mr Justice Murphy has been asked by Mr Tom Grace, receiver of Morrogh, which collapsed in April 2001 with liabilities of some £12 million (€15 million), to determine how the firm's €6.2 million in assets should be distributed.
Some 2,500 claims have been made against Morrogh. As there are insufficient assets to meet these, stockbroking firms that are members of the Irish Stock Exchange must contribute 50 per cent of the amount that the Investor Compensation Company Limited will determine is payable to its fund to meet the claims. The figure is likely to total several million euro. The remaining 50 per cent will be funded by the other members of the fund.
The judge will separately deal with a claim for £1.3 million sterling (€1.97 million) by Anglo Irish Bank against Morrogh, which is on foot of a loan made personally to Mr Stephen Pearson, one of the two partners in Morrogh in April 2001.
The loan was secured by share certificates held in London Stock Exchange Limited.
Among the issues the judge must decide is whether funds held in the client accounts should be distributed rateably as between all the claimants to such funds. He must also determine whether all of the assets of the firm, and not just the funds in the client accounts, should be pooled for the purpose of distributing them rateably between all of the client claimants.
In his submissions, Mr MacCann said Mr Shorten had retained Morrogh to make share purchases for him. In the case of certificated securities, Mr Shorten was issued with all relevant share certificates and no issues arose regarding those transactions. Mr Shorten's difficulties related rather to his dealings in electronically held securities in various European companies (Eurostock).
Mr Shorten had been issued with contract notes for the purchase of certain shares but those shares were not purchased by Morrogh. Mr Shorten was not the only person who paid for stock in circumstances where no purchase was in fact made by Morrogh.
However, apart from those shares, the larger part of Mr Shorten's claim related to shares that could be identified as having been purchased by him. He was entitled to those shares. To deprive clients in Mr Shorten's position of shares that the receiver had identified as being referable to purchases made on their behalf would be to place them in a materially worse position than their counterparts who were dealing in uncertificated securities.
The hearing continues today.