COURT HEARING:THE HIGH Court has appointed two joint provisional administrators to the Quinn Insurance Group after being informed of the Financial Regulator's "very serious concerns" about the financial position of the company set up by businessman Seán Quinn.
Mr Justice John Cooke said yesterday he was satisfied to appoint Paul McCann and Michael McAteer of Grant Thornton as joint provisional administrators to Quinn Insurance Ltd, Dublin Road, Cavan, following an ex parte application by the Central Bank, acting through the Irish Financial Services Regulatory Authority (Financial Regulator).
The judge confirmed the appointment after being informed that regulators had a number of concerns, including that the company had “significantly breached” its solvency ratios, that its subsidiaries had entered a series of guarantee agreements which had reduced its assets by some €448 million and had failed to deliver a financial plan aimed at restoring its financial health.
Quinn Financial Services Holdings Ltd is the sole shareholder of the insurer, which was incorporated under Quinn General Insurance Ltd. It changed its named to Quinndirect Insurance Ltd before becoming Quinn Insurance Ltd in September 2007.
Moving the petition, John Hennessy SC, for the regulator, said the Financial Regulator, who has the authority to supervise insurance businesses within the State, had said the application was “urgent” because of concerns about the way the company was conducting its affairs and its abilities to comply with supervisory regulations.
The company, Mr Hennessy continued, was unable to comply with the requirements of the supervisory regulations of the 1983 Insurance Act No 2 and had failed to make adequate provisions for its debts, including contingent and prospective liabilities.
He also said the manner in which Quinn Insurance was conducting business “was jeopardising and prejudicing the rights and interests of those who have insurance policies with the company”. If Quinn was to continue as at present, there may not be sufficient funds to meet claims under those policies.
Mr Hennessy added that the appointment of administrators to Quinn Insurance would assist in the maintenance of public interest of the proper and orderly regulation and conduct of the business.
The provisional administrators would carry on the company’s affairs as a going concern and would conduct business with a view to putting it on a sound commercial footing. He said the company’s ability to comply with the solvency requirements was fundamentally called into question on March 24th, when the regulator was informed by the company’s chairman Jim Quigley that certain subsidiaries of Quinn Insurance Ltd had entered guarantees in connection with facilities made available to the Quinn group.
The court heard that facility agreements which incorporated the guarantees from four subsidiaries of Quinn were entered into in 2005. Three tranches of loan notes were issued in October 2005, April 2006 and April 2007. Four additional subsidiaries of the company entered into the guarantees in 2008. The total guaranteed sum was €1.2 billion.
Mr Hennessy said that following a meeting between the regulator and the company, it was revealed that the effect of these guarantees had reduced the insurer’s assets by some €448 million and thus “wiped out” the company’s solvency cushion. Thus its liabilities now exceeded its assets.
Mr Hennessy said the guarantees had been in place since 2005 but were only coming to light now. The fact that these guarantees had been in place and not disclosed for some time was a matter of “the gravest concern”. A number of Quinn Insurance’s directors were not aware of the the guarantees made by the subsidiaries.
All that information, he added, called into serious question Quinn Insurance’s internal control mechanisms as well as its administration and accounting procedures.
As a result, the company had gone from a position of having a surplus of assets over liabilities of some €200 million to the current situation where there was an excess of liabilities over assets of more than €200 million.
Mr Hennessy also said the regulator was concerned that the insurer’s actuary had estimated Quinn’s year-end technical reserve liability at €68 million less than PricewaterhouseCoopers, its auditors.
Earlier this year, the court was told that the company was asked to provide the regulator with a financial recovery plan for the restoration of the insurer to a sound financial position. That plan was submitted on March 5th last.
However, the company was informed a week later that the regulator was extremely disappointed with that plan, which was deemed unacceptable. The regulator held that the investment returns contained in the plan were “very optimistic” and the profit forecasts “were unrealistic”.
The insurer was required to submit a revised plan. Meetings were held on the issue. However, a revised plan submitted on March 22nd was also deemed unacceptable. At a further meeting on March 24th, the regulator was informed for the first time of the existence of the guarantees from the subsidiaries of advances to the Quinn group generally.
Mr Hennessy said all the information his client had received was given to it by the company and the regulator was still unsure of what was the exact full picture.
Mr Justice Cooke said he was satisfied to appoint Mr McCann and Mr McAteer as provisional administrators. The regulator’s application complied with section 2 of the 1983 insurance No 2 Act.
The judge made the matter returnable to April 12th.