Central Bank engaged ‘extensively’ with BlackBee Investments before liquidation move

The Central Bank of Ireland said that it “engaged extensively” with Cork-based BlackBee Investment for almost three years before it moved on Monday to have provisional liquidators appointed to the firm, having initially received information in July 2020 about governance, strategy and financial position concerns.

The regulator directed BlackBee Investments, which has €180 million of assets under management and is part of the wider BlackBee Group, led by founder and chief executive David O’Shea, in July 2020 not to make any dividends or other distributions to shareholders for 12 months. It issued a similar order in September last year.

BlackBee Group said in a statement on its website that the investments arm had been in winddown since 2020 and that its assets had fallen by 50 per cent over the period. It added that two attempts to move the assets to another investment firm had fallen through in the past six months and that it told the Central Bank last week that it “did not believe further sale or re-custody opportunities would present themselves in the short-medium term”.

“The role of BlackBee Investment Limited is primarily administration and all client assets remain and will remain custodied with Citibank,” BlackBee said. “There is no change to client holdings, and no impact on client assets.”

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[ Regulator puts provisional liquidators into investment fund BlackBee ]

The Central Bank succeeded on Monday on having the High Court appoint Luke Charleton and Colin Farguharson of EY as joint provisional liquidators and suspended Mr O’Shea’s powers as the company’s sole director pending the full hearing of the petition.

The regulator said it had “engaged extensively with the firm for an extended period in relation to a number of concerns including inadequate corporate governance structures, deterioration of the firm’s regulatory capital and liquidity positions and a lack of suitable controls to protect client assets resulting in heightened risks to the safeguarding of client interests”.

“Despite extensive supervisory engagement in an effort to find a solution that protected clients’ interests, no viable alternatives were found,” the bank said. “On this basis, it was decided that the appointment of joint provisional liquidators was the most appropriate action to protect the immediate and ongoing interests of the clients of BlackBee Investments Limited.”

BlackBee Investments had signalled to clients at the start of the Covid pandemic that it would be winding down its operations and reorganising its portfolio, amid what were said to be rising regulatory and compliance costs.

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The company had agreed in October to sell the BlackBee Investments portfolio to UK-based Aria Capital Management. However, this deal – and another proposed transaction – ultimately came to nothing.

BlackBee will retain its existing Central Bank investment firm authorisations for the next 18-24 months as the group is being reorganised.

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.

Although it does not currently appear to be insolvent from a balance sheet or cash-flow perspective, she said, it is in a financially distressed position due to continued operating losses.

She said the bank believed it was necessary to seek the immediate appointment of joint provisional liquidators as the company was likely to become “inundated” with urgent queries from clients seeking clarity leading to a “real and material risk” of an uncontrolled and disorderly collapse of the operations if the appointments were not made.

The company, she added, was currently failing to communicate appropriately with its clients and their brokers with respect to maturity defaults arising on certain alternative investments.

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In seeking the orders, Mr Kennedy told the court the investment firm had failed to comply with, and remains in breach of, its regulatory obligations because Mr O’Shea, the ultimate sole beneficial owner of BlackBee, was directing the business of the firm and it no longer had a non-executive director or chairman of the board since the resignation of an officer last November.

BlackBee said that it had become increasingly difficult to fill required regulatory roles as the subsidiary was in wind down.

The Central Bank said that the provisional liquidators would contact all clients of the firm “in the coming days to advise them of next steps in relation to their investments”.

The regulator said that the Investor Compensation Scheme (ICS), of which BlackBee Investments was a member, had not been activated. However, it added: “The ICS may be activated if an official liquidator is appointed by the High Court on May 19th, 2023, but this will depend on the outcome of the work of the joint provisional liquidators.”