Findings made on allocation of failed stockbroking firm's assets

The High Court has made a number of findings on legal and technical issues regarding how some €6.2 million in assets of the failed stockbroking firm, W & R Morrogh, should be allocated. The firm collapsed in April 2001 with liabilities of €12 million.

In a reserved judgment yesterday, Mr Justice Roderick Murphy made a number of rulings on legal points concerning the manner of allocation of the assets. Lawyers representing different categories of client creditors of the firm and other interested parties, including the Stock Exchange and Central Bank, are to consider the 56-page judgment and, arising from its findings, apply to the judge for specific declarations on May 20th.

The judge rejected arguments in favour of a general pooling of the firm's assets with a consequent rateable distribution of those assets among clients. The judgment appears to indicate that those clients whose shares are recorded in the books of the firm will be in the best position to recover their shares.

The judge also ruled that, whatever the status of a claim by Anglo Irish Bank that it is entitled to £1.3 million sterling lodged at the direction of the Central Bank in a client account, which status has not yet been decided, Anglo's claim must necessarily come after that of the clients'.

The High Court proceedings arose after the collapse of the Cork firm in April 2001. On April 27th 2001, Mr Tom Grace was appointed receiver to the firm and manager over its assets by the High Court. When the firm was dissolved on May 21st 2001, it had two remaining partners, Mr Alex Morrogh and Mr Stephen Pearson, some €12.6 million in liabilities and assets estimated at €5.6 million, which latter figure was later put at €6.2 million.

The receiver applied to the High Court for directions as to the distribution of assets and also to decide a claim by Anglo Irish Bank for a declaration that it is entitled to the proceeds of the sale by Mr Pearson of certain shares in the London Stock Exchange to such an extent as to satisfy Mr Pearson's indebtedness to them.

Mr Denis McDonald SC, for the receiver, disclosed Mr Grace had received some 2,500 claims. Because of the shortfall between liabilities and assets, the receiver argued the manner in which assets were to be distributed was crucially important. If a first in, first out approach was adopted, some claimants would get full returns while others would be left with substantial losses. If a rateable distribution approach was adopted, all claimants would suffer proportionate loss.

The judge said he would grant a declaration that the beneficial owners of electronically held stock were entitled to the transfer of stock identified in their names in the same manner as the beneficial holders of certificated stock.

He further declared that clients who had purchases contemporaneously appropriated to them and recorded in books of the firm or of Morrogh Nominees were entitled to ownership, and where necessary, to the transfer of those shares to them.

However, the judge ruled, different considerations applied to the firm's bank accounts. He would grant a declaration that the monies in the client account should be distributed rateably to those clients who could prove entitlement to repayment of money lodged to the client and/or other accounts of the firm or Morrogh Nominees.