The High Court has appointed joint official liquidators to BlackBee Investments Ltd, following an application by the Central Bank of Ireland.
Luke Charleton and Colin Farquharson of EY have been appointed to the company, which is headquartered at City Quarter, Lapp's Quay in Cork.
The Central Bank said the winding up application came after it had "engaged extensively" with BlackBee Investments "over an extended period" from the middle of 2020.
It raised concerns about the firm's inadequate corporate governance structures, as well as a deterioration of the firm's regulatory capital and liquidity positions.
The Central Bank was also concerned about a lack of suitable controls to protect client assets, which created heightened risks.
In its petition to the High Court it detailed the opportunities it had given the firm to address these concerns, but said it "failed to adequately address" them.
It said it believed a winding up of the firm was necessary "in the interests of the proper and orderly regulation and supervision of investment firms and for the protection of investors of the investment firm".
BlackBee Investments Ltd is an indirect subsidiary of Blackbee Holdings Limited and the liquidation relates only to the BlackBee Investments subsidiary.
The regulator said the liquidators are now undertaking a full assessment of the business to establish the current position of clients' investments and will maintain contact with all affected clients.
In an affidavit presented to the court, Claire McGrade, Head of the Resolution and Crisis Management Division, at the Central Bank, said as of the end of April BlackBee Investments had around 1,700 retail clients, made up of non-professional investors.
The firm held client assets, made up of funds and financial instruments, of about €180m.
€600,000 of this represents client cash held in client accounts with Citibank London and AIB in the name of the firm’s wholly owned subsidiary, Blackbee Investment Nominees Ltd (BBI Nominees).
A further €135m is client financial instruments in the form of alternative investments held in custody in a Citibank client asset account on behalf of BBI Nominees.
While €17m represents client financial instruments in the form of alternative investments held in custody in BBI Nominees.
An additional €27 million represents client financial instruments in the form of Structured Retail Products, also held in custody in a Citibank client asset account on behalf of BBI Nominees.
Ms McGrade said the bank’s view is that the current position of the firm is that it has failed to comply with and remains in breach of certain regulatory obligations, because a single individual, David O’Shea is directing the business, as well being CEO and ultimate sole beneficial owner.
The firm no longer has a non-executive director or Chairperson since their resignation on 8 November 2022.
"This is very concerning from a supervisory perspective because it is essential that all investment firms must at all times have a minimum of two persons directing the business of the firm, and at least one non-executive director is expected, which is critically important in order to ensure that there is effective governance, oversight and independent challenge with respect to Board decisions," she said.
Ms McGrade added that previously, three persons were either employed by or contracted with the firm to perform Pre-Approval Controlled Function (PCF) roles, but over the course of November and December 2022, two of them resigned leaving Mr O’Shea in sole control of all executive functions at the firm.
She added that, "this situation constituted a clear breach of the Investment Firm’s regulatory obligations…and gave rise to material operational, financial and governance risks and concerns, including with respect to the safeguarding of client assets at the Investment Firm."
Ms McGrade said that following the failure of two potential sales of the business, the Central Bank does not believe that there is any reasonable prospect of a sale of the business and/or shares of the firm occurring.
As a result, the bank thinks that, given the constraints imposed on the company’s ability to engage in new client business, the only strategic option available is a wind-down to the maturity of the client assets held by BBI Nominees.
But she also said that the regulator does not have any confidence that BlackBee Investments is capable of hiring, retaining and/or paying for experienced staff and/or professional firms to fill the vacant PCF roles that would be required to implement an orderly wind-down strategy.
Ms McGrade said in circumstances where Mr O’Shea has repeatedly made and failed to deliver upon commitments to the Central Bank with respect to the appointment of suitably experienced individuals and/or professional firms to fill vacant PCF roles, it considers it can no longer provide any further time to comply, or place any reliance on such undertakings or commitments from him.
She added that although the firm does not currently appear to be insolvent from a balance sheet or cash flow perspective, it is in a financially distressed position due to continued operating losses.
"In addition, the most recent capital and liquidity plan issued to the Bank by the Investment Firm on 6 April 2023 indicates that, following the termination of the proposed sale to De Vere, the Investment Firm will likely be in breach of its applicable regulatory capital requirements by August 2023, and the Investment Firm has been unable to provide any credible evidence to the Bank that it has access to sufficient capital that will enable it to avoid such a breach," she wrote.
- additional reporting Will Goodbody
