Monday, 25 January 2016

Arch Cru Update: progress being made on litigation, mediation and some further recovery for victims

The Arch Cru APPG does not exist anymore, for a variety of legitimate reasons, but Alun Cairns MP and myself have agreed to continue to follow any progress to ensure that MPs and their constituents receive any necessary updates.  

With this in mind, please find below further information on the latest progress:  
Mediation: The mediation process, facilitated by Bill Wood QC, continues, but correctly for a confidential process, there is no public information while that progresses. 
Reporting by the Guernsey Board:

The money invested by UK constituents in mutual funds was in turn invested by the managers of those funds, Arch Financial Products LLP (“Arch”) in the shares of Guernsey companies (“Cells”) listed on the Channel Islands Stock Exchange and also managed by Arch. The assets of those Cells were then invested by Arch in a range of investments, several of which lost, permanently, a great deal of value.  Failures by Arch have since been detailed by the FCA in its Decision Notice of September 2012, and in the judgment of the London High Court on Arch and its CEO delivered in December 2014.  The Guernsey directors were replaced by a new board of directors from 2010 onwards;  there is a recent published statement from Hugh Aldous, Chairman of that new board, which highlights progress made up to July 2015.    

There has been considerable progress. 

In December 2014, in the London High Court, the Guernsey Cells obtained judgment against Arch Financial Products LLP and Mr Robin Farrell personally, with orders for over £24 million in favour of the Cells.   The Court found Arch FP liable for breach of fiduciary duties, breach of contract and negligence and also found Mr Farrell liable for dishonest assistance.  Constituents should not however expect a recovery of that order; Arch has gone into liquidation and Mr Farrell declared bankrupt. 

In January 2015 the Upper Tribunal (Financial Services) upheld the FCA's Decision Notices against Arch FP, Mr Farrell and Mr Addison and thereby confirmed that Mr Farrell and Mr Addison are prohibited from performing any function in relation to any regulated activities on the grounds that they are not fit and proper persons.  It confirmed the fines on them. 

In October 2015 Mr Farrell’s request for leave to appeal against the judgment of the High Court was turned down by the Court of Appeal. 

In December 2015 Mr Farrell was declared bankrupt.   Arch FP is in liquidation. 

Claims against the former directors and administrators proceed and, if there is no successful outcome from current continuing mediation, the case will be heard in Guernsey in 2017. 

It may be recalled that the Cells also secured judgment in the London High Court in 2011 against Mr Koros and his interests, which had received some US$200 million of shareholders’ money, for US$86.8 million.  Judgment against Mr Koros and his interests has been confirmed by the courts in Greece.  Mr Koros says he has no assets. Matters in Greece are complex and may continue until 2018. There are nevertheless recovery prospects ,but if litigation is the way forward, that may take time and be costly.  Therefore, to try to cut through some of that, mediation remains open and active for the remaining Guernsey claims.

The former auditors of the Cells settled out of court almost 18 months ago. 

In August 2015 the Guernsey Financial Services Commission published its decision against the Cells’ former administrator and its directors who were also directors of the Cells, although that latter role was not examined by the GFSC and is the subject of current litigation.  The GFSC’s decision made serious criticisms of the conduct of the administrator, found that the directors “demonstrated a consistent and serious lack of appropriate competence, judgment and diligence”, prohibits them from holding any position of responsibility in financial services in Guernsey for 5 years and imposed financial penalties.  Since it was from those Guernsey Cells that investors’ money was lost, and the notice of the decision is relatively short, we attach a copy of that decision.  It makes interesting reading. 

Achievement so far:
Although immediate financial rewards from these actions may be limited, the success ought to satisfy shareholders that those responsible for their losses are steadily being brought to book and, although it may be of only moral satisfaction, the cases against Arch and Mr Farrell concluded with robust judgments that have been noted by the industry and its lawyers. The next challenge is securing recovery under insurance policies. 

Assets and potential distributions:
Total assets under management hover around £50m after some further write-downs of illiquid hedge funds and some of the remaining real estate.  Taking into account announced settlements, a little over £190m has been returned to shareholders so far.  A reasonable proportion of the remaining assets should be readily realisable, or are seen to be in due course.  Some investments, now heavily discounted, are likely to remain a problem.  

Reports and Accounts will be drawn up at 31st March 2016 with a full Chairman’s Statement.  MPs with constituents with losses will receive a copy of that Statement. 

The costs of the legal proceedings undertaken by the Board to bring those responsible to book along with the greatest return to investors, will mean that some of the finance from assets that can be realised will still need to be used.   
However, even though Hugh Aldous tells us that he fears that current legal battles may continue for two or three years (if mediation fails, the claims in Guernsey may continue through 2017, some may go to arbitration and cases in Greece may still be under way in 2018) he still intends that the Board will make a further distribution within the next three to four months.  He, and the Board, are working on first getting shareholders’ representatives to accept a simplification of the existing, unnecessarily complicated and costly structures that hinder efficient distribution.  If that can be achieved, a further pay-out should be achieved in the Spring of 2016. 

We hope this information is helpful and provides a useful update on the continuing work of the Board.  Please be assured that we will continue to follow progress closely. I do stress that any affected constituents have to access information through their individual MP. 
Further info is found here: