# Can anyone explain what happened at Bloxhams?



## Brendan Burgess (9 Jun 2012)

I can't make head nor tail of the reports in the paper. 



> LAWYERS acting for the firm's partners, which last week was ordered  to cease trading by the Central Bank after it was revealed the company  was undercapitalised, applied to have the company wound up as the  partners see "no prospect of an improvement in Bloxham's trading  position."
> 
> Today at a duty sitting of the High Court Mr Justice Kevin Cross said he was satisfied to appoint Mr Kieran Wallace of the firm [broken link removed]  as provisional liquidator to Bloxham after being informed the company  was insolvent, unable to pay its debts and its liabilities exceeded its  assets by €13.9m.
> 
> ...






> *Ireland                                        Limited Partnership[FONT=Arial, Helvetica, sans-serif][/FONT]*
> 
> [FONT=Arial, Helvetica, sans-serif]                                        Limited Partnerships are formed under the                                        Limited Partnerships Act 1907 (English legislation).                                        They are similar to general partnerships                                        except that they have one or more general                                        partners with unlimited liability and one                                        or more limited partners whose liability                                        is limited to the amounts of their contributions.                                        The general partners may be limited companies.[/FONT]​ [FONT=Arial, Helvetica, sans-serif]This                                        form is not now widely used in Ireland.
> [/FONT]​





[FONT=Arial, Helvetica, sans-serif]Ok, so some of the partners had limited liability and some had unlimited liability.[/FONT]


[FONT=Arial, Helvetica, sans-serif]Is it normal to appoint a liquidator to a partnerhsip?  The unlimited partners have full liability anyway. 
[/FONT]​


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## Brendan Burgess (9 Jun 2012)

Other questions.

The minimum capital required seems to have been €5.8 million and they reckon that they were "undercapitalised".  



> In an affidavit to the court Bloxham partner Mr [broken link removed]  said that they had believed the company was maintain its capital  requirements, but the realisation of the true state of affairs "came as a  total shock to me and to the other partners."



They had thought that they had enough capital, but now their assets exceed their liabilities by €13.9 m. That is a €20m difference. 

You could blame an accountant for a €1m or maybe €2m of an overstatement, but the directors couldn't have believed that they had €6 million in capital, when the true position was a deficit of minus €14m. 

These are stockbrokers. They are used to analysing accounts of public companies and recommending them for their clients to invest in. I can't understand that they did not appreciate how bad things were. 

And how can they suddenly have a deficit of €14 million anyway?  This would have to reflect a lot of trades gone badly wrong. Or did they pay out a lof of money in compensation? But if they did, they must know that they did and the impact that would have had on capital.


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## Sunny (12 Jun 2012)

Brendan, I don't know the ins and outs but as far as I know, there are a trading loss that was recorded as an asset and there were a couple of other liabilities that were recorded as assets as well. I don't know if someone was trying to cover up a trading loss or what. Guess we will find out in time. Questions for the auditor as well because by the sounds of it, their audited accounts were fiction going back a couple of years.


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## Complainer (12 Jun 2012)

Did I hear correctly that the Managing Partner (to whom the Finance Partner reported) is continuing in his role under the new owners? So much for accountability then...


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## Brendan Burgess (13 Jun 2012)

The main stockbroking company/partnership is in liquidation. There is a liquidator and not a new owner as such.  It is likely that the liquidator would keep the Key Staff on to wind down the firm. There would be nothing unusual in that. 

The wealth management business has been sold, but I have not heard that the owners have taken on Pramit Ghose, the Managing Partner.


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## jpd (13 Jun 2012)

Given that it sounds like an accounting student could have noticed the error(s), it will be interesting to see how long it takes for someone to be prosecuted.

I won't be holding my breath!


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## Brendan Burgess (13 Jun 2012)

I have read the Affidavit presented to the High Court (If anyone wants a copy, PM your email address to me and I will send it on) 

9.  FBD is the limited partner. The other partners are general partners i.e. with unlimited liability.

17


|profit available to partners|net assets
2011|€(362k)|€12.8m
2010|€2.4m|€9m
2009|€5m|€10.5m
2008|€7.2m|€12m
2007|€7.6m|€11.8m19


> I say that during 2009 an investment bond, which Morgan Stanley had sold, by Bloxham as agent to approximately 155 retail investors in January 2005, suffered an early redemption event and was effectively terminated by the product arranger, Morgan Stanley.  The bond – known as the Saturns Dresdner Bond – had been purchased by clients of Bloxham for approximately €30,000,000 in January 2005 with Bloxham acting as an agent for Morgan Stanley.  As a consequence of the termination in June 2009 a number of investors sought compensation from Bloxham after losing a significant part of their original investment. Approximately €14,000,000 has been paid by Bloxham by way of compensation and legal fees to investors.


I can't see where this €14m appeared in the accounts? It should show up as a massive loss in one year. 


27


> Based on financial returns prepared, as at 31 December 2011, I say and am advised that Bloxham was obliged to hold regulatory capital of €5,600,000.


30 and 31   Mr Gunnell's accounting overstatements 



trading losses |€2.6m
income tax|€1m
partners' tax|€1.7m
Total errors|€5.3m
36 Sale of Private clients: €2.2m
39 Sale of Fund Management: €3.6m 


44 





> *the report and financial statement for Bloxham dated 31 December 2011 – **– valued Bloxham’s investment in the Irish Stock Exchange at €6,250,000.*


47



> I further beg to refer to an estimated statement of affairs for Bloxham as at 29 May 2012 upon which marked with the letters “PD15” I have signed my name prior to the swearing hereof. It is estimated that the realisable value of Bloxham’s financial assets would be €2,329,400. Estimated realisable value of its current assets is €5,827,358. Estimated realisable value of debtors is €2,686,000. A note to the statement refers to the litigation proceedings against Morgan Stanley and to the fact that the partners expect a significant return from the proceedings. Discounting the potential return from the litigation t*he total realisable asset value is €10,867,758.*


48



> Current liabilities are estimated at €24,860,951. This includes a liability to National Irish Bank of almost €8,500,000 in respect of a bank overdraft and a liability to the Revenue Commissioners of €2,301,000 in respect of PAYE due of €547,000 for April and May 2012 and encashment tax. Accordingly the net liability position of Bloxham is €13,993,193.






 Net assets at 31 Dec 2012 |€12.8m
Net liabilities at wind up|€14m
Loss in value| €26.8m
Make up of this 


Less accounting errors| €5.3m
Less write off of ISE membership|€6.3m
Total |€11.4m
Unaccounted for €15.4m

Perhaps they had to recognise huge losses on the sale of the businesses to Davy's? But these were sold to bolster the capital position, so presumably they had a nil book value? 

The €14m compensation doesn't appear anywhere obvious in the accounts.  I wonder if they treated the €14m compensation as an asset because they expected to win the case against Morgan Stanley? That would explain the bulk of the unaccounted for money. 

In 2011, they lost €362k but the net assets increased by €3.8m so the partners must have introdcued over €4m into the firm. But as they had taken huge profits out in previous years, this should not have been a problem.


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