The first range of claims against Arch Financial Products reached London’s High Court today where six cell companies that took part in a property investment are seeking to recover losses of almost £20m.
The case involves one of eight investments in respect of which claims are made in overall proceedings against Arch brought by 18 incorporated cells of SPL Guernsey ICC Ltd, manager of the Arch Cru Guernsey cells
In an earlier court ruling it was held that today’s claim - which involves six of the cells - should be heard first, together with a related claim against Arch founder and chief executive officer Robin Farrell.
The cells all formed part of the structure established by Arch through which UK investors took part in investment funds, known as the Arch Cru funds, marketed to them by independent financial advisors.
The six say they invested £20.2m to finance the acquisition by Isle of Man-based special purpose vehicle Lonscale Ltd of the Club Easy group, a business involved in the ownership and management of student accommodation.
However, they allege that the amount due on completion was only £13.2m and that Arch caused them to invest the additional money so that Lonscale could make unauthorised payments of £6m, including £3m to Arch as part of a “secret profits” deal.
They claim that this constituted a breach of Arch’s fiduciary duties and gave rise to a conflict of interest.
They also say that Arch took the decision to invest in the face of clear indications that Lonscale was struggling financially, was poorly managed and offered poor investment prospects.
The cells claim that the decision to invest was driven by Arch’s financial interest in obtaining the allegedly illegitimate payments, rather than proper considerations of the merits of the investment.
And they say that Mr Farrell knew that Arch was acting in breach of its duties and acted dishonestly in assisting and intentionally procuring the alleged breach.
Of a total of more than £26m, following a further payment of more than £6m, they claim that they have suffered total losses of £19.7m.
In the larger overall claim, it is said that around £463m was invested in all of the cells managed by Arch, primarily by UK retail investors, with an estimate of 6,400 investors in total, many of which suffered heavy losses. The Arch Cru funds are said to have collapsed in 2009.
The six cells in this case say that, in September 2012, the Financial Services Authority found that Arch had breached a number of its principles and said that it would have imposed a £9m financial penalty were it not for Arch’s financial position.
AFP and Mr Farrell, who is representing them both in person, maintain that the disputed payments were proper and that the investment was carefully considered. They blame the global financial crisis, and the resulting contracting in lending and falling property prices, for the cells’ losses.