Quinn Insurance Limited Page 3
THE GUARANTEES AND THE REGULATOR
Mr. Matthew Elderfield was appointed as Irish Financial Regulator in October 2009. He took up that positionin January 2010. Previously, Mr Elderfield had been Chief Executive of the Bermuda Monetary Authority;prior to that he had spent eight years with the UK Financial Services Authority (
).During his time with the FSA, Mr Elderfield was responsible for Retail Banking. That role specificallyincluded responsibility for Northern Rock in the months before its collapse; poor oversight was seen as onefactor in the collapse of that bank. Northern Rock sought liquidity support from the UK Government inSeptember 2007 - two months after Mr Elderfield had resigned.
THE FINANCIAL REGULATOR’S DECISION OF MARCH 2010
In order to assess the validity, or otherwise, of the Regulator
in making an
application to theIrish High Court on 30
March 2010, to have QIL placed into Administration, only three months after hisappointment, it is important to understand the nature and history of the contingent guarantees upon whichthe Regulator claims his application was grounded.
In December 2009, FTI Consulting (“
”), a UK
financial consultancy firm was appointed by the QuinnGroup
funders, a consortium of banks and
bondholders (the “
”), to arrange the refinancing of theGroups €1.
27bn debt, the first tranche of which was due to mature in October 2010.The appointment of FTIwas entirely consistent with standard practice in any such financing arrangement.Follow
ing FTI’s ‘
, which resulted in a positive assessment of the businesses involved,they requested that the guarantees, granted by certain QIL subsidiaries in favour of the Lenders, should becontinued under the proposed refinancing scheme, as per the original agreement in 2005. The QILsubsidiaries in questio
n held approximately €448m
worth of income generating property assets; those assets- mainly properties - together with
liquid resources (cash and liquid investments
bonds andshares) made up the reserves of QIL. This request caused confusion at board level within Quinn Group, asthe Directors were not aware and had never approved the granting of such QIL subsidiary GuaranteesOn investigation, it transpired that Quinn Group
egal advisors, A&L Goodbody, had included the QILsubsidiaries in the original financing package in 2005, and even though those assets had not formed anypart of the financing prospectus agreed with the Lenders. Unwittingly, the guarantees, including those over these specific subsidiaries, were subsequently executed by the Group
s directors, in error. Clearly,Goodbodys should never have included these assets in the guarantee package, and the directors shouldnever have signed them.
PwC’s view of
the existence of these guarantees was that they did not have any impact on the solvencyposition of QIL throughout 2005 to 2008, a position that they have continued to maintain to the present day.Nevertheless, in March 2010, while the refinancing process was still on-going, it was decided by the QuinnGroup to bring the existence of the guarantees to attention of the Regulator
even though the Quinn GroupDirectors did not consider them to be valid. At that time, QIL had liquid assets (cash, bonds and equities)
, as well as ownership of thesubsidiary companies, which held income-generating assets and were
valued at €448m
. This meant that if the cash reserves fell, the assets could be converted into cash to pay claims, and that QIL had assets in
excess of €1.548bn
to meet its claims.The Regulator was advised of the existence of the guarantees on 24
March 2010. At that time, PwC andQuinn Group believed that the guarantees (even though they were signed in error) had been disclosed andtreated correctly in the audited accounts of QIL, from 2005 onwards. Mr Elderfield, however, adopted aconflicting stance, and over the course of the following four-day period, decided that the opinion held by