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Clerys operators used "ponzi scheme" to pay concession holders, court told

Details of how businessmen and women working within Clery’s were paid were revealed in court today.

THE COMPANY THAT formerly operated Clerys reimbursed concession holders at the department store using a ‘type of ponzi scheme’ method, the High Court heard today.

Jeremiah Healy SC for LS Catering, a company linked to businesswoman Lorraine Sweeney which operated a restaurant in Clerys from 1992, said the former operators OCS Operations had engaged in a payment system where all trade receipts – including company and concession receipts – were lodged into one bank account from which all payments were then made.

The company paid the concession holders in respect of what they sold each month on the 15th of the following month. For example, what was sold in May would be paid on the 15 June, counsel said.

The iconic city centre store closed its doors on 12 June last, days before its operators were due to pay the proceeds of sales made in May.

Used funds for own purpose

An investigation into the company’s accounts by the liquidators revealed OCS had been losing money and there were insufficient funds to cover what was due and owing.

Counsel said it appeared that the company used monies from the concession holders sales for its own purposes.

Counsel said it appeared OSC Operations had “hijacked” concession holders’ funds “over a period of weeks if not months”.

The system where concession holders “were paid for this week’s sales with last week’s proceeds” was counsel said effectively “a ponzi scheme”.

His client, who is owed some €46,000 was a victim of a most serious “breach of trust”, counsel added.

Mr Healy made his remarks in the course of an application by the joint liquidators of the company for directions permitting them to pay out some €654,000 funds to about 50 concession holders at the store.

An estimated €1.4m is owed to the 50 concession holders.

The liquidators sought directions from the court including whether the concession holders have a valid trust claim to funds held in the bank account of OCS Operations, in cash, or in credit card receipts at the date of the liquidation.

James Doherty SC, for liquidators Kieran Wallace and Eamonn Richardson of KPMG, had opposed the request for an adjournment by LS Catering so its accountant could hold further discussions with the liquidators. and urged the court to make orders allowing his clients make the payment to the concession holders.

Counsel said the money being made available to the concession holders was for the period of 4 June to 12 June last. The issues in respect of monies due from sales made in May are still to be determined counsel said.

Mr Justice Donald Binchy on Friday said he was satisfied to make the directions sought, although the order was not to be seen as being determinative in respect of the May sales.

Permission to sue

The liquidator’s application was supported by lawyers representing 18 other concession holders, who are due to receive €387,000. No party formally objected to the application.

The judge also granted LS Catering permission to sue OCS Operations for damages for alleged breach of trust, but declined its request to adjourn making final orders.

Until its liquidation last June, OCS Operations Ltd had operated Clerys Department Store and Warehouse since 2012.

The company’s creditors included intercompany loans of some €5.8m owed to other firms in the OCS group of companies; some €1.4m to concession holders; €613,000 to trade creditors and €472,000 to Dublin City Council in commercial rates.

Comments are disabled because of ongoing court proceedings. 

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Aodhan O Faolain