Arch Cru's new fund manager John Davey heavily contested that there was a 'fire sale' of Guernsey cells' portfolios that could have lost investors money following his firm's takeover of the fund management mandate in 2009.
Acting as a witness in the trial against Arch Financial Products, brought by the cells' current board SPL Private Finance, the chief executive of fund manager Spearpoint said decisions to sell the portfolio companies had not been "rushed through".
Each case had been looked at separately for its own merits he said, however with certain investments it was feared that, had additional capital been invested under alternative arrangements, it "would not have been recoverable".
Arch FP's defence in the case against it rests partly on to the argument that the Guernsey cells had contributed negligence and failed to mitigate their losses by creating a "delayed firesale" of their portfolios following Arch FP's departure.
But referring to company Lonscale, the holding vehicle of student accommodation business Club Easy, on which a part of the legal claim is built, Davey said the firm was "considering itself lucky" to have agreed a deal which allowed the funds to sell their majority stake "for a ridiculously high price".
The Arch Cru funds had sold their 75% stake to co-owner Foundations Capital for a reported £10.6m in March 2010.
Davey said: "In our view, for whatever motivations, Lee Barkman [Foundations Capital managing director] paid the wrong price for the business."
SPL's case against Arch FP alleges that the investment manager failed to properly discharge its duties when running the Arch Cru funds between 2007 and 2008. It also alleges that chief executive Robin Farrell dishonestly assisted in breaches of fiduciary duty in relation to the investment in Lonscale.
In its defence Arch FP argued that the cutting off of funding support for Lonscale and its "premature" sale, before its turnaround strategy had been completed, was further detrimental for investors.
But Davey said Lonscale would have needed a "significant" amount of extra capital to stop it from going bust. It was a messy, loss-making and heavily indebted business, which had a number of operational issues, he said.
Davey said buyer Barkman had been highly motivated but he had been relying on a "stupendous" recovery of the property market, which in the end never came.
The company is still "highly fragile" now, Davey said, and could still default.
The court heard that the funds had sold the company to Foundations Capital on a deferred payment basis, allowing it to pay in instalments over time. They had also put in a protection, which means if the business defaults, they get back full ownership.
So far, between £5 and £6m have been paid off by the new owner, but Barkman has not been paying on time, the court heard.
Whether or not the company defaults is in Spearpoint's hands, however there are no immediate plans for that to happen, Davey said.
The trial continues.
‘Important to have an anchor’
Lack of innovation for solutions
Some 2,000 consumers affected
Achievements, charity work and other happy snippets