Kieran O’Connor, former Chief Financial Officer of FCA Regulated firm Lendy, is pursuing a claim at the Employment Tribunal for unfair dismissal said to be as a result of disclosures concerning “serious financial irregularities” at the company.
Former JP Morgan banker Kieran O’Connor joined the Lendy team as CFO in June 2018. A press release on the Lendy website quotes CEO and former director Liam Brooke as saying at the time “We are delighted to welcome Kieran to Lendy, as we continue to strengthen and expand the business… All of us at Lendy are really looking forward to working with Kieran and drawing on his breadth of experience as Lendy continues to mature as a business.”
At the time of Mr O’Connor’s recruitment it is said “Lendy had 22,000 investors and was managing something in the region of £300m of client monies”.
Lendy was placed into administration following action by the FCA in May 2019 with Joint Administrator Damian Webb concluding in written court filings that “Lendy was subject to serious mismanagement for a long period of time. The operations of Lendy were chaotic at the best of times, and investors’ funds were not properly protected or managed. Indeed, it is surprising that Lendy managed to survive for as long as it did.”
In a judgment only released in the last few days following a 3-day-preliminary hearing in November 2020, it is said Mr O’Connor told the tribunal “that during the course of his [23 week] employment he had received information from others, and also observed conduct by Mr Brooke which he thought risked blurring the lines between Mr Brooke’s private interests and finances and Lendy’s responsibilities and liabilities to its customers and borrowers and potentially compromised its duties, responsibilities, liabilities and accountability under the Regulations to them”.
It is said Mr O’Connor raised these concerns with Mr Brooke in a series of meetings held in the days immediately prior to him receiving a written notice of dismissal issued on 9 November 2018. Mr O’Connor was subsequently placed on garden leave until termination of his employment on 10 February 2019.
The tribunal was asked to find whether the disclosures took place, and if so, whether they met the test to be treated as a so-called ‘qualifying disclosure’. According to the emplaw.com website ‘this is the term used in the Whistleblowers legislation (Public Interest Disclosure Act 1998) to identify the categories of information which a worker can disclose to a suitable person without fear of reprisal (or more accurately which will give the worker rights if reprisals are taken against him)’.
At the conclusion of the hearing Employment Judge Max Craft said that despite substantial disputes of fact between the Claimant Mr O’Connor and Mr Brooke he:
“preferred the evidence of the Claimant to that of Mr Brooke. This is because the Claimant’s evidence to the Tribunal, and his response to questions put to him in cross-examination, provided a coherent narrative which confirmed that he has a clear recollection of the relevant events that occurred in his short period of employment with Lendy and had undertaken careful analysis of his issues of concern in respect of Lendy’s business model and governance that arose during his employment.
Furthermore his evidence was supported by the documents referred to the Tribunal during the course of the hearing. This is in stark contrast to Mr Brooke’s evidence to the Tribunal. He often had no, or uncertain, recollection of relevant events about which he was questioned and his answers were often evasive and were contradicted by concerns about Lendy’s business which had been raised by the Financial Conduct Authority during the period under consideration by the Tribunal”.
The first disclosure is said to relate to a report of “an imminent breach of trust by a proposed transfer of assets without adequate consideration” which was said to have been made to Mr Brooke in his office on 5 November 2018. It is reported that “Mr Brooke became red-faced and frustrated during the course of this discussion”.
The background to this disclosure is that “in late October 2018 [Mr O’Connor] shared with Mr Patel, Lendy’s Head of Legal, his analysis of Lendy’s position and responsibilities in respect of the Retained Interest Account, as a result of which he had concluded that Lendy had been systematically, and significantly, mismanaging the Account by using it to pay Lendy’s operating expenses.”
The judgment says Mr O’Connor “and Mr Patel met on 5 November 2018. At this meeting Mr Patel confirmed that he agreed with [Mr O’Connors] conclusions as to Lendy’s operation of the Retained Interest Account. Mr Patel also explained to [Mr O’Connor] that he had sought legal advice from the Company’s solicitors about another instruction given by Mr Brooke… the legal advice received by Mr Patel was that in the circumstances described, these assets were likely to amount to trust property and that, furthermore, transferring such assets away from Lendy to companies owned by Mr Brooke would constitute a further breach of trust in addition to providing no consideration to Lendy.”
Despite a denial by Mr Brooke that this meeting even occurred the tribunal found that it had taken place and that the disclosure was in fact qualified.
His second disclosure was said to have been made later that same day over dinner. It was claimed that during the course of the meal Mr O’Connor was found to have “set out various concerns, which remain unparticularised, as to what he considered was Mr Brooke’s aggressive approach towards his staff which he alleged had created a hostile work environment.”
At the meeting it is said “Mr Brooke did not agree with these observations and criticisms” and that “the extent of the disagreement between them brought their dinner to an abrupt end.”
Ultimately due to the “unparticularised” nature of this second disclosure the tribunal found that this disclosure could not be classed as qualified.
The third disclosure relates to “mismanagement of the Retained Interest Account and overcharging interest to borrowers” which led Mr O’Connor to conclude “there was a need for a full audit of Lendy’s loan book.”
The fourth disclosure related to the potential implications of an opinion that had been received from a lawyer and whether this should have been disclosed to the FCA because of the potential implications it had for the financial projections which the FCA had required Lendy to provide.
It is said the background to this disclosure is that on 6th November 2018 Mr Crascall (Lendy’s Portfolio and Recovery Manager) provided Mr O’Connor with a copy of a written legal opinion from David Halpern QC. This apparently indicated that there was a strong case that Lendy did not have any enforceable claim to interest, and that deficient documents that had been used by Lendy, exposing it to the risk of having to return interest it had collected for its own account in and that it had no right to interest which had yet to be collected.
It was submitted that this was significant in circumstances where the FCA were concerned to know whether Lendy was adequately capitalised to run its business. This was because Lendy was relying on income, predominantly characterised as interest, to meet its operating costs.
It is said Mr O’Connor concluded that Lendy should disclose the Opinion to the FCA because the FCA needed to be aware of such a risk to the reliability of income that was critical to the integrity of its business model.
A fifth disclosure apparently relating to “the inciting or organising of violence” was withdrawn by Mr O’Connor at the start of the hearing and was not considered by the tribunal.
The tribunal found that Mr Brooke’s motivation during the material times of these claims was not the success of Lendy which “was under substantial scrutiny by the FCA” and “facing substantial criticism in the press and on social media, and was in need of substantial further investment to support the business”. It is said Mr Brooke was in fact “actively and urgently pursuing enquiries to sell his shares / interest in the business.”
It was also said Mr O’Connor “alleged that in late September Lendy’s cash reserves had been depleted when Mr Brooke had instructed Lendy’s Financial Controller to transfer £1.5-2million out of Lendy’s reserves to be paid as dividends to his holding company. He explained that this had resulted in a liquidity crisis as a result of which Mr Brooke had then directed that Lendy’s ongoing operating expenses could be met by utilising funds from the Retained Interest Account.”
Mr O’Connor is said to have “raised concerns about his personal position” with Mr Brooke informing him that he would take out appropriate insurance cover to protect his position. The Claimant’s response to that suggestion was to inform Mr Brooke that such cover would not protect either the Claimant or Mr Brooke from facing criminal prosecutions.
It is understood that the “case will now be set down for a Telephone Case Management Preliminary Hearing to discuss and agree / direct further Orders and Directions as may be required and to set this matter down for a Full Hearing“.
The full judgment can be read online.
EMPLOYMENT TRIBUNALS Case No: 1400452/2019
Claimant:
Mr K O’Connor
Respondent:
(1) Mr Liam John Brooke
(2) Lendy Limited
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