A review by Business Page of Sunday Stabroek of May 5, 2013 of the annual reports and financial statements of three companies, including Caribbean Container Inc. (CCI), about which three concerns were raised, drew a sharp response from Mr Ronald Webster, that company’s Chairman and Managing Director in respect of one of those concerns which dealt with his controlling interest in CCI. It was Mr. Webster’s view that the column ignored certain statements in CCI’s annual reports for the years 2005 through to 2012.
So what did Business Page ignore? Here are five assertions in the reports by Mr. Webster as the company’s Managing Director and by the Board of which he is Chairman, each followed by the facts gleaned from publicly held records. I add some comments as seem appropriate.
Assertion 1: That the shareholders of Technology Investment and Management Inc.(“TIMI”), up to the time of the death of Mr. Colin Wiltshire, were Mr. Ronald Webster and Mr. Colin Wiltshire. (See page 15 of 2009 Report of the Directors).
The facts: The annual returns and audited financial statements of TIMI filed with the Registrar of Companies for the period 2004 to 2010 indicate Mr. Ron Webster was the only person to whom any shares in TIMI were ever issued until December 20, 2012 when 600 class “A” shares valued at $5,618,000 were issued to Ms. Patricia Bacchus in consideration “for past services. Ms. Bacchus joined the company as a Consultant in September 2006, became Company Secretary in 2007 and was later appointed Director of Administration and Chief Operating Officer.
The Annual Reports indicate that 500 shares may have been allotted to Mr. Wiltshire but were never issued to him and accordingly he was never a shareholder in TIMI. Incidentally, under the Companies Act 1991, a shareholding does not vanish on death, the personal representative becoming entitled to be entered in the company’s register of members.
Unfortunately for Mr. Wiltshire his “18 years of exemplary service including ten as Director, Administration”, and as an incorporator of TIMI were not regarded by Mr. Webster as adequate consideration for the issue to him of 500 shares valued at between $50,000 (the minimum issue price of the shares) and $500,000 (computed at the price at which Mr. Webster issued shares to himself).
Assertion 2: That TIMI was formed to provide turnaround management services in Guyana and the Caribbean.
The facts: Since its incorporation on January 16, 2004, TIMI carried on absolutely no business, not even management services to CCI with which it shares common officers. Except for the shares in CCI’s holding company transferred to Webster’s company TIMI, by Rand-Whitney Caribbean, and the issue of shares by TIMI to Mr Webster and Ms. Bacchus, TIMI has had no transaction of any materiality or note.
The records indicate that TIMI is a passive holding company and raise the question whether the company was anything more than a vehicle for the principal if not sole purpose of taking over Rand-Whitney Caribbean’s interest in CCI for the benefit of Mr. Webster. TIMI was so passive that it was not until January 2012 that it had its first audit after eight years of existence.
Assertion 3: That the articles of TIMI permit shareholding in TIMI by managers of its subsidiaries and affiliates, including CCI.
The facts: While the Articles do so provide the public records show that except for shares issued to Ms. Bacchus no shares were ever issued to any managers of TIMI or CCI or indeed to anyone else. It is noted that at the time of the purported buyout the management team of CCI consisted of ten persons including two executive directors other than Mr. Webster. Yet in that purported management buyout, the records show that Webster issued shares only to himself.
Assertion 4: That TIMI acquired the 85.31% of the shares in CCI from Rand-Whitney Caribbean under a right to purchase arrangement.
The facts: The audited financial statements of TIMI indicate investment at the cost of $300,000 Guyana dollars, or US$1,500for the 100% shareholding in Demerara Holdings Inc. That investment gave TIMI control of 129,670,230 shares (or 85.31%) in CCI. Moreover, an examination of those financial statements discloses no payment to Rand-Whitney Caribbean but merely a provision of $300,000 which has remained unpaid ever since the purported purchase transaction was made at the end of 2006.
Strangely, the auditors of TIMI, TSD Lal & Co. have concurred with the description of the investment in the financial statements as Cash in Hand and at Bank.
Using the stock market value of a CCI share at December 31, 2006, the value of the shares thus acquired was $259,340,460 Guyana dollars, or 0.12% of the then market value. Having paid $442,000 for his shares in TIMI, Mr. Webster gained an 85.31% controlling interest in CCI. At a current stock market price of CCI’s shares of $10, Mr. Webster’s investment is worth more than $1.25 billion!
Assertion 5: That TIMI had submitted a detailed restructuring and management buyout proposal to the Republic Bank Group on behalf of CCI management.
The facts: The negotiation between Rand-Whitney Caribbean and Mr. Webster in which he effectively acquired 85.31% of CCI’s shares is not a “management buyout”. Even if Mr. Wiltshire was issued with any shares in TIMI that would still not constitute a management buyout, either applying the definition of the term in Barron’s Dictionary of Finance and Investment Terms – 8th Ed. as “thepurchase of all of a company’s publicly held shares by the existing management, which takes the company private”, or considering that there were ten management personnel of CCI including one non-executive director other than Messrs. Webster and Wiltshire at the time of the transaction in 2006.
Here are some other facts of note:
1. TIMI was in breach of the statutory requirement regarding the lodging and filing of Annual Returns and audited financial statements with the Registrar of Companies in respect of all the years from 2004 to 2010 by periods ranging from 7 ½ yearsin respect of 2004 and 1½ years in respect of 2010. In corroboration, the public records reveal that accounts and reports of the auditors for the year 2004 – 2010 were approved by the two shareholders of TIMI – Ron Webster and Patricia Bacchus – on January 24, 2012.
2. On its incorporation, the registered office of TIMI was at the residence of Mr. Ron Webster but later moved to the chambers of Hughes, Fields and Stoby who are also the attorneys for CCI.
3. Note 23 of the 2006 audited financial statements of CCI reported that “TIMI has been instrumental in the negotiation phase between CCI and the Republic Bank Group and the promotion of the compromise settlement.” The only officers of TIMI – Messrs. Webster and Wiltshire – were paid officers of CCI, yet at least one of them – Webster – was engaged in negotiations in which he was a major beneficiary. In corporate law this is considered a breach of fiduciary obligation to CCI which subjects the fiduciary to the highest burdens of fair dealing beyond those of all persons engaging in contractual dealings.
It is instructive to quote from Canadian Corporate Law, Cases, Notes and Materials, 4th Edition by Welling, Smith and Rotman where on page 363 the writers stated emphatically that “A director or officer who profits out of a conflict between self-interest and fiduciary duty to the corporation is liable to give up those profits”. It may be helpful in the circumstances to refer to the following dictum of Lord Herschell in Bray v. Ford, [1896] A.C. 44 at p. 51 (H.L.):
It is an inflexible rule of equity that a person in a fiduciary position …. is not, unless otherwise, entitled to make a profit; he is not allowed to put himself in a position where his interests and his duty conflict.
The writers continue on page 364 that “the principle clearly covers the case of managers who are interested in corporate contracts, but the principle can cover other situations as well”.
In summary, the statements repeatedly carried in annual reports of CCI are clearly contradicted by the facts. While $300,000 might have been booked by TIMI as the cost to acquire an 85.31% interest in CCI, the books of TIMI do not show any payment as having been made.
The duty of fiduciaries to refrain from benefitting from corporate opportunities – such as a share-buyback – is well established in law. But that duty can and probably often is overlooked when the fiduciary is also the controlling shareholder, chief executive officer, chairman of the board and the manager of information flows to shareholders, the public and regulators.
Despite the overwhelming control of CCI by Mr. Webster, it remains a public company. Such companies must pay not only lip service to corporate governance: they must observe and practise it. Non-executive directors, who have no lesser fiduciary duties than executive directors and officers, must be prepared to take the lead.