Introduction
As I write this column from Trinidad, I notice that the news in the print media and the discussion and talk shows are about the financial implications to the country arising from the collapse of Clico. The TT$12 billion owed to some quarter million Clico Trinidad depositors represents about a quarter of the TT$49 billion national budget, indicating the significant ‘adverse multiplier’ effect on the economy. It is interesting, however, to observe the contrasting sentiments in the two countries, one close to the top of the economic wealth league in the Caribbean, the other close to the bottom. In Trinidad, the first response by the state was to go to the National Assembly and to make appropriate legislation. In Guyana, it was a resolution, of dubious legal force.
More than one year later, the Senate in Trinidad and Tobago is still grappling with the implications of the failure, and the Finance Minister and government senators remind the population that every time money is paid to Clico investors, it is coming from their taxes. In Guyana all the ruling politicians seem to care about is how soon the cheques will be ready. Of course at this stage, the Government of Guyana has not put a single cent into Clico and by a perverse coincidence, it can actually gain millions from capital gains taxes and withholding taxes on the interest paid on some of the so-called insurance policies.
I believe the contrasting responses are due in part to the fact that there exists in Trinidad some level of a political culture while in Guyana, there is none. And that the public is far more informed, savvy and courageous than its Guyana counterpart. Or it is because in Guyana elections are coming up while in Trinidad they have already had theirs. In Guyana, taking from the Treasury to which the whole country contributes to fund repayment of high-risk investments made by a relatively small number of persons is regarded as a sign of leadership to be admired and applauded. In Trinidad, they worry about the impact of the bailout on the economy, and while there is sympathy for the persons with life insurance policies and for those credit unions that had invested in Clico’s high-interest EFPA, the general feeling is that those who invested millions in those annuities did so out of pure greed and ought to have known the risk associated with a 7-8 % rate of interest when the market rate was 3-4%. The feeling is that the loss is a consequence of such risk-taking and should not be underwritten by the taxpayer.
Huge NIS loss
That sentiment should have equal validity in Guyana. In any country, persons deciding to invest tens of millions – and in the case of the NIS, billions of dollars – in a company should at least have had the good sense to ask for that company’s most recent audited financial statements. Rather than taking the word of the Clico’s directors and its salesmen whose only interest was huge commissions, they would have noted that Clico actually admitted in its 2007 financial statements, without quantification, that it was in “non-compliance” with section 55 of the Insurance Act requiring that 85% of its statutory fund be invested locally.
The NIS which has around seven and a half billion dollars invested in Clico has an Investment Committee on which sits one of the country’s senior accountants and one of its senior bankers. Should the workers or the taxpayers of this country suffer to the tune of those billions while those individuals are not even called upon to explain their poor judgment, if not outright negligence? This then raises the question whether the reluctance is due to the fact that the chain of responsibility might lead to the Finance Minister and the President and his cabinet who would have been involved, at some time, in the decision on the investment of those billions. No wonder that the powers that be are unwilling to comply with the NIS Act and make public the 2008 annual report of the NIS which, despite the statements of the Chamber of Commerce and FITUG has already lost tens of millions in interest alone on its Clico investments. In Guyana, there is no need to inform oneself before making high-sounding pronouncements or extending accolades.
The auditors
In my view it was also remiss of the auditors Deloitte and Touche not to have insisted that Clico quantify the extent of the non-compliance by the company with section 55 of the Insurance Act and not to have qualified their audit opinion in that regard, including noting in the audit report, the extent of the breach. Instead the auditors on April 23, 2008 gave a clean opinion on the 2007 financial statements, about ten months before the company collapsed. The only comment in their report is a statement under the heading ‘Report on Other Legal and Statutory Requirements’ to an unquantified statement tucked away in note 28 to the financial statements.
An equally or perhaps even more critical issue is that the auditors, by only dealing with section 55, is saying that the investment made by Clico is not impaired, which is clearly and dangerously wrong.
Unfortunately in Guyana this is passing without any comment from the accounting profession or any investigation by the accounting regulator, the Institute of Chartered Accountants of Guyana. This must surely be an issue for the liquidator, the Official Receiver or the President’s promised inquiry into the collapse of the company. And an issue too for those who may yet lose tens and hundreds of millions – and in the case of the NIS billions – of dollars of the capital invested in the company.
A unique country
Clearly then not only does Guyana have its own unique set of problems, but the need to protect the sacred cows takes precedence over accountability, while the long term is defined in terms of the electoral cycle, with the close of the current cycle merely one year from now. It was therefore important for the President to tell the policyholders that none of them will lose a cent, even if he did not say where the money will come from and equally significantly, does not appear to understand some of the implications of his own proposals. For example, at his National Cultural Centre meeting, the President included as a potential source of funds, the sale of a portfolio of policies. If that is indeed the intention – and that would not be a bad idea – any sale of what are effectively liabilities would have to be accompanied by matching assets which have long since evaporated across the Caribbean Sea. That approach does not provide funds but allows the continuity of the policy, though most likely on altered and less favourable terms.
Legal advice
In closing last week, I made bold to recommend to the Bank of Guyana that it should seek out the advice of the top legal brains in the country as it proceeds with the liquidation. I called for sober thinking and careful action, for it to avoid the attraction of pandering to irresponsible political leadership or endorsing false expectations. It may not be true that cheques are already being prepared in Camp Street, but for sure the Bank of Guyana has published an advertisement in the newspapers inviting policyholders to visit Clico Guyana’s office at 191 Camp Street, Georgetown on specific dates and to take along their policy contracts and a valid form of identification “to facilitate processing,” whatever that means.
Instead, under section 77 of the Insurance Act, the liquidator is required to give to the policyholder notice of the value of the policy as determined by the actuary and the policyholder has fourteen days to dispute the amount. That does not seem to be happening, and if it does not, it would breach the act under liquidation as it was under judicial management which specifically barred Ms Singh-Knight from any role in the judicial management.
As desirable as it might seem that everyone should get back their money, it is hardly open to the government or one of its most senior officials to be openly flouting the law. The government has the wherewithal to amend the law as it sees fit. Confronted with a similar kind of bailout, the US enacted several pieces of legislation including the Emergency Economic Stabilisation Act of 2008 under which the Troubled Assets Relief Programme (TARP) was created. Trinidad also passed special legislation to deal with Clico. Let us not engage in illegality and if we need to amend the law to achieve a desired objective, so let it be.
No role in liquidation
I will deal with the priority of payments later but for now, I continue to entertain fears about the course the liquidation process is taking. I called the Governor on a number of occasions this past week only to be told he was in a meeting/on the telephone. Unusually for him, he never returned my calls. I also called on the telephone, and am aware that a person called at the Office of the Commissioner of Insurance, seeking to inspect and to procure copies of documents deposited under the act, a right provided under section 150 of the Insurance Act.
The person was told that the Commissioner was busy on Clico and would not be able to meet with him for several weeks. Does the Commissioner not know that she has no role in Clico’s liquidation?
Statutory duties
Let us recall that Clico’s winding-up was ordered under Part V of the Companies Act 1991. There are some drafting problems apparent in the relevant provisions of the Insurance Act and the words ‘mutatis mutandis’ should surely have appeared in that act since the Companies Act does not deal with the unique insurance animal. But some things are clear and their breach constitutes an offence.
For example, before taking any action as liquidator, the person appointed is required to notify the Registrar of the appointment and give security in such manner as the court may direct; and must provide the Official Receiver with information, access to, and facilities for inspecting the books and documents of the company. There is nothing to indicate that this has been done.
It is not clear whether section 366 would apply in Clico’s case where a Judicial Manager had preceded the appointment of the liquidator. This section requires a statement of affairs to be prepared and submitted to the Official Receiver, containing some very detailed information on assets, liabilities, creditors, etc. After receiving this statement, the Official Receiver is required to submit a) a preliminary report to the court on the company’s capital; b) its estimated amount of assets and liabilities; c) if the company has failed, the causes of the failure; and d) whether in his opinion further inquiry is desirable as to any matter relating to the promotion, formation or failure of the company, or the conduct of the business thereof.
Generally, a statement of affairs is an absolute prerequisite in receiverships and liquidations and I do not see how or why it should be different in the case of an insurance company that was under judicial management. Indeed, the statement of affairs would seem to be a necessity if the judicial manager is to account for his/her stewardship.
The Official Receiver may also make further reports, stating among other things, whether in his opinion any fraud has been committed by any person in relation to the company since the formation thereof, and any other matters which in his opinion it is desirable to bring to the notice of the court.
Stop press
I have just learnt that the Chief Justice has amended the Order naming the Bank of Guyana as the liquidator of Clico and has instead named Mr Lawrence Williams, the Governor of the Bank. That amendment would seem to have been necessary to bring the order in line with the Companies Act which does not allow a corporate body to be a liquidator.
This is more than a change of form, and has important implications for the person appointed. It is a personal appointment and Mr Williams now assumes personal liability for his actions. Since it is a winding up by the court he must act strictly in accordance with the act. If he wants to appoint an attorney-at-law or other agent to assist him in the performance of his duties, he needs the sanction either of the court or of the committee of inspection provided for under Part V. He may, however, without special approval, appoint an agent to do any business which he is unable to do himself which would suggest those acts requiring exclusive skills which he does not have, such as customs brokerage. Since it is a personal appointment and his powers are conferred within the pillars of the act, Mr Williams will not be able to delegate any of those powers but must exercise them personally.
As Governor, Mr Williams did not seem too concerned about the statutory provisions that set the legal parameters within which the Bank of Guyana as liquidator had to operate. The advertisements for the sale of properties did not suggest that the Bank was au fait or concerned that such sale required that the properties be vested in the liquidator. With personal liability at stake, the need for care is greater.
Within days of this column’s assessment of pitfalls, abysses and craters littering the path of liquidation and my belief that the role of the Chief Justice (ag) in the winding up of Clico is far from over, have been borne out. Old people have a saying, ‘More haste, less speed.’ The new liquidator should take note.
Next week, I will look at Clico’s debts on liquidation and the statutory order of priority.