Liquidating Clico: Avoiding the pitfalls

When I started this series on the failed insurance company I chose the title because of a sincere belief that those who were entrusted with powers and duties for the liquidation of Clico would act responsibly and professionally, and would ensure, at a minimum, full compliance with statutory requirements and ethical standards. Part 1 appeared before the court amended its original order making the Bank of Guyana the liquidator, the amendment appointing in its place, Mr Lawrence Williams in his personal capacity. The significance and ramifications of that change did not seem to affect the conduct of Mr Williams and the Bank of Guyana who together have operated not in accordance with the law but as a cheque-writer seemingly carrying out the publicly announced wishes of the chief politician. That was what the President seems to have expected of Mr Williams as Governor of the Bank, acting as the court-appointed liquidator. He and his team appear to have acted on those wishes rather than in conformity with Part V of the Companies Act under which the liquidation was ordered.

This effective impunity exists because of the way the court normally operates. Once it has pronounced on a matter, either by an order or a decision, it has no further role in the matter. Lawyers, who have historically and almost invariably used Latin to encapsulate major legal principles – and to sound learned – refer to the judicial officer becoming functus officio. The Chief Justice could cringe at how the law in the case of Clico is being abused, but he has little power to do anything about it. The law has detailed provisions regulating the conduct of the liquidator, mechanisms for accounting, accountability and oversight, and a role for the Official Receiver. None of these is being observed. In fact as I pointed out in a letter to the press earlier this week, the process has been handed to or taken over by unauthorised persons who legally have no role in the matter.

Just pay the cheques
It is not that any of these is being done surreptitiously or under the radar. No, they are done in the full glare of publicity and with a disdainful disregard for the law, even by lawyers. And condoned and encouraged by well-meaning individuals arguing that persons have waited long enough to get back their money so the law or some columnist must not get in the way! Just pay the cheques.

The major starting point for the liquidation after due notification would be the statement of affairs summarising the assets and liabilities of the company and indicating their relative ranking. This has not been done and the liquidator has failed to carry out his first major duty. Unauthorised persons have been inserted in the process while the Official Receiver has either been shut out or has stayed out. That is more than personality or formality. It has to do with reporting to the court and investigating into conduct, including frauds.

So what might the financial picture have looked like in the statement of affairs, a document that is required to be filed on the public records? The reality is that the public will never know since the liquidator has chosen not to file one. The Judicial Manager did present to the court a statement of net assets as at February 28, 2009, more than eighteen months ago. The picture presented then was as follows:

Value of net assets
The difference between the carrying values of the liabilities and their best and worst case scenarios is that the liabilities of $4.9 billion did not include the actuarial values of the outstanding policies, those that were genuine insurance policies and those high interest earning instruments that were being sold Ponzi-like and bought by unthinking but often educated individuals looking to make more than an average buck. Those so-called policies were described in the recent court papers as illegal.

Measuring of the loss
What the figures mean is that if assets are sold for the values shown as best case and liabilities met at those values, Clico’s depositors and policyholders would lose $8.1 billion. If they realise and are met at the amounts shown as worst case, the loss climbs to $11.9 billion.

We got lucky and received roughly $3 billion from the Caricom Petroleum Fund, thereby reducing the potential loss on the best case scenario to $5.1 billion and $8.9 billion on a worst case.

The liquidator needs to go after every asset of the company but he may find that there will be pluses and minuses. For example, there are some 4,285,224 shares in Banks DIH Limited valued G$51,422,688 not in the name of Clico and therefore excluded from net assets. Similarly excluded from the value of net property is a property located at 19 Smythtown, New Amsterdam, Berbice with an estimated value of $2 million.

On the other hand, the Judicial Manager has optimistically included a forced sale value of the Camp Street palace at $1.2 billion on a best case and a value of $750 million on a worst case. In fact it seems that the realised value on an arm’s length forced sale may be more around $500 million. President Jagdeo, an economist who has found novel and sometimes illegal means of granting subsidies, has suggested that the government might be interested in buying the asset at a premium!

Another source of inflows is from the various inter-company balances with companies that may have assets on which the liquidator can put his/their hands. Clico Bahamas is dead while CRL, a Clico subsidiary located in Guyana, owes Clico Guyana some $2.2 billion on a loan on which neither capital nor interest was being paid but which the auditors Deloitte and Touche have shown at their unimpaired values. In the statement of net assets at February 28, 2009 prepared by another accounting firm, the CRL balance is shown at nil value, because of doubts about the guarantee. But the loan is secured by a guarantee from the parent CL Financial and a first debenture over the assets of CRL so there may be some assets which can be sold and some money recovered by the liquidator. And on the other side of the balance sheet, Clico Guyana owes Clico Trinidad $941 million, which I think it is safe to say they will not have the gall to claim and which in any case should not be paid.

Priority of payments
Where the assets of a company being wound up are not sufficient to pay the liabilities, the order of payment is crucial. In such a case, who should be paid first is governed by the Companies Act which provides that in a winding up, there shall be paid in priority to all other debts (emphasis mine):

(a) all local government rates and all public taxes of every description due from the company within the period of twelve months before the relevant date and not exceeding in the whole one year’s rates and taxes;

(b) all wages and salary of any employee in respect of services rendered to the company during the period of four months before the relevant date;

(c) all wages of any employee, whether payable for time or piece work, in respect of services rendered to the company during the period of four months before the relevant date; or [sic]

(d) contributions payable under the National Insurance and Social Security Act.

These persons/entities including the NIS and the GRA have statutory priority, but indications are that the liquidator is ignoring this, and it has gone unchallenged by these statutory bodies. In fact, the GRA is doubly affected because its staff pension scheme which is administered by Clico is in no different position from the other schemes with Clico. It has been told that the liquidator and the team to which he has unlawfully delegated his statutory function will look at them after the first set of money has been exhausted. And to make the bad worse, the first cheques that are being written are not to entities such as the legal and proper pension schemes with possibly tens of thousands of members but to unsecured creditors whose policies even the company now admits were illegal.

The amount of the deficit in the best case scenario is within the range invested in Clico by the National Insurance Scheme whose 2008 financial statements show close to one hundred million dollars in accrued income and six billion dollars of unimpaired assets. Admitting that this six billion dollars investment is no longer earning any income for the Scheme, NIS chairman Dr Roger Luncheon is quoted in the Stabroek News as expressing confidence of full recovery since that is what the President promised. It might have been useful for Dr Luncheon to consult with another of his board members, the delegated liquidator Mr Maurice Solomon to get some idea if and when this money will be recouped.

The reality facing the NIS is that its fund is now impaired even as the President tries to fill the hole created by the unlawful conduct of the directors of Clico. Does it matter to him and those who so carelessly invested in the Ponzi-like scheme offered by Clico that they are being rewarded at the expense of the NIS? No wonder then that several months after its completion, the Minister of Finance is contravening the law and withholding the tabling of the 2008 NIS Annual Report in the National Assembly.

No legal sanctions
It is all now history and the public is willing to forget that the NIS was part of the arrangement with Mr Lawrence Duprey, our own Allen Stanford, under which the NIS would invest in Clico to allow the latter to invest in the Berbice Bridge Company Inc (BBCI). Some ghosts do come back to haunt us even as Clico’s director Ms Gita Singh-Knight remains not only an integral part of Clico but also chairperson of BBCI.

Despite all the laws and the rules governing liquidations, nothing will come out of the illegalities that have characterised Clico’s operations over the past several years. There are too many secrets to hide and personalities to protect. Breaking the laws by the Jagdeo administration is commonplace, and if the President can delegate his immunity as he seems to have done at the cultural centre, what is there to prevent Mr Lawrence Williams delegating his in personam duties? After all, this is how things operate in Guyana and this region.

Without placing anything on the table, I would bet that no one will be brought up under section 446 of the Companies Act 1991 dealing with fraudulent trading and operating Clico “with reckless disregard of the company’s obligation to pay its debts and liabilities; or with reckless disregard of the insufficiency of the company’s assets to satisfy its debts and liabilities.”

Or under section 447 of the Companies Act which provides in part that if any past or present officer or liquidator of the company is guilty of any misfeasance or breach of trust in relation to the company, the court can order the person to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the court thinks just.

But it is section 448 that provides the reason why there will be no investigation into Clico’s affairs. It would mean that the court, either on the application of any person interested in the winding up or on its own motion, direct the liquidator to refer the matter to the Director of Public Prosecutions. Sections 446 to 448 clearly do not apply to Clico.

All that is being done illegally could with some imagination have been done legally. For now, Business Page will give up on thinking that it can persuade those involved to mend their ways. It will turn its attention to other things.

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