CLICO (Bahamas) was on Tuesday ordered wound up by Justice Cheryl Albury, a move which makes the prospect of CLICO (Guyana) recovering its $6.9 billion (US$ 34 million) even dimmer.
In her ruling in Nassau, The Bahamas, Justice Albury expressed satisfaction that the petitioner, Registrar of Insu-rance Lennox McCartney, had proven that CLICO was unable to pay its debts, and that the value of its liabilities was greater than its assets. Consequently, she determined that the company is indeed insolvent, a report in yesterday’s edition of the Nassau Guardian said.
This decision comes after the Bahamian company was ordered liquidated on February 24.
Albury’s ruling means that all of the company’s assets will be sold to pay off its creditors, and the remaining assets, if any are available, will be distributed to the principals of the company.
According to the report, all but one of the attorneys involved in the liquidation case, supported the move by the judge. These included David Higgins, a lawyer in the Attorney General’s Office (who represents McCartney), Glenys Hanna-Martin (who represents Bahama Island Resorts and Casinos Cooperative Credit Union), Godfrey ‘Pro’ Pinder (who represents policyholders), Luther McDonald (who represents CLICO’s directors) and Diane Stewart (who represents First Caribbean Inter-national Bank, a creditor). The exception was Damian Gomez, who represents several policyholders, including Senator Allyson Maynard-Gibson.
Efforts by Stabroek News to contact Judicial Manager of CLICO (Guyana) Maria van Beek yesterday to ascertain whether Guyana’s representative was present at this court session proved futile.
Meanwhile, during his submissions on Tuesday, David Higgins said that the petition clearly demonstrates that the company is unable to pay its debts.
The provisional liquidator’s report showed that as of March 18, 2009 CLICO’s liabilities were in excess of its assets by US$18 million. The liquidator, Craig Tony Gomez, noted further that the company’s most significant asset — a loan due from CLICO Enterprises Limited (a subsidiary of CLICO) which was used to purchase a piece of Florida real estate — is not anticipated to be realized in the short term. Additionally, Higgins noted that CLICO has an unpaid claim in the Turks and Caicos Islands of US$2.6 million that it had no means to pay.
However, Damian Gomez objected to the petition for the immediate winding up of CLICO and requested that the order be postponed. More than 29,000 policies continue to be in limbo and according to the Nassau Guardian, it is unclear whether the policyholders will lose any money as a result of this winding-up order.
Damian Gomez further argued that the liquidator did not produce sufficient evidence to prove that the company is indeed insolvent.
The liquidator in his report had stated that provided he is able to recover at least $25 million on the major investment the CLICO Bahamas subsidiary made in the Florida real estate development, all secured creditors should be made whole.
Damian Gomez on Tuesday argued that this US$25 million coupled with a US$50 million guarantee in Trinidad and Tobago could provide an additional US$75 million in assets for CLICO (Bahamas). Based on this fact, the attorney questioned whether the conclusion to wind up the company could be relied upon and said there was considerable doubt whether the firm was insolvent.
The attorney said the conclusion that the company is insolvent was made in the absence of any appraisals of the assets of the company and without any logical basis for reducing the value of the property in Florida.
He questioned the liquidator’s expertise in determining the value of real estate. The attorney argued that while Craig Tony Gomez is a qualified accountant, when it came to real estate values he was incompetent. The attorney noted that there was no actuarial report or certificate demonstrating that the company is insolvent. “In the absence of that type of evidence one ought not to conclude that the company is insolvent,” he cautioned.
Damian Gomez said the petitioner ought to provide the court with the evidence that is normally used to attribute value. He added that even though none was given, the court is still being asked to draw the conclusion that there is a balance sheet of insolvency.
The attorney said the conclusion that the company is insolvent was made in the absence of any appraisals of the assets of the company and without any logical basis for reducing the value of the property in Florida.
Attorney Sidney Collie, who represented a group of policyholders and Bahamasair Provident Fund, said that he was concerned that if the application is delayed pending a determination of the guarantee, it would drag out the case.
Higgins argued that the case would be stalled indefinitely if the court were to go after the US$50 million guarantee in Trinidad and Tobago, where CLICO’s parent company CL Financial is located.
CLICO (Guyana) has found itself in its own financial woes. After CLICO (Bahamas) was ordered liquidated, the local company was placed under Judicial Management. The local company’s investment in CLICO (Bahamas) represents 53 per cent of the firm’s assets. Although, these investments were liquid on paper it was discovered that they were tied up in real estate in Florida through subsidiaries of the Bahamian company.
Last week Monday, the Bahamian liquidator Craig Gomez proposed that the amount dispatched from Georgetown be reclassified as unsecured intercompany advances.
The liquidation projection reflects an ability to pay off policy owners and secured creditors in full provided the court agrees with some ‘critical assumptions’ – which impinge directly on the Guyana funds. One such assumption by Craig Gomez is that balances with CL Financial (CLICO (Baha-mas’) Trinidad-based parent company) and its subsidiaries are unsecured debts and rank after Bahamian policy owners in a liquidation, and are thus not included as secured creditors in the liquidation projection. Another assumption is that funds transferred to the Turks and Caicos branch of CLICO (Bahamas) from Guyana, Trinidad and Suriname – annuity products sold by associated group companies to their own citizens – are not policy owner liabilities of CLICO (Bahamas), but rather unsecured advances due to affiliated companies.
“We believe these liabilities should remain as policy owner liabilities of the originating company and such amounts have been removed from CLICO Bahamas policy reserves and reclassified as unsecured intercompany advances in the liquidation projection,” the affidavit said, according to the Nassau Guardian.
The liquidator presented a twin-fold rationale for this treatment: CLICO (Bahamas) was never licensed to do business and has never sold insurance products in those countries and therefore cannot have policy owner liabilities in those countries.
The other reason listed by Craig Gomez is that CLICO (Bahamas) has no relation with individual policy owners, and no policy documents were ever delivered. “The documents in the files solely related to the transfer of funds to the Turks and Caicos,” according to Craig Gomez.
Another assumption listed in the affidavit is that CLICO Bahamas’ core life and health policy owners and the CD annuity policies rank pari-passu (without partiality) under a fairness doctrine. The liquidator contended that although one could argue a case that bank CD-type products are not genuine insurance products, the facts are that insurance regulators gave their approval to the product, the policy was marketed and sold by a registered insurer, and other competitors also sell similar products.
Craig Gomez also stated in his affidavit that the audited financial statements for 2007 contained policy reserves that appear to have been understated regarding both the life and the CD annuity contracts. He said the actuary did not appear to take account of the risk of loss of interest on loans to a subsidiary to finance the real estate investment in Florida.
“The actuary has significantly changed the valuation basis from prior years which will reflect in materially higher policy reserve numbers and an enormous operating loss for 2008,” the affidavit says, according to the Nassau Guardian.
Critically to Guyana, he added, “The achievement of sufficient assets to meet the CD annuity reserves is dependent on relegating the Guyana/Suriname funds to unsecured status. On the other hand, should they participate, the distribution to the annuity policy owners will be much reduced which will sandbag any strategy to sell the core portfolio.”
President Bharrat Jagdeo subsequently announced that the Government would challenge this classification by the liquidator. It is unclear if any such challenge was mounted. According to the Head of State, this classification would mean that Guyana would have to wait until policyholders are paid out of the proceeds of the liquidation before receiving its share. “If it is classified as an inter-company loan then in the settlement of the liabilities, it will go down the hierarchy. So first of all, from disposal of assets, they will settle policies and then whatever remains they’ll settle these other transactions. So now we are taking steps to fight that classification, to argue no, we had a policy there.”
President Jagdeo has given repeated assurances that no investor in the local company will lose their money.
Van Beek, meanwhile, has taken action against CL Financial Ltd (the parent company of CLICO) and was able to secure injunctions against that company and some of its subsidiaries preventing them from receiving payments from Guyana.