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By Patrick Hoyos | Sun, March 18, 2012 – 9:38 AM
I understand there is some interim report of a forensic nature on CLICO. I repeat I have never seen it. I saw reference to its contents made in a local newspaper. I never trust the contents of that newspaper. – Prime Minister Freundel Stuart speaking last Wednesday during the Estimates Debate in the House of Assembly.
Having thus declared himself uninformed about the state of the forensic investigation into CLICO International Life insurance company (CIL), the Prime Minister went on to plead for somebody to show him the report. As far as he is concerned, the only place anybody is talking about some forensic audit is in a newspaper which he does not trust and presumably does not read.
When I heard Mr Stuart taking this tack on Wednesday afternoon, I nearly drove off the road. Here you have a Prime Minister proclaiming ignorance about possibly the most earth-shattering report prepared by an independent investigator on the most significant financial collapse ever to take place in Barbados, not to mention the rest of the region.
The road that led to the preparation of the Deloitte forensic audit was paved by the administration Mr Stuart himself leads, after two years of vacillation by his predecessor. In March 2010, 14 months after the Trinidad and Tobago government had to go in and rescue CL Financial and ten months after the Barbados Government entered into a similar memorandum of understanding with CLICO Holdings Barbados Ltd (CHBL), then Prime Minister David Thompson issued a warning to policy and annuity holders in the same House of Assembly.
He said that unless a way was found to restructure CIL, which involved its getting a substantial haircut, the whole thing might have to be placed under judicial management. This actually became the recommendation of the Oversight Committee in its memorandum to the Cabinet in mid-2010.
The Democratic Labour Party administration took ten months to emerge from its CLICO-induced stupor to actually act on Mr William Layne’s recommendation that a judicial manager be appointed, doing so in April 2011, six months after the death of Mr Thompson.
So how can a Prime Minister, whose administration had taken the fateful decision to put CIL into the hands of the High Court so that the equivalent of a receiver could be appointed, now be so out of the loop that he himself is not abreast of the latest events? That is, the contents of the forensic report?
Late last month, the judicial manager Deloitte Consulting Inc. said in a Press release that a recommendation which it made was “accepted by the court for the Financial Services Commission (FSC) of Barbados to initiate, with the assistance of the appropriate Government agencies, further investigations into the significant transactions identified in the forensic report and pursue any required criminal and/or civil legal actions”.
According to Deloitte, a main goal of the audit was to investigate the “amounts due from related companies” which totalled Bds$370 million at the date of appointment of the judicial manager. It said: “The forensic team was able to identify substantially all of the intercompany balances during the course of the audit.”
But it noted that “access to documentation, held by related entities which are not subject to judicial management, would be necessary to establish the validity of certain transactions”.
Remember, only CIL was put into judicial management, not its parent company CHBL, for which the audit said it acted as banker. That is presumably why the other Government agencies have been brought into the loop.
Mr Stuart, surely one could reasonably infer from that statement that the FSC would have by now received a copy of the forensic audit, not to mention whichever other Government agencies would have the power to investigate those “significant transactions” in order to “pursue any required criminal and/or civil legal actions”.
How broken is our administrative system that every Government agency connected with crime and punishment in this country now seems to be cooperating in pursuing leads from the forensic audit into whether there might have been any wrongdoing in the disposition of CIL money, which should have been there for its policy and annuity holders, yet the Prime Minister has still not seen a copy of said activity-triggering report?
The forensic report did not appear in the pages of THE NATION from out of the blue, Mr Stuart.
It is a circulating, finger-pointing document that has put your own political administration in a stranglehold. The court has put it in the hands of law and regulatory enforcement and the possible outcomes (at least in one’s imaginings) are frightening.
Yet, by your own admission, you still have not read it. You remain out of the loop.
But it shouldn’t be too hard to get a copy. I humbly suggest you do so, and read it. You may weep.
• Pat Hoyos is a publisher and business writer.
FOR IMMEDIATE RELEASE
ECCU GOVERNMENTS UPDATE:
BRITISH-AMERICAN INSURANCE COMPANY (BAICO)
CLICO INTERNATIONAL LIFE INSURANCE COMPANY (CIL)]
On October 21, 2011, the ECCU Governments through the communiqué of the Monetary Council provided an update on the implementation of the BAICO restructuring strategy.
This release provides the first update for 2012 on progress in respect of BAICO and CIL matters.
1. BRITISH-AMERICAN INSURANCE COMPANY
Progress of the sale of BAICO’s Traditional Insurance Business
We expect that the process for the sale of the traditional insurance business of BAICO in the ECCU will be completed well before the end of this year.
A number of bidders are currently participating in the sale process, and we anticipate that a bidder will be selected and formal documentation entered into around the end of the first quarter of 2012.
Once final documentation is agreed with the purchaser, the process of obtaining approvals of the transfers throughout the ECCU and in The Bahamas will commence. This is the final phase of the process of selling BAICO’s traditional business.
Assisting BAICO’s non-traditional policyholders
The ECCU Governments have continued work necessary to identify how it will be possible to provide assistance to BAICO’s policyholders in the ECCU who have non-traditional policies, such as Executive Flexible Premium Annuities (EFPA), and who will thus not have their policies participate in the sale of BAICO’s traditional business. These policyholders include individuals, as well as important institutions within the ECCU, such as banks and credit unions.
Funding is still being sought from the Government of Trinidad and Tobago in order to provide financial support to these policyholders.
Litigation by BAICO
Litigation is continuing in Trinidad and Tobago by BAICO against CL Financial for the recovery of a US$49.5 million debt owed by CL Financial to BAICO.
Importantly, BAICO has also commenced litigation in the United States by filing a complaint against BAICO’s former directors for alleged breach of their fiduciary duties by entering into a series of speculative real estate investments in the United States which caused harm to BAICO including rendering it insolvent. The complaint also includes claims against other parties connected with the real estate transaction. Some of the former directors being sued include Lawrence Duprey and Brian Brancker.
ECCU/BAICO Health Insurance Support Fund (“Fund”)
As planned, the Fund, established by the ECCU Governments to meet BAICO’s obligations to claimants under Health Insurance policies, closed for applications on December 31, 2011 after over seven months of operation.
The Fund has received over 1,300 Applications for assistance, and is ultimately expected to pay out in excess of EC$3 million to health insurance policyholders.
2. CLICO INTERNATIONAL LIFE INSURANCE COMPANY (CIL)
On April 14, 2011, Deloitte Consulting Ltd. (“Deloitte”) was appointed as Judicial Manager of CIL’s head office operations in Barbados. Deloitte has also been appointed as Judicial Manager of CIL’s branches in Grenada, St. Vincent, Dominica, Antigua and Anguilla. Richard Surage of PKF was appointed as Judicial Manager of CIL’s St. Lucia branch and Omax Gardner also of PKF was appointed as Judicial Manager of CIL’s St. Kitts & Nevis branch.
By press release dated January 27, 2012, the Judicial Manager of CLICO International Life Insurance Limited reported that the first stage of the investor identification process for the Company is now well underway.
The release said that the objective of this process is to identify an investor with depth of management and the financial capacity necessary to provide greater confidence to policyholders and regulators as it relates to the viability of any new entity which may emerge from the existing operations of CIL.
During this first stage, several expressions of interest in CIL were received from local, regional and international investors and it is expected that other expressions would be forthcoming. The Judicial Manager will seek to conclude negotiations with one of the interested parties within the next five to six months, subject to necessary Court and regulatory approvals.
A recommended course of action based on the results of the concluded forensic audit, will be made by the Judicial Manager during its next update to the High Court of Barbados in February 2012.
The ECCU Governments continue to work steadfastly to identify solutions for individuals and institutions affected by the BAICO and CLICO situation. We wish to reiterate our appreciation to the citizens of the region for their patience as this work progresses.
We will continue to provide updates as developments occur.
The Governments of the Eastern Caribbean Currency Union
February 10, 2012
By Stephen Alleyne
From time immemorial we have had people in Barbados accepting directorships on the boards of companies and statutory corporations without ever addressing their minds to the serious duty the law imposes on them as directors, but I feel that is about to change in the wake of the collapse of CLICO.
Clearly, the role of an individual director is not to sit passively while certain co-directors – who may be considered king-pins or may even be shareholders in the entity they serve – dictate to them or do as they wish carte blanche. Each director is under the law answerable for his performance during his or her tenure of service.
To bring this into perspective, it is always good to look first at what the legislation says about the particular area of law. Under section 95(1) of the Companies Act, Chapter 308, every director of a company in exercising his powers and discharging his duties is required to: (a) act honestly and in good faith with a view to the best interests of the company; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
The Act goes on to say in section 95(2) that a director, in determining what the best interests of the company are, must have regard to the interests of the company’s employees in general and the interests of the company’s shareholders. However, what section 95(3) of the Act says is extremely important: it goes on to say that the duty imposed on the directors by section 95(2) is owed to the company alone, and that it is enforceable the same way as any other fiduciary duty that the directors owed to a company.
What the Act has done in the section 95(2) is to make it clear that the duties imposed on company directors under section 95 are indeed fiduciary duties and has also made it clear that there are other fiduciary duties imposed on company directors by law, besides those spelt out in the Act. To glean and understand the other fiduciary duties imposed on company directors, it is necessary to examine the common law to understand how they have evolved and continue to evolve, an exercise which it is impossible to achieve in a single article.
In the recent Cayman Islands case of Weavering Macro Fixed Income Fund Limited (In Liquidation) v Stefan Peterson and Hans Ekstrom, a case decided in the Grand Court of the Cayman Islands, for example, the official liquidators of the Macro Fund brought a claim against Stefan Peterson (Stefan) and Hans Ekstrom, two of the directors of the Macro Fund, for damages for breach of their duties as directors of the fund.
The Macro Fund was incorporate in 2003 as an open-ended investment company, and, except for the composition of its board of directors, it had a conventional management structure. However, Magnus Peterson, the brother of Stefan and stepson Ekstrom, was the owner and controller of Weavering Capital (UK) Limited, the investment manager of the fund. He had appointed Stefan and Ekstrom as directors of the fund to meet minimum “legal requirements without burdening himself with a real board of directors who could be expected to perform their supervisory role in an ordinary businesslike manner”. Ekstrom by then had retired and Stefan had been working for an insurance company in Oslo.
The practice in the Cayman Islands is that investment management, administrative and accounting functions are delegated to professional service providers, but a company’s independent non-executive directors retain a high level supervisory role. Those three functions were in this case properly delegated to one of Magnus Peterson’s company and PNC Global Investments Servicing (Europe) Limited, but that did not absolve the two directors, ostensible as they may seem, from the duty imposed on them by law. They had hardly, if ever, attended any directors’ meetings and all they had done was to rubberstamp various documents delivered to them. The liquidators alleged that they were in breach of their duty to exercise independent judgment, to exercise reasonable care, skill and diligence and to act in the interests of the Macro Fund.
Having found that the structure of the Macro Fund was not materially different from other open-ended investment companies registered under the mutual funds law of the Cayman Islands, the court, adapting conventional company law principles in the circumstances, concluded that the relevant principles of law were, among other things, that:
• Whilst independent directors rarely have the technical expertise and experience to be able to monitor sophisticated investment strategies and trading techniques in a direct hands-on manner, they are expected to satisfy themselves (on a continuing basis) that the fund is complying with investment restrictions set out in the offering documents and to acquire a proper understanding of the financial results of the investment and trading activity, without which they would not be in a position to perform an overall supervisory role.
• It is their duty to satisfy themselves that there is an appropriate division of function and responsibility between the investment manager and administrator. They need to satisfy themselves, on a continuing basis, that the various services providers are performing their functions in accordance with the terms of their respective contracts and that the managerial and/or administrative functions which ought to be performed are left undone.
• Independent directors must do more than simply react to whatever problems may be brought to their attention by the other professional service providers. They must apply their minds and exercise an independent judgment in respect of all matters falling within the scope of their supervisory responsibilities.
• Reviews of financial accounts must be conducted in an inquisitorial manner, the directors making appropriate enquiries of the administrator and auditor. The directors are not entitled to assume that the other service providers have all performed their respective roles (actual or perceived) and therefore do not need to be supervised in any way whatsoever.
• Independent directors are expected to be able to read a balance sheet and have a basic understanding of the audit process. If they accept a responsibility for a fund’s financial statements (by issuing management representation letters and signing financial statements), it is their duty to exercise an independent judgment in satisfying themselves that the financial statements do present fairly the fund’s financial condition.
The court found in conclusion that the two directors here were guilty of willful neglect and default because they consciously chose not to perform their duties to the Macro Fund, or at least not in a meaningful way. The court awarded damages in the sum of US$111 million against each of the directors and costs.
These principles of law discussed in this case should stir the minds of all directors in this country and make them understand that their appointments come with a heavy responsibility. Directors must not be mere automatons who sit passively and take instructions from other directors of the boards they serve, but must use their own judgment in the decisions they make. Of course, under the Companies Act, a director may dissent to a resolution passed or action taken at a meeting, but he must request that his dissent be entered in the minutes of the meeting and he must send his written dissent to the secretary of the meeting before it is adjourned or to the registered office of the company.
(Stephen Alleyne is an attorney-at-law and former member of the Royal Barbados Police Force.
By Sanka Price | Wed, March 07, 2012 – 12:00 AM
To Barbadians who do not have insurance policies with CLICO International Life (CIL), the revelations emanating from the judicial manager’s forensic audit are more tragic twists in the ongoing saga of this once powerful conglomerate.
We can shake our heads in disbelief at how the money of trusting people was misused with little regard for transparency and accountability by a company one would have expected better from.
And I thank God that I never put a cent of my hard-earned cash into anything that company was selling.
But for the 27 000 CIL policyholders who did invest, this heart-rending public drama is their reality.
This sad, sordid story on CIL is not only a disillusioning tale about bad management of a multimillion-dollar entity, a lack of stringent regulation by the appropriate Government agencies, questionable money deals by prominent individuals and, now, posturing by politicians from both parties instead of a bipartisan approach to plug the legislative holes this tragic episode was allowed to slip through.
Rather, this affair is about people and how they have been disadvantaged. In the last few weeks I have encountered some of these individuals and today will share some of their stories.
Following a column I did last month I was contacted by a woman who explained how she returned to Barbados after living overseas for more than 30 years. She had a personal accumulation of about $300 000 and with a child preparing to return overseas to study, and her not being able to get a job here, she put her lifetime savings in a fixed deposit with CIL as that company offered the highest interest rate.
“I made a deposit with a reputable company with a guarantee that I would get my money back with more interest,” she said.
Today this woman is in her early 50s, still unemployed and admitted that sometimes she does not know where she will get money from to just buy food. She owes everyone money, and her child, now overseas, is struggling as she cannot support him as planned. Her CIL policy has long matured but she cannot get any of her money.
Another woman related her story: “In 2004, I wanted to find a no- to low-risk home for my life savings so that I could either convert them into an annuity, or take the cash and decide how best to ensure my continuing financial stability. I was introduced to a CLICO agent, who offered me a ten-year plan which served the purpose well. After eight years, I could even take out my savings plus interest with no penalties, or convert the accumulated amount into an annuity.
“Being in receipt of a pension, I set aside enough savings for additional expenses during those eight years. At the time, interest rates were around 4.5 per cent, so contrary to popular belief, the interest rate for a ten-year savings plan of 6.5 per cent was not that outstanding, and was not even guaranteed for the entire period.
“However, I looked at CLICO’s history and its sheer size and regional presence, and when I asked around, comments included the perhaps prophetic, “it is as safe as it gets. If CLICO goes down, Barbados goes down”.
“Now I have had to borrow money and run up debt and may have to sell my house in order not to face my final years in misery.”
The third is a 55-year-old female who now finds herself working late-night hours for a minimum wage just to survive.
This mother of three married early but literally had to run from her abusive husband. She said: “I was not 30 yet, with three children who the court had awarded me sole custody of. Both my parents were dead, and I wanted no contact with my ex – therefore no support.
“I worked hard for many years; I held two jobs, 8 a.m. to 4 p.m. at my day job, then 6 p.m. until at my night job. This was necessary in order to support my children.
“Later I was in a long-time relationship, and after about ten years of living together I decided to go after my dream of owning my own home. I secured a mortgage from CLICO, paid all the fees myself, and moved into my dream home. Two years later, because my partner did not live up to his commitments, I could not continue to make the mortgage payments alone. CLICO did not hesitate to take my home.
“In 2008 and in my own business, my trusted insurance agent suggested it would be better to transfer my pension to CLICO. This I did, and in September 2008, a cheque was deposited with them. Exactly one week later, the news broke of CLICO’s financial situation, and from that day I have been trying to get my money.
“CLICO took my home. I have no business, just scraps left. I have sold almost everything I own to pay bills . . . all because CLICO has every cent I have slaved for for 33 years.”