Judge gives Government the go-ahead: Liquidate CL Financial

Cash-strapped conglomerate CL Financial (CLF) is to be liquidated.

In an oral decision yesterday, Justice Kevin Ramcharan gave the go-ahead to Government to have CLF wound-up as it seeks to recover a $15 billion debt to taxpayers as part of the 2009 bailout of four of the company’s subsidiaries. As a result of the court’s ruling, CLF’s operations will now be fully placed in the hands of the two liquidators appointed in July. They will be responsible for management of the company and its assets during the period of winding up.

Justice Ramcharan said there could be no doubt CLF was unable to pay its debts and is insolvent. He also said the majority shareholders of the company — who were shut out of court proceedings after failing to show they had sufficient interests to be heard in opposition to Govt’s petition — did not credibly establish that CLF was solvent.

Ramcharan referred to action of the shareholders who in July abandoned a move to change the composition of the government-controlled board, saying the State’s petition for liquidation was a ‘possible consequence’ of that. According to the judge, based on the principles of granting the order being ‘fair and just,’ the Government - as the major creditor which sought to have CLF liquidated - established its prima facie rights for liquidation of the company.

DECISION NOT TAKEN LIGHTLY

The judge said the liquidation to wind up a company with the history of CLF could not be taken lightly, but based on cold evidence advanced by the State, the court had no option but to grant the petition. In her submissions, lead counsel for the State Deborah Peake, SC, referred to evidence of Finance Ministry Permanent Secretary Vishnu Dhanpaul - in whose name the petition was sought - saying CLF was not only cash flow insolvent but also, balance sheet insolvent.

Peake pointed to evidence of the provisional liquidators appointed by the appellate court in July and that of independent chartered accountant Colin Soo Ping Chow, both of whom noted that CLF’s liabilities were far greater than its assets. According to Soo Ping Chow, CLF’s capital was completely eroded and there was a $4.2 billion deficit, which did not take into account the $15B owed to Government.

In their report, dated August 17, provisional liquidators Hugh Dickson and Marcus Wide pointed to significant debts on which current demand for payment have been made, amounting to $4.5 billion.

This figure did not include the $15B owed to Government. CLF’s management accounts, dated June 30, show a shareholders’ deficiency of $3.44B, before taking into account obligations to Government as part of the 2009 bailout agreement. “You cannot want better evidence of insolvency. It is an impossible situation they are unable to get themselves out of,” Peake submitted. “It is clear as day, this is clearly an insolvent company,” she added.

OPPRESSION

Speaking immediately after the court’s ruling, Carlton Reis a representative of DALCO — one of CLF’s shareholders — again maintained that Government’s action was oppressive. Reis, who has said DALCO and another group of shareholders led by businessman Kirk Carpenter were willing to repay the $15B debt to Government, said the court’s order was expected.

“CLF has no defence. It was himself unto himself,” he said, adding that Government simply won this round. He said shareholders are now going to look at their legal options since they are not going to let Govt run away with the company. It was not a good week for the CLF shareholders, who hold majority shareholding in the company, as again yesterday they found themselves saddled with another order for costs.

DALCO, which pursued an appeal of Justice Ramcharan’s decision to shut them out of the proceedings, was ordered to pay costs after Justice of Appeal Andre des Vignes dismissed the application on the basis that it was erroneous as it challenged a decision the lower court did not give. The shareholders led by Carpenter, did not appeal.

In its winding-up petition filed on July 11, government claimed that the company’s level of insolvency still poses a systemic risk to the country’s financial system and after eight years, it will not recover to a satisfactory state of solvency. As the principal creditor - by virtue of the $23 billion bailouts of CLF and its subsidiaries in 2009 - the Government has the majority of the directors on the board and sought to have the conglomerate liquidated to recover the debt owed to taxpayers.

CLF’S ACCOUNTS

CLF’s Management Accounts dated June 30, show a shareholders’ deficiency of $3.44B, before taking into account the obligations to the Government as part of the 2009 bailout agreement. The accounts further show a loss for the year (up to June 30) of $111 million and a loss of $377 million for the last full year of operations in 2016.

According to the provisional liquidators’ preliminary report, there are significant debts on which current demands for payment have been made, amounting to approximately $4.5 billion. This figure does not include the $15 billion owed to the Government.

These include:

* A demand by Angostura Holdings for $984,559,444.73;

* A demand by Deposit Insurance Corporation (as liquidators of Clico Investment Bank) for $1.487 billion;

* A demand by First Citizens Investment Services for $862 million.

According to Wide, CLF’s accounts show a total of $90 million being in the bank to meet the creditors’ $4.5 billion demand for payment, before taking into account the Government’s debt.

Contacted for comment yesterday, Finance Minister Colm Imbert said, “I would prefer not to comment at this time. I need to read and understand the full effect of the order given by of Justice Ramcharan and to be advised by counsel.”