$110M Breach

In a 33 page defence filed in a High Court lawsuit, Monteil also laid bare the “financial health” of his family company Stone Street Capital, revealing that from 2000 to 2006, it benefitted from approximately $83 million worth in credit facilities and held approximately $108 million in fixed deposits at CIB, the bank at which he was chairman.

Battling a multi-million-dollar lawsuit brought against him and his company by the now Central Bank-controlled CIB for alleged breach of fiduciary duties in relation to the Stone Street HMB purchase, Monteil also:

– confirms that Stone Street capital did not repay the $78 million transferred to it under a loan from CIB to buy the HMB shares after transfer to a company later bought by another company owned by CL Financial chairman Lawrence Duprey;

– argues that his failure to disclose, in writing, to the CIB his interest in the transaction did not invalidate the transfer of the shares to Stone Street from CIB, notwithstanding the provisions of the Companies Act;

– reveals that the CIB board transferred $78 million to his company Stone Street on the strength of an oral agreement;

– explains that the CIB board accepted the shares that were being bought by the loan as security for the same loan;

– notes that Stone Street, in December 2006, bought CL Financial shares worth $444.67 million for $1.4 million;

– says that at all relevant times the Central Bank conducted detailed inspections of the CIB books.

At all relevant times, Monteil was chairman at CL Financial, its subsidiary CIB, Stone Street and director at a company later absorbed by former CL Financial executive chairman Duprey.

Both Monteil’s and Duprey’s management of the assets of the CL Financial group have come under renewed scrutiny given the State’s pumping of billions under the terms of a bailout. That bailout has handed over control of CIB to the Central Bank, among other things, and has now triggered a commission of inquiry, announced on Friday by Prime Minister Kamla Persad-Bissessar.

Lawyers in the CIB court proceedings, which are due to come up for procedural hearing this week at the Hall of Justice, have raised the issue of an apparent failure on the part of Monteil to comply with Section 93 of the Companies Act in relation to the Valentine’s Day 2007 transfer of the HMB shares into a company in which he held personal interest, Stone Street.

In relation to company contracts, Section 93 of the Companies Act reads: “a director or officer of the company shall disclose in writing to the company, or request to have entered in the minutes of meetings of directors, the nature and extent of his interest forthwith after the director or officer becomes aware of the contract or proposed contract.”

Further, if no such written disclosure is made, the contract is set aside, according to the terms of Section 96. Section 96 reads: “When a director or officer of a company fails to disclose, in accordance with section 93 or 94, his interest in a material contract made by the company, the court may, upon the application of the company or a shareholder of the company, set aside the contract on such terms as the court thinks fit.”

In his defence, Monteil reveals that he gave the CIB board oral notification of his interest in the Stone Street transaction before the issue was formally approved at a meeting in June 2007.

“The defendants further say that before the approval of the loan was addressed at said meeting of June 22, 2007, Monteil, for the avoidance of doubt, expressly reminded the board of CIB of his interest in Stone Street and the loan, namely that Stone Street was his company and thereafter excused himself, left the boardroom and took no part in the deliberations relative to the loan,” Monteil deposes in a statement filed on June 28, 2010.

“The defendants still further say that upon returning to the boardroom Monteil was informed that approval of the loan had been granted to Stone Street.”

But according to Monteil, “where a director of CIB proposes to enter into a contract with CIB which benefits himself… and the directors of CIB other than himself know of the interest of the director at the time that it takes a decision to enter into such contract but the said director failed to comply with the provisions of Section 93 of the Companies Act, such failure merely constitutes a technical breach of Section 93.”

Further, according to Monteil, who for the first time discusses this apparent technical breach, “no relief will be granted (including the setting aside of such contract) by the court whether pursuant to Section 96 of the Companies Act or otherwise.”

The apparent failure to comply with company law came after a series of events now disclosed in Monteil’s court submissions. He reveals that Stone Street later had no cause to repay the $78 million it got from CIB under the loan to purchase the HMB shares because that loan was transferred to First Capital Limited (FCL)/St Lucia.

“The defendants admit so much of paragraph 63 of the statement of case as alleges and/or implies that Stone Street did not repay the $78 million advanced to it by CIB,” Monteil says. “FCL/St Lucia assumed, inter alia, all Stone Street’s previous liability to repay the said sum under the loan agreement dated December 20, 2007.”

“On or about July 25, 2008, the entire issues share capital of FCL/St Lucia was purchased by Dalco, a company incorporated in Trinidad and Tobago and controlled by Lawrence Duprey as director and shareholder.”

Yet, the CIB board had not, on April 22, 2008, approved the loan novation to FCL/St Lucia, but rather a different company: FCL/St Kitts.

“The loan was never transferred to FCL/St Kitts but was in fact transferred to an entirely different company namely, FCL/St Lucia.” FCL/St Lucia “only came into existence and/or was incorporated in St Lucia on July 4, 2008, approximately two and a half months after the said meeting of April 22, 2008.”

Monteil traces the origins of the deal to an oral conversation “in or around February 2007.” He “orally requested of CIB’s then President and CEO (Richard) Trotman, that CIB provide Stone Street with a medium term loan facility of $78 million for the purpose of assisting Stone Street with buying 7 million HMB shares from Clico (a member of the CL Financial Group).”

“In support of such request, Monteil provided Trotman with a written agreement (apparently made without financing documents yet in place) made between Stone Street and Clico whereby Stone Street agreed to purchase the 7 million HMB shares at or for a price of $110 million.”

On Valentine’s Day 2007, “the board of directors of CIB (save and except for Monteil) approved the grant of the loan and the disbursement thereof via round robin by phone after considering a CIB board investment committee report/note,” Monteil deposes. On the board at the time was Faris Al Rawi, later a PNM senator and son of former PNM minister Diane Seukeran, and Anthony Rahael, said to be the brother of former PNM minister John Rahael. Trotman then “orally notified Stone Street (through Monteil)” of the approval and the terms and conditions thereof.

The rest of the financing was pulled from a $30 million loan from the First Citizens Bank, and a $2 million loan from another Monteil vehicle company called Spreadeagle Co Ltd But what security did Stone Street offer?

“Stone Street deposited with CIB its share certificates relative to the HMB shares as well as an undated share transfer form signed by Stone Street as transferor in respect of such shares with the name of the transferee left blank on the understanding that CIB was to complete such forms in its favour in the event that Stone Street became unable to service the loan,” Monteil says. Putting assets being acquired for a loan up a security for the same loan is not an uncommon procedure, financiers noted this week.

Arguing that the value of the shares were more than the loan, Monteil further notes that, additionally, “the cash value of Stone Street’s deposits with CIB at any given time were “not less than $38.8 million and $33.3 million”.

At all relevant times, there was oversight from the Central Bank, Monteil also notes.

On May 2007, the Central Bank “through their servants and/or agents inspected the books, records and other documents of CIB relative to the loan”. The same occurred in April 2009 after the loan had been transferred to FCL/St. Lucia. And reports were issued by the Central Bank suggesting “detailed inspections” in the years 2007 and 2008.