FEAR OF $B FLOP

“Continued support is not sustainable or in the interest of taxpayers particularly now that shareholders of CLF have signalled that they wish to take control of the company,” said Finance Ministry’s permanent secretary Vishnu Dhanpaul in his affidavit in support of the winding up petition, which is expected to be heard today before Justice Kevin Ramcharan in the Hall of Justice, Port of Spain.

According to Dhanpaul, the proposed plan by shareholders, which has been given the moniker Project Rebirth, is highly optimistic and speculative and carries with it execution risks. Dhanpaul said Project Rebirth does not provide any protection or controls should elements of the proposed plan fail.

According to the plan to regain control of the company and repay its creditors, CLF proposes to fully repay the outstanding claim of $19.3 billion, with the proposed settlement comprising of 92 percent cash and eight percent real estate. To generate the cash to repay government, Project Rebirth proposes to restructure CLICO, carry out a phased liquidation of Clico Investment Bank and effect the transfer of CLF cash and HCL land assets.

As part of the proposed settlement, which has been rejected by Government, CLF agreed to not pursue claims for alleged value loss arising out of the sale of Methanol Holdings Trinidad Ltd (MTHL).

BATTLE FOR THE BOARD

Government’s decision to file the winding up petition was based on (A): Moves by shareholders to regain control of the company and (B): To recoup a $15 billion debt still owed by the conglomerate to the State. As the principal creditor - by virtue of the $23 billion bailouts of CLF and its subsidiaries in 2009 - Government has the majority of directors on the board.

CLF shareholders want to change this and have requisitioned a meeting of the board to appoint two additional directors. This meeting takes place at 3.30 pm today at the Queen’s Park Oval, St Clair. In its letter to Government, CLF shareholders have said ‘no’ to any new shareholders’ agreement and are adamant Government has no right to be part of the conglomerate’s board and management or exercise any management control of CLF or its subsidiaries.

Dhanpaul said should shareholders seek to remove, replace or appoint additional directors unilaterally, Government will treat this as an act of hostility. Government fears a repeat of pre-2009, which saw the collapse of one of the country’s largest insurance firms, CLF’s subsidiary Colonial Life Insurance Company (CLICO). That collapse caused ripples across the region and Caribbean governments have been knocking on Government’s door in recent times.

WHO IS CORRECT?

While shareholders maintain that the company is solvent and worth billions in assets, Dhanpaul’s affidavit suggests otherwise. In his affidavit, Dhanpaul pointed to significant and continuing intra group exposures in CLF, which he said, reflects a mismatch of assets and liabilities with implications for liquidity, earning capacity and overall solvency of the company.

He also noted that excessive related- party transactions and high inter-company balances also carry significant contagion risks. The presence of this factor was one of the key reasons for the collapse of the CLF group in 2009, he noted.

He said an evaluation by auditing firm Ernst and Young pointed to CLF’s insolvency and inability to repay debts. Dhanpaul said the company’s level of insolvency still pose a systemic risk to the country’s financial system and is unlikely to recover to satisfactory levels.

Dhanpaul said a number of assets, worth billions belonging to CLF, have been sold already to repay the debts of its subsidiaries and creditors and none of the proceeds were used to repay the Government. Total loans amounted to $1.1 billion.

He also pointed to the actions of a member of CLF’s management team, whom he said, contracted an international auditing firm to come up with the restructuring plan without the authorisation of the Government-controlled board and failed to report it to the board.

The senior CLF official also caused to facilitate the write off of inter-company debt without board approval and caused dividends from Angostura to be transferred to CLF without prior notification to the board, Dhanpaul said.

“Government is committed to seeking the recovery of taxpayers money by realising the Government’s claim expeditiously,” Dhanpaul emphasised.

JUDGE GIVES REASONS

Also expected to be heard today is the State’s appeal of Justice Ramcharan’s refusal to grant the application for a provisional liquidator will be heard, half an hour later in the Court of Appeal.

In providing his reasons for refusing the State’s application, Justice Ramcharan said the application was premature as the State could not prove, at the time, that if the constitution of the board was to change, it would be to the detriment of CLF’s creditors, including the Government which is demanding its $15 billion owed.

“Based on the disclosed assets of CLF, I am not of the view that not appointing joint provisional liquidators would significantly impact the availability of assets to creditors,” he said in his reasons which were provided yesterday.

According to Justice Ramcharan, a brief perusal of the operating profit and loss statement of CLF for 2017 to date shows that up to April 2017, CLF has been operating at an average loss of $900,000 per month.

“Not an excessive amount in the court’s view,” he noted. Ramcharan also pointed out that there was evidence, on paper, that the shareholders of CLF were intent on repaying the company’s creditors.

“The petitioner may hold the view that the manner in which they intend to do so may cause risk to the company’s assets, however, so sufficient evidence was not produced to the court to illustrate how this risk was so severe as to engage the drastic measure of appointing provisional liquidators,” he added.

“In any event if the board’s composition is altered and in the view of the petition the board is about the act in a way detrimental to the company’s creditors nothing preventing them from approaching the court again,” he added, noting also that ‘it was common ground among the parties that CLF has been insolvent since at least 2009.

NOT ALL EVIDENCE IN

He also made a preliminary finding that it was highly likely that the order for the winding up of the company would be made based on the evidence presented in support of the petition, but noted that ‘things may change’ when all the evidence is in. In 2009, the then Patrick Manning administration agreed to a bail out of CLF’s cashstrapped subsidiary CLICO and saw the insurance giant and many of CLF’s subsidiaries going under the control of the Central Bank.

As a condition of the bail-out, CLF’s shareholder’s agreement with the Government, the Government had the power to select four members including the chairman to CLF’s seven member board. The agreement was renewed 17 times by the shareholders until they refused to agree to a further extension in February, this year.

The shareholders then made the move to change the composition based on the Government’s refusal to consider a proposal for them to retake control of the company and renegotiate their debt repayment plan made in December last year.

If the shareholders are successful in having their directors appointed to the CLF board, they would control majority interest with five members while the Government would remain with its original four board members.

They have also indicated a willingness to pay back taxpayers.