Financial Services Commission v Clico International Life Insurance Ltd

JurisdictionBarbados
CourtHigh Court
JudgeChandler, J.
Judgment Date02 December 2015
Neutral CitationBB 2015 HC 39
Docket NumberCV 0333 of 2011

High Court

Chandler, J.

CV 0333 of 2011

Financial Services Commission
and
Clico International Life Insurance Limited
Appearances:

Mr. M. Adrian King, attorney-at-law for the petitioner.

Mr. Ramon O. Alleyne with Ms. Sheena-Ann Ince of Messrs. Clarke, Gittens & Farmer, attorneys-at-law for the Judicial Manager.

Sir Richard L. Cheltenham QC with Ms. Shelleyann Seecharan attorneys-at-law for the ECCU and Grenada Ports Authority.

Mr. Ralph A. Thorne QC in association with Mr. Frank Odle attorneys-at-law for David Wall, Quinda Wall, Andre Wall, Anastasia Wall, Hazel Layne and Dave Thorne, interested parties.

Company Law - Judicial management — Whether the court ought to make an order giving effect to the course of action proposed — Whether the partitioning of the policy holders was discriminatory — Whether the proposal fell within the definition of fraudulent preference — Pari passu.

THE APPLICATION
Chandler, J.
1

This decision concerns an application filed on 1st June, 2015 by the Judicial Manager (the JM) of CLICO International Life Insurance Limited (CIL or the Company) pursuant to section 60 of the Insurance Act, Cap. 310 of the laws of Barbados for the following:

  • i. An order that the recommendation(s) of the JM contained in the Report filed on 15th day of December 2014 be adopted.

  • ii. An Order terminating the judicial management of CIL.

  • iii. An Order appointing Deloitte Consulting Ltd the liquidator of CIL.

  • iv. An Order setting out the powers of the liquidator of CIL.

  • v. An Order that the Costs of the application be the costs in the cause.

    By virtue of the events which transpired subsequent to the application, there is now the following additional application before the Court for

  • vi. An order to give effect to an application by the Ministry of Finance and Economic Affairs (the Ministry) for a proposed scheme (Option One) for the future conduct of the business of CIL on the basis that the proposal is the most advantageous to the interests of the policy holders of CIL. The proposal I set out in the affidavit of Mr. Ashley Bignall (the Bignall Affidavit), Chief Accountant (ag.) in the Ministry and in the June 2013 Reports of the JM.

BACKGROUND
2

CIL is an insurance company registered under the provisions of the Insurance Act of Barbados, which was placed under judicial management by an Order of this Court on 14th April, 2011. Deloitte Consulting Limited (Deloitte) (acting through Mr. Patrick Toppin and Mr. Oliver Jordan) was appointed JM, to manage the affairs of the company pursuant to the terms of the order of Court and the provisions of the Insurance Act. Mr. Jordan resigned from Deloitte and Mr. Toppin continued to so act.

3

Several interim reports were submitted to the Court and various applications were made, including applications for orders tracing various assets of the company, resulting in Court proceedings, which are not the subject matter of this decision. The final report was submitted to the Court on the 14th day of June 2013.

THE PROPOSAL
4

I now set out the proposal (which has been called the ‘Regional Restructuring Plan’ (RRP) in full for the purposes of this decision.

  • a) The establishment of NEWCO (a separate entity responsible for conducting insurance business and which is proposed to assume the traditional policy liabilities sold in Barbados by CIL) to hold CIL's portfolio of traditional insurance business sold in Barbados and the restructured individual EFPAs. At the time the actuarial value of the various liabilities were as follows:

    • • Actuarial value of the portfolio of traditional business in Barbados of $176MM

    • • Actuarial value of the portfolio of traditional business in the ECCU of $160MM

    • • Present value of the restructured individual EFPAs in Barbados totalling $99MM

    • • Present value of the restructured individual EFPAs in the ECCU totalling $107MM

  • Total value of the policyholder liabilities transferred to NEWCO would be $542MM.

  • b) The establishment of two Property Trusts each holding all of CIL's real estate assets located in the ECCU and in Barbados, respectively:

    • • Total current value of CIL's real estate assets was approximately $325MM (CIL's non-real estate assets of approximately $115MM would be transferred to the NEWCO);

    • • Barbados Property Trust to hold real estate assets with current value of approximately $230MM;

    • • ECCU Property Trust to hold real estate assets with current value of approximately $95MM; and

    • • Trustees for each Property Trust will be appointed by the relevant Governments to represent the interests of the various blocks of shareholders and will in turn appoint professional managers to manage the affairs of the Property Trusts with the objective of enhancing the value of the assets over time.

  • c) Corporate and Government EFPA policyholders to receive shares in the two (2) Property Trusts based on the principal balance outstanding of their EFPAs:

    • • Corporate EFPA principal balance of $118MM

    • • Government EFPA principal balance of $39MM

  • d) These shares will be issued at nominal value (i.e. zero coupon bonds) initially however there is a possibility that based on the future growth of the value of the assets in the Property Trusts that the shareholders may recover some or all of the amounts lost. The ultimate aim was for these shares to be listed on the Barbados and Eastern Caribbean Securities Exchanges to provide the Corporate and Government EFPA policyholders with an option to realise value in due course.

  • e) The Barbados Property Trust and the ECCU Property Trust would then issue $215MM and $95MM respectively in interest bearing bonds guaranteed by the Government of Barbados and the ECCU Governments respectively. These bonds would be used to provide statutory fund eligible assets, for a buyer of the CIL policies that were to be transferred to NEWCO. Any remaining value will accrue for the benefit of the common shareholders in the Property Trusts.

  • f) The Barbados Government would also directly issue a bond in the amount of $150MM which will be used to provide eligible assets for the ECCU policies in NEWCO that are not covered by the ECCU Property Trust Bond ($117MM), and to cover the estimated cost of implementing this restructuring plan (such as repayment of secured creditors, unpaid amounts to policyholders and management fees ($33MM).

THE BIGNALL AFFIDAVIT
5

Mr. Bignall deposed that the Key elements of the Government's implementation of Stage One of the Regional Restructuring Plan will include the following measures:

  • (i) Government will be the guarantor of the bonds issued by New Life Investment Company Inc (NLICO) to CIL, in the sum of approximately BDS $65 million for the purpose of transferring the real estate assets of CIL in Barbados. These bonds will be issued by 31st October, 2015.

  • (ii) NLICO will hold and manage designated real estate assets of CIL in Barbados. Those assets are to be transferred to NLICO in exchange for the bonds issued. Moreover, NLICO will raise cash through the disposal of the real estate assets and other assets it acquires from CIL to assist in the liquidation of the bonds issued to CIL and guaranteed by the Government. The Government will meet any shortfall arising as a result of the guarantee.

  • (iii) The Government will issue to NEWCO a Demand Note in the sum of approximately BDS $215 million for the amount of any Statutory Fund shortfall, being the difference between the aggregate value of the current assets, eligible other assets and the bonds issued by NLICO as well as the actuarial liability of CIL's traditional life and insurance business as it relates to policies sold in Barbados.

  • (iv) The Demand Note shall pay interest to NEWCO at a rate sufficient to fund the expected monthly shortfall from NEWCO's operations, including monthly distributions to individual EFPA policies, which were sold in Barbados by CIL. As noted at paragraph 12 above, the funding for NEWCO's initial operations during the first year of restructuring, will be provided by the Central Bank of Barbados. In a joint meeting held on 22nd May, 2015, the Judicial Manager informed the Ministry that the cash requirement for the liabilities of CIL, up until 31st December, 2015 had been estimated at approximately BDS $45 million.

  • (v) Individual EFPA policyholders of CIL referred to in the sub-paragraph above shall have their principal claims converted to 10-year fixed annuities at current interest rates at the time of conversion with blended monthly payments. Should the operating cash flow of NEWCO be insufficient after payment of claims, expenses, selling, general and administrative expenses and other costs, the Government shall guarantee the monthly blended payments of interest and principal due on the restructured 10-year fixed annuities. On 22nd May, 2015 the Judicial Manager informed the Ministry that as at 31st December, 2013, the principal amount of this guarantee was approximately BDS $113 million.

  • (vi) The Government or its assignee shall be the owner of the common shares of NEWCO, which shall have a nominal value on the date of transfer of the identified assets and liabilities of CIL relating to Barbados.

THE SUBMISSIONS
6

Much ado was made by counsel for the ECCU in the cross-examination of the JM as to whether the proposal placed before the Court was the JM's proposal or that of the Ministry of Finance and Economic Affairs. I do not think that anything turns on that issue. I am satisfied that this proposal is that of the Ministry and that, as given in evidence by Mr. Toppin, it is supported by the JM. As will be seen later in this decision, I am also satisfied that the provisions of the Insurance Act permit me to make a decision based on the proposals put forward by the Ministry and supported by the JM.

THE SUBMISSIONS OF THE MINISTRY
7

The Solicitor General filed written submissions on 11th August, 2015. She noted...

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