Goodwill General Insurance Company Ltd was insolvent for ten years before the Central Bank intervened. A judicial manager appointed on September 29, 2006. On January 8, 2007, it was ordered that Goodwill be wound up. Victor Herde was appointed liquidator. It took Herde 14 months to conduct his investigations of Goodwill's records and file an application before the High Court on March 7, 2008, under Section 447 of the Companies Act, seeking, inter alia:
1. recovery from former directors of Goodwill of the sum of $21,563,430, the amount of Goodwill's outstanding insurance debts and liabilities or such part thereof as the court may adjudge
2. declaration that the named past directors were jointly and severally, knowingly parties to the carrying on of the business of the company contrary to Section 447 of the Companies Act, that is, with intent to defraud creditors of the company or the creditors of any other person or for any fraudulent purpose, or with reckless disregard of the company's obligations to pay its debts and liabilities, or with reckless disregard of the insufficiency of the company's assets, to satisfy its debts and liabilities.
Herde's application named nine directors of Goodwill:
1. Wilbert Hilton Winchester
2. Albert Tom Yew
3. John Lindsay Gillette
4. Harold Russell
5. Richard Fields
6. Lennard Woodley
7. Patrick Eustace Taylor
8. Ricardo St Cyr
9. Johann Lambkin
The directors were classified in two categories: those who were directors before Goodwill's sale in 1998 to Demerara Life Assurance Company of T&T for $6 million–even though it had been valued for $8.3 million–and those who were directors after the sale. Herde identified the first group of directors as Gillette, Russell, Fields and Tom Yew.
The liquidator said it appeared Tom Yew, Russell, Fields and Gillette recognised the insolvency of Goodwill was so dire, they took a decision to wind up the company. Herde contended that Tom Yew, Russell, Fields and Gillette did not go to the shareholder, Demerara, for a capital injection, but sold the last remaining asset of Goodwill, to its parent, Demerara, at a $2.3 million undervalue. The liquidator also contended that a balance sheet for the year ending 1997 showed Goodwill paid off its entire owings to Demerara, its shareholder, in the sum of $2,560,381, when it should have gone to pay claims; that there was no concern for the payment of outstanding claims and the property was deliberately undersold in contravention of the directive of the supervisor of insurance.
Demerara owned Goodwill up to December 1999 when it was sold to a group of investors:
�2 Woodley
�2 Lambkin
�2 St Cyr
�2 Taylor
Justice Peter Rajkumar determined that in the course of its management until the 2006 intervention of the judicial manager, several events occurred, each of which conceivably could have impacted on that solvency position and which required investigation.
"For example, under the first group of directors, the following occurred:
�2 the disposition of the more profitable aspects of Goodwill's business–life and property insurance
�2 the disposition of real property assets associated with its life portfolio
�2 the sale of its headquarters at Abercromby Street, Port-of-Spain
�2 and the possibility that the sale of the latter to its parent company was at an undervalue."
Rajkumar stated that during Taylor's tenure, Goodwill Premium Financing was formed, which earned income from "apparently financing Goodwill's premiums."
"This company was formed and controlled by Taylor for his personal profit until control was wrested from him by Woodley. In addition, there are allegations against him by fellow directors relating to invoices submitted to the company and unaccounted income," Rajkumar wrote.
Property insurance
Regarding Goodwill's underwriting of property insurance, Herde contended that on January 1, the company discontinued writing property insurance and entered into an agency agreement with GTM Fire Insurance Company Ltd whereby Goodwill agreed to place all property insurance business with GTM on a commission basis. Herde further contended in an affidavit that Goodwill and Demerara entered into an agreement whereby Goodwill agreed to transfer its life business portfolio as of February 28, 1992, to Demerara. Goodwill also transferred four properties to Demerara: 60 Independence Avenue, San Fernando; Lot 7, Mausica Road, D'Abadie; Lot 7, Marie Street, Chaguanas and Lot 113, Santa Monica Gardens, Arima, and other investments, securities and cash.
As for Goodwill's life insurance business, Herde stated Demerara gave an indemnity to Goodwill, meaning the primary liability under the life policies would remain with Goodwill and when a claim was made, Goodwill would then have to invoke the indemnity against Demerara. The effect of this transaction left Goodwill only with the motor insurance business, which was not in a financially sound position at all at the time. Herde said accounts filed for 1997 showed Goodwill no longer had any real estate, which had been valued at $5.8 million. Having divested its properties by transferring them to Demerara, the company then became "more insolvent." Herde said the supervisor or insurance raised Goodwill's financial position with Goodwill's board and that of Demerara in a letter dated November 21, 1997.
Demerara wrote the supervisor of insurance saying it would immediate advance $2.7 million from its own statutory fund to satisfy the deficit, which, as of December 31, 1996, stood at $2.5 million. "As of December 31, 1999, the company's assets stood at $2,121,372, having decreased by $11,488,208 from a total of $13,609,580 at February 28, 1991," stated Herde's affidavit. Herde stated that as December 31, 1999, Goodwill's statutory fund was in deficit by $1.2 million. He said that Woodley wrote Demerara on March 26, 2001, informing Demerara to accept responsibility for this deficit. Herde's affidavit indicated he was unaware of any response to Woodley's letter. "The amount of $1,213,771 was disclosed as an asset in the company's financial statement and Act Accounts as of December 31, 2001, and was described as 'Demerara Life's Statutory Obligation.'"
New real estate
Herde's affidavit said for the first time in the financial statements as at December 31, 2000, were two items of real estate:
Lands at Suriname acquired through Goodwill's "subsidiary" and disclosed at a valuation of $22,491,000 And, freehold property in Cascade disclosed at a valuation of $3.2 million, having been acquired for $200,000. "This disclosure was accompanied by a corresponding entry under Capital Reserve of $25,491,000.
"Four years later in 2004, the value of the Surinamese land was declared at $44,400,000. Assuming for the moment that the company had in fact acquired 100 per cent interest in the land or the subsidiary's shareholding, I have found no documentary record of this acquisition, nor am I able to say where the company could have found the funds to have made the additional acquisition," read Herde's affidavit.
The Central Bank never accepted the Surinamese lands as an admissible asset from the time it appeared on the company's financial records. "Indeed, if it was a valid, marketable asset of the company, it could have been sold and the intervention of the Central Bank would have been avoided altogether," the Central Bank wrote.
Cascade land sold, but still listed
Herde stated the freehold land in Cascade, 2.6 hectares, was acquired on September 19, 2000, for $200,000. It was sold in November 2001 to a related company, West Indian Financial and Development Company Ltd, for $1.2 million. Despite its disposal, the land was included in Goodwill's financial statements for 2001, 2002 and 2003. The item was eventually deleted at the end of 2004.
Court findings
Regarding the liquidator's contention that Tom Yew, Russell, Fields and Gillette knowingly carried on the business of Goodwill with reckless disregard of the insufficiency of the company's assets to satisfy its debts and liabilities and its obligation to pay its debts and liabilities, Rajkumar said while the Goodwill board may have given preference to paying debts to Demerara, it did not ignore all debts to its creditors as Demerara was one of them. Pointing to the undervalue sale of the Abercromby Street property, Rajkumar said he was unable to determine whether the property could have attracted a price closer to $8.3 million.
"The situation that the first group of directors found themselves in was unfortunate. They faced a dilemma–whether to close the business or seek a trade out of difficulty. I accept that the mere fact that Goodwill traded while deemed to be insolvent would not automatically lead to finding of culpability," the judge found. The judge ruled that it would "be a perverse exercise of discretion were I to award any costs to directors in relation to an investigation of such conduct when they were the very directors who were responsible for operating the company in breach of the Insurance Act."
"Of the many persons who would have to bear a loss upon the insolvency of Goodwill, I am not persuaded that the former directors should be placed in the privileged position of full recovery of their costs," the judge wrote. Regarding the directorship of Taylor, Rajkumar said while his involvement was brief, his operation of Goodwill Premium Financing "is curious."
"He pursued business opportunities provided by Goodwill's operations and profited from them personally, possibly to the detriment of other creditors of the company if such profits could have been available to enhance Goodwill's financial position. The judge said Taylor's "inexplicable billing" for a Goodwill performance bond is "unexplained." He said while the evidence was insufficient to support a finding of an intent to defraud creditors or reckless disregard under Section 447, there were issues for the liquidator to investigate and that such conduct, without explanation and disclosure to the company, or sanction, would "disentitle" such a director from receiving costs."
Of the claim by director Johann Lambkin, that Rajkumar found liable along with Lennard Woodley for Goodwill's outstanding insurance debts and liabilities of $20 million, that the owner of Goodwill is West Indian Financial Premium and Development Company Ltd, and claims that the directors of Goodwill are entitled to indemnity by the court, Rajkumar ruled that that submission was not developed.
To the suggestion to the court that Goodwill can claim from its insureds all of the sums awarded against it by judgments of the court: $11.6 million, Rajkumar said, "this has only to be stated to demonstrate its absurdity." Of Lambkin's affidavit, which stated he did not seek to evade the situation at Goodwill, personally paying claims, not taking money from the company and running, not allow the company to accept large sums of "suspicious cash" or allowing it to be used as a conduit for money laundering," Rajkumar responded: "The fact that he claims in submissions to have refused to accept US$2 million in cash for the company, while a matter for concern, is not any justification for the failure to effect proper lawful management of the company." Rajkumar did not accept Lambkin's suggestion that $500,000 from his own architectural practice, Caribbean Design Group, was advanced to Goodwill, finding it incredible that such sums would be advanced and not have such capital injection reflected in Goodwill's accounts or be appropriately documented. Rajkumar said he was prepared to accept his protestations that he did not intend to defraud anyone and that his own presence and albeit unsubstantiated contributions out of personal funds demonstrated this.
Further findings
Rajkumar "found a high degree of suspicion" attached to the attempt to include the Cascade and Suriname lands in Act Accounts, that including the Surinamese land in the statutory fund without a valuation or any evidence of ownership and even to claim an increased value for it "suggest accounting too creative to be permissible in an insurance company which is expressly subject to regulatory oversight." In finding that Woodley and Lambkin acted with reckless disregard, Rajkumar said that their conduct, as set out in court, "demonstrates clearly the need for the public's protection from any further activities by them as directors." The two have been ordered to not serve as directors, or be directly or indirectly involved in the management of any company incorporated in T&T, without the court's leave, for five years from July 30, 2009.