Last weekend, former CL Financial executive chairman Lawrence Duprey threatened to file a lawsuit against the Government if it did not return to him control of the failed insurance company Clico, and its parent company CL Financial.
As was argued in this space on Thursday, the shareholders of CL Financial have a right to recover and manage their property in CL Financial, which is now being run by a board of which the Government has the majority vote.
Those shareholders also have a right to recover their property in Clico, 51 per cent of which is now owned by CL Financial and 49 per cent by the Government by virtue of the 2009 transaction in which the State pumped $5 billion into the insurance company in exchange for preference and ordinary shares.
Enshrined in the T&T Constitution is the declaration that its citizens have a right to the enjoyment of property and a right not to be deprived of their property except by due process of law.
But in any capitalist system, it is acknowledged that in treating with a failed company, secured creditors recover value from the entity first, unsecured creditors second and the shareholders are always the last in line to recover value.
This validates the point made on Thursday that while the CL Financial shareholders have a right to recover their property in the company, that should only be AFTER all of the creditors have been paid in full.
For more than two years now, Mr Howai has argued that the previous PNM administration did not properly secure the rights of the taxpayers of the country because it failed to execute any fixed and floating charge over the assets of the CLF group.
This is, at best, a half truth, in my opinion.
In 2011 and 2012, the Peoples Partnership administration bailed out policyholders and investors in Clico and British American by providing them with a combination of cash, zero-coupon bonds and units in the Clico Investment Fund.
In effect, having spent close to $11 billion acquiring those policies and investments, the Government (or more accurately the State) now "stands in the shoes" of the people who invested their life savings in those failed insurance companies.
If those policyholders and investors sold their rights to the State, this must mean–and I would like to get the opinions of learned attorneys on this point–that the State has an absolute and first right to recover close to $11 billion from statutory funds of Clico and British American.
Does this $11 billion claim to the statutory funds of the insurance companies not constitute a fixed and floating charge over the assets of the group or just of the insurance companies?
If the purpose of the statutory fund is to protect policyholders of locally domiciled insurance companies, and the State is the main policyholder of Clico and British American, does it not follow, by a process of logical deduction, that the State and those policyholders who did not sell their rights should have first call on Clico's statutory fund?
And if the principle of distressed companies is that the shareholders are the last to receive value, why didn't Mr Howai negotiate to receive 100 per cent of the group's shareholding in Angostura, CL World Brands and Home Construction Ltd instead of the State only receiving Clico's 32 per cent stake in Angostura, Clico's 42 per cent stake in CL World Brands and its 43 per cent stake in Home Construction?
It is my understanding that the original proposal was that the shareholders of CL Financial would transfer 94 per cent of the group's assets to the Government and give a debenture and formally adopt certain restrictive covenants over the remaining six per cent of the assets, which the shareholders would seek to develop further in an attempt to liquidate the remaining indebtedness.
Whose "bright" idea was it to split up the Clico and CL Financial stakes in the three above-named companies and why did Mr Howai accept it?
And, even more importantly, why have Mr Howai, his ministry and his highly paid financial and legal advisers taken so long to conclude the revised Shareholders' Agreement between the Government and CL Financial that you now have the pathetic and ignominious sight of Mr Duprey making a demand to get back "his" company?
Two years ago, on July 9, 2013, Finance Minister Larry Howai took a Note to Cabinet asking that he should be allowed "to pursue and execute a new Shareholders' Agreement, with the Government continuing to hold significant governance control over the continuing operations of CLF, such shareholders' agreement to be subject to the positive vetting of the Attorney General."
According to that July 9 Cabinet Note, by Minute #1457 of May 23, 2013, Cabinet agreed that the Minister of Finance "should pursue and execute a new Shareholders' Agreement, with the Government continuing to hold significant governance control over the continuing operations of CLF, such shareholders' agreement to be subject to the positive vetting of the Attorney General."
In Cabinet Minute #1457, Cabinet also agreed that the Minister of Finance should "pursue the execution of a divestment strategy in order to maximise recovery of Government funds, with the following key hallmarks:
�2 Agreement by CLF to sell certain key assets, the most valuable of which are the methanol assets and the shares of Republic Bank Ltd
�2 The payment of creditors, including full protection for the traditional policyholders of Clico, as well as other creditors
�2 The payment to Government of up to $20 billion leaving a residual balance to be repaid over an extended period
�2 The establishment of a debenture, along with other conditions on the governance of the residual company after the divestment has been completed
On May 23, 2013, the Ministry of Finance entered into a Heads of Agreement with the United Shareholders Ltd (USL), which is the negotiating arm of CL Financial.
The Heads of Agreement between the Government and USL, which was approved by Cabinet by Minute #1463 on May 23, outlined 15 principles "which were agreed as the basis for continued negotiations between the Government and USL."
There are six principles from the 2013 draft agreement that the public should be aware of:
1) "The primary objective of the new shareholders' agreement is to achieve the settlement of all creditors of the affected subsidiaries including the Government as expeditiously as possible"
2) "CLF, USL and Government will identify CLF entities/assets for sale and will agree a fair sale process....provided always that in relation to the MHTL shares, CLF shall be guided by the provisions of the MHTL shareholders agreement dated August 21, 2003, and the partial final award dated March 28, 2013, in the ICC case"
3) "Any residual debt to Government, after the realisation of assets...and the application thereof towards repayment of the financial support provided by Government, shall be structured as a secured loan from CLF to Government. Repayment terms and interest rates are to be agreed and the loan shall be secured by a first ranking fixed and floating charge over the remaining assets of the CLF group(subject to the Clico-CLF debenture) on normal commercial terms, supported by full cross guarantees (where possible) incorporating default provisions and other covenants"
4) "The board of CLF shall comprise seven persons, at least three of whom shall be appointed by Government"
5) "A new CLF governance structure will be established whereby the approval of the Government-appointed directors is required for: new borrowings; the issue of new shares or capital reorganizations;...the payment of dividends and other forms of shareholder distributions...
6) No directors or executives of CLF, its subsidiaries and affiliates, who held office before January 31, 2009 shall be eligible to be appointed a member of the board of CLF and/or its subsidiaries without the consent of Government.