The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The liquidator for Gulf Union Bank (Bahamas) and Suisse Security Bank & Trust is heading back to the Supreme Court for “guidance” on whether these cases have to “fall in line” with major changes to the Companies Act’s winding-up rules.

Raymond Winder, Deloitte & Touche (Bahamas) managing partner, said last year’s amendments to the Companies’ Liquidation Rules meant liquidators had to “be very careful” when paying creditor dividends and calculating how much it would cost to wind-up insolvent institutions.

Emphasising that these changes only impacted deposit-taking institutions, primarily licensed banks such as Suisse Security and Gulf Union, Mr Winder said their depositors were now “automatically considered” to be creditors without having to submit ‘proof of debt’ owed to them first.

Under Order 16, Rule 7, the only time depositors at insolvent Bahamas-based banks will now be required to submit a ‘proof of debt’ is if the liquidator believes the institution’s account records are “unreliable”. That conclusion, too, would have to be affirmed by the Supreme Court.

Explaining the two scenarios that now followed from this, Mr Winder told Tribune Business that in cases where account records/statements were reliable, “when you [the liquidator] issue a dividend, you have to set aside an amount for depositors that have not claimed yet.

“In the case of Gulf Union Bank, if someone comes in on the fourth dividend, pops up only then and wants to receive a dividend, before I pay anyone else I have to make him whole for the previous three dividends.”

In the other scenario, Mr Winder added: “If the court decides the financial records can’t be relied upon, and must be admitted to proof, for those individuals that have not claimed, the liquidator has got to set aside a sum in a trust fund, separate and apart from the corpus (body) of the liquidation.”

Those trust funds had to be placed in an interest-bearing account, he explained, and could not be used to finance the liquidator’s work in winding-up a bank or other deposit-taking institution.

While the liquidator would earn fees for administering the trust, Mr Winder said these would either be determined by the Supreme Court or based on the value of its assets - calculated as a percentage of this sum.

Another major change, he added, was that these trust funds will no longer be available to other depositors once the liquidation is completed.

All this, when combined with Order 18, Rule 4, meant that bank liquidators would have “to be very cautious in going about making dividend distributions” to depositors/creditors, the Deloitte & Touche (Bahamas) managing partner said.

That Rule, Mr Winder said, required liquidators to account for the likely future costs incurred in completing the winding-up.

“The liquidator has to be very cautious in going about making dividend distributions,” he added.

“One will have to be very careful in what the likely costs in the future are going to be, and before one makes a distribution, to ensure there are sufficient funds remaining in the liquidation to ensure matters are being dealt with on a timely basis.

“If you do a poor job estimating the costs of the liquidation, you could set aside money in trust, and that is not available to you to help bring in additional assets related to the liquidation.”

As for future liquidations where account records are considered reliable, Mr Winder said the practice of paying out un-claimed funds to other depositors would also end.

Given that no ‘proof of debt’ will be needed, Mr Winder said monies not claimed by some depositors would no longer be available in previous dividend distributions.

“Previously you could have improved the yield of depositors who have claimed by making distributions, but now those funds must be set aside immediately once you have made the first dividend,” the top accountant told Tribune Business.

Nor would these funds be available to cover the liquidator’s expenses, and Mr Winder said that if they remained unclaimed by the winding-up end, they would now go to the Public Treasury.

“The big deal is that where other depositors previously received some of that distribution, under the new Rules that distribution will more than likely end up with the Treasury. That’s a shift from depositors to the Government,” Mr Winder said.

“We always had concerns as to the surplus balance that’s left in the liquidation at completion. There’s now clarity that any monies left over go to the Treasury.”

All these changes have implications for Mr Winder’s existing two bank liquidations, and he told Tribune Business: “We’re going to the courts to look for guidance on whether they fall under Order 16, Rule 7.

“Suisse Security more than Gulf Union. Gulf will be slightly different. Gulf is a bit more complex.”

Tribune Business understands that the Rule changes have already caused Mr Winder to delay a first dividend to Suisse Security depositors and creditors.

And he added: “The real issue for liquidations that existed prior to this issue is how will they fall into line with these rules, and will certain aspects of these rules not apply to them.”