The Tribune

* New liquidators sharply increase realisation prospects

* Depositors set to recover most of money if successful

* Collapsed bank's owners may face renewed pursuit

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Depositors and creditors of a long-collapsed Bahamian bank may receive an unexpected late windfall through a potential near-$16.5m increase in asset recoveries.

This is because Gulf Union Bank (Bahamas) new liquidators, in their recently filed report with the Supreme Court, sharply improved the "estimated realisable value" of assets upon which the bank's loans are secured.

Should this new $16.5m valuation be realised, Gulf Union's long-suffering depositors and creditors - who have now waited 23 years to recover their full savings and investments - might ultimately end up receiving the bulk of their monies.

Mark Munnings and Tiphaney Russell, both Deloitte & Touche (Bahamas) accountants, in their first report since taking over the Gulf Union assignment revealed that the deficit facing the liquidation estate - meaning the difference between what is owed to creditors/depositors and what they will actually receive - could be slashed from the previously-estimated $18.548m to just $2.698m.

The $18m-plus estimate came from the former liquidators who have overseen Gulf Union's painstakingly slow winding-up since it was first placed into their care in 1997, Raymond Winder and Graham Garner. Mr Winder stepped down when he left his post as Deloitte & Touche (Bahamas) managing partner to become Commonwealth Bank's president, while Mr Garner has retired.

No explanation was provided, though, for the dramatic increase in the potential recovery value of assets/collateral pledged to secure still-outstanding Gulf Union Bank (Bahamas) loans. Messrs Winder and Garner, in their last report to the Supreme Court, had pegged the collective value of such assets at a comparatively paltry $335,542.

Mr Munnings promised to respond to Tribune Business inquiries seeking an explanation for the major revaluation of potential loan recoveries, but to reply was received before press time. However, such an increase could stem from multiple factors, including the discovery of previously unknown loan security or higher-than-expected offers from potential purchasers of real estate collateral.

Noting that the first liquidators had estimated Gulf Union's total remaining assets, including loan security, as having a collective $2.335m value, Mr Munnings wrote in his report to the Supreme Court: "Notwithstanding the above, having reviewed [their report], the bank's records and assets held as collateral for loans, the estimated realisable value of the bank's assets has been calculated at $18.59m as at August 31, 2020.

"The assets consist of cash and cash equivalents of $2.09m, and loans of $16.5m...... From a review of the bank's loan portfolio, which included secured and unsecured assets and the collateral held as security for loans, and having attended meetings with debtors and other interested parties, the estimated realisable value for loans has been revised to $16.5m."

As a result, Mr Munnings and Ms Russell informed the Supreme Court that the combined deficit facing Gulf Union Bank's liquidation estate - meaning the combined sums that depositors and creditors will not recover - has now been pegged at $2.697m as opposed to the $18.548m when Messrs Garner and Winder demitted their role - an 85.5 percent reduction.

These calculations, though, depend entirely on how successful the new liquidators are in recovering assets if they are to be realised. "The estimated deficit will be significantly affected by the settlement and recovery of loans, the results of litigation and the ongoing liquidation costs," Mr Munnings and Ms Russell wrote.

"Accordingly, the final dividend distribution to the company's creditors is contingent on the actual realisation of the outstanding loans and the satisfaction of liquidation costs. As at the date of the report, 40 cents on the dollar has been paid to creditors whose claims have been accepted in the winding-up proceedings.

Depositors and creditors have recovered a near-$10m of what is due to them since Gulf Union collapsed into insolvency in late 1997, and saw its banking licence pulled by the Ministry of Finance. While memories recalling those events may have dimmed, some $32.74m was due to the bank's victims at the time it was shuttered.

Mr Munnings and Ms Russell said the latter sum has now been reduced to $20.641m, with Gulf Union Bank's remaining $21.287m in total liabilities also including liquidation fees and other costs.

However, thanks largely to the work of their predecessors, the duo added that recoveries on behalf of depositors and creditors had already exceeded expectations. "At the liquidation date, the estimated realisable value for loans was valued at $6.552m," they told the Supreme Court.

"Notwithstanding this, as at August 31, 2020, we have collected $11.933m from customers who were indebted to the company at the liquidation date. This is an increase of $5.381m from the initial estimated realisable value. The increase in the expected recovery resulted from the sale of assets held as security for loans and the payment of outstanding loan balances."

Mr Munnings and Ms Russell indicated that their increased recovery estimates may have been driven by higher-than-expected assets offers for some of the real estate assets that secured Gulf Union loans. In particular, they referenced "interest" received in the 1,407-acre Anguilla Beach Development Company property on Cat Island.

"We have also been approached by a creditor who expressed an interest in purchasing judgments the bank obtained in legal proceedings commenced by the bank to collect its assets," the new liquidators added.

"We are actively considering all legal matters to recover the bank's assets, and assessing the cost to be incurred in the recovery efforts. Accordingly, we will seek directions from the court regarding this matter."

Among the claims that Gulf Union's liquidators are pursuing is renewed litigation against the estate of a borrower, the late Audley Kemp. The initial $3.378m default judgment with interest that was obtained on December 1, 2008, was subsequently overturned and Mr Kemp's estate permitted to defend the claim.

Gulf Union's liquidators subsequently "updated" the amount being claimed, and renewed their pursuit through the courts after settlement talks broke down. Shannon Lee Ewers-Kemp, as administratrix of Mr Kemp's estate, was added as a defendant.

The liquidators are also engaged in a legal battle with Leon Smith, and his El Condor Enterprises and Adam International Ltd vehicles, to recover loans from Gulf Union that they have allegedly defaulted on and failed to pay.

And there appears to be renewed interest, and enthusiasm, to pursue previously-obtained default judgments against Gulf Union's last owner, the Qatar-based Al Thani family, as well as the Quareshi family, who they had lined up as potential purchasers of the bank before it collapsed.

Gulf Union's failure was blamed on shoddy banking practices, with loans granted "without regard to the normal criteria for lending". Many borrowers were unable or unwilling to repay credit that either had insufficient or no security, or the collateral was improperly perfected.

Loan collection mechanisms were inadequate, while Gulf Union "continued to accrue interest on delinquent loans contrary to acceptable banking procedures". The former liquidators obtained a $12.5m default judgment against the Al Thani family, with interest running at an annual 10 percent until it is settled, on November 4, 2008.

However, Messrs Winder and Garner never pursued this recovery on the basis that the "significant amount of costs" involved would likely outweigh the recovery benefits. The Al Thani judgment has never been paid, as has the $4.2m default ruling obtained against the Quareshis who removed $5.5m from Gulf Union before the bank was sold to them.

But, while the former liquidators were unable to locate any Quareshi assets to satisfy the judgment, Mr Munnings and Ms Russell said they plan to "seek directions from the court" on chasing both that and the Al Thani verdict.