The Tribune

• ‘Farce’ of loans disguised as insurance policies

• ‘Fictitious persons’: Chief Justice backs liquidator

• Ruling boosts long-suffering Bahamian creditors

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

CLICO (Bahamas) has beaten back an $18.734m claim from its Suriname affiliate with the Chief Justice slamming transactions that disguised loans as insurance policies as “a farce”.

Sir Ian Winder, in an April 24, 2023, ruling dismissed efforts by CLICO Life Insurance Company Suriname to overturn rejection of its claim by Craig A. (Tony) Gomez, the insolvent Bahamian insurer’s liquidator, as three of the disputed annuity policies were assigned to “fictitious individuals” were obviously not genuine policyholders.

The verdict will provide a boost for CLICO (Bahamas) long-suffering local policyholders and creditors, as it confirms that the Suriname affiliate ranks below them in the creditors queue. It means that Bahamian creditors will enjoy whatever Mr Gomez is able to recover from the insolvent life and health insurer’s winding-up before Suriname’s large claim, which Sir Ian ruled should be treated as unsecured loans and rank near the bottom of all creditors.

This newspaper understands that the Chief Justice’s decision will also likely set a precedent over similar claims by CLICO’s Guyana affiliate, which was also seeking to recover funds from the Bahamian liquidation. Together with Suriname, these recovery claims are understood to collectively total $54m, but they have now been pushed down below Bahamian creditors who will take precedence and priority over them.

Finding for Mr Gomez, the Baker Tilly Gomez accountant and partner, on virtually all matters, the Chief Justice also shed light on questionable transactions during the run-up to CLICO (Bahamas) collapse into insolvency which occurred more than 14 years ago in February 2009. The life and health insurer’s failure deprived hundreds of Bahamians of their life and retirement savings, with the Government subsequently stepping into begin making many whole again.

Sir Ian also ruled that “the masking of the loans” from Suriname as insurance policies aided CLICO (Bahamas) in multiple ways for, while the latter’s 2006 financial statements recorded it had borrowed more than $5m from its affiliate this had resulted in just $27,516 of liabilities because there was no bona fide assured person.

The dealings between The Bahamas and Suriname began on November 26, 2004, when the latter paid $27,171 to acquire an Executive Flexible Single Premium Annuity (EFPA) from CLICO (Bahamas). While the insured was listed as a 44 year-old male, the name on the policy issued by CLICO (Bahamas) was CLICO Suriname.

This was followed by a further $3m investment in another EFPA annuity by CLICO Suriname on April 19, 2005, with the payment handled offshore via CLICO (Bahamas) account at Ocean Bank in Fort Lauderdale. “On April 25, 2005, Karen-Ann Gardier, the then-chief operating officer of CLICO Bahamas, sent an e-mail to Deloris Moncur and Kimberley Munroe confirming that CLICO (Bahamas) had received $3m from CLICO Suriname,” Sir Ian recorded.

The funds were invested in an EFPA annuity carrying an annual interest rate of 9 percent. However, while the insured was described as a 45 year-old male, the name on the second policy as the insured was once again CLICO Suriname. A third such transaction for another EFPA annuity policy, this time for $1m, was carried out on September 21, 2005, via the same payment route and modus operandi - for a 45 year-old made, with the name on the policy that of Suriname.

Additional payments worth a further $8.8m were made on the latter policy between November 15, 2005, and May 30, 2008, ranging in size from $13,354 to $1.2m. Further transfers of $1.5m and $750,000 were sent to CLICO (Bahamas) from the Suriname affiliate in September 2008 just months before the life and health insurer’s ultimate group parent, Trinidad-based CL Financial, collapsed. The second payment was described as a two-year loan.

Mr Gomez rejected Suriname’s claim for $18.734m in CLICO (Bahamas) liquidation, and Sir Ian found that all three EFPA annuities named the policyholder as “an inanimate corporate entity” even though all referred to middle-aged males. Suriname, though, sought to argue it was a policyholder - a status that would place it on the same level as Bahamian policyholders, and thus reduce the latter’s recovery, if the Supreme Court found for it.

The Insurance Act ranks policyholders as “first priority” in a liquidation, which means their claims come first after the costs and expenses of a corporate winding-up are paid. They also rank behind the Government and outstanding taxes. Mr Gomez and CLICO (Bahamas), though, dismissed Suriname’s claim and argued that it was not a valid policyholder and the EFPAs were not true insurance policies.

Sir Ian, in his verdict, said he was “satisfied” that the three disputed EFPA policies “are not true policies of insurance”. He added: “It should be enough to simply state that an annuity based upon the life of a fictitious individual who is clearly not the policyholder is not an insurance policy within the meaning of the Insurance Act.”

While Damian Gomez KC, the former minister of state for legal affairs representing Suriname, argued that CLICO (Bahamas) was acting as a constructive trustee of the $9.8m paid out over the third disputed policy. But Sir Ian, while accepting that CLICO (Bahamas) entered into the transactions in violation of Bahamian exchange control regulations, dismissed this claim.

“On the facts of this case, as it related to the third disputed policy and the additional funds paid into that policy, the specific purpose was a farce being an annuity based on a fictitious annuitant,” the Chief Justice ruled. “I have determined that the funds are not properly monies being paid into a policy of insurance, are not held on trust and were not paid under any mistake.”

Mr Gomez and CLICO (Bahamas), in their evidence, asserted that the transactions were “a facade” designed to disguise the insolvent Bahamian life and health insurer’s borrowings and ensure they did not appear as such in its audited financial statements.

Sir Ian ruled the transfers were loans or short-term investments. He pointed to an e-mail exchange involving Ms Gardier, CLICO (Bahamas) former chief operating officer, who wrote: “Happy days are here again. The $3m was received plus $730,000. Who is the policyholder?” Geeta Singh at CLICO Guyana replied: “See, I delivered. You owe me dinner. The $730,000 is CLICO Guyana, the $3m is Suriname. So you do have two policies.”

The Chief Justice found another “significant advantage” for CLICO (Bahamas) was that it would not have to pay out any annuity, and said: “There is also some merit in the submission of CLICO (Bahamas) that the masking of the loan, as policies, gave some benefit to CLICO (Bahamas).

“Note 20 of the 2006 financial statements of CLICO (Bahamas) showed that while by December 31, 2006, CLICO (Bahamas) had borrowed over $5m from Suriname under the disputed policies the only liability recorded was $27,156.. I have indeed found that these were not policies of insurance issued to Suriname but attempts at short-term loans.” As a result, Sir Ian said Suriname’s claims need to be treated as unsecured loans and not insurance policies.