Big loan dogs Capital & Credit shareholder settlement
Auditors hired for forensic probe of CCFG sale value
Avia Collinder, Business Reporter
A group of seven shareholders in Weststar Finance Limited, a company that was primarily invested in the Capital and Credit Financial Group (CCFG), has hired an auditor to determine whether they were properly compensated for their holdings, which were used at one time to back a big loan from FirstCaribbean International Bank Jamaica.
They are also asking for an accounting of monies recovered from CCFG's $3-billion bad debt portfolio, which they believe they are entitled to share.
The group of seven - Fernando de Peralto, Headley Brown, Webster Barnett-Hoquee, Owen Tibby, Lenworth Hutchinson, Harris Anderson and Milton Hughling - have hired accounting firm UHY Dawgen Chartered Accountants to do a forensic audit of Weststar Finance in the hope of clawing back a portion of the 50 per cent haircut they said they took on the sale of their CCFG shares.
Court documents, backed by information from lawyers and a spokesman for the group, indicate that former CCFG president and Weststar founder Ryland Campbell used the CCFG shares held in Weststar as security for a US$8.5-million loan from FirstCaribbean in October 2008, allegedly without the knowledge of the other owners.
The loan would have been the equivalent of about J$640 million at 2008 exchange rates.
Additional security for the loan was provided by Glen Christian and wife Marva Christian, backed by US$3 million of deposits they held on account at FirstCaribbean.
JMMB took over CCFG in 2012, at which point the Weststar Finance shareholders said they became aware that the CCFG shares were used to secure the loan.
"First and foremost, our shares apparently were pledged to a financial institution without our knowledge, without our consent, and in truth and in fact it has prevented us from getting what we should have gotten from the sale of the shares - because the shares were pledged," said Headley Brown.
The hiring of accounting firm UHY Dawgen Chartered Accountants in September 2014 comes at the tail end of various lawsuits involving Weststar, at least one of which is ongoing.
The issue is complicated by another court case that was fought in St Lucia by Winston Finzi.
The high court ruled in late 2012 that 45 per cent of another company called Weststar International should be transferred to Finzi. Holdings in that company were also used to back the FirstCaribbean loan.
The judgment was compensation for the non-transference of CCFG shares acquired from Jamaica Broilers Group on Finzi's behalf by Capital & Credit. Jamaica Broilers disposed of its CCFG holdings in 2004.
Inundated by the claims, FirstCaribbean turned to the Supreme Court in Kingston for guidance. In November 2013, Justice A. Sinclair-Haynes ruled that the bank should liquidate the pledged CCFG shares, recover its outstanding loan, and return the surplus to Weststar International.
The Jamaican court also recognised the legitimacy of Finzi's 45 per cent ownership of Weststar International, and ordered that the hold placed on the Christians' account at FirstCaribbean be released.
Last week, a legal representative of some of the claimants said that despite the "clear instructions" of the judge in relation to distribution, and over a year after the order was entered and served on FirstCaribbean, the bank has not paid over all the funds held in trust.
Meantime, FirstCaribbean's spokeswoman said the bank does not comment on matters involving clients.
The court identified the entire surplus as cash proceeds in the region of US$l,253,346 and J$4,596,405.85, excluding interest, and 58,101,405 JMMB shares.
Tibby, the CEO of Tibby's Auto Supplies and spokesman for the Weststar Finance 7, told the Financial Gleaner that the claimants turned to Dawgen for the answers they failed to get from Campbell, and plan to use the audit findings to force a better compensation deal with JMMB, Campbell and/or FirstCaribbean.
Campbell told the Financial Gleaner that he had no interest in commenting on the audit and was hearing about it for the first time.
"I am not going to engage in any such discussion unless my lawyer is present and I am not aware of what you just said, anyway," he said.
Tibby said minority shareholders received only about 50 cents on the dollar from the cash portion of CCFG's sale to JMMB, due to the loan and millions paid in lawyers' fees when FirstCaribbean turned to the court for directions. He declined, however, to disclose the actual dollar figure per share.
CCFG was priced at $4.55 per share at sale in 2012. Under the deal, JMMB would buy the shares from Weststar International Limited, incorporated in St Lucia, and Weststar Finance Limited and Weststar Group Limited, both registered in Kingston.
JMMB paid 70 per cent or $3.185 per share in cash for CCFG, while the other 30 per cent was converted to JMMB stock at book value of $7.54 per share.
JMMB would end up paying $2.69 per share to FirstCaribbean for the pledged CCFG shares.
The shares had come into the possession of the bank when Ryland Campbell applied for the US$8.5m loan, the current managing director of FirstCaribbean Jamaica, Nigel Holness, said in an affidavit to the court.
The other signatory to the loan, Gregory Shirley, is a shareholder in Weststar Group. Campbell is a 51 per cent shareholder in that company, while Shirley is the second-largest owner with 30.5 per cent.
Some 398,345,338 CCFG shares were pledged to the bank through Weststar International by Campbell, who provided guarantees from all three Weststar companies.
The oldest of these companies, Weststar Finance, was incorporated in 1989 and holds 42,367,257 CCFG shares. Of that total, Campbell holds 3,579,093 shares through Arland investments.
Though he was not a shareholder of Weststar International, Shirley said he signed the loan on the understanding that the CCFG shares pledged were held by Campbell.
"Why you might see my signature on that loan is that it was my understanding that the security would be backed by the shares that were owned by the sole shareholder in Weststar International, which was Campbell," Shirley told the Financial Gleaner.
"Unfortunately, the thing expanded to include everybody - I think that was the problem."
He adds that while Campbell was the only shareholder of record at the time, the court in St Lucia has since ruled that there is another shareholder - a reference to the claim won by businessman Winston Finzi.
Shirley said the FirstCaribbean loan was created in the first place to buy the CCFG shares owned by Jamaica Broilers.
Businessman Winston Finzi also told the Financial Gleaner that he provided funds for the purchase of the block of CCFG shares by Broilers in 2004, which amounted to 20 per cent of the company. The purchase was handled by Capital and Credit and financed by a loan to Finzi.
Finzi said he repaid the Capital & Credit loan in full, but the shares were never transferred to him.
He would later discover that the CCFG shares were transferred to Weststar International in St Lucia, where he sought the intervention of the court to recover the holdings.
The Eastern Caribbean Supreme Court's High Court of Justice in St Lucia ruled on October 11, 2012 - Claim No. SLUHCV2011 between Winston Finzi and Weststar International and Ryland Campbell - that 45 per cent of Weststar International be transferred to Finzi as compensation.
The court also ruled that the defendants should pay Finzi any monies obtained from the sale assets of Weststar International commensurate with the 45 per cent shareholdings.
Both Finzi and Shirley said the purchase of the Broilers-held CCFG shares was done to stave off what was considered to be a hostile takeover of CCFG in the making in 2004.
"It was a kind of desperate situation," said Shirley. "If the loan did not go through, the whole thing would have failed."
Finzi said he knew nothing of the FirstCaribbean loan until the takeover by JMMB.
During negotiations leading up to the takeover by JMMB, FirstCaribbean agreed to accept US$7.4 million as full payment for the loan, comprising US$6.5 million in cash and US$848,000 in shares.
Holness said in his affidavit that the 389 million pledged shares and an additional block of CCFG shares were sold for just under US$11 million, out of which the US$6.55 million of cash was used to pay down the Weststar debt and the rest was held in escrow for a while.
Subsequent to Justice Sinclair-Haynes' ruling of November 2013, the bank paid over the US$4.45 million to the law firm Myers Fletcher & Gordon, which represented FirstCaribbean in the case.
Attorney Bruce Levy, a partner of Myers Fletcher & Gordon, told the Financial Gleaner on November 24 that the funds were no longer with the law firm, but did not say how they were disbursed.
"Unfortunately, we are not able to provide the information requested because we have not been actively involved in the matter for over one year. Our client's involvement in the matter was limited to holding monies, which were the subject of dispute between a number of parties. However, these monies are no longer held by our client, and we have been out of the loop for over one year," Levy said.
Otherwise, FirstCaribbean said 50 cents of all the shares sold were withheld by JMMB for a legacy escrow account, established during the sale of CCFG, to pay returns to the legacy shareholders on up to $1.5 billion of debts they were tasked to recover amid a total debt portfolio of $3.5 billion.
JMMB told the Financial Gleaner that, for reasons of confidentiality, it is "not obliged to disclose the sums that were distributed to the legacy shareholders" under the agreement.
However, Tibby said they were to be paid an additional 23 cents per share on the recoveries.
Tibby also told the Financial Gleaner that the Weststar shareholders received final payment on their CCFG shares in January 2014, but were dissatisfied with the settlement.
Tibby said the minority partners accepted the offer of $4.55 per share as they were convinced that the large non-performing loan portfolio affecting CCMB had depressed CCFG's value.
Meantime, JMMB has said it is unaware of the request for a forensic audit, but also noted that the company has no business dealings with Weststar International, Weststar Finance or Weststar Group.
Paid in Full
The brokerage said all CCFG shareholders have been paid in full.
"The facts are as follows: Having received confirmation for the acquisition of all shares in the Capital & Credit Financial Group, JMMB moved to make payment to each shareholder listed on CCFG's share register, at the time of the acquisition. JMMB understood that shares in the name of Weststar were pledged as security to FirstCaribbean International Bank. As such, JMMB was obligated to make payments for those shares directly to FCIB. That was done. JMMB cannot speak to what FCIB had, thereafter, done with the proceeds of those shares."
JMMB also said it has shifted some of the bad debts owed to the former CCMB into Capital & Credit Securities Limited, which it is using as a special-purpose vehicle for the collection of the debt.
The brokerage says efforts to collect the debt "continues at a solid pace", but gave no details on the size of the recoveries.
Finzi said shareholders of Weststar Finance hired UHY Dawgen because they want those answers.
They are seeking clarification on the company responsible for the collection of debt owed to Capital & Credit group, how much has been collected to date and what has happened to the funds. They also want an accounting of debt owed to CCMB at the time of the sale of the group, collections since the sale, and where the collected funds are held.
Finzi said he also wants an accounting of which Capital & Credit debtors have received a write-off since the sale in 2012.
The Weststar Finance shareholder said that while he knew about the establishment of Weststar Finance, it was 15 years before he discovered that the other Weststar companies were not its subsidiaries.
Barnett-Hoquee and Finzi said the Weststar shareholders have delayed filing their own lawsuit so as not to hurt the reputation of the companies involved, but had also allowed time for the FirstCaribbean matter to be settled.
"All the shareholders are saying is that they are disgruntled because we have not been given an accounting; it is the fiduciary duty of the financial institution to give us an account," said Finzi.