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No direct link between Arc Systems, property mortgages

Published:Sunday | July 28, 2019 | 12:00 AMNeville Graham - Business Reporter

Ken Tomlinson, the interim receiver for Arc Systems Limited, ­acknowledged under questioning in court on Wednesday that none of the mortgages issued against properties identified in his report to the court had been guaranteed by Arc Systems.

Transactions on the properties were undertaken at a time when Arc Systems representatives reported that the company had been in ­financial distress.

Some of the properties were reportedly used to secure loans totalling more than $1.4 billion in 2011 and 2013, according to court documents filed by Tomlinson.

But under questioning from Arc’s attorney, Dr Lloyd Barnett, the receiver also acknowledged that the mortgages on properties transferred from Arc Systems were the responsibility of the transferees.

His report filed in June had alleged a series of property transactions between Arc Systems and a company called Hilda Corporation, and that the properties were subsequently transferred to Arc Properties Limited under a reconstruction and merger agreement with Hilda. He filed a second report on July 22.

Tomlinson was one of three persons giving evidence on Wednesday in the hearings before Supreme Court Justice David Batts into the winding up of Arc Systems Limited over debt of $25.8 million allegedly owed to creditor Exclusive Holidays of Elegance Limited. The others were Montego Bay businessman and director of Exclusive Holidays Fred Smith, and director of Arc Systems Sholton Brown.

Under questioning from Barnett, Smith ­maintained that he suspects that the assets of Arc Systems had been stripped away, and that he had not known his own company was placed in liquidation for a second time in 2014.

Arc Systems had previously attempted to get the liquidation order against it reversed on the basis that Exclusive Holidays was itself in liquidation and therefore lacked standing to pursue its legal case, but on July 12 Batts ruled that the case could proceed – a decision that rested in part on submissions by Exclusive’s attorney Gordon Robinson that the company had not been served with the documents about its winding up, as required by law.

Batts subsequently approved a stay of the liquidation order against Exclusive Holidays, based on an application from the foreign creditor that had initially secured the order.

Exclusive was placed in liquidation by Belgian company ASE Metals NV in May 2014 for commercial debt of more than US$880,000 relating to supplies of steel rebars.

Batts gave ASE Metals and Exclusive until Friday, July 26 to show that a settlement had been reached, which would have to be certified by Government Trustee Nicola-Anne Brown Pinnock. Until then, the liquidation order is stayed but remains in force, Batts ruled. Brown Pinnock filed the certification with the court on Friday, saying satisfactory arrangements appeared to have been made.

Another liquidation order against Exclusive Holidays in 2003 was also stayed by the Supreme Court months after that ruling was issued.

Brown, who was the last to take the stand on Wednesday, identified himself as the personal assistant to the chairman and CEO of Arc Manufacturing, Norman Horne. Brown and Lackie Horne are the two named directors for Arc Systems.

Brown told the court that he has been a director for Arc Systems since 2016, with no prior association or knowledge of the operations of the company. He said he was appointed with a view to bringing the business to a close.

He maintained from his affidavit that Arc Systems had no assets and was therefore hard-pressed to pay its creditors.

Horne has maintained that Arc Systems is a separate entity from his other businesses. Brown gave the address for Arc Systems as 7 Ashenhiem Road during his testimony on Wednesday, which Exclusive’s attorney Gordon Robinson pointed out was different than the address cited in Brown’s affidavit to the court, which was 14 Bell Road.

Brown responded that the latter was the address for Arc Manufacturing and Arc Properties.

The case will continue on September 19, which Batts has set as the date for closing arguments. The parties to the case have until September 12 to make written submissions ahead of the hearing.

neville.graham@gleanerjm.com