There is little doubt in the mind of most thinking people that it is unfair, unethical and unjust to pay monies to Clico’s directors and senior officers at the same time as other non-assenting policyholders and before the Colman Commission of Enquiry has reported.
As noted last week, in this space, the common sense solution would have been to pay those directors and senior officers who owned Clico policies after all other creditors, including the Government as the insurer’s largest creditor, had been paid in full.
This concept of ranking creditors was at the heart of this column’s objection to the original proposed Clico settlement, which was reduced to a Cabinet Note and a Letter of Intent between the Government and the CL Financial shareholders back to July 2013.
It is very strange that neither Clico nor the Central Bank thought that there was anything wrong with the June 3 statement that said the insurance company, “by law, has to treat with all classes of creditors as part of its resolution strategy.”
In theory, that is probably an accurate statement of the law. But, the issue is that in most corporate restructurings shareholders and executives of the company in jeopardy are always the last to recover value from the failed entity.
As a result of the public outcry over the payment of the Clico directors, just two days following the June 3 statement, the Central Bank terminated the appointments of the Clico chairman, Gerry Yetming and the company’s managing director, Carolyn John.
The basis on which the Central Bank took this decision, made public in a June 5 statement, was that the two “failed to follow direct instructions issued by the Bank on March 26 2015 setting out the protocols for all disbursements to policyholders and creditors under the Clico Resolution Plan. These instructions included obtaining approval from the Bank for all payments prior to disbursement.”
What is telling about this controversy is the fact that, according to credible reports, the Central Bank acted to terminate the appointments of Yetming and John without prior consultation with the Minister of Finance, Larry Howai.
My reading of the Central Bank Act is that this failure to consult with the Minister directly contravenes Section 44 F (5) of the Act, which states: “In the performance of its functions and in the exercise of its powers under Section 44 D, the Bank shall comply with any general or special directions of the Minister and shall act only after due consultation with the Minister.”
Did the Central Bank terminate the appointments after due consultation with the Minister?
If the Central Bank did not consult with the Minister before the terminations, is the Central Bank in breech of Section 44 F (5) of the Central Bank Act?
On the issue of general or special directions of the Minister, on April 16, the following question was asked of Minister Howai: “Are all of Clico's related parties entitled to receive payment from the $950 million that the company will disburse as the first payment to all statutory fund STIP holders who did not accept the Government's offer?”
Mr Howai’s response was: “Yes. All outstanding STIP holders will be titled to a partial payment in the first tranche.”
I responded to the minister’s statement by noting: “If the Government has decided to pay all related parties, it seems to me that that represents a policy shift from the position held by the previous administration.”
Mr Howai’s response: “I didn't say that we would pay. I said that they are entitled to payment. We haven't changed our policy position.”
My response to the minister: “If you tell someone that they are entitled to receive a payment from the Government, can you explain how you are going to discriminate between those who have a legitimate entitlement and those who don’t?”
Mr Howai’s final response on this subject: “The policy position hasn't changed. The funds will be placed in a blocked account pending the outcome of the various legal actions currently in various stages.”
In this last response, the minister outlined what seems to have been the Government’s policy on the payment of Clico’s related parties: that the funds for them would be sequestered pending the “completion of various legal actions.”
Was this policy (which strikes me as being fair, just and equitable) communicated to the Central Bank as a special or general direction of the Minister?
If the policy was communicated to the Central Bank, can it be argued that the institution is in breach of Section 44 F (5)?
And if it was not communicated to the Central Bank, can the minister tell the nation why he took the time to explain the Government’s policy on whether and how related parties would be paid to a journalist, but not to the Central Bank.
Traditional portfolio
The other aspect of the Central Bank’s governance of the Clico resolution that needs is the length of time it has taken for the Bank to hire an investment bank to solicit offers to purchase Clico’s traditional portfolio.
On May 19, 2014, the Central Bank responded to comments made by the Minister of Finance on the issue of the Clico resolution in the previous day’s Sunday BG. Mr Howai had said in an interview that Clico’s traditional portfolio would be sold.
In its response, which was signed by Governor Rambarran, the Central Bank stated: “The Central Bank is in control of CLICO, pursuant to Section 44D of the Central Bank Act Ch. 79:02 (the Act). This regulatory action started on February 13, 2009, in order to safeguard the interests of policyholders and creditors and to prevent disruption, substantial damage or impairment of our financial system.
“The Central Bank is the only entity empowered to restructure the business or undertakings of CLICO, in accordance with the provisions of the Act.
“As part of the resolution strategy for CLICO, the Central Bank proposes to transfer CLICO’s traditional insurance portfolio for value to an acquiring insurance company that is well capitalized, has a proven track record and the capacity to honour all obligations to policyholders.
“In order to achieve this objective, the Act requires the Central Bank to have a market price for Clico’s traditional portfolio determined by an independent valuation company. An independent actuarial firm has, therefore, been engaged to value Clico’s traditional business for this purpose and the exercise is still in progress.
“Subsequently, the Central Bank will conduct the process for the sale and transfer of Clico’s traditional insurance portfolio on a transparent, open market basis. The Bank has neither engaged with any prospective buyers nor made any decision on the structure of the portfolio transfer.”
Subsequent to this statement, the Central Bank announced on June 10, 2014 that Neil Dingwall had been hired as a consultant to the Central Bank on the restructuring of Clico, with an emphasis on organising the sale of the traditional portfolio.
More than a year after Mr Dingwall was hired as a consultant, can Mr Rambarran explain why an investment advisor has not as yet been appointed to lead the sale of Clico’s traditional portfolio, which comprises its life, group heal and pension policies?
It was Mr Rambarran who, in his address on June 1 at the fourth Monetary Policy Forum, disclosed that the Central Bank would “soon appoint an investment advisor to lead the portfolio sale.”
Can the Central Bank also explain whether the dismissal of the chairman and the managing director of Clico will speed up or slow down the appointment of the investment advisor?
And what impact would the dismissals have on the value of the portfolio if enough people lose confidence in the Bank’s handling of this issue?There is little doubt in the mind of most thinking people that it is unfair, unethical and unjust to pay monies to Clico’s directors and senior officers at the same time as other non-assenting policyholders and before the Colman Commission of Enquiry has reported.
As noted last week, in this space, the common sense solution would have been to pay those directors and senior officers who owned Clico policies after all other creditors, including the Government as the insurer’s largest creditor, had been paid in full.
This concept of ranking creditors was at the heart of this column’s objection to the original proposed Clico settlement, which was reduced to a Cabinet Note and a Letter of Intent between the Government and the CL Financial shareholders back to July 2013.
It is very strange that neither Clico nor the Central Bank thought that there was anything wrong with the June 3 statement that said the insurance company, “by law, has to treat with all classes of creditors as part of its resolution strategy.”
In theory, that is probably an accurate statement of the law. But, the issue is that in most corporate restructurings shareholders and executives of the company in jeopardy are always the last to recover value from the failed entity.
As a result of the public outcry over the payment of the Clico directors, just two days following the June 3 statement, the Central Bank terminated the appointments of the Clico chairman, Gerry Yetming and the company’s managing director, Carolyn John.
The basis on which the Central Bank took this decision, made public in a June 5 statement, was that the two “failed to follow direct instructions issued by the Bank on March 26 2015 setting out the protocols for all disbursements to policyholders and creditors under the Clico Resolution Plan. These instructions included obtaining approval from the Bank for all payments prior to disbursement.”
What is telling about this controversy is the fact that, according to credible reports, the Central Bank acted to terminate the appointments of Yetming and John without prior consultation with the Minister of Finance, Larry Howai.
My reading of the Central Bank Act is that this failure to consult with the Minister directly contravenes Section 44 F (5) of the Act, which states: “In the performance of its functions and in the exercise of its powers under Section 44 D, the Bank shall comply with any general or special directions of the Minister and shall act only after due consultation with the Minister.”
Did the Central Bank terminate the appointments after due consultation with the Minister?
If the Central Bank did not consult with the Minister before the terminations, is the Central Bank in breech of Section 44 F (5) of the Central Bank Act?
On the issue of general or special directions of the Minister, on April 16, the following question was asked of Minister Howai: “Are all of Clico's related parties entitled to receive payment from the $950 million that the company will disburse as the first payment to all statutory fund STIP holders who did not accept the Government's offer?”
Mr Howai’s response was: “Yes. All outstanding STIP holders will be titled to a partial payment in the first tranche.”
I responded to the minister’s statement by noting: “If the Government has decided to pay all related parties, it seems to me that that represents a policy shift from the position held by the previous administration.”
Mr Howai’s response: “I didn't say that we would pay. I said that they are entitled to payment. We haven't changed our policy position.”
My response to the minister: “If you tell someone that they are entitled to receive a payment from the Government, can you explain how you are going to discriminate between those who have a legitimate entitlement and those who don’t?”
Mr Howai’s final response on this subject: “The policy position hasn't changed. The funds will be placed in a blocked account pending the outcome of the various legal actions currently in various stages.”
In this last response, the minister outlined what seems to have been the Government’s policy on the payment of Clico’s related parties: that the funds for them would be sequestered pending the “completion of various legal actions.”
Was this policy (which strikes me as being fair, just and equitable) communicated to the Central Bank as a special or general direction of the Minister?
If the policy was communicated to the Central Bank, can it be argued that the institution is in breach of Section 44 F (5)?
And if it was not communicated to the Central Bank, can the minister tell the nation why he took the time to explain the Government’s policy on whether and how related parties would be paid to a journalist, but not to the Central Bank.
Traditional portfolio
The other aspect of the Central Bank’s governance of the Clico resolution that needs is the length of time it has taken for the Bank to hire an investment bank to solicit offers to purchase Clico’s traditional portfolio.
On May 19, 2014, the Central Bank responded to comments made by the Minister of Finance on the issue of the Clico resolution in the previous day’s Sunday BG. Mr Howai had said in an interview that Clico’s traditional portfolio would be sold.
In its response, which was signed by Governor Rambarran, the Central Bank stated: “The Central Bank is in control of CLICO, pursuant to Section 44D of the Central Bank Act Ch. 79:02 (the Act). This regulatory action started on February 13, 2009, in order to safeguard the interests of policyholders and creditors and to prevent disruption, substantial damage or impairment of our financial system.
“The Central Bank is the only entity empowered to restructure the business or undertakings of CLICO, in accordance with the provisions of the Act.
“As part of the resolution strategy for CLICO, the Central Bank proposes to transfer CLICO’s traditional insurance portfolio for value to an acquiring insurance company that is well capitalized, has a proven track record and the capacity to honour all obligations to policyholders.
“In order to achieve this objective, the Act requires the Central Bank to have a market price for Clico’s traditional portfolio determined by an independent valuation company. An independent actuarial firm has, therefore, been engaged to value Clico’s traditional business for this purpose and the exercise is still in progress.
“Subsequently, the Central Bank will conduct the process for the sale and transfer of Clico’s traditional insurance portfolio on a transparent, open market basis. The Bank has neither engaged with any prospective buyers nor made any decision on the structure of the portfolio transfer.”
Subsequent to this statement, the Central Bank announced on June 10, 2014 that Neil Dingwall had been hired as a consultant to the Central Bank on the restructuring of Clico, with an emphasis on organising the sale of the traditional portfolio.
More than a year after Mr Dingwall was hired as a consultant, can Mr Rambarran explain why an investment advisor has not as yet been appointed to lead the sale of Clico’s traditional portfolio, which comprises its life, group heal and pension policies?
It was Mr Rambarran who, in his address on June 1 at the fourth Monetary Policy Forum, disclosed that the Central Bank would “soon appoint an investment advisor to lead the portfolio sale.”
Can the Central Bank also explain whether the dismissal of the chairman and the managing director of Clico will speed up or slow down the appointment of the investment advisor?
And what impact would the dismissals have on the value of the portfolio if enough people lose confidence in the Bank’s handling of this issue?