Arc Systems placed in receivership

Supreme Court judge Justice David Batts has placed Arc Systems Limited in receivership, granting the request of Exclusive Holidays of Elegance, a Montego Bay-based business controlled by Fred Smith, which is seeking to recover a debt.

Arc System’s interim receiver, Kenneth Tomlinson of Business Recovery Services Limited, was appointed receiver and trustee of the property and estate of Arc Systems (in Bankruptcy) on Friday.

Batts, who heard closing arguments in the case in February, handed down his ruling three weeks ahead of the scheduled May 28 date. The case preceded the pandemic but was delayed by the health crisis, and Batts said he chose to hand down judgment early “rather than let the matter languish”.

Exclusive Holidays claims it is owed nearly $26 million in commercial debt for steel supplied to Arc Systems and wants to recover those funds. Arc Systems was founded by Norman Horne, but officials of the company have said that it is independent of other members of Horne’s Arc group of companies.

Exclusive Holidays attorney Gordon Robinson alleged during the hearings that Arc Systems may have been ‘stripped’ of its assets, pleading to the court that the granting of the receivership would allow the receiver to start tracking down the assets, if they exist, with a view to recovering and liquidating them in settlement of the debt. Representatives of Arc Systems have said, however, that the company ceased doing business in 2013, and there are no assets to find.

In making his ruling, Batts relied on aspects of Tomlinson’s four reports that he made as interim receiver and which had been admitted into evidence. The judge noted on Friday that the evidence suggests that there were moves to dodge paying debts owed.

“The reports contain details suggestive of fraudulent preference and systemic efforts to hide assets rather than to pay lawful debts,” Batts said in his ruling, drawing reference to nearly $822.5 million that was transferred from ARC Systems’ NCB account between January 2012 and May 2013.

Batts also referred to the report regarding several properties, valuing $189 million, that were transferred from Arc Systems to a St Lucian corporation, called Hilda Corporation, and then further transferred to Arc Properties, without any evidence that Arc Systems had been paid the $189 million total value in the first place.

The judge also noted that the same directors kept popping up with the various companies. He said this reality and the use of the same business address were suggestive of evasion.

“The commonality of directors of these various companies and the fact that they all use a Bell Road address add to the real possibility that there has been a fraudulent preference or other unlawful effort to evade payment of lawful debts,” Batts said as he handed down his judgement.

But he also noted that he had no authority to do anything more than express concern at this stage while suggesting that other agencies should take a look into the case.

“This judgement is a public document and any relevant agency or department may take such steps as, on the information revealed, it’s duty demands,” he said.

Costs were awarded to Exclusive Holidays, Tomlinson in his capacity as interim receiver, and representatives of Swiss trade finance and credit insurance company, Atradius Credit Insurance NV. That company had previously obtained judgment of US$8 million against Arc Systems in May 2013.

Batts denied a request by lead counsel for Arc Systems, Dr Lloyd Barnett, for a stay of his judgment, particularly the appointment of the receiver, pending an appeal. Batts, in denying the request, granted leave to appeal, but said the matter of the receivership must proceed in the interest of time and the need to quickly locate the assets.

A representative of the Office of the Trustee in Bankruptcy noted that Exclusive Holiday’s application to enforce the judgment will have to be done on new paperwork, since the civil procedure rules under the Insolvency Act were recently amended.

neville.graham@gleanerjm.com