Caydion Campbell | The role of a trustee and the interests of creditors and the public

Given the high public interest in matters concerning Stocks and Securities Limited (SSL) – in court-supervised winding-up – I deem it important to advise the public at large on the role of a trustee and my involvement with SSL, as I am the recently confirmed trustee of SSL.

Firstly, I have no connection with the shareholders, directors, former managers and former employees of SSL. I was never a client of SSL and am able to discharge my responsibilities objectively and impartially. Also, my appointment occurred before the appointment by the Financial Services Commission (FSC) of a temporary manager and as such, was not a reaction to that appointment.

WHO IS A TRUSTEE?

A trustee (liquidator) is a statutory creature appointed by the members of a company, its creditors, or the court and is an officer of the court.

In what is referred as Gooch’s Case, it was stated as follows:

“…In truth, it is of the utmost importance that the liquidator should, as the officer of the Court, maintain an even and impartial hand between all the individuals whose interests are involved in the winding up. He should have no leaning for or against any individual whatever. It is his duty to the whole body of shareholders, and to the whole body of creditors, and to the Court, to make himself thoroughly acquainted with the affairs of the company; and to suppress nothing, and to conceal nothing, which has come to his knowledge in the course of his investigation, which is material to ascertain the exact truth in every case before the Court. And it is for the Judge to see that he does his duty in this respect.”

The key responsibility of a trustee is to ascertain assets and liabilities of a company as at the date of its winding-up, so that the net assets, once realised, can be distributed. The overarching principle is that the “the tree must lie as it falls”. The trustee ‘ring-fences’ the assets, and creditors must be proved as to their priority and rank to receive a dividend under the Scheme of Distribution, which is outlined in Section 202 of the Insolvency Act. If there is a surplus, it is distributed to the members.

WHY WAS A TRUSTEE APPOINTED?

I was engaged primarily to facilitate the reorganisation of the business of SSL and develop a resolution plan that would eventually be approved by the FSC and the court, if necessary. It had to have the support of the creditors and claimants of SSL to be implemented.

IS THE APPOINTMENT OF A TRUSTEE AGAINST THE INTERESTS OF CREDITORS AND THE PUBLIC?

This is an important question and was addressed by the Supreme Court. The judgment is available for public reading and may be downloaded at www.sslinvest.com.

The court said:

“It is apparent from the statutory scheme that winding up proceedings pose no threat to the creditors of the 1st Defendant [SSL] or to the public. No such prejudice was deposed to in the evidence and when I asked counsel for the Claimant [FSC], none was identified. It would be strange if there were any danger to the public, because the Financial Services Commission Act provided for the institution of winding up proceedings as the ultimate weapon in the regulator’s arsenal, see section 8(5)(d) of the Act.”

In response to assertions by the FSC that in the face of fraudulent activities and insolvency the trustee’s appointment and the proposed reorganisation of SSL would impede investigations, the court stated that “investigations and forensic audit can take place under the auspices of a Trustee whose duty includes the protection of creditors. The 2nd Defendant [Caydion Campbell] is aware of his statutory duty as Trustee as was well qualified so to perform them…There was no real danger to the public interest posed by the lawful liquidation of the 1st Defendant [SSL].”

WAS THE ACTIONS OF THE SHAREHOLDERS AND DIRECTORS PREMATURE?

A financial institution facing a crisis ought to have a plan of action and cannot wait for things to unfold. The directors (and shareholders) would be expected to find a solution. The actions taken is consistent with the proactive approach recommended by insolvency practitioners to facilitate what is referred to as the ‘Rescue Culture’. The approach is to reorganise if possible, liquidate if necessary. It is a shift in focus from mere reactionary responses to one where the stakeholders anticipate and manage the risks of an existing or impending crisis. The focus shifts from what are we going to do with the pieces of a failed enterprise? To what can we do to keep it from failing?

WAS THE TEMPORARY MANAGEMENT NECESSARY TO FACILITATE INVESTIGATIONS?

Some may argue that without the intervention by the FSC and the appointment of a temporary manager, the extent of the fraud would not have been uncovered. I disagree, as obligations imposed by Section 324 (2) of the Companies Act makes it mandatory for a trustee to report apparent criminal matters:

If it appears to the Trustee [liquidator ] in the course of a voluntary winding up that any past or present officer, or any member, of a company has been guilty of any offence in relation to the company for which he is criminally liable, he shall forthwith report the matter to the Director of Public Prosecutions, and shall furnish to the Director such inform and give to him such access to and facilities for inspecting and taking copies of any documents, being information or documents in such possession or under the control of the trustee [liquidator] and relating to the matter in question, as the Director may require.

It would be expected that the Financial Investigations Division and other agencies would rigorously investigate the matter, regardless that a trustee was appointed.

DID THE TEMPORARY MANAGEMENT BREACH THE INTERESTS OF CREDITORS AND THE PUBLIC?

At the commencement of the temporary management, SSL had in place Fidelity Guarantee insurance coverage for acts of dishonesty or fraud by its employees. It has been confirmed that insurance proceeds of US$1 million (being the policy limit) was received by the temporary manager from a claim made in relation to the alleged fraud by the former employee.

The reports received from the temporary manager reveal that the insurance proceeds were not applied to the benefit of any of the approximately 200 clients whose accounts were affected by the alleged fraud. Rather, the reports suggest that those proceeds were used to fund temporary management expenses.

A trustee would have been obliged to see those funds as ‘trust funds’ in the hands of SSL to be used to partially compensate the parties adversely impacted by the alleged fraud. The likelihood of recovery for these parties is a matter of public interest.

Caydion Campbell is an Insolvency Practitioner and Licensed Trustee. Email feedback to columns@gleanerjm.com and caydion@praisetrustee.com.