Securities Commission of the Bahamas v Alastair-Prescott Ltd et Al

• Jurisdiction: Bahamas
• Judge: Osadebay, Sr. J.
• Judgment Date: 11 April 2001
• Court: Supreme Court (Bahamas)
• Docket Number: 585 of 2000
• Date: 11 April 2001

Supreme Court

Osadebay, J.

585 of 2000

Securities Commission of the Bahamas

and

Alastair-Prescott Ltd. et al.

Appearances:

Mr. Maurice Glinton and Mr. Raynard Rigby for the applicants/the defendant Companies.

Mr. Michael Barnett and Ms. Paula Adderley for the Securities Commission.

Company law - Winding up — Defendant companies sought order pursuant to RSC Order 32, r.6 or under inherent jurisdiction of court that receivership order whereby one George Culmer Esq. was appointed receiver over assets of all defendant companies be set aside, varied or amended on grounds that the order was procured for irregular or improper purpose, court had no legal or equitable basis for exercise of jurisdiction to make order and that there was material non-disclosure to court on part of plaintiff — Application in response to plaintiff's application for winding up of defendant companies and appointment of said liquidator and order of court granting application — Whether there was evidence of defendant companies carrying or attempting to carry on mutual fund business without requisite licence or exemption — Whether circumstances justified appointment of receiver — Whether plaintiff had locus standi to present petition for winding up and appointment of receiver — Whether just and equitable to wind up companies pursuant to sec. 92 of IBCA 2000 — Finding that sec. 26 Mutual Funds Act did not operate to confer standing on plaintiff to present or maintain petitions for winding up of defendant companies — Petition for winding up dismissed — Finding that it was equitable that receivership should come to an end — Receivership order set aside.

Osadebay, Sr. J.

1 Before me are two applications, one made in Equity action No. 585/2000 by the defendant companies in that action, and the other made in Equity action No. 98/2001 by the petitioner, the Securities Commission of the Bahamas. In the first application under Equity Action No. 585/2000, the defendant companies seek an Order of this Court pursuant to Order 32, r. 6 of the Rules of the Supreme Court (R.S.C.) or otherwise under the inherent jurisdiction of the Court that the Receivership Order made on the 7th July, 2000, as extended by another Order dated 16th August, 2000, whereby George Clifford Culmer Esq. was appointed Receiver over the assets of all the defendant companies be set aside or varied or amended (as the case may be) mainly on the grounds:

• a) that assuming that the court has jurisdiction to make such an Order there was no legal or equitable basis for the exercise of such jurisdiction by the court

• b) that the Receivership Order was procured for an otherwise irregular, improper (if not ultra vires) purpose.

• c) that there was otherwise material non-disclosure to the court on the part of the Securities Commission of the Bahamas (Securities Commission).

2 In the second application, under Equity Action 98/2001 the Securities Commission having filed a Petition for the winding up of the defendant companies in Equity Action 585/2000, seeks an Order that the said George Clifford Culmer be appointed provisional liquidator of the said defendant companies pending the hearing of the Petition.

3 Having heard both applications I have decided to deal with them together in one decision since they relate to the same parties and the two applications have a common nexus.

4 The Securities Commission of the Bahamas (the Commission) is a Statutory body established by section 3 of the Securities Commission Act, 1999 and it is a continuation of the Securities Board established by the Securities Board Act, 1995.

5 The main functions of the Commission, inter alia, is to maintain surveillance over the securities market ensuring orderly, fair and equitable dealings: (section 3 of the Securities Board Act, 1995.) The Commission is also charged with the duty of ensuring that no mutual fund operates in the Bahamas unless it has received a licence to do so or has been exempted from having such a licence granted by the proper authority under the Mutual Funds Act, 1995.

6 By an Originating Notice of Motion filed on the 31st May, 2000, the Securities Commission sought an Order that George Clifford Culmer of BDO Mann Judd, a firm of International Accountants be appointed a Receiver Manager of the defendant companies on the grounds (a) that the defendant companies were carrying on or were attempting to carry on mutual fund business in the Bahamas without a Mutual Fund Licence granted under the provisions of the Mutual Funds Act, 1995, (b) that the defendant companies were conducting mutual fund business to the detriment of their creditors and that the appointment of a Receiver and Manager was necessary to preserve the assets of the defendant companies and to protect the interests of the creditors of the defendant companies, (c) that the defendant company, Equivest Premier Holdings, Inc., was facilitating the conduct of mutual fund business in or from the Bahamas contrary to the provisions of the Mutual Funds Act, 1995, and contrary to the interest of creditors of the companies. The application by the Commission was made ex parte and was supported by an affidavit of Hilary H. Deveaux, Secretary to the Commission, filed on the 5th June, 2000. In that affidavit Hilary Deveaux deposed that the need to appoint a Receiver and Manager as requested was infact encapsulated in a letter dated 30th March, 2000, written by Ms. Nancy Lake, the Trustee of the Tenesheles Trust “the beneficial owner of the voting share capital of a number of the defendant companies” to the Commission. That letter, which I consider as very important, was exhibited in the said affidavit as “Exhibit 1”. In my view any attempt to summarize the letter would infact do an injustice to the content so I shall reproduce the letter. It reads as follows:

“THE TENESHELES TRUST

PO Bog N-7511

55 Frederick Street, Nassau, Bahamas

Telephone: 242 356 4414

The Securities Commission of The Bahamas 30 March 2000

3rd Floor, Charlotte House

Charlotte Street

Nassau

Bahamas

Dear Sirs

I am writing to you in my capacity as Trustee of The Tenesheles Trust. The trust is the beneficial owner of the voting share capital of a number of corporations.

In April 1999 BDO Mann Judd was appointed by the trust to produce a combined statement of net assets of the above-noted corporations. At that point they informed the corporate administrator that the corporations were effectively operating as a manual fund in contravention of the Mutual Funds Act, 1995 and that a plan of reorganization should be presented to the Securities Commission in order to obtain the necessary licensing for the corporations to continue to operate in compliance with the Act. They also informed us that steps should be taken to ensure that any relevant US legislation was also complied with. As a result of this advice BDO Mann Judd was appointed to advise on the steps necessary to comply with the Act, and Curtis Mallet-Prevost, Colt & Mosle were appointed in the US to advise on the various aspects of US legislation. A number of events subsequently occurred that have to date delayed the presentation of the plan of reorganization and license applications to the Commission.

During July 1999, the corporate administrator, Woods & Associates, resigned under circumstances that indicated the possibility of embezzlement. This precipitated the need for a time-consuming forensic investigation by BDO Mann Judd. As a result of their report an insurance claim has been filed.

Delays were incurred in receiving US counsel's opinion. Consequently it was not until December 1999 that advice was received on the measures to be taken to ensure that any proposed Bahamian reorganization would comply with US securities and other relevant legislation.

At this point work commenced in earnest on the plan of reorganization in the Bahamas, in order that an application for the necessary manual fund licenses could be made.

However, almost immediately, BDO Binder, the accountants appointed by the trust in the Isle of Man to account for and administer the operations of the corporations subsequent to July 1999, resigned and it became apparent that they had failed to carry out their contractual obligations. As a result of this, in February 2000, BDO Mann Judd was appointed to perform a second forensic investigation. This investigation revealed that the books and records handed over by BDO Binder to the Trust's Isle of man attorneys did not contain any evidence of the maintenance of a double entry accounting system or investor records for the period subsequent to 18 July 1999. As a result of that information the trust requested the commencement of an exercise to reconstruct those accounting and investor records.

However, I have been advised by BDO Mann Judd, that as a result of the current lack of accounting records and the time that it will take to bring them up to date, significant and unacceptable further delays will be incurred in presenting the plan of reorganization and licence applications. Further, I am informed that BDO Mann Judd consulted Messrs Callenders & Co, attorneys, who advised that these matters be immediately reported to the Securities Commission, and their urgent intervention be sought to assist in the restructuring of the fund, by way of a court-appointed protective receivership. The alternative would appear to be uncontrolled investor litigation, which would result in the collapse of an otherwise solvent and profitable fund.

I would therefore request that you make application to the courts to appoint a receiver for the corporations until such time as the accounting records can be brought up to date, the plan of reorganization implemented and the necessary mutual fund licences obtained.

In the event that you require any clarification of these matters please contact either Michael Scott or Colin Callender at Messrs Callenders & Co.

Yours...