Ram says plan foresees financial soundness in three years
Stabroek News
March 5, 2002

Related Links: Articles on Economic Concerns
Letters Menu Archival Menu

Chartered Accountant, Christopher Ram, yesterday informed Chief Justice Carl Singh that it could take Globe Trust and Investment Company Ltd (GTICL) three years to return to financial soundness.

He further told the judge that it would take a shorter period than this for goodwill to be restored. The Bank of Guyana is seeking a compulsory liquidation order for GTICL. This was possible, he elaborated, because GTICL had a niche market to which it appealed and operated in a highly regulated industry in which the licence it held had significant value. He said with an endorsement from the Bank of Guyana, sanctioned by the court, together with the protection offered by FIA for re-organisation, would allow for the rapid restoration of confidence and goodwill in GTICL.

Ram was the first witness for the objectors to the Bank of Guyana petition to the court and completed his evidence-in-chief yesterday morning when the hearing resumed. His cross-examination has begun.

Ram confirmed an assertion by attorney for the petitioner, Senior Counsel Rex McKay, that up to September 21, 2001, there was no tangible hope for recapitalising Globe Trust. That is, there were no commitments in writing to support the plan prepared by his firm to aid the reorganization. However, he said, he was aware of discussions by GTICL to secure support for the reorganisation and he had spoken with Lincoln Lewis of the Guyana Trades Union Congress and Raoul Thomas from an overseas financial institution for support.

He held to the view that GTICL had a reasonable prospect of being restored to financial soundness. He posited that in determining whether an institution could be restored to financial soundness, the conditions in the industry in which it operated, the conditions of the entity itself, any special features -- including goodwill -- had to be taken into account as well as the willingness of the institutions' creditors to forego the immediacy of their claims and any other legal protection which could be afforded to it.

He said under Sections 46 and 47 of the Financial Institutions Act (FIA), GTICL would enjoy protection on the repayment of its debts and confirmed that this was an important factor in the restoration of an institution.

"I think it is a very significant element of an institution's ability to return to financial soundness," Ram told attorney Stephen Fraser, in his evidence-in-chief and was asked to comment on the importance of an institution's burden of debt.

Ram told the court that he responded to the criticisms of the Bank of Guyana against the Ram & McRae plan and highlighted that the bank had not taken account of the protection offered to the institution in appointing an administrator to oversee GTICL's operation after taking possession. He said the amended plan remained self-reinforcing and self-sustaining and required no government monetary intervention. Further, he said, the revised plan did not take into account the indebtedness of directors of GTICL.

The revised plan excluded a cash flow from the directors to show that even without that, the plan was still viable. He said the reconstruction was possible because instead of ordinary shares of GTICL being written down by 50% as originally proposed, they would be written down by 65%. A 25% write-down of deposits was also assumed. It would still allow for small deposits up to $10,000 to withdraw their deposits in full with $75 million in outflows anticipated in the first three months. The revised plan proposed that all other depositors be repaid at least 75 cents on each dollar, though funds would not be available for withdrawal for two years.

In that revised plan, Ram argued, the role of the Bank of Guyana was not to prove that the plan could not work but to try to improve it if it felt there was a reasonable prospect for the institution's recovery. The other significant change in the revised plan was that $400 million of the debt would be written off and not $300 million as originally envisaged.

The reworked plan also saw the $472 million in non-performing loans to be renegotiated being slashed by $100 million. Ram informed the chief justice that he did not consider whether this sum was renegotiated previously but elaborated that he was aware of provisions which existed and were waived by the Bank of Guyana recently and even earlier for the rice sector. The revised plan also argued that a rational investor would prefer to engage in a prospect which would guarantee him/her a significant recovery on investment in a short period rather than a substantial loss likely to arise under liquidation of GTICL.

The accountant said it was his understanding that only the Bank of Guyana, acting as an administrator, or an administrator could carry out the reorganisation of GTICL and had the obligation to consult with depositors, borrowers and other stakeholders in the process as well as seek to restore the credibility and goodwill of the institution.

He found questionable some of the contents on the cost of liquidation sheet as provided by the Bank of Guyana.

Basil Williams, another attorney for the objectors, was the first to cross-examine Ram and sought to have on the record that rumours and doubts had a negative effect on GTICL. Ram concurred that such rumours and doubts could have caused the run on Globe Trust.

However, he said, if the run had not taken place, other actions would have had to be taken to allow GTICL to continue as a viable entity. He told Williams that if the remedial measures, which the Bank of Guyana sought to introduce in 2001 were introduced earlier, the institution would not be in the position it was in today. He also said it was his understanding that if the Bank of Guyana failed to appoint an administrator, it was obligated to carry out that function itself. He also told Williams that compulsory liquidation should have been the last resort of the Bank of Guyana.

Questioned by McKay on his meaning of the Bank of Guyana acting unreasonably in moving to compulsory liquidation, Ram said he was of the opinion that the Bank should have paid more consideration to the plan he had a significant hand in before it moved to the court for a liquidation order.

He held to the view that the Bank of Guyana did not give full consideration to this plan, saying he was made to understand that his responses to the criticisms of the bank were not fully considered.

He confirmed awareness of the letter from the acting governor, Dolly Singh to Dr Clive Thomas pointing out that a month had passed and finalisation of the plan based on consultation with stakeholders had not been done and furnished to the bank. He also agreed that no evidence was furnished to the bank that depositors were agreeable to the plan. Ram did not agree that Singh's letter signaled that the bank wanted to move on with the matter.

He could not, however, say what the directors of the bank read in coming to their decision to move for compulsory liquidation and had no reason to believe that they did not see the explanations he submitted. He also had no reason to believe that Singh was acting arbitrarily or contrary to the other directors of the bank's board.

Ram did not agree with McKay that it was the duty of Globe Trust to get the consent of shareholders and depositors to the plan. He said that was not his understanding of the structure of the Act. He said GTICL was not prohibited from doing so but it was his view that this responsibility lay with the Bank of Guyana and considered the issue one for cooperative effort by the two sides.

The hearing continues tomorrow afternoon.