SSL Wind-up Stopped By Court Injunction As FSC Will Decide What Happens Next
Online trading through Stocks and Securities Limited has been suspended immediately and a wind-up attempt was stopped by FSC as last month it assumed temporary control of SSL after fraud was uncovered
Just as everyone was asking themselves what would happen if SSL declared bankruptcy and whether Usain Bolt and the other victimized clients would receive their money back, a media scuffle ensued among the government authorities and the SSL high hierarchy personnel. The present article details this recent back and forth, as they butted heads publicly regarding the - negated - winding-up of the company Stocks & Securities Limited (SSL) itself. This will serve as a way to explore the relationship between the figure of bankruptcies, wind-ups, and receiverships in Jamaican law, which is also quite similar to Canadian law.
In an earlier piece, I spoke on the “Alleged Fraud Detected At Jamaica’s SSL” and went over the recent fraud allegations of millions of dollars reportedly misappropriated from local investment firm Stocks & Securities Limited accounts with some indications the figure could be higher and since then things have only gotten worse for the company as JSE suspends trading through SSL.
The Jamaica Gleaners’ headline on January 26th was “FSC blocks SSL wind-up” according to the article SSL applied to the Company's office of Jamaica (COJ) for a voluntary wind-up on January 16 but the FSC went to court to prevent the process from taking place. Now the Jamaica Gleaner had reported that SSL applied to the Company's Office in Jamaica for a voluntary wind-up on January 16 and that the FSC had gone to court for an injunction to prevent that from happening. So a seven-page SSL statement came after that as damage control from the knowledge that they did attempt to wind up the company and cash out right as the fraud scandal broke. The seven-page statement giving their side of the story in the worrisome event involving the theft of millions of dollars from Usain Bolt and 39 other clients among the many things they tried to say was that they did not try to wind up the company in January after this whole Scandal broke. Mind the reader that for some reason an SSL employee sought help from Usain Bolt's team to replenish depleted accounts according to the Jamaica Observer.
However, Finance Minister Dr. Nigel Clarke went on Twitter on the 2nd of February to publish copies of proof of the winding up attempt by SSL higher-ups. The documents entitled the company's act voluntary winding-up were signed by Hugh Croskery, Jeffrey Cobham and others from SSL's board and management. Thus the publicly released documents on SSL demonstrate the company sought a winding-up process just after the fraud allegations were made. The wind-up documents released had been sent to the Company's Office of Jamaica where it was stamped on January 16, 2023. The document is stamped as received by the Company's Office of Jamaica on January 16, 2023. Dr. Clarke had used these very documents as proof of the veracity of the government's claims over the wind-up procedure which formed the basis of the successful injunction last week.
The Declaration of Solvency included in the released documentation states that the majority of SSL's directors declared that the company would be able to pay its debts in full within 12 months from the commencement of winding up – which did not take place due to FSC’s injunction. So it seems the plan was the winding up of the company and cash out and the process was attempted on January 16, six days after SSL was notified by the FSC about the fraud. Many things can be said about the ethical implications of seeking a wind-up just before the dust settles so to speak. What SSL sought is a sort of forced liquidation, and like all business liquidations, those who invoke it must make a calculus of the state of the enterprise up until that moment. At that moment the winding-up process has to be classified as solvent or insolvent.
Now, this case presents an excellent opportunity to delve into the differences between two very similar processes which are Winding Up vs Bankruptcy. Liquidating a business is the process of winding up. In the process of winding up, a business stops operating normally. Its sole objective is to liquidate the company's stock, settle any debts, and transfer any residual funds to partners or shareholders. The process of turning assets into cash is known as liquidation, and the two terms are interchangeable. Jamaica enacted its Insolvency and Bankruptcy Act back in 2014, as It sought to bring about consistency between the movable collateral regime, thus determining the order of payment to creditors who have granted loans secured by movable property, and as we know the regime of payments to creditors upon the debtor's insolvency is a critical component which ensures the efficient functioning of the legal machinery and the movable collateral regime. But many local Caribbean observers believe the 2014 reform might have been insufficient.
The process of winding up a business is known as liquidation. Winding up a business does not equate to declaring bankruptcy, however, it is usually the result of declaring bankruptcy. Wind-up merely means a literal winding up or liquidation of a company's operations, basically shutting it down in a specific way depending on its solvency and on whether a receiver might want to keep running the company until the necessary funds for liquidation are made. While bankruptcy is a legal proceeding in which creditors attempt to gain access to a company's assets to liquidate them to pay off debts. Although there are various types of bankruptcy, the proceedings can assist a company in emerging as a debt-free and usually smaller entity. In contrast, once the winding-up process begins, a company can no longer conduct business as usual. Its sole purpose is to liquidate stock, settle debts, and distribute whatever remaining funds to partners or shareholders. An owner who no longer wants to operate his business can start a wind-up, it's a process of settling things. There are various types of liquidation / wind-up processes with both solvent and insolvent situations. Now if the business has more assets than liabilities then its wind-up is rather straightforward as its solvent. But you could also have an insolvent winding up which happens when a company declares bankruptcy because its assets aren't enough to cover its liabilities, which are what the company owes now. While it hasn't been proven beyond doubt many observers of Caribbean finance believe SSL especially is suspected of insolvency.
But it certainly looks pretty bad that amid this whole disgrace, SSL applied to wind up the company. If it is that this would be a winding up because of a potential bankruptcy what would happen? Let's say a business is in trouble and the bank is about to sell the asset provided as security. The owner can usually file a Notice of Insolvency meant to suspend those selling proceedings of the assets temporarily while further negotiation ensues to formulate proposals for the creditors which they can certainly reject.
For example, if Usain Bolt tried to sue SSL but the company had been allowed to declare bankruptcy, well then that lawsuit would be stayed. In a bankruptcy, the company can either be liquidated or go into receivership. Liquidated means that they would basically sell off all the company's assets and then distribute them to all the people that the company owes. Now they may not be able to recover the full amount and there would be an offer made to the creditors but that doesn't mean the creditors are obliged to accept that particular offer. As often happens in bankruptcy, it's almost like a take-it-or-leave-it situation with what they were able to get from the company in the state of affairs of the moment. The other option is to put the company into receivership, that's when a receiver is a temporary manager who would still run the company but in such a way as to recover as much money as possible to pay off all of the creditors.
There is a predetermined order in which the money gathered from the liquidation is given out. First, the government takes precedence in the form of taxes mostly followed by the entity with the most collateral, and so on. Then there are also preference shareholders and bondholders. The last to get what money is left would be any unsecured loan holders and in the case of SSL clients who gave the company money to manage on their behalf. It depends also on what activities you were using SSL for, If simply used for purchasing an IPO then that transaction would be registered with the Jamaica Central Securities Depository Limited (JCSD). But if SSL has funds under management for a client there is a chance that if the company declares bankruptcy that client may not get back that money or get back only a portion based on what they're able to recover from a liquidation event or a receivership. As it stands the FSC announced in mid January the appointment of Kenneth Tomlinson as temporary manager of the investment firm whose primary responsibility it is to evaluate and recommend changes with SSL customers in mind, would investigate the issue of insurance and its accessibility. In terms of SSL's solvency, Tomlinson's work will be to determine the cash position of SSL. In the absence of a liquidation, Tomlinson has served as receiver, liquidator, and temporary manager for the FSC. Finally, the managers' recommendations could include returning the institution to its board of directors or owners, or petitioning the court for the institution to be wound up.