The liquidators for Segoes Services Ltd. must decide how to deal with the various classes of company creditors, and will seek direction from the Court on how to proceed.
The dilemma was outlined in a joint liquidators’ report dated 7 July and circulated to creditors by the liquidation committee this week.
Segoes, a stockbroker and investment services company, was put into provisional liquidation in April and official liquidation in May amid accusations of fraud and other wrongdoing.
Investors in the company were of two types; those that had fully disclosed brokerage accounts held in their own name under Segoes trading control; and those that had their investments made directly to a Segoes trust account without disclosure of their names appearing elsewhere.
Fully disclosed accounts make up the bulk of Segoes assets, and while it initially seemed creditors with fully disclosed accounts were in a better position than those with undisclosed accounts, investigations by the liquidators have shown otherwise in many cases, said joint liquidator Christopher Stride.
‘There’s been such co-mingling of funds, you cannot determine where the deposits came from,’ he said.
The report to the creditors stated it would be costly and difficult, if not impossible, to segregate Segoes Services’ assets from those of Segoes Trust and Segoes Bond Fund, where the undisclosed investment funds were held.
The situation leaves the liquidators with few options, one of which is to pool the assets and liabilities of all the companies in the Segoes Group and distribute the net assets to all creditors on a prorated basis.
However, some investors who have held fully disclosed accounts since before Segoes owner John Kaweske’s involvement in the company might have a better standing.
‘The liquidators would be willing to entertain the suggestion that should the customer be able to prove that their investment was funded through accounts of the Company prior to Mr. Kaweske’s involvement (i.e. November 15 2002), this will be sufficient evidence that the investment was acquired from funds not co-mingled with that of the company,’ the liquidators report said.
Any subsequent activity from the account, however, would taint the designation.
‘Should it be found that there were subsequent investment purchases funded through the company, such transaction, if material, will deem the entire investment sourced from co-mingled funds and assets of the company,’ the report states.
Mr. Stride admitted some creditors might not like that decision, which is one reason the liquidators will seek direction from the Court.
‘At the end of the day, if we have a court and judge say this is the fairest way to proceed, the creditors will have to go along with it,’ he said.
Gene Hoffman Jr., the chairman of the creditor’s liquidation committee, said the committee agrees with the liquidator’s assessment.
In a telephone interview Tuesday, Mr. Hoffman outlined another plan whereby all Segoes creditors would receive a payment of up to US$2,500 of their claim.
‘This would lower the head count for the liquidators, making it easier for them. It would peel off 78 per cent of the Southwest account holders,’ he said, referring to the US-based First Southwest Company where many of Segoes fully disclosed investments were held.
Creditors with claims of US $2,500 or less would be paid in full, while those with higher investments would only have the first $2,500 paid in full, with the balance of their claims subject to the liquidation process, Mr. Hoffman explained.
Mr. Stride said making such a payment is what is called the ‘small claims strategy’.
‘It gets rid of the creditor base, and lowers the overall cost to the creditors,’ he said, explaining there would be less paperwork and fewer inquiries as a result.
‘It will allow us to spend less time on the creditors and more time on the collection of assets process.’
Mr. Stride could not say when such a payment would be made.
‘The first step is to make an application to court approving it,’ he said.