There are too many variables to provide an estimate of how much money will be returned to creditors and depositors of Caledonian, the bank’s liquidators said in their first report.
The U.S. Securities and Exchange Commission has sued Caledonian Bank and Caledonian Securities for $76 million plus civil money penalties, but that amount could be revised up or down depending on the court proceedings.
There may also be claims against the bank that are as yet unknown, and equally uncertain is the value that can be realized through the sale of company assets, including the business premises in George Town, the liquidators’ first report noted.
In addition, it can be difficult to recover the full value of intercompany receivables, prepayments and intangibles, especially when the debtors are related parties to the company, the liquidators said.
According to the report, Caledonian’s loan book contains a significant number of unique, bespoke transactions with related parties and about $5.5 million in intra-group loans to the parent company Caledonian Global Financial Services International, which could be difficult to recover at full value.
In total, the bank has 64 outstanding loans denominated mostly in U.S. dollars, Cayman dollars, Canadian dollars and British pounds sterling. The largest loan of US$93.7 million makes up more than half of the entire loans owed to Caledonian. All of the business loans and most of the real estate loans are located in Cayman. Two-thirds of the loans are secured by real estate and a fifth is unsecured, but all are deemed “at risk” by the liquidators.
The bad news for depositors and creditors of the bank is compounded by the cost of the liquidation itself, as well as legal costs in the U.S.
The two Ernst & Young liquidators, who bill US$800 per hour, and their support staff are owed more than US$700,000 for the first five weeks of work, and legal fees have amounted to US$1.24 million for the same period, which ended March 31.
The first creditor meeting will be held on Thursday at 10 a.m. in the main conference room of the Marriott resort. The bank, which provided customers with demand deposit, term deposit and debit card services, has 1,895 active depositor accounts held by 1,284 customers from 90 jurisdictions.
A separate meeting for the creditors of Caledonian Securities is scheduled for the following day and will be conducted by telephone conference call and webcast.
The liquidators said they are seeking to sell as many of the company’s assets as possible for the benefit of the bank’s creditors, but they believe that there is only a limited time period of four to eight weeks available to successfully conclude such a transaction.
Because the Cayman Islands Monetary Authority has revoked Caledonian’s banking license, the most obvious potential buyers are other class A banking license holders in the Cayman Islands. However, new entrants may also have an interest in purchasing “a ready-made package of assets that provide a turn-key solution to establishing a banking operation in the Cayman Islands,” as described by the liquidators.
The recent sale of Caledonian Trust Company and Caledonian Directors Services was welcomed by the liquidators as a positive development for creditors and depositors because the proceeds will preserve value in the bank’s parent company, which owes its subsidiary bank $5.5 million.