As the Financial Services Commission (FSC) continues its case in the Supreme Court, a question has arisen on whether Stocks and Securities Limited (SSL) would have been able to survive had the firm been allowed to execute its planned restructuring exercise.

The FSC has been pressing its case against SSL and Caydion Campbell, the trustee appointed by the securities dealer since the trial began last Monday under the purview of Justice David Batts. SSL’s board had signed off on a member’s voluntary wind-up under the Companies Act and would have appointed Campbell as its trustee to execute the scheme in January 2023. However, the FSC is contending on different angles that this move would have been against their directions and that the declaration of solvency submitted to the Companies Office would have been invalid.

In the trial’s seventh day, attorney-at-law Marc Ramsay was questioned by King’s Counsel (KC) Caroline Hay, the attorney for Campbell, about some of the planned moves that were to be carried out by SSL in its proposed reorganisation in 2022.

Ramsay, who was engaged as an advisor by SSL to the proposed deal with Spectrum Capital Partners, noted that SSL’s June 2022 audited financials had received a qualified audit by its auditors BDO Jamaica on its ability to continue as a going concern. There are four types of audit opinions with an unqualified opinion seen as a clean bill of health while a qualified audit highlights potential gaps that will affect an entity’s ability to continue being able to operate in the near term.

However, this was precisely the reason SSL was seeking to reorganise its balance sheet and have a launchpad to grow the business. As part of this plan, SSL was to have settled its related party assets owed by its parent company SSL Growth Equity Limited. This would have involved SSL Growth Equity transferring the ownership interest in SSL Capital Cayman Limited, SSL Asset Management Limited in the Cayman Islands and a 20 per cent stake in a Jamaican water company.

This was to have been followed by converting US$1.14 million in debt SSL owed to George Chai, a client and shareholder, into preference shares at US$1 each. SSL would also have received a US$4-million injection by Spectrum Capital Partners over several months for the majority shareholding in SSL. This would have been followed by an independent licensed trustee overseeing the reorganisation and restructuring of SSL. All of this would have culminated in a planned initial public offering in the future and the introduction of new business lines.

“Yes, and I would say that Spectrum was now aware of the plans for that [member’s voluntary wind-up] meeting. When the trustee would actually carry out his work which at the time would have included a conservatory function to ensure that there was not a run on the entity due to adverse…,” Ramsay responded to Hay about the plan meant to preserve SSL.

Spectrum is suing SSL Growth Equity, Chai and SSL for $186.46 million over the member’s wind-up which breached the agreement which would have been agreed by the different parties in October 2022.

Despite these points, SSL’s temporary manager Ken Tomlinson and Brian Hackett, territory leader of PricewaterhouseCoopers (PwC) Trinidad and Tobago, both came to the conclusion that SSL was insolvent. When asked about any minutes or notes that led to his conclusion, Tomlinson responded that they were having meetings all day in 2023 and it wasn’t simple to have made notes for every meeting.

Hay also asked Hackett who prepared an expert report on SSL’s solvency if his conclusion would have changed had SSL received the full Spectrum funds. Hackett responded that he doesn’t believe his conclusion would have changed on SSL’s solvency based on his observation of 64 per cent of its balance sheet being illiquid assets and the fall of total assets from $3.2 billion in June 2019 to $1.1 billion in January 2023.

Hackett also contended that the SSL directors should have taken into consideration the contingent claims by WellJen and two other parties when signing the declaration of solvency. He further countered Hay’s point by reiterating that capital adequacy and solvency are very different for a regulated institution.

Hackett highlighted that capital adequacy is a reference of a firm’s capital relative to its risk-weighted assets and how it is meant to be a shock absorber for losses while solvency speaks to the ability to address one’s debts as they come due. He noted that capital cannot address debt, only assets which either mature or are sold.

“Based on the representation received from SSL, and the third-party audit of the entity, the FSC continued an enhanced supervisory process of the entity and did not issue an intention to cancel the entity’s licence,” responded Karene Blair, FSC director of securities, to Hay’s questions on day one about SSL.

Blair noted that SSL was under enhanced supervision since 2019 for different issues which included large sums of uninvested client funds and also breaches of foreign exchange (FX) limits as prescribed by the Bank of Jamaica. Enhanced supervision included directives which required SSL to file weekly reports to the regulator. Blair also noted that SSL’s 2022 audited financial statements were only received in January, months after they were due. This was against the backdrop of SSL falling below the early warning signal for capital adequacy at some point between 2019 and 2022 and its prior issues highlighted by the FSC going back as far as 2009.

The premise of the current case surrounds who controls SSL, considering that Campbell’s appointment would have come a day before Tomlinson was appointed. As a result, all other SSL suits, including the one filed by WellJen Limited, a company connected to Usain Bolt, have been stayed until this matter is resolved.

The FSC is seeking to win this case and apply the FSC Act to have vested powers from January 17, 2023, of SSL and have Tomlinson appointed the trustee of the firm which it intends to wind up. However, Hay is seeking different orders which would include the appointment of Campbell as trustee be confirmed by the court, continue with the planned winding up of the firm, discharge Tomlinson from his role and ancillary orders.

Lisa White, a senior attorney from the Attorney General’s chambers, sought to have the FSC’s claim amended to address the developments from last week surrounding information of the resignation of SSL directors Laurence Adamson and Peter Knibb. However, Justice Batts shot back in highlighting that her application had only a 10 per cent chance of being granted.

Batts retorted, “How are you going to prove that they are lying?”

Knibb and Adamson had sent resignation notices as directors before January 12, but both men signed the declaration of solvency filed with the Companies Office of Jamaica on January 15 as directors. The prosecution rested its case on Monday while the defence of Hay began its presentation on Tuesday. Hay intends to call Campbell as a witness. KC Carlene Larmond is the court-appointed independent attorney for SSL.

The trial continues into its eighth day today in downtown Kingston.