Governments advised to probe cause of British American collapse

An amount of EC$301 million (US$115.7 million) was taken from the branches in the Eastern Caribbean to fund certain inter-company transactions including the purchase of property in Florida, United States of America. (File photo)

BASSETERRE, St Kitts, November 5, 2009 – The Eastern Caribbean Currency Union (ECCU) is suggesting that governments in the sub-region may need to launch an investigation into what caused the collapse of British American Insurance Company (BAICO).

Although it says the Eastern Caribbean authorities are now focusing on crafting a viable and sustainable solution for affected persons as a first priority, the reason the situation has reached the stage must not be overlooked.

It noted that matters related to internal corporate governance and management are most properly addressed by its shareholders and its creditors, but because of the extent that the failure of a company like BAICO can have such wide reaching socio-economic effects across the region, the ECCU governments must next ask some salient questions.

“Who is responsible for this difficult situation in which we find ourselves?  And how can this be avoided in the future? These are important questions which must be addressed,” it said in a statement which announced that ECCU governments had approved the creation of a new entity to take over BAICO.

“No doubt, as the smoke clears, further investigations into the underlying reasons for the collapse of BAICO will likely be an important next step and once again regional cooperation will be critical.”

However, it noted that “even before we know the exact actions which precipitated this crisis, we can begin to grow from the lessons of this experience, both as individuals and as nations”.

“The legal and supervisory frameworks within which insurance companies are regulated require re-examination and to some extent, that review has already begun across the region. As individuals too we can learn from this process the importance of investment diversification, “not putting all one’s eggs in one basket”, as well as the need to understand the nature of the investments we make and the risks attached to them,” the ECCU said.

It added that questions which still need to be answered relate to corporate governance and management by BAICO’s parent company, CL Financial in Trinidad and Tobago, especially in view of the apparent use of monies from BAICO policy holders in the Eastern Caribbean to fund risky real estate investments in Florida and elsewhere.

An amount of EC$301 million (US$115.7 million) was taken from the branches in the Eastern Caribbean to fund certain inter-company transactions including the purchase of property in Florida, United States of America.

The ECCU said the Judicial Managers have filed a petition in US Court to be recognised in bankruptcy proceedings started by BAICO to obtain relief under Chapter 15 of the US Bankruptcy Code.

This relief, if granted, will stay all actions against BAICO in the US and will allow the Judicial Managers to have a voice in any decisions regarding the distribution of the US assets.