Property rights

Trust property:  Before we broke on 27 June to take a look at the ethics and sustainability of government borrowing from the Social Security Fund to pay bills, we were looking at the constitutional exceptions to our fundamental right to own property.  We now turn back to the subject.  The eighth exception to our section 7 fundamental right is even more obscure than some of the earlier ones we looked at previously. 

The section says that I cannot complain if property is taken away from my possession when it is trust property being given to the person who has the better right to it.  Or, I may be an enemy alien in time of war, and my property is being confiscated.  Or, the administrator of persons or companies adjudged bankrupt, or insolvent, or of unsound mind, or deceased may be vesting the property in the name of the administrator. 

In none of these cases can I complain if what I consider my property is being taken away.  We all hope that we shall never meet someone with a better right to our property than we ourselves have.

Secured loans

Secure lending?  I have been asked the question.  Has the Anguilla Social Security Board ensured that any advances they are making to government from the Social Security Fund have been properly collateralised?  Is there a security of some kind that has been given by government for the loan?  Is there an instrument that can be acted on if government defaults?  If the Board bought government bonds, that would be an investment.  But, if they are making an unsecured loan to a penniless government is that an investment?

Then, what about the borrowing guidelines given to us by the British Government?  Were the borrowing guidelines breached?  In the event that the lending has knowingly been made in contravention of the borrowing guidelines, what effect, if any, would this breach have on the ability of the Board to enforce any obligation of government to pay back the lending?

We have all read about international companies misusing their employees' pension funds to pay off company debts.  They do so without an ounce of conscience.  We read that the companies then go bust and are not able to pay back their employees.  We all feel justifiable outrage. 

           What are we supposed to feel if it is our own government and Social Security Board that are rummaging about in our social security funds?

Investment?

What controls or restrictions does the Social Security Act place on the investment of the monies of the Social Security Fund by the Social Security Board and its Investment Committee? Section 13 of the Act provides that the investment of money of the Fund shall be made by the Director in accordance with the directions of the Board and the Investment Committee. The Board had long ago set investment guidelines that prohibited lending to government.  The previous Board viewed lending to government as a misuse of the trust funds held in the Fund.  It appears that those guidelines have been altered by the new Board. 

In the absence of any restrictions in the  Act, we look to the ordinary meaning of the words.  To “invest” is defined by the Oxford Dictionary as meaning to employ money in the purchase of anything from which interest or profit is to be expected.  The notion of investment is one of placing money into some form of profitable property.  The restrictions are not set out in the Act.  They are waiting to be defined by the court.  Someone will have to have the impudence to bring a law suit to have them finally determined. 

I venture to propose, though, that the common man would answer the question by stating that the duty of the Social Security Board is to prudently manage the Social Security Fund for the benefit of the persons who essentially own it, the contributors.  

 If people are dutifully paying their dues to the Board then, in return, the Board is duty-bound to apply those funds to such matters as pensions and sick leave and maternal leave payments, and nothing else.  Surplus funds are expected by all of us to be profitably invested.   

The implicit responsibility of the Board and its Investment Committee is to invest the funds of the Board wisely so that the contributors may receive their entitlements whenever it is necessary to claim them. 

Any idea that some of us may have had, that the Social Security Board was prohibited from advancing to government the trust funds held by the Board for the working men and women of Anguilla, was misplaced.  In the absence of any public disclosure or other information this is just what I understand is going on.  Indeed, it may well be perfectly legal for the Board to keep on advancing to government the monies needed until the entire fund has been depleted.

That is, it would be perfectly legal so long as such advances legally qualify as an investment.  It is at least questionable whether advancing $10 million a month from the Social Security Fund to government for the purpose of paying the wages of government workers from those funds are a legitimate form of investment.  Especially if it is to go on for a year or more.  And, especially if it is an unsecured loan.  And, especially if the government has not demonstrated any possibility of paying it back. 

At this rate, the total funds of the Social Security Board will have been depleted in less than a year and a half.

New NICA

Meet the Chairman. A couple of interesting things happened to me last week. Perhaps the most curious was when I met the gentleman who used to head up the company Jem Homes. Roy something. I did not catch the name. You will remember I wrote about Jem Homes on 1 March in the post I called NICA 8. That was the company that Kennedy Hodge invested US$50,000.00 of money that belonged to NICA. He made a mistake. He had really meant to invest his own money. The money was lost when Jem Homes was wound up. It was NICA’s money that was lost. Jem Homes was supposedly going to build a housing project on NICA’s land at Lockrum Estate. But, that’s another story.

The point of this post is to introduce you to the new Chairman of the Board of NICA. Yes, the upshot of the meeting was that I was offered the chairmanship of the Board of Directors of the new company that is going to replace NICA. It turns out that not only is NICA still struck off the Register of Companies. Its Board of Directors is no longer authorized. They have no authority to do anything. It seems some shareholders will be calling a meeting and appointing a new Board. Or, they might pass a resolution to wind up the company.

Chairmanship of the new company that is going to replace NICA! What new company is going to replace NICA, you ask? Well we will have to wait and see. Chairman of the Board! Sounds grand! There is only one problem with this plan. It is the shareholders who elect the Board of Directors of their company. It is the directors who decide who is their Chairman. Nobody else can offer you such a position. I am told it is all wrapped up and agreed.

Funny that not a single one of the shareholders has spoken to me about this promotion that I am being offered!

What do you think?

Charity

Delinquent Charities. One of the main advantages of registering a charity is that its income is not subject to income tax. People who donate to a charity also get tax relief on their donations. The Attorney-General is usually considered the public trustee and in charge of all charities. For him to know who they are, they have to be registered. They are obliged to prepare and to publish annual accounts. That way, the Attorney-General and any interested member of the public can check to ensure that they are spending their funds properly. Anguilla has no income tax, so charity status has no tax significance. Another consequence of our having no direct taxation on incomes is that generally speaking no business in Anguilla is required to audit its accounts. No one tells local charities that they must have their accounts audited and published. None do, that I know of.

So, I was very interested when a reader pointed me to a recent article in the Royal Gazette of Bermuda about delinquent charities. It turns out they have had a Charities Act since about 1978. Their charities have to be registered. They have to publish their accounts. If they do not, they are struck off the register. They lose their charity status. We have no charity law at all in Anguilla. Any one of us can set up as the “Blowing Point Red Cross” or the “Island Harbour Cancer Society” and persuade people to donate their money to us. We would not be breaking any written law. Not even if we spent the money on ourselves. What is even more interesting is that the article in the Royal Gazette tells us that there are over 400 registered charities in Bermuda. And, 150 of them are in trouble with the Attorney-General. They have not been filing their audited accounts. They have now been named and shamed in a report to the Senator. The Senator who called for the report has a charity of her own. Unfortunately, it is on the list of delinquent charities. No doubt, she will hasten to bring it back into good standing. That is what naming and shaming is all about.

In our case it did not work with NICA. It is a public company in which many Anguillians invested their life savings. It has been struck off the Register of Companies. The directors were named and shamed. They still have not done anything to bring that company back into good standing. When I checked a few days ago, it was still struck off the Register. Government now owns all its assets.

Is it not time the shareholders got together and wound this company up? Or, is it a charitable donation that we are making to our needy government?

Freedom of Information

Too Much Information Can Be Dangerous to Your Health.

There was an early teacher on one of one of the more remote and smaller islands of South Pacific Fiji. His school children were assembled in the village one early morning, sitting cross legged on mats in the shade of the coconut trees. They were to the side and thus not in line of a falling nut.

'It is time,' said the teacher, 'for me to tell you about your home in Fiji and the world beyond your reefs and seas.' He drew a rough picture of the earth's land masses and oceans and then pointed at a large open expanse near the bottom. He placed a fingernail in the centre. 'You see this tiny spot, no larger than the eye of a fly. That is the size of your land compared with the rest of the world'.

When the children returned to their families with this extraordinary tale, the elders were incensed at such an insult. They went to the house of the teacher, clubbed him to death, roasted and consumed him: thus providing an early example of what happens when the truth is told to those who cannot recognise and do not wish to hear it!”

--Quoted by retired Counsellor Julian Cairns-Wicks, St. Helena, in his final opinion column in the St. Helena Independent.

Freedom of Information

Freedom of Information: Guest Editorial
In California, the open meeting/access to public documents statute is called the Ralph M. Brown Act. It is extremely useful and works very well, and has changed the relationship between the people and their governments. (It applies to all public agencies in the State - not just state agencies but cities, counties, school districts, sewer treatment districts, everything.) But the preamble is one of my favourite things in the English language:

The Ralph M. Brown Act

California Government Code

Sections 54950-54962

54950. In enacting this chapter, the Legislature finds and declares that the public commissions, boards and councils and the other public agencies in this State exist to aid in the conduct of the people's business. It is the intent of the law that their actions be taken openly and that their deliberations be conducted openly. The people of this State do not yield their sovereignty to the agencies which serve them. The people, in delegating authority, do not give their public servants the right to decide what is good for the people to know and what is not good for them to know. The people insist on remaining informed so that they may retain control over the instruments they have created.

NICA

NICA Revisited.

It has now been some three weeks since I completed a series of posts on the status of NICA. Three of the problems highlighted in the series were, one, the fact that the company has been struck off the Register of Companies and technically no longer exists, two, that there have been no audited accounts or auditor’s report shared with the shareholders for over the past 15 years, and, three, that there is a need for an annual general meeting at which the shareholders can receive an up to date report on the status of company and, if necessary, vote on a motion to wind up the company and to distribute its assets among the shareholders, assuming the directors have in the meantime put the company back on the Register.

A recent search indicates that the company is still struck off the Register. It is not so difficult to have the company put back on. The longer the situation remains as is, the more concerned we must become that the directors have abandoned the company’s work.

So far as the audit is concerned, I have ascertained from KPMG that they were ready, willing and able to perform the audit as mandated by the shareholders. The audit is not an optional thing. It is a statutory requirement. The law demands it. Any meeting of the shareholders called by the directors without an up to date audit will be a fraudulent meeting in my view. The directors have not informed us whether they have proceeded to make the necessary arrangements with the auditors. We are waiting to hear.

Calvert Carty, the Chairman of the Board, has told me that he is anxious to hold an AGM. He wants to discuss with the shareholders a proposal to develop the Lockrum's property. When the Board is ready to call an AGM, I urge them to put on the Agenda a draft resolution to wind up the company. I do not think the shareholders want to hear more plans to do a development. I may be wrong. Let the shareholders decide.

ALHCS Board of Governors

Albena Lake-Hodge Comprehensive School Board of Governors. The ALHC School is the sole secondary school on the island. It is owned and operated by the government of Anguilla. Its principal is Mrs Ingrid Lake. She has her senior management team to help her in running the two campuses of the school. They are advised by a Board of Governors.

The Board consists of:

. Elvet Hughes, Chairman

. Keesha Webster

. Pastor Cecil Richardson

. Pastor John Gumbs

. Leslie Richardson

. Ingrid Lake

. Maria Webster

. Anita Brooks

They are paid a monthly stipend of EC$450.00. They meet mostly once a month, sometimes twice, and very rarely three times. They are responsible for some school spending, maintenance, behavioural problems, etc. There are two subcommittees, namely the Financial Committee and the Student Services Committee.

The Financial Committee keeps track of spending, obtaining school supplies and the like. Major spending and salaries are dealt with by Ministry.

The Student Services Committee usually visits the school when there are behavioural problems. They meet with the students and parents to discuss. They are consulted and make a decision on suspension questions. In one month, the Student Services Committee may be called for 10 meetings, maybe more. At times it becomes so hectic that they go in pairs.

The Board of Governors may be considered successful for what it does. From the members on the Board they obtain free spiritual, educational, legal and financial advice. The meetings are very hectic, especially for the Student Services Committee, and the stipend only suffices for gasoline. Membership should be considered it as voluntary service.

NICA 12

NICA 12.

We have spent the past two weeks looking at the 2003 Thomas Report into the performance of the Board of Directors of the National Investment Company of Anguilla Ltd. What is of concern is the suspicion that rises in us that nothing has changed with the present Board of Directors. We worry about a number of matters.

The Board may not be meeting on a regular basis.

Proper record-keeping might not have become the norm.

We have to hope that the present Chairman, Calvert Carty, has learned from the mistakes made by Kennedy Hodge and George Kentish and is not handling all the company’s affairs personally.

We have to hope that he is not acting unilaterally.

We hope that he holds proper meetings with his co-directors.

The Board must sign off on all major decisions.

He must ensure that all decisions of the Board are minuted, and the minutes carefully preserved.

We have reason to worry. Important company activities are being missed.

The lease with Anguilla Rums has long run out. It has never been renewed.

The book store has closed shop without a whisper of explanation.

The office is shut with no explanation published in the press.

The company failed to file its annual returns in the Registry of Companies.

It was again struck off the Register in January 2007. No one in the company has told us if the company has been restored to the Register.

No audited accounts have yet been presented to the shareholders.

The Annual General Meeting is long overdue and has not been called. It would be an outrage to call an AGM now without presenting the missing Audits.

Is the company still stuck in the amateurism and unprofessionalism that were criticised by Mr Thomas? Are the same mistakes being made?

The question must be asked, is it not time to wind up this company? Should not a liquidator sell its assets at the best available price? Should the liquidator not then pay any bills and distribute the net proceeds to the shareholders? Can we agree that it is time to bring NICA’s misery to an end?

NICA 11

NICA 11.

The Thomas Report was filed in August 2006 in a High Court suit brought by two shareholders against the National Investment Company of Anguilla Ltd in the year 2006. The Report reveals a sorry picture of management deficiencies over an extended period of time. We have been looking at some of them over the past ten posts. Mr Thomas sets out his conclusions at the final pages 51-53 of his Report.

He finds that the Board of Directors failed collectively in their fiduciary duty to manage the business to the standard that is expected of a public company. He finds the evidence of this compelling. This is so particularly in the areas of accounting, investment, record keeping, and the filing of audited financial statements.

He complains at the culture of getting the job done at its cheapest, irrespective of the consequential effects to the overall management of the company. He finds that the Board’s gravest error of judgment was the failure to employ competent, experienced and trained staff. The termination of Audain & Associates who had been providing accounting services, without finding a competent replacement, was most damaging. The result was a complete breakdown of internal control procedures, and the impossibility of having the financial records audited.

Mr Thomas considers that the decision not to pay the Directors of NICA, while well-intentioned, may have contributed to the inertia or a peculiar pattern of behaviour of some Directors. He describes the approach of NICA’s management as more reflective of a charitable organization. There, the members provide their services on a voluntary basis. In a public company, Board members are paid, and the requisite performance demanded.

He found the approach of Kennedy Hodge to the management of the business to be reckless and unorthodox. Mr Hodge’s explanations were, in his view, far-fetched, contradictory, unconvincing, petty, and bizarre. He found the decision of George Kentish to enter into a partnership with Mr Hodge and NICA most regrettable. Transactions of this nature, though well-intentioned, will always be subject to the utmost scrutiny. They should be strongly resisted. He found no evidence of impropriety on Mr Kentish’s part. But, as Chairman of the Board, his decision to participate in the disbursement of funds was unwise and not in keeping with best accounting practices. The advice given to the Board by Marcel Fahie, in relation to Mr Hodge’s offer to manage NICA, he finds inappropriate. He finds that all of the Directors should take responsibility for the failure of the Board to meet on a consistent basis, and to monitor the activities or inactivity of some members.

It is on the whole a damming report. The question is, what to do next?

NICA 10

NICA 10.

In October 1998, Kennedy Hodge was the duly appointed Manager of the National Investment Company of Anguilla Ltd. He made a recommendation to the Board to invest in the shares of a subsidiary of Motorola. It was a company known as Iridium World Communications Ltd. The Board agreed. The investment was made.

As a result of a lawsuit brought against NICA in the year 2006 by two of its shareholders, Avondale Thomas, a chartered accountant of Antigua, was appointed to carry out an investigation into the way the Board of Directors was managing NICA. We take up the story of the Iridium investment from pages 48-50 of the Thomas Report filed in the High Court in August 2006 as a result of the litigation.

It was a bold investment. Iridium was highly visible on the international stock markets, the telecommunications industry, and investors worldwide. It was well known because it was venturing into parts unknown. Its ideas were pioneering in nature. It was a high-risk stock. The technology required to do what Iridium wanted was unproven. The cost involved and the ability of the company to raise the funds required was uncertain. Investing in this stock was an obvious risk. Established investors were extremely nervous about buying these shares.

NICA was not without professional advice in this matter. Its brokers, Salomon Smith Barney, warned the company not to invest beyond a certain level in such shares. Salomon Smith Barney sent at least two letters to the Board warning them of the risk and expressing concern about NICA’s intention to invest in high risk companies.

Mr Hodge was a trained electronics engineer. He recommended otherwise. The Board was willing to take the risk. They authorized Mr Hodge to invest US$110,775.00, or some EC$300,000.00, in Iridium. The share price began to fall. NICA did not sell, but held on to the investment until it was entirely lost.

In an interview with Mr Thomas, Mr Hodge told him that he had also purchased Iridium shares for himself. He had sold his shares when the price began to fall, and had been able to save part of his investment. He had not sold the NICA shares. George Kentish, NICA’s Chairman, told Mr Thomas that he had also invested in Iridium and lost his investment.

Mr Thomas describes this as the biggest loss in the history of NICA so far as investments are concerned. The company could have avoided the loss. In its prospectus offer, the company had promised that it would employ competent and experienced persons. In this case, NICA did employ competent brokers in the form of Salomon Smith Barney, but they ignored their advice. Mr Thomas concludes that the Directors must take responsibility for the loss of EC$300,000.00 which resulted from the Iridium share purchase.