Source of funds settling multiple claims against directors of failed CBL Corporation have never been made public, but the insurer underwriting D&O insurance for CBL senior management will have taken a hit.
Some $72.5 million had to be found after an out of court legal settlement with CBL’s liquidator and aggrieved investors. Then civil penalties totalling $4.1 million were ordered against four CBL directors after action was taken under the Financial Markets Conduct Act.
Penalties of one million dollars each were imposed on CBL’s independent directors Sir John Wells, Paul Donaldson and Ian Marsh; $1.1 million against Anthony Hannon, chair of CBL board’s audit and financial risk committee. This followed Financial Markets Authority’s claim these directors failed to keep the market fully informed in the run up to CBL’s 2018 collapse. They admitted liability.
A subsequent court hearing determined penalties.
Claims against fellow director Alistair Hutchison were withdrawn. He died prior to the hearing.
CBL’s final annual report discloses the company paid for insurance cover, indemnifying them for liability.
No mention at the Financial Markets Conduct hearing as to what extent their monetary penalties might be covered by directors and officers insurance carried by CBL.
At the penalty hearing, the High Court was told of the dollar amounts each director had contributed personally to the earlier $72.5 million litigation settlement. This suggests directors have excesses to pay, or are running up against the maximum limits of their insurance cover. The amount each in fact paid as part of the $72.5 million settlement was redacted from the publicly available Financial Markets penalty judgment.
At the penalty hearing, failures by CBL directors to keep the market fully informed were spelt out. They included:
· a market announcement in August 2017 that CBL needed to make a ‘one-off’ increase to reserves of $16.5 million, providing a buffer for future claims. This was a misrepresentation. Directors knew this was not a ‘one-off;’ regulators were already pressing for further provisioning.
· burying in a note to its 2017 interim financial statements a reference to CBL’s need to further provision for bad debts. This was a problem which potentially could have an $34.2 million adverse effect on CBL’s solvency ratio. This incomplete disclosure was compounded by a later failure to fully disclose extent of bad debt provisions as at December 2017. By that date, CBL’s auditors had told CBL management it could not pretend the potential bad debt write offs had vanished by sale of aged accounts receivable.
· failing to immediately disclose conditions Irish regulators imposed on CBL’s Irish subsidiary in June and July 2017 imposing a ‘stand-still;’ the subsidiary’s assets could not be sold other than in the normal course of business and transfers of cash were restricted.
· further failing to immediately disclose that Irish insurance regulators had demanded in late January 2018 that CBL’s Irish subsidiary immediately increase reserves by approximately $100 million.
Regulators instructions and CBL’s ongoing solvency issues did not become public knowledge until February 2018, after trading in CBL’s shares were suspended.
Financial Markets Authority said these failures to disclose were prolonged, spread over a six month period, and were exacerbated by the misleading August 2017 on-market disclosure stating the then disclosed increase to reserves was a ‘one-off’ issue.
Financial Markets Authority v. CBL Corporation Ltd – High Court (21.12.23)
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