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The Insolvency Liquidation of a Multinational Bank

Annex

Annex
Background and history of liquidation
    A. The BCCI companies
As of 5th July 1991, the BCCI companies consisted of:
  1. BCCI Holdings (Luxembourg) S.A. (BCCI Holdings) incorporated in Luxembourg, the holding company for the group;
  2. BCCI S.A., one of the principal operating subsidiaries of BCCI Holdings with 47 branches and two subsidiaries located in 15 countries;
  3. BCCI (Overseas) Ltd. (BCCI Overseas), the other principal operating subsidiary of BCCI Holdings with 63 branches located in 28 countries; and
  4. the other subsidiaries and affiliates of BCCI Holdings which operated 255 banking offices in about 30 countries, including Credit and Finance Corporation (CFC).2
At the time BCCI was closed, it had approximately 380 offices in nearly 70 countries, and its senior management was based in Abu Dhabi. The majority shareholders of BCCI Holdings were the ruler and government of Abu Dhabi and certain other related entities and persons.

ICIC Overseas and ICIC Holdings were companies incorporated in the Cayman Islands. They were not subsidiaries of BCCI Holdings but had a close working relationship with the BCCI group of companies.

    B. The closure of BCCI
On 24th June 1991, the Bank of England (Bank) received a draft report on certain affairs of BCCI S.A. which had been prepared by Price Waterhouse under Section 41 of the Banking Act 1987. The report contained allegations of serious and widespread fraud and indicated that the accounting records and financial position of BCCI had been falsified. In the light of the matters contained in the report, the Bank consulted with certain other BCCI supervisors. It was concluded that joint action should be taken to secure control of the assets of BCCI S.A. and BCCI Overseas.

On 5th July 1991, the Institut Monétaire Luxembourgeois (IML) lodged a request at the Luxembourg court under Section 38 of the Luxembourg Banking Law for a respite from payment to be granted in respect of BCCI S.A. and for the company to be placed into controlled management. These procedures took automatic effect once BCCI S.A. and its board were notified. On 8th July 1991, Mr. Brian Smouha of Touche Ross was appointed as a commissaire de surveillance of BCCI S.A. Within a period of six months, Mr. Smouha was required to deliver a report to the court recommending either the restructuring of BCCI S.A. or its liquidation.

On 5th July 1991, the Bank presented a petition to the UK court for a winding-up order to be made in respect of BCCI S.A. and for the immediate appointment of provisional liquidators. The court appointed three partners of Touche Ross as provisional liquidators of BCCI S.A. On 30th July 1991, the court adjourned the winding-up proceedings until December 1991 for the affairs of BCCI to be investigated further and to consider whether it would be possible to restructure BCCI.

On 5th July 1991, the Governor of the Cayman Islands appointed a receiver to assume control of BCCI Overseas, CFC and ICIC Overseas. The attorney general obtained injunctions restraining several closely connected companies from transferring or disposing of assets. On 22nd July 1991, the Governor of the Cayman Islands revoked the banking and trust licences of BCCI Overseas, CFC and ICIC Overseas. Petitions were presented to wind-up BCCI Overseas, CFC and ICIC Overseas, and the Cayman court appointed two partners of Deloitte Ross Tohmatsu as the joint provisional liquidators. The petitions were adjourned until 16th December 1991.

On 5th July 1991, the superintendent of banks of the State of New York took possession of the business and property of BCCI S.A. located in New York and closed its New York agency. The superintendent of banks of the State of California took possession of the business and assets of BCCI S.A. in California and closed its agency in California.

The IML informed all host-country supervisors of BCCI S.A. branches of the actions taken in Luxembourg and the United Kingdom and requested them to take consistent action within their jurisdictions.

On 9th July 1991, on the application of BCCI Holdings, Judge Maryse Welter was appointed by the Luxembourg court to ascertain whether a controlled management of BCCI Holdings would be practical. Mr. Smouha was appointed to report on the financial position of BCCI Holdings. In the light of his report, BCCI Holdings was put into controlled management, and Mr. Smouha was appointed as one of its commissaires de surveillance. The commissaires were required to deliver a report to the court by 9th January 1992 recommending either the restructuring of BCCI Holdings or its liquidation.

    C. Developments during the respite from payment
In October 1991, the majority shareholders issued a press release stating that, although they had been exploring every alternative to liquidation, there was little real prospect of restructuring BCCI S.A. On 22nd November 1991, Touche Ross issued a press statement explaining that it had been working with the majority shareholders to determine whether an overall plan for the liquidation could be agreed. The plan involved a pooling of the property and assets of BCCI S.A. and BCCI Overseas with a view to their distribution to all the creditors of those companies. In addition, the plan involved BCCI S.A. and BCCI Overseas (and other participating companies) waiving any claims that they might have against the majority shareholders and the majority shareholders waiving any claims they might have (other than as ordinary creditors) against those companies, as well as a cash contribution of the majority shareholders to be paid in several instalments. Touche Ross stated that, without an outside contribution, the likely return to creditors would be less than ten cents in the dollar. The arrangements with the majority shareholders could result in a return to creditors within the range of thirty to forty cents in the dollar. The discussions developed into the pooling arrangements and the majority shareholders' agreements.
    D. Developments in the United States
On 29th July 1991, a New York grand jury returned an indictment against Agha Hassan Abedi, Swaleh Naqvi, BCCI Holdings, BCCI S.A., BCCI Overseas, ICIC Overseas and ICIC Holdings. It charged a scheme to defraud, grand larceny of $30 million from American Express Bank and falsification of bank records. On the same day, the Board of Governors of the Federal Reserve System (Board of Governors) imposed a civil penalty of $200 million on BCCI Holdings, BCCI S.A., BCCI Overseas and ICIC Overseas in connection with the secret acquisition of the shares of First American Bankshares Inc. On 15th November 1991, a federal grand jury returned an indictment against BCCI Holdings, BCCI S.A., BCCI Overseas, ICIC Overseas and certain individuals.

On 19th December 1991, federal prosecutors filed an information (which superseded the indictment of 15th November) and proposed a plea agreement to resolve the New York indictment, the federal criminal charges and the enforcement action by the Board of Governors. Under the plea agreement, BCCI Holdings, BCCI S.A., BCCI Overseas and ICIC Overseas (BCCI Defendants) agreed to plead guilty to the federal information and to six counts of the New York indictment. The BCCI Defendants also agreed to forfeit virtually all of their US assets. The forfeited assets were to be applied to two funds - one to pay a $10 million fine in New York and mainly to minimise the risk of potential losses to the Federal Deposit Insurance Corporation, and the other to be distributed to worldwide creditors who did not use BCCI's banking facilities for criminal purposes. On 9th January 1992, the BCCI Defendants pleaded guilty to the federal information and to the New York indictment and agreed to forfeit all their assets located in the United States. The federal court accepted the plea agreement on 24th January 1992. On 31st January 1992, the federal court entered an additional RICO forfeiture order against BCCI.

    E. The liquidation of BCCI
On 3rd January 1992, the Luxembourg court ordered the winding-up and liquidation of BCCI S.A. The ruling fixed the powers of the liquidators and the mode of liquidation. On 14th January 1992, the UK court issued a winding-up order in respect of BCCI S.A. On the same date, the Cayman court issued winding-up orders in respect of BCCI Overseas and CFC. On 11th June 1992, the Luxembourg court ordered the winding-up and liquidation of BCCI Holdings. On 21st November 1991, a New York State court ordered the commencement of a claims process in the liquidation of BCCI S.A.'s New York agency, commencing on 9th December 1991 and ending 27th March 1992. The claims procedure in the liquidation of BCCI S.A.'s Los Angeles agency began on 30th August 1991 and ended on 30th December 1991.

On 20th February 1992, draft agreements implementing the pooling arrangements and the arrangements with the majority shareholders were initialed by the liquidators of BCCI and representatives of the majority shareholders. The parties agreed to use reasonable efforts to obtain court approval for the principal liquidators of BCCI to enter into the agreements.

At a hearing on 12th June 1992, the UK court authorised the joint liquidators of BCCI S.A. to proceed with the pooling arrangements and the majority shareholders' agreements. An appeal against this order was not successful. The pooling arrangements and the agreements with the majority shareholders were also approved by the Cayman court in June 1992.

On 29th July 1992, the Luxembourg court ruled that the liquidators should consult all the known creditors of BCCI S.A. and arrange a vote by creditors on whether the pooling arrangements and the majority shareholders agreements should be entered into. Each creditor would have one vote regardless of the amount of his claim. On 22nd October 1992, considering the vote in the ballot, the Luxembourg court approved the arrangements. On 24th December 1992, several creditors lodged an appeal against this judgement.

Footnote:

2. The term BCCI refers generally to BCCI Holdings, its subsidiaries and affiliates including BCCI S.A. and BCCI Overseas. However, in certain contexts it may also include International Credit and Investment Company (Overseas) Ltd. (ICIC Overseas) and International Credit and Investment Company Holdings (ICIC Holdings).

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