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Broker's Liquidators Seek $1.5m Asset Release Delay

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The liquidators for an insolvent Bahamian broker/dealer are rushing to obtain a Supreme Court Order to prevent the release of Cdn$1.516 million to six of its former clients.

Ed Rahming and Kenneth Krys, the liquidators for Owen Bethel’s Montaque Capital Partners, are aiming to prevent the latter’s former clients from obtaining preferential treatment via a settlement they have reached with the Canadian broker holding their assets.

Rather than those assets be released directly to the clients, Messrs Rahming and Krys, of the KRyS Global accounting firm, want the Supreme Court to Order that they be placed in escrow accounts jointly controlled by the liquidators.

This is to ensure that the six clients - MIS Consulting, Monique Chagnon and Alain Davy, James Catrickes and Pauline Catrickes, and Stephen Hope - pay, from their assets, their proportionate share of the Montaque liquidators’ costs - just like all the other clients will have to.

Mr Rahming, in an affidavit filed with the Supreme Court on July 16, said this would also ensure compliance with its Order from March 2013 detailing how the liquidation costs were to be paid.

Montaque’s Canadian correspondent broker, formerly MacQuarie Private Wealth, has been refusing to release some Cdn $6.8 million despite Messrs Rahming and Krys showing they were mostly being held on trust for the Bahamian firm’s clients.

Their recovery is vital to maximising investor recoveries from Montaque’s liquidation. The Bahamian broker/dealer has an $8.6 million solvency deficiency, even though most assets were held for clients on trust, in a fiduciary capacity.

The liquidators to-date they have received 68 investor claims worth a collective $17.5 million. But even that creates a discrepancy, as the liquidators alleged their analysis, at the September 30, 2011, insolvency date showed that Montaque Capital Partners had recorded assets of $16.9 million. Yet Messrs Krys and Rahming found just $8.9 million.

Much of that $8.9 million comprises the assets held at MacQuarie, with $4.888 million owed to Montaque by related parties. Clients with negative account balances owe $5.3 million.

MacQuarie, which was acquired by Richardson GMP in September 2013, took the position that Montaque had given it security over the client assets to cover a Cdn$5.72 million debt owed to it. This means that, if it sold off this sum under the lien, just Cdn $1 million would be available to Montaque’s clients - a mere 14.7 per cent recovery.

Messrs Rahming and Krys, after the Ontario Superior Court recognised that the Bahamian liquidation proceedings took precedence, were able to obtain a stay preventing MacQuarie disposing of Montaque’s client assets.

But Richardson and the six former Montaque clients are now seeking a Canadian court order to lift that stay, noting that Messrs Rahming and Krys are unable to pursue the litigation due to lack of funding from the Bahamian broker/dealer’s clients.

If successful, their settlement would see Richardson/MacQuarie release 22.3 per cent of the total Montaque client assets they are holding.

Mr Rahming, though, in his affidavit, noted that the liquidators had ultimately been unsuccessful in reaching a litigation funding agreement with MIS Consulting - the lead client in the agreement with the Canadian broker.

“We made extensive efforts to acquire funding for the litigation to protect the assets then held by MacQuarie Private Wealth (and now by Richardson), which included lengthy negotiations with MIS Consulting in an effort to enter into funding arrangements which proved to be fruitless,” Mr Rahming alleged.

“Were it not for the fact that Montaque had insufficient funds in the estate to further fund the necessary proceedings to recover the assets held by Montaque at MacQuarie, we would have moved forward with the Ontario proceedings to pursue the assets at MacQuarie Private Wealth.”

In a report to the Canadian court last year, Messrs Rahming and Krys challenged MacQuarie’s position that it could use Montaque’s clients’ assets to secure a debt owed by the Bahamian broker/dealer.

“The evidence in the liquidators’ possession reflects that at all material times, including when Montaque used those assets to secure its guarantee to MacQuarie Private Wealth of a third party debt, MacQuarie Private Wealth knew or should have known this to be the case,” they alleged.

“Thus it is the liquidators’ position that MacQuarie Private Wealth has no right to apply those assets to satisfy the debt secured by the guarantees or, put another way that, given the circumstances, the guarantees are void or invalid.”

Messrs Rahming and Krys urged the Ontario court to release the Cdn$6.8 million to them should it determine that MacQuarie/Richardson could indeed not enforce the guarantees against those assets.

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