Morgan had security to cover loan
Desmond Morgan and his wife, Attorney General Judith Jones Morgan, guaranteed the loans Blue Sky Communication (SVG) Limited took from the National Commercial Bank (NCB) on October 10, 2006,{{more}} for which a default judgement was obtained in the High Court in May 2010, according to copies of the agreements obtained by SEARCHLIGHT.
The company had moved to the State bank, of which Jones-Morgan, in her capacity as Attorney General, is a shareholder and Morgan was chairman, a $1.5 million overdraft facility they opened at the Bank of Nova Scotia on June 1, 2002.
On October 10, 2006, the couple also secured for Blue Skye a further loan of $342,321.88 from the NCB. This money was paid to the Bank of Nova Scotia and represents the sum that the company had used from its $1.5 million overdraft facility at that bank.
The $342, 321.88 borrowed from the NCB was to be repaid over a five-year period at $7,100 per month, and the company was supposed to begin repaying the loan on October 31, 2006, the same month the loan was approved.
The NCB, honouring the condition of the Scotia Bank overdraft facility, said Blue Skye Communications was to pay interest, based on the Bank of London Interbank Offered Rate (LIBOR) plus 3.5 per cent.
The LIBOR is the most wide used benchmark for short-term loans internationally. It represents an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.
The Morgans secured the overdraft facility for Blue Skye with three parcels of lands they own at Calder. These lands measure 2.4 acres (104, 544 sq. ft.), 24, 297 sq. ft., and 39, 545 sq. ft. respectively, according to documents lodged at the Lands Registry. The familyâs house is built on the 39, 545 sq. ft. parcel of land.
Morgan signed the Scotia and the NCB agreements in his private capacity as guarantor as well as in his capacity as Managing Director of Blue Skye Communications.
However, while Attorney General Jones-Morgan had personally guaranteed the Scotia Bank facility in a personal capacity and her capacity as Secretary of Blue Skye Communications, she signed as guarantor for the NCB loan in a personal capacity only.
The context
Blue Sky Communications (SVG) Limited came into focus this month when it became public that the High Court had ordered the company and Desmond Morgan to pay the NCB $2.251 million as repayment for the loans and interest accumulated.
According to the May 19, 2010, High Court default judgement, $2,001,143.09 is to be paid for the amount claimed along with interest at 9 per cent on $1,530,551.29.
The company also has to pay interest at 10.5 per cent on $225,000 and a further 10 per cent interest on $225,580, along with other miscellaneous fees, totalling $2,251,991.62.
Leader of the Opposition Arnhim Eustace earlier this month broke the news of the court ruling and raised questions about the extent to which the loans were secured, in light of the court judgement.
Some have even suggested that Jones-Morgan resign, saying that the judgement pits her against her husband, creating a conflict of interest, and one newspaper editorial had called on her to vacate her position.
However, Gonsalves, who, in his capacity as Minister of Finance, is the principal nominal shareholder of the NCB, has said the judgement has nothing to do with the Attorney General.
Gonsalves further said the loans were secured to the tune of $4 million, notwithstanding a proposal in which lands owned by Morgan would have been vested in a new company – Omega Development Limited â and the NCB would be offered $2 million in shares in that company.
The proposal was not followed through and the court judgement was to âmake the surety of the legal mortgage doubly sureâ, Gonsalves said, an explanation that Eustace had rejected.
Morgan, according to Gonsalvesâ pronouncements this month, was removed from the chairmanship of the NCB in 2008, when the government learnt that he was not servicing the loan.
Gonsalves, however, told Parliament then that Morgan had done such a good job at the NCB that he had asked the businessman to leave the âthe prestigious workâ to be chairman of the Bridges Roads and General Services Authority (BRAGSA), a position Morgan still holds.
The court move
One legal expert explained that it was an overdraft facility Blue Skye applied for at Scotia Bank which was transferred to NCB with a supplemental agreement for a further advance.
The expert opined there was nothing unusual about a company having an overdraft facility loan secured by guarantors. This is often used by businesses to purchase stock and run the day to day operations. The expert suggested that the similar amounts of the supplemental agreement and what was owed to Scotia Bank at the point of the transfer suggests that the additional sum was used to pay off Scotia Bank.
The expert further said the way that Blue Skye âs agreements with the NCB were drafted, the bank was at liberty to take certain options for the recovery of its debt. The first step is usually to send a demand letter to ask that the debt be repaid. It is only after such requests for repayment are not made within the stipulated time that the bank would resort to court action or selling property secured for the purpose of the loan facility.
The expert said that the bank is entitled to pursue the company as well as the guarantors for the satisfaction of the debt owed.
Property worth
SEARCHLIGHT was unsuccessful in its attempts to obtain copies of the values placed on the properties when they were used as security for the loan in 2002 and 2006.
However, legal documents obtained by Searchlight show that in 1994, the couple bought the 24,297 sq. ft. parcel of land for $65,000.
They bought the 39,454 sq. ft. parcel of land in 1995 for $110,000. They paid $168,000 for the 2.4 acres (104, 544 sq. ft.) of land in 1995.
In addition to the lands at Calder, the Morgans also own 149,481 sq ft. of land at Mount Pleasant, which was bought in September 2006 for $120,000. However, that property was not part of the security lodged with the NCB.
One valuator told SEARCHLIGHT the Morgansâ lands at Calder which measure 168,295 sq. ft in total could sell for a low of $8 and a high of $10 per square foot, translating to a total of a low of $1,346,360 and a high of $1,682,950.
The valuator, however, said that the completion of the international airport at Argyle could negatively affect the value of the lands, which are located close to one of the ends of the proposed runway.
SEARCHLIGHT was unable to independently verify the value of the coupleâs home.
The Omega shares idea
The legal expert explained to SEARCHLIGHT a possible explanation behind the proposal to sell shares in Omega Investment Limited to the NCB.
âThink of it this way,â the expert said. âThe company has a debt owed to the bank. The lands are the assets that secure the loan, which can be sold by the bank to recover on the loan. If shares worth $2 million are sold to the bank, it will settle the loan and save the property being sold.â
The expert, however, said that the decision to go to court to recover the loan may suggest that the bank is not interested in buying the shares.
The AGâs involvement
While Attorney General Jones-Morgan was Secretary of Blue Skye Communication (SVG) Ltd. when it secured the overdraft facility from the Bank of Nova Scotia in 2002, Delores King signed as secretary when the loan was moved to the NCB in 2006.
However, there was no record of a change in that position when SEARCHLIGHT examined Blue Skye Communications (SVG) Limited file at the Commercial and Intellectual Property Office (CIPO).
The expert said that while not registering a change in officer is not an offence, it is standard practice to do so.
The companyâs bylaws said that its directors âshall as often as may be required appoint a secretaryâ. The secretary is charged with calling meetings of the companyâs directors, any committee of directors and shareholders, and have charge of the company books and seals.
The legal expert told SEARCHLIGHT that as the Attorney General and Desmond Morgan are guarantors of the loan, the bank can choose to move against them personally for the recovery of the debt.
âThe bank has not moved against the Attorney General as the suit lists Blue Skye Communications (SVG) Limited and Desmond Morgan as the defendants in the claim,â the legal expert told SEARCHLIGHT. âIt must be borne in mind that a company is treated as a separate individual, it is the company that borrowed the money, the Morgans simply guaranteed the loan with their property, which they may well lose if the debt is not satisfied.â
What next
Blue Skye Communications had 14 days from the service of the court claim to acknowledge receipt of the claim. The claim was filed on November 20, 2009. Blue Skye did not do so, nor did they put in a defence. Hence, the Bank made an application for judgement on the claim, which was entered on May 19, 2010, asking that NCB be paid a total of $2,251,991.62.
If Blue Skye Communication does not satisfy the judgement, the NBC is entitled to enforce on the judgement which may include selling the properties which were used as security for the loan facility.
Searchlight was unsuccessful in its attempts to reach Morgan or Jones-Morgan for a comment.