Bank declines loan repayment amid ‘concerns over source’
An attempt by a company run by a government MP to pay off part of an outstanding $14.49 million loan was refused because a Bermudian bank had “concerns over the source of funds”, a court document showed.
The cautious approach was revealed in a Supreme Court judgment related to a case between F&E Holdings, of which Zane DeSilva is the president and a director, and Butterfield Bank, which had closed some of F&E’s accounts.
A lawyer for F&E said yesterday that the funds in question were offered as loan repayment upon the liquidation of assets held at Morgan Stanley, the US investment bank and financial services company, which operated “under the most stringent of anti-money-laundering conditions in the world”.
Earlier, F&E argued that interest it claimed it had overpaid should be deducted from the outstanding loan amount, but that was not supported by the Supreme Court.
It was the latest in a court battle that started in June, when Butterfield began proceedings to recover the remaining debt.
The judgment said that Butterfield Bank had loaned F&E Holdings $15.8 million over a 15-year term in 2019, which replaced a previous loan made in 2013.
On November 15, 2022, it notified F&E that after a routine account “review”, it had decided to close some of the company’s accounts, including the account through which F&E was meant to make its monthly debt payments.
The judgment said the effective date of the closure of the accounts was May 15, 2023, “to give F&E a period of six months to make other arrangements”.
“It was not alleged that F&E was in breach of the terms of the credit facility letter nor had any ‘event of default’ occurred at the time the closure notice was given,” the judgment added.
According to the court’s finding, Mr DeSilva queried the closure notice “at first thinking this was potentially a spam e-mail”, but the bank later wrote and confirmed that it was genuine.
The judgment said that F&E tried to make alternative arrangements to replace the financing and repay the debt.
It added: “In or about August 2023, Mr DeSilva made a transfer on behalf of F&E of $12 million to the bank as partial repayment of the principal and made proposals for the repayment of the balance.
“The bank declined to accept the payment of the $12 million on the grounds that it had concerns over the source of the funds and refunded the monies it had been tendered in partial repayment of the loan.”
The judgment added: “Ultimately F&E’s efforts to find alternative financing from a source that the bank would accept proved unsuccessful.
“The debt remains unpaid. Negotiations broke down and no further payments were made to service the debt and events of default were declared making the debt repayable.”
Jerome Lynch KC, who represented F&E Holdings, commented yesterday on some of the contents of the court ruling.
He said: “This all arises because the bank decided in November 2022 summarily to terminate all F&E Holdings’ bank accounts after many years of ordinary banking without issue.
“A loan secured by the company to fund the purchase of the building (its only asset), 131 Front Street, was arranged 15 years ago and has been faithfully paid without issue.
“When the bank terminated the accounts, it also made clear that it was terminating all loans.
“In August 2023, after having tried in vain to negotiate a sensible way out of banking with Butterfield, the honourable [Zane] DeSilva, MP, liquidated assets held at Morgan Stanley to repay the loan facility.
“Butterfield rejected the money and sent it back to Morgan Stanley on the grounds it was not satisfied with the origin of the funds, which ironically all passed through Butterfield Bank over the years.
“Morgan Stanley in the US is currently worth over $200 billion and could buy Butterfield several times over.
“They operate under the most stringent of AML conditions in the world through the Financial Crimes Enforcement Network and Morgan Stanley have carried out an analysis of the funds both as to its owner and origin and have given them a clean bill of health.
“Other banks in Bermuda operating under the same constraints as Butterfield have carried out their own investigations and are content to accept the funds.”
Mr Lynch added: “F&E are prepared to discharge the loan facility and always have been — it is Butterfield that have been obstructive.
“F&E continued to pay the interest on the principal sum outstanding for 18 months before finally saying ‘enough is enough’ and moving their income to another bank.
“They have voluntarily agreed to hold all the net income from the rents derived from the rental of Front Street property pending the resolution of our application to have the court declare that the facility was summarily terminated by Butterfield Bank.
“A financial ombudsman would have obviated the need for this expensive litigation, which ordinary citizens would not be able to afford.”
In February, F&E wrote to the bank that there had been a fundamental breach of the loan agreement, which it claimed had been wrongfully terminated.
Butterfield Bank initiated legal action in June to recover the unpaid loan, accumulated interest, costs and expenses. F&E challenged that, and said the bank was not entitled to claim the interest.
In July, the bank sought summary judgment — granted upon motion when there is no issue over material facts — for the principal of the loan.
F&E said it was entitled to set off about $1.4 million against the principal sum and therefore the court should enter a judgment that it owed about $13.09 million.
However, the court’s ruling concluded: “The bank is entitled to enter judgment for the principal sum of $14,493,731.33.”
It said that F&E’s claim over interest payments would have to be determined at a later trial.
Butterfield Bank said yesterday: “We never comment on legal proceedings.
“The publicly available judgment is clear.”
• To review the full judgment, see Related Media
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