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WEDNESDAY, FEBRUARY 19, 1992
THE STATEMENT OF AFFAIRS HAS BEEN COMMENTED ON BY THE SPECIAL TIME MANAGERS AND THE OFFICIAL RECEIVER'S OFFICE WHO CONCLUDED AT THE OF FILING THAT THE COMPANY'S LIABILITIES WERE IN REALITY GREATER THAN ITS ASSETS.
CONSIDERABLY
MR GLEESON SAID THAT HKCB HAD CARRIED OUT A DUE DILIGENCE EXERCISE ON BCCHK DURING SEPTEMBER AND OCTOBER 1991, AND HAD TAKEN THE VIEW THAT A FURTHER PROVISION OF $1.1 BILLION FOR BAD OR DOUBTFUL LOANS, ASSUMING THE BANK REOPENED, WOULD HAVE BEEN REQUIRED.
THIS WOULD HAVE TRANSLATED INTO A WRITE-DOWN OF 15 PER CENT OF THE COMPANY'S NET POSITION, AND A PROVISIONAL AGREEMENT PROVIDING FOR WITH THIS AND FOR THE TRANSFER OF THE ASSETS AND LIABILITIES OF BCCHK, CERTAIN EXCLUSIONS, WAS ENTERED INTO WITH HKCB ON NOVEMBER 22, 1991.
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A MAJOR OUTSTANDING ISSUE AT THAT STAGE WAS THE DEFINITION OF "UNRECORDED LIABILITIES" AN EXTREMELY TECHNICAL SUBJECT IN THE CONTEXT OF BCCHK, WHICH HAD TO BE SETTLED FOR THE PURPOSES OF BOTH THE PROPOSED SCHEME OF ARRANGEMENT AND A COVERING GUARANTEE TO BE GIVEN BY THE MAJORITY SHAREHOLDERS OF BCCI IN ABU DHABI.
FROM THE OUTSET OF THE NEGOTIATIONS, AND AS REFLECTED IN THE PROVISIONAL AGREEMENT, HKCB HAD ALWAYS MAINTAINED THAT THE NEW BANK COULD NOT TAKE ON SUCH UNRECORDED LIABILITIES.
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ORIGINALLY THE MAJORITY SHAREHOLDERS IN ABU DHABI HAD INDICATED THEIR WILLINGNESS IN PRINCIPLE TO GIVE A GUARANTEE UNLIMITED AS AMOUNT AGAINST UNRECORDED LIABILITIES, AND THE NEGOTIATIONS WITH
ON THE HAD BEGUN
UNDERSTANDING THAT SUCH A
WOULD GUARANTEE
FORTHCOMING.
THE PURPOSE OF THE GUARANTEE WOULD HAVE BEEN TO COVER LIABILITIES OF THE TYPE WHICH HAD BEEN DISCOVERED IN BCCI IN OTHER PARTS OF THE WORLD AND DESCRIBED ELSEWHERE AS A "BLACK HOLE" OR A "BANK WITHIN A BANK"
ESSENTIALLY THESE WOULD HAVE BEEN LIABILITIES WHICH BY STANDARD ACCOUNTING PRACTICE SHOULD HAVE BEEN RECORDED ON THE BOOKS AND RECORDS OF THESE BANKS BUT WERE NOT.
SUBSEQUENTLY, HOWEVER, THE ABU DHABI SHAREHOLDERS FOUND THEMSELVES UNABLE TO GIVE SUCH A GUARANTEE BUT AGREED IN PRINCIPLE TO GIVE ONE LIMITED TO US$25 MILLION AS TO AMOUNT AND TO NOVEMBER 5, 1991, SUBSEQUENTLY EXTENDED TO MARCH 31, 1992, AS TO TIME.
WHILE NEGOTIATIONS ON "UNRECORDED LIABILITIES" WERE GOING ON WITH BOTH HKCB AND ABU DHABI, MR GLEESON'S FINANCIAL ADVISERS, JARDINE FLEMING, PREPARED A SCHEME OF ARRANGEMENT DOCUMENT AND THE LAWYERS FOR BOTH SIDES PREPARED THE DRAFT LEGISLATION AND OTHER LEGAL DOCUMENTS WHICH WOULD BE NECESSARY TO GIVE EFFECT TO THE TRANSFER OF ASSETS AND DEAL WITH OTHER FEATURES OF THE SCHEME.
AT THAT STAGE, IN EARLY DECEMBER 1991, IT APPEARED THAT THE SCHEME HAD A GOOD PROSPECT OF SUCCESS AND THAT IT SHOULD BE POSSIBLE ΤΟ OPEN THE NEW BANK BY ABOUT THE END OF MARCH 1992, EVEN WITH A LIMITED GUARANTEE FROM ABU DHABI.
/THEN, IN