Sunday, July 4, 2010

AlGosaibi v Maan AlSanea – AlGosaibi’s Strategy with Creditors

In light of my recent post speculating that AlGosaibi was being pressured to accept Grant Thornton's "peace proposal" for a commercial settlement, this is probably an opportune time to take a close look at AlGosaibi's legal strategy. From a document concerned with the recent lawsuit by Trowers and Hamlins that I've seen, it's possible to reconstruct that strategy in more detail and to use AlGosaibi's "voice" in doing so.  Or at least it voice as channeled by US counsel.

Before we do that, a caveat.

What I'm about to present is AlGosaibi's side of the story. As you'd expect AlGosaibi's account is highly favorable to themselves as are statements made by their counsel – who they have hired to represent them.

Nothing surprising here.  This is the (adversarial) nature of the US legal system.  Long ago, AA was called for jury duty in a personal injury case. After the jury had been selected, the judge took us aside. He said that while each counsel had claimed that his sole purpose and desire was to obtain justice, this was not the case.  Each counsel was working for its client's interests, not for justice. And that, recognizing this fact, we should be duly skeptical of any statements made. Such is also the case here. It applies to all parties to the case: AlGosaibi, AlSanea, T&H, TIBC, Awal Bank and their respective management and officers as well as the counsel they have hired to represent them.

Now to AlGosaibi's strategy and rationale.

First, AlGosaibi's central thesis is that TIBC was "throughout its active life a criminal instrumentality operated apparently for the principal purpose of defrauding our client and third parties, incurring massive fraudulent debt in our clients' name and siphoning the proceeds to Maan AlSanea and his Saad Group of companies". In this regard they assert that TIBC was formed without AHAB's knowledge or authorization and that the pledge of shares which is listed as the source of equity for TIBC is not "legitimate." And that they do not "accept any debt owed to TIBC or the validity of any claims whatsoever asserted by TIBC" against AHAB. As part of this thesis, it's important to recall that AHAB also claim that the Money Exchange (through which the proceeds of alleged fraudulent commercial loans were passed) was also under the control of Mr. AlSanea and his confederates.  This thesis - that AlGosaibi itself was the victim of fraud along with the creditors - would also the basis for a less than 100% payback of the loans as I've noted before.  At least by AlGosaibi.

This is also the appropriate place to note that Mr. AlSanea and various other parties accused directly and indirectly by AHAB vigorously deny any wrongdoing.

Second, as a consequence of this (alleged) fraud, the proper response of T&H (and any creditor) is to join with AlGosaibi in pursuing the culprits and not the innocent victim - AlGosaibi.


"Litigating intercompany positions (e.g., TIBC and AHAB) will take years, if not decades and that such litigation only depletes resources that will be needed to effect a workable commercial settlement". Co-operation on the other hand "avoids wasteful and ineffectual expenditures and offers a potential for TIBC and its creditors to benefit from AHAB's recoveries and its potential commercial resolutions of claims with third parties." 

AHAB's counsel notes that even though AHAB rejects any TIBC claims against itself, it nonetheless has proposed that TIBC's creditors be included alongside its own in any settlement by a "substantive consolidation of all the creditor positions and the creation of a single fund". And that AHAB is creating a "fighting fund" of some US$150 million to use to pursue legal cases against Mr. AlSanea – which would relieve a burden on TIBC's creditors who no doubt would be reluctant to provide substantial funding for such an effort.

As well, it comments that commencement of legal action by T&H against AHAB could jeopardize its good will. And that a further danger to TIBC creditors is that any such legal action will require the presentation of original documents, which AHAB counsel asserts could be difficult to produce. And if produced, AHAB and its counsel are confident that the signatures thereon could be successfully challenged as forgeries.

Counsel also notes that it intends to raise these points with counsel for TIBC creditors, Clifford Chance Dubai.

The fact that T&H launched its suit roughly three weeks after this correspondence was sent indicates that it was not persuaded.

There are a couple of other points in the document - worthy of note and comment:

  1. AHAB asserts that Saudi British Bank has refused to turn over to AHAB certain records pertaining to AHAB - which it asserts Mr;. AlSanea has removed from the Company and taken under his personal control and which include those relating to  the underlying pledge of shares which serve as the basis for the equity in TIBC. This is particularly perplexing. Why would SBB not provide duplicates of records to its client of record?  Or in other words, what would be the basis why SBB would refuse to turn over to its client duplicates of certain records pertaining to that client's business with it?
  2. That AHAB counsel had proposed an information exchange protocol (apparently in March) under which AHAB and T&H would share information but with the stipulation that neither party would use the information so obtained in legal action against the other. It's perfectly understandable that T&H would not accept this. As the Central Bank appointed Administrator, it has a fiduciary duty to pursue claims against all debtors registered in TIBC's books. And certainly wouldn't want to expose itself to a TIBC creditor later suing it for failure to pursue one of the debtors because it unilaterally decided not to. The better path is to raise the claim.  Then let a Court determine whether the debtor has a defense against payment. This was, I am told, the tactic used in the liquidation of Petra Bank Jordan في الوقت المدثور . 
Stay tuned.  In a day or so, I'll post AlGosaibi's reaction to T&H's apparent rejection of its proposal for co-operation by looking at AHAB's 15 June submission to the NY Bankruptcy Court.

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