Edwin Coe Correspondence to Mr Caine of Cains Solicitors 4th May 2009

Edwin Coe Correspondence to Mr Caine of Cains Solicitors 4th May 2009

Dear Mr Caine

Further to my previous emails, I have now had an opportunity to study the graphs included in the Explanatory Statement for the amended Scheme of Arrangement ("SoA"). These differ from the graphs included in Explanatory Statement for the original SoA but appear to have the same or similar fallacies. Clearly they form an important part of the description of the SoA and its explanation. Depositors refer to them for the purpose of determining whether or not the SoA has advantage over the possibility of liquidation and distribution from the Depositors Compensation Scheme ("liquidation/DCS"). In short, as with the originals, the graphs are misleading.

The first matter to note is that the SoA appears to present the worst possible position for the DCS. The claims upon it being at their maximum but the contributions into it being at their minimum. With respect, this has the look of a manipulation of the figures in order to show the SoA in the best possible light in that comparison.

The graphs, however, have more fundamental errors which make them simply wrong and misleading. I am hesitant to suggest that this is purposeful but the problems were discussed at the last hearing and they appear to have been repeated despite an assurance to the contrary.

The errors arise from the way in which the graphs have been constructed to make a comparison between the two alternatives, using what is portrayed as a timeline for the dividend payments.
First, all payments are shown as equally spaced on the graphs, whereas they are not equally spaced in time.
Second, payments under liquidation/DCS are shown as if they occur at the same time as the corresponding distributions under the SoA. As was pointed out to the court, this is simply not correct. A substantive part of our submission to the court, which was accepted by you and the court, was that the timing of the first payment under the SoA is 90 days after it comes into effect, whereas payment of a first dividend by the Liquidator can take place considerably before that date. However, due to the manner in which the graphs have been presented, the effect is concealed altogether.
A further example of the misleading impression created by presenting the graphs in this way, is that they hide the effect of the payment to the Treasury under the SoA at the point at which the threshold dividend of 70p is reached. At that time the other creditors receive nothing further until the Treasury has itself been reimbursed up to that dividend level. Accordingly, a long period of time elapses before the next dividend is paid under the SoA, whereas the corresponding latter distributions under liquidation would not be similarly delayed. However, this consequence is not apparent from the graphs. It is not apparent from the SoA curves that later payments are delayed relative to the liquidation payments, nor do the liquidation curves cross over nor even more closely approach the corresponding SoA curves during the relevant time. Both of these effects would be apparent if the horizontal axis was really a timeline. In general, the graphs have been presented in such a way that, any crossing over of the two curves which would be immediately apparent if the two alternatives were properly compared showing the points in time when payments actually occur, will be hidden and instead the liquidation curve will always fall below or at best overlap the corresponding SoA curve.
Appropriate graphs should be available to depositors. Although it was said at court that these would be made available, those within the Explanatory Statement are highly misleading. This is a matter which must receive immediate attention. Initially proper graphs should be made available on the Company web site and then distributed to ensure depositors are not mislead.

We had understood that we were to see the draft changes before they were distributed. If that had been the case we would have been able to comment upon them. As it is, we have requested from you a marked copy of the changes, a transcript of the hearing in front of Deputy Deemster Corlett, and the Order that he made. We have had no response to that request. Could you please do so by return.



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