Demise of Homelectrix blamed on inflated loans
Published:Friday | February 25, 2011 | 12:00 AM
Dionne Rose, Business Reporter
George Hugh, former director of Homelectrix and its sister company Brands Mart, on Tuesday testified to the FINSAC enquiry how he lost his business and lands he owned after he was unable to finance an inflated loan that he borrowed from failed financial institution, Workers Bank.
Hugh told the commission of enquiry, which was set up to investigate the collapse of the financial sector in the 1990s that in 1997 his loans, amounting to J$700 million, were consolidated; and that, thereafter, he was told he owed J$165 million.
In summarising his client's case, Dr Christopher Malcolm, the lawyer representing Hugh, said the former furniture retailer initially had entered into a facilitating arrangement with Workers Bank, where he was paying inte-rest of 30 per cent on his loan, but which climbed over time to 70 per cent.
"The businesses he was involved in, among other things, were making hire-purchase arrangements with people and they did these at about 40-odd per cent," said Malcolm.
"So when they borrowed at 30 per cent, it would have been contemplated, among other things, that they would have been able to do their hire purchase at some margin, which would have allowed them to continue in existence."
Malcolm said that when the interest rate changed, Hugh was unable to sustain the business.
"They then sought an explanation - because they realised that their accounts were out of whack - which the bank could not provide them with."
The lawyer said Homelectrix sued Workers Bank; and the parties subsequently agreed "to consolidate the debt in a J$700-million debt". They also reached an understanding of how the properties were to be treated, and that the bank would facilitate working capital for the business to continue operating.
Malcolm charged that Workers Bank then reneged on the terms settled on by the parties, including the promised working capital support.
Workers Bank was eventually taken over by FINSAC and the sum of the debt continued to balloon.
"They have received different positions indicating what their debt was," said Malcolm.
"I pointed, for example, at one point where a Workers Bank statement pointed to a debt of J$165 million and going down to the end of that to a figure of J$117 million sometime in 1998."
Malcolm said Hugh got letters from FINSAC saying he owed J$530 million, with no statement explaining the discrepancy.
"Mr Hugh had said this is a situation that led to the demise of his business altogether and a business which, prior to him having entered into an arrangement, according to him, was No. 2 in Jamaica," said Malcolm.
Homelectrix, according to Hugh, operated a network of more than 30 stores in the 1990s, employing more than 200 persons directly.
Malcolm said the loss of his business caused extreme grief to the family, both emotionally and financially.
"It is within that context where what he is saying is that he is here to indicate that in his own experience, the FINSAC situation, what came before it - high interest rates and, more importantly in his case, accounts not being reconciled - has led to a situation where he has been out of business, out of pocket, out of good mental health, in circumstances where nothing have been explained to him," he said.