When UM Financial was placed into receivership, there were 172 mortgages outstanding. During the receivership, 49 mortgages were refinanced (leading to a payout to Central 1), 20 were disputed and 2 were under third-party sales processes, leaving 101 mortgages which were sold (through a credit bit) to Central 1. This resulted in payments of $22.9 million consisting of the value of the credit bid of $12.1 for the 101 mortgages, $0.8 million in first mortgage receipts, and $7.5 million in payout receipts. With Central 1 estimating that they were originally due $31 million from UM Financial, this leads to losses of roughly $7.5 million.
Grant Thornton described:
"On account of the Companies' outstanding indebtedness to Central 1 in excess of $7.5 million for principal, interest and costs exclusive of unbilled or unposted recovery costs which has yet to be accrued, the Receiver seeks an Order authorizing and directing the Receiver to (i) immediately distribute a further amount of $400,000 to Central 1; (ii) complete a further distribution to Central 1 without further Order of this Court of up to $2,000000; and, (iii) approving the distribution, in kind, of the Companies right title and interest in the Gold and related causes of action to Central 1. The Receiver does not expect distributions to be $2,000,000, but even if $2,000,000 in additional distributions were made, Central 1 would still be owed over $3,000,000 (after taking into account the distribution of the Gold in kind.)So, there are still substantial losses remaining, potentially as high as 25% of the total portfolio and likely to be at least 10% for Central 1. As a resul, Grant Thornton reviewed the legal options, and determined that "there may be viable legal actions to pursue third parties in respect of the Potential Outstanding Claims. However, there is very significant uncertainty regarding the ability to recover on any judgment ultimately obtained".
This would likely take the form of civil lawsuits against the former executives (in particular, former CEO Omar Kalair). After discussing the potential legal actions with Central 1, "Central 1 has indicated that it shares the Receiver's concerns with regard to ultimately recovering on any judgment obtained and that, in its view, the cost/benefit of pursuing these actions at this time is not warranted".
This is likely disappointing to the clients of UM Financial who were harmed themselves in the collapse of UM Financial, but there remains an active criminal investigation by the Royal Canadian Mounted Police (RCMP) and the Office of the Superintendent of Bankruptcy (OSB) into the bankruptcy of UM Financial. The RCMP and OSB provided a production order in June 2012 requesting documentation from Grant Thronton, and Grant Thornton additionally provided a sworn affidavit and the requested records to the RCMP/OSB on September 19, 2012 indicating that the investigation continues.
The requested documents were relating to the "precious metals" (the gold and silver withdrawn from UM Financial's bank account by Omar Kalair shortly before the receivership in 2011) and "in relation to mortgage payments allegedly misappropriated including [...] 20 disputed mortgages totaling approximately $3.4 million and unreported prepayments [received from mortgage clients] of $910,000".
This investigation is looking into whether the following offences occurred:
- Bankruptcy & Insolvency Act - Fraudulent disposition of property
- Bankruptcy & Insolvency Act - Refusal to answer fully & truthfully
- Bankruptcy & Insolvency Act - Failure to keep proper books
- Bankruptcy & Insolvency Act - Failure to comply with duties
- Criminal Code - Bankruptcy Fraud over $5000
- Criminal Code - Conspiracy to defraud creditors
In the meantime, the case has likely damaged the prospects for Islamic finance on the retail level in Canada, although there were many areas where, according to the previous reports from Grant Thornton, there were weaknesses in the governance systems of the company that could be improved by a new Islamic finance company in Canada.