December 2001

UPDATE ON THE STATUS OF THE
LIQUIDATION OF FIRST CAYMAN BANK LTD.

The Liquidators provide this update as part of their ongoing efforts to keep depositors informed of progress in the liquidation. The last such general update was made in January 2001.

Dividends
Following the payment of the first dividend of 35 cents on the dollar in April 2000, the Liquidators have continued their efforts to maximize recovery of Bank assets. As a result, the Liquidators are now in a position to fund a second interim dividend. This dividend is expected to amount to at least 10 cents on the dollar and should be paid in April 2002. This time frame is necessary in order to obtain necessary Court approval and to complete the statutory notification to depositors who have not yet filed claims or whose claims have not yet been admitted. In the meantime the Liquidators will continue to effect realizations from the collection of loans and through litigation. An overview of these activities is provided below:

Asset Realizations
Collection efforts on the loan book are continuing. To date over $12 million (equivalent to approximately 65% of the original loan book balance) has been collected. Currently, 267 loans remain outstanding, 80% of which are in default. As noted in previous updates, many borrowers used the closure of the Bank as an excuse to cease repayments. The Liquidators continue to pursue the remaining delinquent borrowers and where circumstances warrant have initiated legal action by serving writs, enforcing security, enforcing judgements obtained, and obtaining attachment of earnings orders. Where debtors continue or recommence monthly payments, the Liquidators’ staff follow up and monitor accounts on a regular basis.

Legal Actions
The Liquidators are continuing legal proceedings to recover losses suffered by the Bank from the acts or omissions of certain directors and shareholders. This litigation is progressing slowly, primarily due to the remote location of the individuals involved, which creates certain jurisdictional and legal complexities. The timing and ultimate result of this litigation cannot be predicted with certainty.

The Liquidators have obtained default judgements in the United States against certain individuals of the former management of the Bank. Some recoveries have been made as a result of these actions.

Financial Position
The Liquidators continue to hold the view that the final return to depositors will be in the range of 50 to 60 cents on the dollar. The Liquidators distributed in aggregate approximately US$10 million to depositors in the first interim dividend. The proposed second interim dividend of at least 10 cents will result in a further distribution of at least US$3 million. There should be further funds available for a third dividend at some point in the future, but the precise amount of such dividend is dependent on the ultimate results of the actions outlined above, as well as the outcome of significant claims made against the Bank by its fellow subsidiary, Gulf Union Bank (Bahamas) Ltd. Although the Liquidators have rejected these claims, provisions must be set aside pending the outcome of a possible appeal of this rejection.

Please also note that the second dividend will automatically be distributed to depositors who participated in the first dividend. Only depositors who did not participate in the first dividend or who have recently changed address and not yet notified the Liquidators need contact the Liquidators to ensure their participation.

The Liquidators continue to act in consultation with the Consultative Committee of Creditors. However, if any depositor has specific concerns or questions please do not hesitate to contact us directly at the listed address.

Yours truly,
Michael Pilling
Joint Official Liquidator

D&T/FCB/MWP/cw