October 2003

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 and to advise of the upcoming third interim dividend payment.

Dividends
To date, two interim dividend payments have been made, resulting in a total return to creditors of 45 cents on the dollar. The first interim dividend (35 cents) was paid on April 20, 2000 and the second (10 cents) on June 14, 2002.

Following the payment of the second dividend, and as indicated below, the Liquidators have continued their efforts to maximize recovery of Bank assets. As a result, the administration is now in a position to fund a third interim dividend. This dividend is expected to amount to at least 15 cents on the dollar and will be paid by the end of the year. The Cayman Islands Grand Court gave directions for the purposes of the dividend payment on October 3, 2003 and the Liquidators are in the process of completing 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, 423 loans have been cleared with over $14.6 million (equivalent to approximately 74% of the original loan book balance) having been collected. Currently, 172 loans remain outstanding, 126 of which continue to be 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 judgments 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 have pursued legal proceedings against certain directors and shareholders to recover losses suffered by the Bank from their acts or omissions. In May 2003 the Liquidators sought and obtained a judgment against six overseas former directors of the Bank arising out of their failure to defend proceedings brought by the Liquidators against them in respect of their negligence as directors of the Bank. The ultimate result of this and other litigation cannot be predicted with certainty.

Intercompany Claims
Significant intercompany claims were filed in the liquidation of the Bank by its fellow subsidiary, Gulf Union Bank (Bahamas) Ltd. (“GUBB”). Following extensive negotiation, in June 2003 a settlement was reached with GUBB whereby their claim was discharged. This in turn freed up funds for distribution, otherwise required for provision against the full amount of the GUBB claim.

Financial Position
Following these developments, the Liquidators now estimate that the final return to depositors will be in the range of 60 to 70 cents on the dollar, compared to the previous estimate of 50 to 60 cents. The total dividend cheques that have cleared in relation to the first and second interim dividend payments amounts to approximately US$12.3 million. There are some creditors who received a dividend cheque for these distributions but for some reason did not cash the cheque. As a matter of prudence, the Liquidators block all accounts where a cheque is returned as undeliverable. However, if a cheque is neither returned nor deposited then it becomes stale dated but the amount will be incorporated into the next dividend payment.

The proposed third interim dividend of at least 15 cents will involve a further distribution of approximately US$4 million. Additional funds should become available for another dividend at some point in the future, but the precise amount and timing of such a payment is not known at this time.

Please also note that the third dividend will automatically be distributed to depositors who participated in the first and second dividends. Only depositors who did not participate in the first and second dividends or who have recently changed their address and have 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