CFN takes control of the treasury and executes the guarantees.
What 8 years ago seemed like a dream come true and an unprecedented opportunity for thousands of farmworkers to become owners of the largest banana property in the country, turned into a nightmare. The hacienda La Clementina, located in the rural parish of La Unión, province of Los Ríos, can be auctioned in a few weeks. Since October 13, it has been under the control of its creditor, the Corporación Financiera Nacional (CFN).
The debt of more than $70 million that the Cooperative of Production and Marketing of Clementina Workers-owners (Cooproclem) still maintains with the CFN was declared of expired term. This means that the Cooperative has failed to comply with several conditions agreed in the credit agreement, which has weakened its risk profile.
An employer default with the IESS for $1.8 million, the non-payment of one of the dividends of the credit, the impact on its production due to a stoppage of activities that lasted for two months (which began last August) and that put the treasury at risk of deterioration were the reasons for the CFN to decide to declare the credit obligation expired. In practice, the resolution of the CFN also caused the questioned company Koval to leave the administration of La Clementina.
By not having the knowledge and experience that allows them to optimally manage resources and without an adequate administrative methodology, the sustainability of the business has been elusive to Cooproclem workers, who have faced a continuous decline in their conditions due to delays in the payment of their salaries and other benefits by Koval, the company that has managed the hacienda in recent years. These deficiencies increased the vulnerability of production to other external factors such as the intense winter seasons and the effects of the pandemic.
Meanwhile, the State faces the costs of the meager recovery of its resources, because due to the difficulties faced, Cooproclem has requested two refinancing of its debt from the CFN. In the document N° CFN-B. P.-GG-2021-0349-OF to which Pi had access, issued by the manager of Corporación Financiera, Alejandro Salgado, on October 13, details each of the breaches of Cooproclem’s obligations with CFN.
According to the document, the second refinancing of the credit agreement concluded between the Corporación Financiera and Cooproclem (on July 8, 2019) establishes the right of the CFN to give up the term, if the debtor fails to fulfill its employer obligations to its workers and / or the Instituto Ecuatoriano de Seguridad Social (IESS). A Social Security certification showed that as of October 12, 2021, Cooproclem has outstanding obligations for $ 1,813,738.72.
The labor strike since August 9 in protest against Koval’s non-payment of the IESS debt and the reduction of their salaries is another factor that motivated the declaration of expired term. The second refinancing determines that if “in fact the debtor’s activity is suspended indefinitely” the CFN may declare the obligation of expired term.
The Clementina hacienda is taxed in favor of the CFN as a guarantee for the fulfillment of Cooproclem’s obligations and the fact that the hacienda has not been operating has affected its valuation. Therefore, another of the grounds detailed in the document refers to the CFN having the right to give up the term, even if the obligations were not due, if the assets placed in the guaranteed trust “suffer impairment in their value in such a way that the guarantee granted by the debtor is diminished or affected”.
In the aforementioned letter, the manager of the CFN explains that the value of the hacienda is deteriorating, and this puts the guarantee at risk. This statement is supported by a technical report of this state bank in which it is stated that there is an imminent risk of deterioration of the biological asset of the farm. Memorandum CFN-CSMC-2021-31 71-M of August 18, 2021 also warns of the imminent threat of deterioration of the production of La Clementina.
In relation to the cause of the default of payments, according to the amortization table derived from the second refinancing or novation, “on September 25, 2021, Cooproclem had to cancel $1,239,619.63, a value that has not been fully paid because there are no funds in the flow trust.”
On this basis, Salgado informed Fidunegocios, trustee of the flow and guarantee trusts, that it is appropriate to declare the expired term of the payment obligation for $74,377,177.88 that Cooproclem maintains with CFN.
Other proceedings carried out in this process took place on October 14 when Fidunegocios terminated the precarious loan contract (in which CFN requests the restitution of the treasury) that it maintained in favor of Cooproclem and began the process of execution of the Guarantee Trust, by order of the CFN manager.
On October 22, the representative of Fidunegocios, María de Lourdes Coronel, informed the then manager of Cooproclem, Carlos Andrade Sellán, that CFN has appointed Freddy Serrano González as comptroller/depositary (custodian) of the cooperative. He warned Andrade that since this comptroller has been appointed within the execution process, he must be given the facilities to fulfill his functions, which includes “preventing the personnel from causing unnecessary revolts … avoid giving instructions other than those issued by the fiduciary or the CFN. In case of not allowing the entry of the comptroller / depositary with its staff and the experts of the CFN they would be violating the fiduciary contract and its execution process, being responsible for civil and criminal actions that assist us for being the fiduciary owners, fiduciary guarantee that corresponds to a public entity”.
How did the indebtedness begin?
The threads of this checkered history began to be woven in 2013: “it is an emblematic step to democratize private property” said Rafael Correa, or “as a clear democratizing symptom of private property, the La Clementina hacienda will pass in the coming days into the hands of the workers, after the enormous tax debt that Álvaro Noboa, accumulated with the State and refused to pay.” With this selling discourse disseminated in the official media, another of the robberies of the correismo was justified, in which hundreds of workers never stopped being exploited, they are over-indebted and about to lose ownership of their lands and their only source of income.
In May 2013, the Internal Revenue Service (SRI) seized the La Clementina hacienda from Compañía Agrícola Bananera S.A., owned by Alvaro Noboa, for a debt it had with the state for $102.3 million. Six months later, the correato executed one of its many financial imbroglios. After the workers were grouped together and constituted Cooproclem and, under the bombastic letterhead of the “El Buen Vivir” Program, La Clementina was acquired by the workers in an auction through a CFN credit of $78,930,822.65, with a 15-year term, with two years of grace and an annual interest rate of 5%. Despite these preferential conditions, since then, the CFN has barely recovered 7% of its capital, while it has approved refinancing under conditions that are being investigated by the current authorities of the CFN.
To guarantee the payment of the credit delivered by CFN, two trusts were created: one of flows and another of guarantees.
But it takes much more than the delivery of economic resources to carry out a business that demands knowledge and experience. Three years after the loan was delivered, Cooproclem requested the first novation or restructuring of the debt for a term of 12 years, with a two-year grace period that the CFN approved in March 2017.
A year later, in a questioned (by workers) maneuver carried out by the Cooproclem board of that time, an association contract was signed with Koval Managment Kovamanag S.A., of alleged Russian owners and capital, but managed by the businessman Miguel Macías Ulloa. In that contract, the management of the business was handed over to Koval. But the difficulties intensified to the point that the new administrators asked for a second novation of the credit that was approved by CFN (June 2019) to a term of 20 years and 4 years of grace.
However, the problems in La Clementina are not limited to the productive field. Around 400 workers have been dismissed after questioning alleged irregularities by Koval. Even a group of them filed complaints with the Prosecutor’s Office in September 2019 for embezzlement and organized crime.
Shortly after (December 10, 2019) the then anti-corruption secretary, Dora Ordóñez, denounced possible crimes in the administration of the treasury: embezzlement, front man, stock market fraud, organized crime and unjustified private enrichment.
Ordóñez reported “that it will be requested to investigate the Russian shareholder company that manages it and an Ecuadorian citizen, who would be behind the irregularities.”
It was never known what happened to this complaint in the Prosecutor’s Office, but Koval continued to manage Cooproclem until last August 9, when the workers paralyzed La Clementina in protest at the non-payment of their legal benefits and with the aim of displacing Macías Ulloa from the power he exercised in the management of the Cooperative.
A Police Intelligence report of August 22 shows that: “The directive of the cooperative is not accepted by the majority of workers of the hacienda, due to the various irregularities they maintain with Koval Management, which is made up of Miguel Macías Ulloa, Miguel Ángel Torres Cedeño, Carlos Marcelo Sánchez Medina, Alcívar Napoleón Monar Guamán, Agustín Enrique Andino Campos”.
This report arises from the actions developed to remove from the hacienda the workers who led the protests. Miguel Ángel Torres Cedeño, who was part of the board of Cooproclem, filed an action for protection against the rest of the board and asked José Morocho Coello, civil judge of the Ventanas canton, to evict the other 30 directors.
With the favorable ruling that was obtained from this judge, Macías Ulloa together with the correista and influential banana businessman Omar Juez, convinced the governor, Génesis Blum Baquedano, to force the eviction.
Although the eviction was not executed, police were moved to the place. “Here they arrived as if the owners were criminals, 300, 500 uniformed men came,” Flavio Chuñir, a lawyer for the workers of La Clementina, told PI, who announced that he will file legal actions against the previous directive of the Cooperative and Koval in response to the legal actions filed by Torres Cedeño, illegally according to Chuñir, against 30 other managers who promoted the protests.
The paralysis of activities continued until the third week of October when the comptroller/depositary Fredy Serrano, appointed by CFN, took possession of the La Clementina hacienda and other officials of this state bank entered to raise inventories, with a view to finishing off the property in approximately 90 days, according to Chuñir.
Production of La Clementina has generated $ 0 to pay capital and has not been enough to pay interest
The president of the board of directors of the CFN, Iván Andrade, after clarifying that he cannot go into details about the causes of the declaration of the expired term of the credit, said in an interview with Pi, that a solution to the issue of Cooproclem will be contemplated that takes into account three areas: legal, financial and human. Andrade said that, according to the latest list to which the CFN has had access, there are 1,416 workers who must be taken into consideration in the actions that will be executed.
The official avoided confirming whether the next step of the CFN would be to apply the coercion to Cooproclem: “There are cases in which there is a need for coercion and others in which it is not needed due to the nature and the way in which the credit was instrumented,” he said.
When consulting Andrade about the findings made by the new authorities of the CFN regarding the technical and legal arguments with which the previous authorities of the Financial Corporation and the members of the Trust Board approved the refinancing of the loan to Cooproclem, the official assured that, since it is not public information, it cannot reveal the findings. What he did explain was the most important details of the payments made by the Cooperative.
The original transaction was for $78.93 million. In 2016, after the Ministry of the Environment expropriated 2,000 hectares of a protective forest that was in the hacienda and gave in exchange $8.5 million to Cooproclem, it paid $5.5 million from the capital and paid overdue interest of $3 million. But Andrade emphasized that “from the production, from the cash generation of the La Clementina cooperative, not a penny of capital has been paid.”
The CFN has taken charge of the treasury while the second refinancing of 2019 was in force, with a 20-year term with 4 years of grace for capital and one year of grace for interest, including overdue interest that was from 2019. That is, the interest on the overdue interest was refinanced to be paid from 2019 to 2023, in three payments per year. According to Andrade, that included installments of $900,000 in interest, plus nearly $300,000 in overdue interest in 2019, to be paid starting in the second half of 2020. Therefore, as of June, about $1,250,000 was paid. That same amount was due in September and December, but in September only $650,000 was paid.
Cooproclem has other debts and losses of nearly $30 million
Cooproclem must be liquidated because it is an organization that is totally flawed, in the opinion of Flavio Chuñir, lawyer of the workers, who maintained that all the debts are in the name of the cooperative, but who stopped paying was the management company. “All accounts have fallen in the name of Cooproclem. It is unfair when the use and abuse of resources has been done by administrator Koval.”
Cooproclem has debts of around $15 million with the IESS, with the Corporación Eléctrica Nacional CNEL and other suppliers of goods and services.
The workers’ lawyer said that Koval is the one that should assume these liabilities, since the cooperative never handled a penny in application of the conditions of the management contract.
In addition, workers are owed salaries, settlements of those who were retired or separated from the cooperative. The issue is untenable as it stands, according to Chuñir.
One of the immediate actions to obtain some resources is the sale of bananas, but the suspension of activities that the hacienda had since August affected the plantations even more. You try to sell what you can, since there is no first-class product.
For the 2 months of paralysis, workers estimate losses between $15 million and $20 million.
The CFN has given authorization to sell the production of bananas and other items, including scrap. But they are having obstacles to finalize the sale of the fruit, according to Chuñir because he explains that the previous administration of Cooproclem is influencing potential buyers so that they do not acquire the product: “There have been cutting schedules, but when we had to cut it is canceled because there is the intervention of a black hand against the workers.”
That is, after it is planned how many containers will go out in boxes on a certain date and the workers are ready to go to the cutting of the fruit, it is canceled at the last minute. There are no buyers and according to Chuñir there have even been rumors circulating that there is a report from Agrocalidad that indicates that the product is wrong. But in the end what is sought is to block the entry of money.
Millionaire reductions in the assets of the Trusts
The workers of La Clementina question Fidunegocios, administrator of the flow and guarantee trusts in the last 7 years, for not having controlled the management that Koval gave to Cooproclem, so they will request the Corporación Financiera Nacional that Fidunegocios does not continue as fiduciary of the hacienda.
After the CFN took over Cooproclem, the guaranteed trust was executed and the assets that made up that guarantee, including the La Clementina hacienda, passed to the management of the Corporation.
On the trust of flows it is not known from official source, so far, what the procedure has been. The workers’ lawyer, Flavio Chuñir, affirms that the flow trust disappeared after the declaration of the expired term of the credit.
The flow and guarantee trusts were set up on 6 February 2014. The first started with a capital of $ 5,000 and as of December 2014 had assets of $ 1,318,593.47, liabilities of $ 1,313,593.47 and still did not register income.
Since then, the assets of the flow trust have been reduced year by year, except in the financial years of 2016 where they totaled $1.42 million, and 2017, $6.72 million, according to the financial balance sheets that appear in the Superintendency of Companies,
The lowest figure of the assets of this trust corresponded to 2019 with $15,493.41. And as of September, of this year the assets were $28,988.57.
Since the formation of the Flow Trust until this year, its assets have been reduced by $1.28 million.
There are no figures of great relevance in regard to the profits of each financial year. In 2016 it is the highest value of earnings with $14,537.35; it is followed by 2020 with $9,427.04. In 2017 it had losses of $7,531.67.
The guaranteed trust was constituted with assets valued in its financial statements at $107 million. These mainly include land ($38.27 million), buildings ($9.6 million), machinery ($1.39 million) and biological assets that basically concern agricultural production ($57.76 million).
In 2017, assets fell to $83.81 million, mainly because biological assets were reduced to $26.82 million, a 54% decrease in agricultural production.
For 2019 there is a recovery of assets to $98.87 million mainly due to an increase in the value of machinery and equipment that went from $1.39 million to $16.64 million, an increase of 1000%. In the case of land, the variation was from $52 million to $69.24 million (33%). In contrast, the biological asset was considerably reduced to $9.55 million, a 64% drop in the value of agricultural production.
As of September 2021, the latest figure available in the Superintendency of Companies, assets are slightly reduced to $98.55 million.
Could any state authority prevent the La Clementina crisis?
The Superintendent of Popular and Solidarity Economy, Margarita Hernández, has scheduled a meeting this November 19 with a group of Cooproclem partners, who were part of those who paralyzed the activities in La Clementina for being dissatisfied with the administration of Koval and the board of Cooproclem led by Carlos Andrade and Miguel Torres, manager and president of the cooperative, respectively.
The issue to be discussed will be the registration of the new directive, according to Hernández. Flavio Chuñir, lawyer of the workers indicated that in this framework the head of this body will be consulted about her arguments for not recognizing the new directive integrated on August 12, since she maintains that the 941 signatures of the partners gathered in general assembly endorsed it.
As the assembly was the highest authority that approved the appointment of the board that displaced Andrade and Torres from the main positions of Cooproclem, the Superintendency of Popular and Solidarity Economy (SEPS) had to approve such action, at the discretion of Chuñir.
But Hernández explained that the directives of the entities it controls are appointed through democratic processes organized by those same entities, therefore, it is the general assembly of members that appoints its representatives to the boards of directors and supervision of the cooperatives. And the board of directors appoints president and manager. So, the role of the SEPS is to register those managers.
But at the moment the registration of Cooproclem has a particularity, as Hernández emphasized: judicially there is a padlock that prevents changing the authorities of the cooperative because there is a resolution of the Multicompetent Judicial Unit of Samborondón that prevents it.
By letter 188-2021-UJMS of October 7, 2021, that court informed the SEPS that it admitted the request for precautionary measures made by Miguel Ángel Torres (then president of the Cooperative and close to Miguel Macías de Koval) and ordered the Superintendent “to suspend the effects of the appointment of Carlos García Portilla as manager and legal representative of Cooproclem until the judgment of last instance is decided on the procedure followed for such appointment, so that within its powers and attributions it communicates to the corresponding person about the temporary suspension of the effects of the resolution and registration of García Portilla within the procedure 707912725, as well as the obligation to refrain from registering any titular directive that is not the one chosen in 2020 and that already appears in its records, prior to the procedure 079-720 under preventions of law in case of non-compliance”.
Hernandez added that “considering that certain terms in this office do not give us all the clarity … a clarification was requested from the judge, and we have not received a response, but we have complied with the part that is easy to infer and that is that the directive elected in 2020 is kept in the records.”
This superintendence has asked for clarification of details such as the procedure number cited in the judicial resolution, since the numbering 079-720 does not correspond to the procedures that are managed in the SEPS. There is also no clarity regarding which members of the board it refers to and from which positions, since the administrative and control bodies of the organizations have responsibilities determined by law, so it is essential that the SEPS knows who the judge orders to register in each position, otherwise some mistake could be made, Hernandez said.
The superintendent also said that she has not been informed of the position of the current board of Cooproclem that the SEPS would be denying the decision of a majority of 941 members who endorsed the new directive and left the previous one invalid but explained that the judge’s resolution is given within a constitutional action “and compliance with this type of resolution is mandatory for us.”
The workers’ lawyer, Flavio Chuñir, has said that they will ask the SEPS to appoint an auditor for Cooproclem, but Hernández said that he does not officially know the declaration of the expiration of the cooperative’s credit and clarified that this control body has no participation, since it is an issue that falls within the competence of CFN and Cooproclem. But if there were any process that relates to the cooperative, it would have to be the members or their directors who communicate to the Superintendence to proceed according to the law.
Regarding the appointment of an auditor, Hernández explained that he is an extraordinary figure and that several conditions must be met to apply it. “It does not proceed automatically because of a request from the partners, but has legal requirements,” he noted. One of the most important is that of prior supervision on the basis of documented information justifying such supervision.
Finally, the workers of La Clementina will raise with Hernández their questioning for having allowed (in May 2018) a reform to the statutes of Cooproclem that according to them, paved the way to cede absolute control of the administration and management of the Cooproclem business to the Koval company. The superintendent clarified that the change in the statute requested by the cooperative has no direct relationship with the contract signed with Koval, since it only allows certain activities to be outsourced on which the organization does not have the capital or expertise to develop them. “In no way and under no circumstances does it have a direct link with the Koval contract, a contract that is also signed between private parties and in which the superintendence does not participate,” he emphasized.
Workers propose alternatives to recover La Clementina
Flavio Chuñir, lawyer for the workers, explained that the declaration of the expiration of Cooproclem’s credit with the CFN is one of the steps prior to the auction of the assets of Cooproclem, whose main asset is the La Clementina hacienda of 11,500 hectares.
The CFN’s goal is to recover what it can from the resources it borrowed to the La Clementina cooperative, according to Chuñir. But what will happen to the workers? The issue is complex. “There were people who took advantage and became richer at the expense of the poor… They have always been angry with the weakest part that are the workers and now history repeats itself,” Chuñir questioned.
However, workers are making plans to try to recover La Clementina.
In one of the strategies, they analyze is the idea of associating again to present themselves at the auction. According to the lawyer, this is a formula that will allow them to recover the property, because before, under the administration of Koval, they were tied up without being able to regain control of their hacienda. One of the actions to follow is to constitute a new organization and for this they have begun to collect the legal requirements. Most likely, it is a cooperative because with this figure all workers can be grouped under the same conditions.
To obtain the financing that allows them to present themselves at the auction, Chuñir assured that the workers have an initial capital and will ally with investors interested in this operation. The idea is that of the 11,500 hectares that the hacienda has, only 2,700 hectares are used in banana plantations, in leased spaces and the rest is unused. As the main source of income comes from the banana line of business, that would be maintained and the resources to return to investors (who give money to the workers to access the auction) would come from the sale of the lands that are not used.
However, time is advancing and there is desperation among the workers who fear losing their source of income, so on November 13, more than 1,000 workers gathered in assembly held a meeting with the president of the CFN board, Iván Andrade. They proposed another formula to recover the hacienda through the sale of land. With the proceeds, the capital would be paid significantly reducing the amount of the credit with the CFN. In a second stage the workers would continue to pay the debt with the product of their labor.
Chuñir explained that under this idea the CFN would remain at the head of La Clementina and with the sale of some 5,000 hectares the Corporación Financiera would benefit because it would recover almost all the debt, because with the auction there would be a loss for the State, according to Chuñir. “With this other option CFN maintains the full credit,” he said.
The workers’ board, which was formed last August, will refine the details of this proposal to present it to the CFN before the end of this November.
Meanwhile, the process of preparing the auction continues. In this month it was expected that an appraisal expert will carry out the appraisal of the assets of Cooproclem.