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would repay the balance outstanding on the loan in the event the
insured died.
Southwestern Dealers Insurance Co. (SDI) was formed by a
group of automobile dealership owners whose dealerships issued
policies similar to those issued through Messrs. McCurley's and
Hall's dealerships. In February of 1982, SDI was incorporated in
Grand Cayman under the laws of the Cayman Islands, British West
Indies. Mr. McCurley became an SDI shareholder in 1982 and
served as chairman of SDI's board of directors from that year
forward. Mr. Hall became an SDI shareholder in 1984. Prior to
becoming shareholders, Messrs. McCurley and Hall reviewed letters
prepared by Peat, Marwick, Mitchell & Co., outlining issues
relating to the formation of SDI and the availability of
interest-free loans. The letter cautioned that adverse tax
consequences would result if the loans were not bona fide loans.
SDI reinsured credit insurance policies issued through
dealerships (i.e., the dealerships served as agents of the
insurance companies) owned by SDI shareholders. As described
below, reinsurance profits from policies attributable to a
particular shareholder's dealership were then allocated to that
shareholder. Seventy-five percent of the allocated profits was
readily accessible to the shareholder through interest-free
loans.
SDI's articles of association (Articles) set forth the rules
governing the corporation. They authorized the issuance of
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Last modified: May 25, 2011