Allegations of a continuing major fraud being perpetuated by the directors of George Steuarts & Co. Ltd have been made by a former Chairman of the company, G.E.S. Dirckze and a former Finance Director K.M. De Silva. Mr. Dirckze and Mr. De Silva have jointly instituted a derivative action in the Commercial High Court on December 2, 2008 in terms of Section 234 of the Companies Act No. 7 of 2007.
The directors who have been cited as respondents are S. Skandakumar, former Chairman J.M. Wimalagoonaratne, present Chairman K. Neelakandan, Deputy Chairman and Company Secretary D.P. Kanagaratnam, Joint Managing Director, D.N. Daluwatte, Joint Managing Director, and A.A.M. Illiyas, Director. In addition, the Registrar General of Companies, D.K. Hettiarachchi has also been cited as a respondent.
Producing evidence, the two petitioners have stated to the Court that Mr Kanagaratnam, one of the directors and a shareholder who owns 625,000 shares of the total of 1,850,000 shares of the company, had been adjudged a bankrupt on January 14, 2004 by the High Court of Justice, Chancery Division, UK in Bankruptcy Proceedings No. 6057 of 2003 on a petition filed by a creditor on July 21, 2003. The petitioners hold 533,802 shares of George Steuarts.
Subsequently on April 22, 2004, the creditors in UK had appointed one M.S.E. Solomons of SPW Poppleton and Appleby of UK, as the trustee of the bankrupt estate of Mr. Kanagaratnam. The assets of Mr. Kanagaratnam, including the 625,000 shares of George Steuarts were vested in the trustee of the bankrupt estate, in terms of the bankruptcy law of UK.
The petition said that in a voluntary arrangement made by Mr. Kanagaratnam in the bankruptcy proceedings in UK, he had included the 625,000 shares of George Steuart & Co. Ltd., with a charge thereon to one of the creditors of the bankrupt estate, by the name of R. Dacosta for a debt of UK Pds. 250,000. As per his statement of affairs signed by Mr. Kanagaratnam and submitted to the UK High Court, other creditors of his bankrupt estate had included defaulted international credit card debts amounting to UK Pds. 117,900.
Upon the surrender of all his assets, which had included the 625,000 shares in George Steuart & Co. Ltd., to M.S.E. Solomons, the trustee in bankruptcy of his bankrupt estate, as per the voluntary arrangement proposal submitted to the UK High Court, Mr. Kanagaratnam had been discharged as a bankrupt on April 1, 2005, as per the certificate of discharge dated April 25, 2005 issued by the UK High Court. In a previous case the Commercial High Court had been misled by the directors of George Steuarts on the premise that Mr. Kanagaratnam had been discharged as a bankrupt, the petition said.
Since the directors of George Steuarts, being controlled by Mr. Kanagaratnam and his nominated directors, had refused to register the 625,000 shares in the name of M.S.E. Solomons, the trustee in bankruptcy, the trustee's lawyers in UK had obtained a further order on June 14, 2007 from the UK High Court, clarifying and confirming the correct legal position, that notwithstanding the discharge of Mr. Kanagaratnam from bankruptcy, that 625,000 shares in George Steuarts had remained vested with the legal and beneficial ownership with the trustee of the bankrupt estate, M.S.E. Solomons.
The petitioners have stated to Court that George Steuarts controlled by Mr. Kanagaratnam and other directors - (a) is continuing to act recklessly and grossly negligently, intentionally, willfully and knowingly to defraud the Creditors of Bankrupt Estat in United Kingdom, (b) has colluded with Mr. Kanagaratnam, for him to fraudulently enjoy the benefit of the said Shareholding, and (c) fraudulently siphon out monies from George Steuart & Co. Ltd., and perpetrate an illegal and fraudulent act.
Therefore the petitioners have stated to Court that Mr. Kanagaratnam and the other directors have defrauded and are continuing to defraud, not only the legitimate Creditors of the Bankrupt Estate in United Kingdom, but also are defrauding George Steuart Co. Ltd, itself and its Shareholders, exposing and making liable George Steuart and Co. Ltd., to be sued by the trustee in Bankruptcy for such funds of the Bankrupt Estate having been defrauded by George Steuart and Co. Ltd.
The petitioners have sought orders to prevent the directors and the secretary of the company from continuing to function perpetrating such fraud, and an order directing the Registrar General of Companies to rectify the Share Register of George Steuarts, and an order for an auditors statement to be prepared of all monies paid to Mr. Kanagaratnam and his nominated directors and agents after the 625,000 shares of George Steuarts had vested on April 22, 2004 in the trustee of the bankrupt estate, and for such monies to be recovered from these persons and paid to the trustee in bankruptcy of the bankrupt estate in UK.
Upon the petition being supported on 4 December 2008 by Wijeyedasa Rajapakshe President's Counsel with Lakshan Livera, Attorney-at-Law instructed by Dharmawardene Jayasinghe, Attorney-at-Law, the Commercial High Court issued Notices on directors of George Steuarts and the Registrar General of Companies returnable on January 27, 2009.
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