 Seylan Merchant Bank (SMB) has fallen into an abyss of mismanagement, corruption, unethical practices and financial misappropriation following the collapse of Golden Key Credit Card Company, depositors, shareholders, unions and Central Bank sources said.
The Non-Banking Supervision Division of the Central Bank is to investigate dealings at SMB and Seylan Merchant Leasing (SML) on complaints received with regard to unethical practices, corruption and financial misappropriations, according to a senior Central Bank official.
Other sources revealed that investigations will be carried out not only by the Central Bank but also by Inland Revenue, Labour Department and the CID as the SMB group has been allegedly violating laws in mishandling of public funds.
Depositors are in a quandary as withdrawals have been restricted. Some influential persons have withdrawn their monies ‘through the backdoor’ while smaller despositors have to obtain the approval of the General Manager even to withdraw small amounts, several depositors told The Sunday Times FT.
With SMB saddled with many non performing loans (most of which are inter-company transactions) and low profitability, all sales and marketing has been assigned to SML, the sources said.
The President of the Inter Company Employees Union Wasantha Samarasinghe told The Sunday Times FT that SMB collected over Rs 2.4 billion from depositors but it was not invested in profitable ventures and thus has problems in making refunds or paying interest to depositors. SMB and SML have given loans to non profit making entities including its own automobile company which has been running at a loss for three years.
The total investment in this loss making subsidiary may exceed Rs 500 million. SML is a licensed finance company but it is also facing a financial crisis due to mismanagement.
The Sunday Times FT repeatedly tried to contact the Deputy Chairman of SMB Rohan Senanayake for the past week to seek his views on the current situation of the institution and its financial crisis but he was not available for comment. His secretary Chamila Ramanayake said that the Deputy Chairman is busy conducting meetings with depositors and holding important discussions and ‘cannot be disturbed’.
Shareholders allege that Seylan Merchant Bank PLC has failed to hold its Annual General Meeting (one year) for the years 2007/2008 and to file its annual returns – a direct violation of the Companies Act No 7 of 2007.
They expressed doubts as to whether the Bank satisfies the solvency test in accordance with the law. One shareholder, who understands Company Law and financial statements, told The Sunday Times FT that SMB has sent interim reports for the quarter ended 30th June 2008 and 30th September 2008 to shareholders stating that KPMG Ford Rhodes, Thornton and Company are the auditors of the Bank despite the fact that these interim reports have not been audited.
He said the Interim Report for the quarter ended 30th June 2008, gives the non-voting share as “Non Voting Rs.1 each” and the voting shares as “Voting Rs.10 each”. He added that this was a grossly, negligent misrepresentation of facts by the company, since the par value of shares was abolished when the Companies Act No.7 of 2007 was enacted on 1st May 2007. The company has failed to amend its Articles of Association and it continues to refer to the non voting shares as “Non Voting ordinary shares of Rs 1 each” and the “Voting ordinary shares of Rs.10 each” even after the abolition of the par value, he said. The SMB group has published the past six months results showing Rs 3.5 million in profits.
The shareholder said Section 57 (1) of the Companies Act No. 7 of 2007 states that a company shall be deemed to have satisfied the solvency test if it is able to pay its debts as they become due in the normal course of business and if the value of the company’s assets is greater than the value of its liabilities and the company’s stated capital. Section 57 (2) states that in determining whether a company satisfies the solvency test, the board shall take into account the most recent financial statements of the company prepared in accordance with section 151 of the Act.
He said SMB has failed to satisfy these requirements. However he noted that according to Section 220(1), if the net assets of the company are less than half of its stated capital, the board shall within 20 working days, call an extraordinary general meeting of shareholders of the company, which has not been done so far.
SMB has said it was unable to pay a dividend proposed earlier, following a solvency test specified in the new company law. The Bank said in a stock exchange filing that shareholders had already been told that a dividend could not be paid. The new company law which came into effect in May 2007 has stricter rules on dividend payments, the shareholder said. |
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