Financial Times

Pramuka Bank court cases delay action under Companies Act
Court cases filed by Pramuka Bank depositors opposing the Central Bank's plans to liquidate the failed bank are stalling legal action being filed under the Companies Act against its directors who could be held personally responsible for its collapse, financial analysts said.

If the cases drag on it might not be possible to take action under the Companies Act because of the two-year time limit within which action must be taken under this Act, they said. The Central Bank on October 25, 2002 decided to suspend and then liquidate Pramuka after the bank's management, through alleged fraudulent dealings, ran up losses that made it impractical to revive the bank.

The depositors are fighting the liquidation in the apparent belief that they would be able to recover more of their funds if the bank was revived. However, despite Central Bank requests, no commercial bank has come forward to help revive the bank, given its liabilities.

Deva Rodrigo, a senior partner at auditing firm PricewaterhouseCoopers and deputy chairman of the Ceylon Chamber of Commerce, said that if a company has got to a negative net worth position due to losses incurred, it would have very few options open other than liquidation.

Sections 354 to 360 of the Companies Act No. 17 of 1982 deals with offences antecedent in the course of winding up. Section 354 deals with offences by officers of companies under liquidation, Section 355 imposes penalties (imprisonment) for falsification of books and section 356 relates to frauds by officers of companies which have gone into liquidation, Rodrigo said.

Section 357 imposes a liability on officials of a company for failure to keep proper accounts during the period of two years immediately preceding the date of commencement of winding up.

Rodrigo said: "Liquidation is often the best option as it could immediately limit the expenses being incurred, curtail losses, preserve the net assets to pay the creditors (depositors and other creditors ) and enable the liquidator to take action against any officer (including directors) who has failed to keep proper books of accounts or is guilty of any of the 15 or so offences listed under Section 354 of the Companies Act." Rodrigo said he was unable to comment on the Pramuka case as the matter was in court and also because it was not proper for him to do so as a member of the Monetary Board.

But, he said, the provisions relating to section 358 of the Companies Act, which make officers personally responsible for all or any of the debts or other liabilities of the company, can be invoked only if the company is under liquidation.

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