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AG
to sue: Rs. 2 b. claim and counter claim over SLIC deal In a hard-hitting letter dated April 11 and addressed to the Managing Director of Distilleries Company of Sri Lanka Ltd., Harry Jayawardene, the state attorney writing on behalf of the Attorney General has said the Government will be instituting legal proceedings against the buyers consortium involved in the purchase of the Corporation for not honouring the sale agreement entered into with PERC (Public Enterprises Reform Commission ), the Government body responsible for the privatisation of state ventures. The buyers consortium involved in the purchase of the Corporation are Milford Holdings (Pvt. ) Ltd., of 110, Norris Canal Road, Colombo 10 and Greenfield Pacific EM Holdings Ltd., Gibraltar c/o Asia Box Consultants Services (Pte) Ltd., 61, Club Street, Singapore while the guarantors are the Distilleries Company of Sri Lanka Ltd., Aitken Spence & Co., Ltd., and Aitken Spence Insurance (Pvt. ) Ltd. Distilleries Company had been the guarantor in terms of the sale agreement by which 90 per cent of the Insurance Corporations shares were purchased for Rs. 6.5 billion to this buyers consortium. The dispute arose after Mr. Jayawardene claimed Rs. 2 billion from the Government of Sri Lanka in view of what he called was the "decrease in the net working capital of shareholder funds". Denying that the buyers consortium are trying to dictate the final purchase price of the Insurance Corporation -- now operating under the name of Sri Lanka Insurance -- Mr. Jayawardene has said they were only acting in terms of the agreement. At the root of the issue is whether the final accounts of the then state owned Insurance Corporation showed a profit as claimed by PERC, or a loss. The Attorney General has said that this claim is "wrongful and an unlawful demand", and that the Government has a right to counter-claim from the new owners based on what it known as the Net Working Capital Adjustment. The Attorney General states that the chartered accountancy firm, Ernst & Young was to forward the Net Working Capital Adjustment to adjust the purchase price which was based on their un-audited accounts as at March 31, 2002. It was on this basis that the 90 per cent of the corporation's shares were sold by the Government to the new buyers in April 2003. The sale agreement made provision for the purchase price to be adjusted according to the corporation's accounts as of the date of sale, April 11, 2003. The Attorney General then slams whom they call the Government's Consultants - Pricewaterhouse Coopers (PwC) FAS, Indonesia to have concurred with the final accounts presented by Ernst & Young, the auditors of the then Insurance Corporation on the adjustment in the accounts between March 31, 2002 and April 11, 2003. The Attorney General blames both audit firms for failing to prepare this "long outstanding computation" to adjust the purchase price consideration. He says the computation should have been made by June 2003, and "repeated requests" for extension of time to conclude this matter was made by Mr. Jayawardene. PwC in a letter to the Attorney General however contests their role as Consultants saying that it formally expired after the sale and purchase agreement (SPA) was negotiated, and that at no stage did the scope of work include involvement in the adjustment of the purchase price computation beyond the signing of the SPA. They state that the Financial Advisory Services for the Government of Sri lanka in the sale of Insurance Corporation were with PT Pricewaterhouse Coopers FAS, a company based in Indonesia, and that personnel from PwC Sri Lanka were only among others recruited by the Indonesian firm, a matter hotly disputed by the State. In a related issue, answering questions by the Attorney General on matters relating to Conflict of Interest whereby a partner of PwC was a member of the Steering Committee which selected PwC as financial advisor for the divestiture of the Insurance Corporation, PwC has stated that one of their partner's was a member of an 8-member committee responsible for the restructuring of the Corporation, and that there was therefore no Conflict of Interest because PwC was selected after a competitive tender process by the Technical Evaluation Committee, and not the Steering Committee. PwC states that the Government should get Ernst & Young to clarify the balance sheet impact on various exceptions and to identify which assets and liabilities ought to be classified as current versus non current, and obtain agreement between the buyers and seller on the calculation of the purchase price in the sale as the next step. These explanations were rejected by the Attorney General stating that PwC had failed to address the " key issues " pertaining to their conduct as Consultants to the Government of Sri Lanka, and indicated that the next step would be to institute legal proceedings for the recovery of damages suffered by the Government of Sri Lanka on account of PwC's "negligent acts and/or willful misconduct ". |
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