COPE Report: Failed Finance Companies

The Central Bank (CB) of Sri Lanka, has incurred large debts owing to a string of finance companies, the COPE report revealed.
According to the Committee on Public Enterprises (COPE) report, submitted to Parliament by COPE, Chairman Wijedasa Rajapakse, the CB failed to recover a staggering Rs.7 billion granted to various bankrupt financial companies. Mercantile Credit Investments alone owes more than Rs.5 billion.

A source at the CB told The Sunday Times FT that these finance companies “have gone bust in the 1980's, the last one being Mercantile Credit which went bankrupt in 1992.” The source also said that thirteen of these finance companies are on liquidation including Mercantile Credit. "We have concluded the liquidation of two of those companies. Others are in the process of being liquidated." The source explained that liquidation is a court process which is difficult and lengthy. The CB has to file a liquidation application in court which then appoints a liquidation firm. "Liquidators have to identify the assets and liabilities to get whatever is possible form the various properties that the finance companies were engaged in since many were in the real estate business. Whatever land is available, they have to sell it and make money," the source said.

Over a twenty year period up until the year 2000, the CB had provided funding to the thirteen failed finance companies totalling Rs.2.7 billion, that being the principal amount of money given. The source said that the figure of Rs.7 billion stated in the COPE report includes the principal amount in addition to the accumulated interests. "The CB gave this money to the failed finance companies to settle the deposit liabilities." The source explained that a relief scheme was established to provide some percentage of the deposit liabilities to depositors.

So far, Rs.412 million has been recovered from the liquidation process. The source further explained that it has been slow going due to the fact that close to 90% of the Bank's records were destroyed in the 1996 bomb blast.

"We have collected information from other departments and are able to reconstruct some of the lost information. We have some basic information and we have handed over those files to the liquidators." According to the source, it is impossible to put a time frame on the process since a lot depends on the ability of the liquidators. "Some of these properties from the finance companies were taken over by government agencies to provide facilities for the community like playgrounds, etc. There has to be a valuation of those assets as well." The CB is unable to intervene any further but the source feels that since some of the liabilities of the depositors have been settled, the problem has been solved to a certain extent.