Blue Diamonds shareholders, directors clash over annual accounts

Shareholders and directors of Blue Diamonds Jewellery Worldwide Plc clashed at the company’s recent annual general meeting over the issue of whether shareholders must give prior notice of questions on the annual accounts.

In general practice, the purpose of an AGM is to discuss the annual accounts and approve it. Shareholders are expected to raise any issues that may arise from the accounts.

However Blue Diamonds Managing Director W.G.B.M. Ranaweera, who chaired the company’s 17th AGM in the absence of its chairman Dr Lalith Kotelawela, said prior notice must be given by shareholders when raising queries on the financial statements of the company.

He was responding to a query from a shareholder on a note to the financial statements. Another shareholder, who opposed the acting chair’s statement, said that “there is no requirement in the Companies Act to give prior notice to raise queries and the acting chairman is making such a statement by capitalizing on the absence of its chairman Dr Lalith Kotelawela.”

Many shareholders argued in support of the right to question the annual report and required the chairman to answers the queries properly.

With pressure mounting on him and the shareholders making a lot of noisy remarks, the acting chairman referred the queries to the auditors of the company KPMG, whose representative was also present at the AGM.

The auditor also spoke in support of the shaeholders and stated that it’s the duty of the directors to answer any queries raised at the AGM and the directors should have sufficient information to answer any queries. At this juncture shareholders clapped and cheered. However the acting chairman told the shareholder concern that the company will clarify the matter in writing in due cause.

The query raised by the shareholder was that the company has not disclosed the amount payable to Seylan Bank Ltd amounting to US$72,906.00 (Rs 8,019,660 @US$110.00) as a related party payable as at March 31, 2007. Though the directors have stated that the company has complied with all necessary accounting standards issued by the Institute of Chartered Accountants of Sri Lanka, not disclosing the above amount payable to Seylan Bank is a clear deviation from the SLAS on related party disclosure, he said. The share holder also raised another point where the increase in EPF and ETF were not in accordance of proportionate increase in the Salaries and wages.

The company is also having a dispute with its group’s bank, Seylan Bank for over three years with regard to credit facilities obtained by the company.

KPMG have modified their audit report in respect of the above credit facilities as follows: “The company has obtained a credit facility from a bank in previous years.

The bank had acquired a stock of jewellery in lieu of the said credit facility. During the year ended March 31, 2005 the directors resolved to write back the balance outstanding to the bank in respect of the credit facility.

Accordingly, a net amount of Rs 203.5 million was written back to the income statement during that financial year. However in the absence of an independent communication from the bank, we were unable to satisfy ourselves as to the existence of the liability in respect of any balance payable by the company to the bank and the resultant impact to the financial statement during that financial years ended March 31, 2005 and March 31, 2006. Our audit report on the financial statements for the years ended March 31, 2005 and 2006 were modified accordingly.”

The audit report further states that “the bank has confirmed to us that as at March 31, 2007 a balance of US$2.5 million is due from the company on the aforesaid credit facility.

The company has represented to us that the company resolved to treat the handing over of the jewellery in lieu of the said credit facility as full and final settlement of the balance due to the bank and there is no further liability due on the said credit facility. In the absence of the resolution of this issue, we are unable to satisfy ourselves as to the existence of the liability in respect of any balance payable by the company to the bank as at March 31, 2007.” (KK)