A certain finance company affiliated to the maligned Ceylinco Group, which was in the verge of collapse and vested with a state bank for the last two years for its management and revival, has sent out a funny circular to all its depositors.
The circular states that they are finding it extremely difficult to resuscitate the company and that the only way in which the company could be revived is by converting 68% of its deposit base to the Colombo Stock Exchange and to manage the balance 32% under a new finance company and pay interest at current rates. It is stated that unless the depositors agree to this proposal the inevitable result would be that the company would have to be liquidated, where the consequences would be disastrous.
It is clear that the present imbroglio has been caused due to mismanagement of the company under the Ceylinco group, even though the company was under the 'supervision and control' of the Central Bank (CB) as a registered finance company. The accounts of the company had been kept away from the prying eyes of the depositors, as a result they were led to believe that everything was hunky dory under the supervision of the Central Bank. Instead, the depositors now find that everything has been topsy-turvy with shocking revelations coming to light, the foremost of which was that the company's accounts had not been maintained well for many years. In fact, the accounts had been disclaimed by the auditors as being a distortion of the factual liquidity position and obligations to depositors and that the company had not followed the guidelines set by the Central Bank.
The last audited accounts state the deposit base of the company amounts to Rs 3.2 billion, whereas a recent statement circulated to the depositors, signed by the chairman the company, claims the deposit base to be Rs 2.09 billion, thus evaporating a sum of over Rs 1.1 billion in a magical way. Total outstanding debts of the company amount to Rs 2.702 billion. Of this amount, a sum of Rs 562 million has been wrongfully written off in a mysterious manner. The report further highlights a payment to directors amounting to Rs 14 million as emoluments in an environment where no finance businesses were carried out. This is indeed a funny state of affairs.
While the situation being so, the depositors cannot understand why the company is requesting them to convert at least 68% of their deposits to shares, through which the depositors would lose their supreme right as creditors to the company.
If the directors went on fleecing the company and doling out depositors' money to their favourites and eventually classify them as losses and unrecoverable loans, the management of such company ought to get their heads examined as to whether they are fit to run a business. Mind you, this has happened under the 'supervision and control' of the authorities of the CB.
The CB is expected to supervise and control the activities of finance companies to ensure that the depositors monies are in safe hands. In this instance who is at fault ? How can anyone justify management losses and unrecoverable debts running into millions? How can any management spend enormous amounts by way of salaries and overheads when in fact no finance businesses were carried out? If this is not a highway robbery, then what is? If there was due care, diligence and supervision exercised by CB authorities and the company's accounts scrutinized regularly, the depositors would not be in this predicament today.
It is useless asking the depositors to convert 68% of the capital to the stock exchange, which is a ruse adopted by the management to escape liability. There is absolutely no chance of anyone selling these stocks in the market because nobody would buy the shares of a bankrupt company. At the time people deposited their money with this company they had the choice of going to the stock exchange, but they were lured by the finance company offering better terms. So there is no chance of them going to the stock exchange at this juncture.
It must be mentioned that the people did not deposit money with a spurious company but with one functioning under the supervision and control of the Central Bank. As such, it is the responsibility of the CB to see that the citizens of the country are not fleeced by companies in this manner. If the proposed move was allowed to proceed, it might be a bad precedent. It could have a domino effect on all other finance companies facing similar liquidity problems and cripple the economy of the innocent citizens. So, it is for the authorities to move forward and do what is within its power to prevent companies from declaring insolvency due to mismanagement and getting away scot-free. It is the responsibility of the authorities to ensure that the depositors' lifetime savings invested in these registered finance companies are not only safeguarded but also dividends paid on time as per contract.
Nihal Fernando, Moratuwa.
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