Depositors of CIFL and Touchwood touch hearts and raw nerves

Monday, 16 September 2013 00:00 - - {{hitsCtrl.values.hits}}

By K.C. Vignarajah Some affected parties contacted me and requested my help regarding the CIFL/Touchwood fiasco. I politely declined and jokingly told them that I was neither the Central Bank (CBSL) nor the SEC, the official watchdogs. Irate depositors said that the so-called regulators were half sleeping dogs at best, which bark only after letting the rogues rob the household. These parties reminded me of the time when a three-judge bench of the Supreme Court headed by the then Chief Justice unanimously ordered the regulator CBSL’ “to consult Mr. K.C. Vignarajah representing the depositors, and restructure the Pramuka Bank instead of liquidating it” as they had set out to do. I pointed out that there were certain crucial differences in my motives, direction, style and commitment as compared to what the CBSL is envisaging. I was interested in the national interest, obtaining the rights of average decent citizens, and upholding the good name of the enterprise sector and at all times safeguarding the investing public. Thus the reported restructuring scheme of CIFL directors differs from the above principles in a fundamental manner. a) The directors who presided over, or maybe even caused, the failure are to continue to be in charge, after extracting some more concessions from the poor shareholders! b) Why convert 60% of deposits to ‘non-voting’ shares, and relegating to a worse, voiceless position. c) Why reduce the interest payable to depositors to a very low 5%? Interest must be related to TB rates. Have the directors and key management personnel (KMPs) reduced or eliminated their salaries and perks? The Central Bank lending a lifeline to the troubled finance companies: It is acceptable only if the depositors and Independent Minority Shareholders (IMS) have a major say in the restructuring process. The Directors and Key Management Personnel (KMPs) who caused the downfall of the company should no longer be involved in its management or in any position where they could influence the course of the inquiry. However, in order to assure continuity they should be available in a segregated area in the company, with no access to important files and documents. They should answer questions and provide clarifications until their names are cleared. The Central Bank and the Securities and Exchange Commission (SEC) and the Colombo Stock Exchange (CSE) should initiate wide-ranging investigations to identify related parties of the Directors and KMPs and their transactions. This should also cover trading patterns on the CSE with a view to identifying insider transactions. Their findings should be made available to the Committee of Depositors and IMS. The Boards of these companies should be restructured immediately to eliminate conflicts of interest and ensure the representation of independent shareholders. The Committee of Depositors should be given due recognition and actively consulted. Independent due diligence must be undertaken and the Directors and Committee of Depositors be furnished with this information, in order that they may decide what is best for them with the active assistance of the respective regulators. In the case of restructuring the Pramuka Bank, there were no fees or expenses charged by this committee of which I was Chairman. All the committee meetings were held at my residence. It was in the public and national interest to save this institution and the poor depositors. We appealed to all Members of Government and Opposition who supported us. We also had eminent lawyers, namely M.A. Sumanthiran, Viran Corea and Mohan Balendra, who were fully committed and did not charge any fees. They worked hard in the public interest and rendered immense service to average decent citizens who had invested their hard-earned money in CBSL approved institutions and were on the verge of losing it. In this context an excerpt from the Sunday Times of 4 September 2011 quoted below, is symptomatic of the present malaise. Quote: ‘Persisting conflicts of interest ‘Economist and opposition Parliamentarian Harsha de Silva who, along with independent investor and stock-market watchdog K.C. Vignarajah, are among a few individuals raising ‘hell’ over the deals in the market, has criticised the SEC compounding in the ERI case. He has also, very rightly, raised the issue of conflict of interest… ‘Whistle-blower Vignarajah, a former Chairman of the Ceylon National Chamber of Industries whose presence at many AGMs is refreshing to small and independent investors but a source of worry and annoyance to directors, is again beating the drums of ‘evil’ in the market. In a letter to the SEC, he says there are small groups or clubs of people acting in concert with ‘crooked’ directors, errant auditors, compliant lawyers, independent advisors and company secretaries making them an impenetrable fortresses of evil. “An upright SEC acting together with honest members and officials of the CSE, utilising the commitment, knowledge, invaluable experience and insight of IMS (Independent Minority Shareholders), will be the most effective way to handle these issues,” he said…’ Unquote We trust that fundamental principles of good governance are followed. Depositors and shareholders must realise maximum value while those who caused losses should be penalised and not be allowed to benefit. I have written this in the national interest and that of the investing public.