Commercial High Court takes up case on attempted deal between Subasinghe and HNB over Ceylinco Insur
Tuesday, 3 March 2015 02:02
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Giving a new twist to the ongoing saga, a shareholder of Ceylinco Insurance and ex-employee of HNB Senarath Bandula Abeysekara has filed a case in the Commercial High Court last week, challenging an alleged attempted transaction between the Bank and insurance company shareholder Prabash Subasinghe.
In the case (39/2014/CO) filed by Abeysekara, he has cited HNB, the entire Board of Directors, Global Rubber Industries, Global Sea Foods Ltd., Prabash Subasinghe(three parties who collectively control 29.5% stake in Ceylinco Insurance) and HNB Assurance as respondents.
In his petition Abeysekara states that he has credible information that on or about 24 July 2014, the company in a very surreptitious manner which lacks complete transparency and is contrary to good corporate governance has entered into or seeks to enter into a purported Memorandum of Understanding (MoU) with the 13th, 14th and 15th Respondents (Global Rubber Industries, Global Sea Foods Ltd., Prabash Subasinghe respectively).
According to the alleged MoU, HNB was initially planning to finance PrabashSubasinghe to purchase a stake of 23% of Ceylinco Insurance which amounted to Rs. 7.3 billion (at Rs. 1,400 per share) and thereafter HNB to purchase on its own a further 20% of Ceylinco Insurance which amounts to Rs. 6.4 billion.
The Petitioner has stated that he became aware by an email communication authored inter alia on behalf of the 3rd Respondent (Jonathan Alles of HNB) by the Chief Operating Officer and/or the Senior Manager Planning and/or the Chief Manager Planning and Investments of HNB, the said MoU has been circulated among the Board of Directors of HNB.
The MoU also refers to HNB financing Global Group to acquire a 70% shareholding of Ceylinco Insurance as well. In the purported shareholder agreement, the parties have agreed to provide two Board positions of Ceylinco Insurance to HNB, chairmanship to Global Group as well as merge Ceylinco Insurance with 16th Respondent (HNB Assurance).
The Petitioner stated that the shares of Ceylinco Insurance initially sought by the HNB and 13th, 14th and 15th Respondents are the shares currently held by CIESOT, which holds a 22.86% stake in Ceylinco Insurance. CIESOT as per Supreme Court order in a Fundamental Rights case on Golden Key Credit Card Company, had been placed with strictures.
In that context, in the HNB email communication, possible investment in Ceylinco Insurance being part of Ceylinco Group had been termed “bad investment”.Other risk factors flagged off include corporate governance issues, differences in managing cultures, legal cases pending CEISOT stake in Ceylinco Insurance and impact on capital adequacy ratios if the investment in Ceylinco Insurance is made.
In the light of the above, the Petitioner had alleged that it was evident that the bank was to pursue a potentially seriously prejudicial act by seeking to enter into a transaction by pre-empting a Court order as well as the purported MoU would have created a direct effect on the shares and on the credibility and worth of HNB as it will be perceived that HNB is directly/indirectly dishonestly colluding with a party to secure a favourable order from the Supreme Court to give effect to the said MuU.
Among other matters raised is as a licensed commercial banker HNB could be failing it is fiduciary duty towards its depositors and shareholders and the bank and/or management have failed to duly comply with and/or follow the accepted legal norms pertaining to corporate governance in deciding whether to enter into a transaction of this magnitude and that the impugned transaction would substantially alter the nature and character of the bank’s business and in all probability would amount to a major transaction under the terms of the Companies Act No. 7 of 2097 and thus requires the approval of its shareholders by way of a special resolution.
The Petitioner also alleged that the bank has ignored that a significant number of the employees of Ceylinco Insurance have sought to challenge the seizure of the shares of Ceylinco Insurance held by CEISOT.
The Commercial High Court granted the Petitioner’s right to seek leave to bring proceedings on behalf of the Company, restrain the 1st to 12 Respondents from executing the said MoU until a final order is made by the Supreme Court with regard to the CEISOT shares as well as issue notice of this application on the Respondents.
Earlier on in his submissions to Court, the Petitioner also stated that he joined HNB around 1978 and was elected President of Ceylon Bank Employees Union HNB Branch and was Senior Vice President of CBEU in 2010. In August 2000 the 1st Respondent (Bank) terminated the service of the petitioner on certain alleged misconduct committed in the capacity of a member of the CBEU Branch Union. The Petitioner stated that he had instituted legal action against the 1st Respondent in Labour Tribunal in June 2013 and an order delivered that the termination of the Petitioner was unjust and inequitable. The said order has been appealed to the High Court by the Petitioner seeking to enhance compensation awarded and the 1st Respondent Bank has appealed to have the said order set aside.
