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Highway Robbery While Under CB

Mar 12, 2011 1:38:21 PM - thesundayleader.lk

A finance company affiliated to the Ceylinco Group which was on the verge of collapse has sent out a funny circular to its depositors. The circular states that they are finding it difficult to resuscitate the company and that the only way 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, whence the consequences would be disastrous.
It is clear that the present imbroglio has been caused due to mismanagement of the company under Ceylinco Group, even though the company was under the ‘supervision and control’ of the Central Bank 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, shocking revelations have come to light.  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 amount to Rs. 3.2 bn, whereas a recent statement claims the deposit base to be Rs. 2.09 bn, thus evaporating a sum of over Rs. 1.1 bn. Total outstanding debts of the company amount to Rs. 2.7 bn.  Of this amount, a sum of Rs. 562 mn has been written off in a mysterious manner. The report further highlights a payment to directors amounting to Rs. 14 mn as emoluments in an environment where no finance businesses were carried out.  This is indeed a funny state of affairs.
With 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.
Nihal Fernando