GRI pleads for forensic audit into Ceylinco Insurance
Friday, 27 February 2015 00:00
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By Channa Fernandopulle
Key shareholders in Ceylinco Insurance Plc (CINS) yesterday called on the Commercial High Court to order a forensic audit into the company based on alleged financial impropriety, mismanagement and oppression of shareholder rights.
The application – based on sections 224 and 225 of the Companies Act – was filed in the Commercial High Court by Global Rubber Industries Ltd. (GRI), which together with associated parties, Prabash Subasinghe and Global Sea Foods Ltd., GRI holds a 29.9% stake in company.
GRI’s key points of contention revolve around the composition of the Board of Directors and the alleged use of company funds to purchase its own shares in violation of provisions in the Companies Act.
Additionally, both the Listing Rules of the Colombo Stock Exchange (CSE) and provisions in the Regulation of Insurance Industry Act stipulate that only one-third of the Board of Directors of a company can be executives or employees of the company in order to ensure that standards of accepted standards of good governance and impartiality are followed. CINS has 16 directors of which 12 are employees.
GRI submitted to court that while it had requested a minimum of a single seat on the Board of Directors since April 2011, CINS had refused such requests by directing the petitioner to call a vote at a general meeting of shareholders to remove and replace a director with one of their own – an impossible task given that such a resolution would require majority consensus that would be blocked by the majority of shares already in the control of the Board including the Ceylinco Insurance Employees Share Ownership Trust (CIESOT), pension and gratuity funds and Castle Realty Ltd.
Notably, CIESOT had until recently, been the subject of a fiercely-contested legal battle between CINS and Depositors in the collapsed Golden Key group of companies when a sudden order issued by a full bench of the Supreme Court reaffirmed its legality of CIESOT. The order is said to be a massive setback to depositors who have to-date received zero compensation following the collapse.
CINS had reportedly taken strong objection to the interim relief – including the forensic audit – prayed for by GRI leading President’s Counsel, Harsha Amarasekera, who appeared on behalf of 20th respondent, Prabash Subasinghe, to question the motives behind such opposition while claiming that a company with nothing to hide would concede to such an audit.
Amarasekera went on to suggest that Court appoint independent directors to the Board of CINS and recommended former Commercial Bank of Ceylon PLC Chairman Dinesh Weerakkody and former Sampath Bank PLC Chief Executive Officer Anil S. Amarasuriya as suitable candidates.
The next hearing of the case will take place on 4 March where CINS is expected to respond to the several allegations and submissions made yesterday.
