Consultants 21 files civil litigation on revival of ailing Hotel Developers

By S. S. Selvanayagam

In a bid to resuscitate the ailing Hotel Developers (Lanka) PLC which is the owning Company of the Colombo Hilton Hotel, legal civil litigation has been filed by a shareholder called the Consultants 21 Ltd.

The Petitioner Consultant 21 Ltd. in its petition filed on 8 November cited Hotel Developers (Lanka) PLC, Treasury Secretary, Nihal Sri Ameresekere, Mitsui and Co. Ltd, Taisei Corporation and Cornel and Co. Ltd as Respondents.

Petitioner claims the majority six Directors are nominated by the Finance Minister to the 11 Member Board of Directors of the HDL and thereby the Finance Minister exercised management and control over the HDL.

Petitioner states Nihal Sri Ameresekere (an accountant) who is a Subscriber and a first Director as well as one time Chairman of the HDL, in 1990 and 1991, instituted derivative actions in law before the Colombo District Court in the right and interest of the HDL.

In 1995, he obtained a write-off of Rs. 10,200 from Mitsui and Co. Ltd and Taisei Corporation on their stated claims from the HDL. Mitsui and Co. Ltd. and Taisei Corporation agreed to reschedule the balance debt for a further period of 15 years with grace period of one year to further financially restructure the HDL.

At the behest of the government, to settle the said two derivative actions, then Attorney General finalised five Settlement Agreements which were executed in 1995, it states.

However, then Minister of Justice and Deputy Minister of Finance intervened to wrongfully and unlawfully suspend the Settlement Agreements, thereby preventing/frustrating the further financial re-structuring of the HDL, the Petitioner laments.

The forgoing suspension precipitated the dire financial straits of bankruptcy of the HDL and as a consequence, government had advanced considerable sums of monies to the HDL to make the balance payments to Mitsui and Co. Ltd and Taisei Corporation.

In 1999, the Urban Development Authority surrendered the ownership of the said lands on which the Hilton Hotel was built to the government.

In 2011, the government declared the taking over of the physical possession of the said lands, rendering the HDL to be an illegal squatter of State Lands, thereby the consideration for the allotment of 25,3888,463 shares of the HDL became frustrated and the said shares stood as not paid for, the Petitioner bemoans.

In 1996, the government required and caused the Settlement Agreements to be given effect to, with an Addendum finalised by the then Attorney General to the Settlement Agreement of 1995 excluding the condition, which had adversely affected the then Minister of Justice and Deputy Minister of Finance.

As per the Settlement Agreements, the land is committed to be directly leased by the government to the HDL.

With the foregoing restructuring not materialising, in the context of the HDL; (a) being hopelessly bankrupt with its paid-up share capital of Rs. 201 million, having been completely eroded and wiped out; (b) facing an accumulated loss of Rs. 6,351.5 million, as in 2005 with further impending deterioration; (c) having defaulted as in 2006, an enormous debts to the government, Nihal Sri Ameresekere, in 2006, filed a petition to wind-up the HDL in the Colombo District Court.

Notwithstanding the precarious situation, on the advice of the Treasury Secretary, the Finance Minister submitted Cabinet Memorandum in 2007 to oppose the winding-up of the HDL.

The Attorney General by a letter in 2010 called for a meeting to explore the possibility of a settlement. Nevertheless no such discussion ever took place, the Petitioner laments.

Petitioner contends in the given facts and circumstances of the HDL, the Companies Act mandated the winding-up of the HDL and made Directors personally liable for the debts of the HDL, whether to the government or otherwise, for having opposed the winding-up of the HDL.

It points out the Chairman HDL, Navaz Rajabdeen appointed by the Finance Minister, ever prior to the above Cabinet Decision of 2007, by Affidavit dated 08.12.2006 opposed the winding-up of the HDL.

It also points out in addition, the said Act prohibits the fraudulent trading by a company, making Directors personally liable for its debts, be it to the government or otherwise.

It alleges hence the government Directors of the HDL who opposed winding-up HDL and acted in blatant violation of the Companies Act, are not fit and proper persons to be Directors of listed public companies.

The Petitioner states the Directors of the HDL appointed by the Finance Minister who held after the winding-up petition was filed in 2006 are as follows: T. Nadesan (Chairman from 12.05.2010), N. Rajabdeen (Chairman, resigned on 21.05.2010), V. Kanagasabapathy, K. V. N. Jayawardene, T. Wickramasuriya, N. Warusuvitharana and K. Wickramanayake.

In 2011, the government required the HDL to repay the loans advanced to it to make the payments to Mitsui and Co. Ltd and Taisei Corporation. The HDL forwarded a proposal to repay the loans to the government. The government had refused to accept the repayment proposal by the HDL and required it to repay the outstanding amount within a period of two years on a monthly instalments basis.

The Petitioner describes that with the government Directors having in full management control of the HDL, the above exchange of correspondence is indeed a tragic comedy.

The capital of the loans advanced by the government had amounted to only Rs. 3,949,888,916. No re-payments, whatsoever, have been made to the government by the HDL on account of either any interest or capital. The balance sheet of the HDL, as in 2010, had included interest compounded annually, it states.

It points out the civil law ordinance mandates that the interest shall not exceed the capital and hence the interest in the HDL Accounts of 2010 is wrongfully and unlawfully overstated.

No interest is payable by and/or chargeable from the HDL, after the petition for winding up of the HDL had been presented in 2006 and hence no interest is chargeable by or payable to the government after 17.11.2006, it maintains.

It charges those persons, who have transgressed the law and caused the losses to the government, ought to be held accountable and responsible therefore.

HDL, which has been managed and controlled by the majority Directors nominated by the Finance Minister, had been recklessly mismanaged, it blames.

The Directors have been paying themselves emoluments, allowances and enjoying other perquisites, whilst HDL has been languishing in losses and has been in dire financial straits, it indicts.

It points out that notwithstanding the dire financial predicament of the HDL, at a recent board meeting it was decided to purchase a BMW SUV or a similar vehicle (reckoned to be as a cost of Rs. 25 million) for its Chairman T. Nadesan.

The petitioner, Consultants 21 Ltd., is seeking an order from the Court declaring that HDL and/or anyone or more of its shareholders shall be entitled to raise funds from an investor and invest in shares of the HDL to repay the lawful owings to the government and that the HDL is entitled to obtain a direct Lease of the Lands from the government in terms of the Settlement Agreements entered into by the government.

It is also asking for orders from the Court requiring a report on the proposed arrangement and compromise be prepared by a competent person specified by the Court and an order annulling the 25,089,750 shares of the HDL allotted for the frustrated Lease of the Lands.

It also seeks the Court for an order directing that all legal proceedings pertaining to the HDL be discontinued.