Depositors taken for a ride again? Alleged contempt of Court as F&G funds misused

Over 14 years after the collapse of the Finance & Guarantee (F&G) group, thousands of depositors say they are once again being failed — this time by those entrusted with reviving the defunct companies under the direct supervision of Sri Lanka’s Supreme Court.

The F&G group, once part of the wider Ceylinco conglomerate, collapsed in 2009, leaving an estimated 7,000 depositors unable to recover more than Rs. 6 billion in savings. Although Court proceedings later acknowledged that the group’s assets exceeded its liabilities, liquidation and recovery efforts have dragged on for over a decade. 

During this prolonged process, many depositors have died without seeing justice or restitution.

In recent years, depositors were offered renewed hope when new management was appointed under Court oversight to revive Finance & Guarantee Property Developers (F&G PDL) and its related entities. Acting on representations made to the Court, the Supreme Court approved a structured repayment plan and ordered partial repayments amounting to 51% of deposits, without interest, on the explicit understanding that depositor funds — including proceeds from asset disposals — would be safeguarded and applied strictly in accordance with the Court-approved settlement framework.

Depositors now allege that these assurances have been breached.

According to information shared with depositor associations, assets belonging to F&G have been disposed of in recent months, generating liquidity that depositors say should have been channelled towards scheduled repayments. Instead, depositors allege that portions of these funds were diverted away from the Court-approved repayment plan and utilised for purposes unrelated to depositor settlement.

Most notably, depositor representatives point to an alleged Rs. 200 million investment into a hotel property in Wadduwa.

The hotel, co-owned by a foreign investor and a local partner, had reportedly been struggling to service its loans with the Bank of Ceylon and was facing imminent auction proceedings. Depositors allege that monies drawn from F&G-controlled accounts were used both to partially settle the hotel’s bank liabilities and to acquire an approximately 11% equity stake, at a valuation they claim was significantly inflated.

Depositors further allege that these transactions were carried out while scheduled repayments to depositors — including a payment due in September 2025 under the Court-approved plan — were not honoured.

Depositor representatives say this sequence of events directly contradicts sworn undertakings previously given to the Supreme Court, in which the Court-appointed controllers of F&G pledged that depositor funds would remain unencumbered, would not be deployed in third-party or speculative investments, and would be prioritised for settlement in line with the approved repayment schedule.

“These funds were never meant to be risk capital or discretionary spending,” a senior member of the Depositors Association said. “They were meant to be protected, preserved, and returned in accordance with a Court-approved plan. Instead, depositors are now watching assets being sold, payments being missed, and funds allegedly being diverted elsewhere.”

In addition to the disputed hotel investment, depositors have raised concerns about other withdrawals from F&G-linked bank accounts which, they allege, were used for personal or non-core expenditures. Depositor representatives say details of these withdrawals have not been disclosed, despite repeated written requests for clarification.

Of particular concern to depositors is the continued silence of directors appointed to safeguard depositor interests. These directors have neither publicly clarified the disputed transactions nor responded substantively to repeated requests for explanations, fuelling fears that depositor protections exist largely on paper.

Many depositors say the situation is especially painful given the long history of court orders, affidavits, and administrative assurances that followed the original collapse of the F&G group. For families who lost retirement savings, insurance proceeds, and lifelong investments, the latest developments feel like a reopening of old wounds.

Legal advisers to the Depositors Association confirm that preparations are now underway to seek renewed intervention from the Supreme Court. Depositors are expected to argue that Court-sanctioned revival powers were exceeded, fiduciary duties were breached, scheduled repayments were not honoured, and depositor funds were misapplied in violation of explicit undertakings given to the Court.

“This is no longer simply a case of delayed repayments,” one legal observer noted. “The allegations, if established, raise serious questions about contempt of Court, fiduciary responsibility, and whether Court-supervised recovery processes are being implemented in good faith.”

As Sri Lanka continues to emphasise the importance of financial sector credibility and investor confidence, depositors argue that the handling of the F&G case carries implications far beyond a single failed finance company.

“Justice delayed was painful,” one depositor said. “Justice compromised would be unforgivable.”

At the time of publication, repeated requests for comment from F&G’s current management and entities connected to the disputed investment have not received a response.