Sunday 31 August 2014

New land transfer laws may affect CSE-listed companies

A new draft Bill restricting the transfer of land to foreigners says that if a local company sells a majority of its shares to a foreigner within twenty years of purchasing land, that property transaction will be deemed null and void. Lawyers warned that this might have implications for local companies listed on the Colombo Stock Exchange. The draft Land (Restrictions on Alienation) Bill clearly states that the law, once passed, will be effective from January 1, 2013. This could also have ramifications for transactions that took place in the interim between then and when the law is eventually passed.

A senior lawyer said: “Say a local listed company bought land. It cannot sell its shares to foreigners on the stock market because this law obliges it to maintain less than 50 per cent foreign shareholding for twenty years of purchasing the land. If not, the company will lose what it bought.” “Since it has retrospective effect dating back to January 1, 2013, what happens to transactions that have already taken place during the interim when we had no such law?”

The Land (Restrictions on Alienation) Bill was finally published by the Government Printer on August 15, 2014 — more than 18 months after it was first proposed in the 2013 budget to ban the sale of land to foreigners. The law makes provisions to stipulate the restrictions on the alienation of land in Sri Lanka to foreigners, foreign companies and certain institutions with foreign shareholding; to specify the circumstances where the exemptions are granted; and to impose a land lease tax for the leasing of lands to foreigners, foreign companies and certain institutions with foreign shareholdings. It also makes provisions to grant concession to certain development projects.

The Sunday Times obtained a copy of the draft Bill. It prohibits the transfer of land to a foreigner; a company incorporated in Sri Lanka under the Companies Act that has foreign shareholding of 50 per cent or more; and to a foreign company. Land can be transferred to any Lankan company with less than 50 percent foreign shareholding provided it maintains this ratio for a minimum 20 consecutive years from the date of such transfer.

However, if the company increases its foreign shareholding up to 50 per cent or above contrary to the above condition, “the transfer of land referred to therein shall be null and void with effect from the date of increasing of the foreign shareholding,” it says. With regard to the rights of foreigners to inherit property, the Bill says: “… the transfer of title of a land to a next of kin (who is a foreigner) of an owner of such land, shall be registered by the registrar of lands, where the notary public attesting such instrument of transfer certifies in his attestation that the transferee is a next of kin of the owner of the land transferred, as recognised by the applicable laws of succession of Sri Lanka.”

The Bill also codifies the land lease tax that was introduced in the 2013 budget. In the absence of legislation, it is presently being charged from foreigners through instructions contained in administrative circulars. The Bill makes provision for a land lease tax to be payable upfront by the lessee for every lease of land. The rate shall be 15 per cent of the total rental payable for the entire duration of the lease. 

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Touchwood former directors to be held liable

By Sunimalee Dias

The Touchwood case on Thursday took a new twist in the Commercial High Court when lawyers said the former directors should also be held accountable.

The company’s former directors and not only the present Touchwood Chairman/CEO Lanka Kiwlegedera could also be held liable for the company it was stated in court.

Avindra Rodrigo, Counsel for the petitioner in the Touchwood winding up case, had stated that the company directors were not acting bona fide and had committed fraud on the investors and reserved his right to make any further applications to court if and when appropriate.
Court ordered an interim report to be submitted by September 19 by the court appointed liquidator Sudath Kumar.

In the report, the liquidator would be expected to identify other assets available to the company, the lands, any movable assets, data and accounts to be submitted, Counsel appearing for the liquidator, Hafeel Fariz told the Business Times.

He noted that they would try to value the properties even though the deeds were not submitted to the liquidator by Mr. Kiwlegedera.

However, Counsel appearing for Mr. Kiwlegedera, Nihal Fernando stated that the former chairman could not be held liable for the assets of the company as the deeds were taken by the former owners of the company, the Maloneys.

During the proceedings it was found that documents related to the Agarwood plantation in Thailand were not available and had been stolen by the former directors of the company.

Counsel Fernando said the current Touchwood CEO had no knowledge of the assets of the company or the documents pertaining to the assets of the company as all such records had been stolen before he was appointed CEO. Counsel further stated that it is the duty of the Liquidator to find the assets and documents of the company and take over the business of the company. Counsel for the Petitioner, Mr. Rodrigo had countered the arguments stating that once Mr. Kiwlegedera was appointed head of the company he has assumed responsibility for and on behalf of the company and has represented the company in the winding-up action.

Counsel further stated that the liquidator cannot be put on a quest of finding the assets or the records of the company as it is the statutory obligation of the directors of a company being wound-up to hand over the assets and all other documents to the liquidator.

During the proceedings it was stated that Touchwood had disclosed in its 2013 financial statements and in the affidavit submitted to court by Mr. Kiwlegedera that the company had assets worth Rs. 8 billion. But it was found that the present Statement of Affairs has disclosed assets only worth approximately Rs.659 million.

Meanwhile, V.K. Choksy appearing for two depositors P.N. Pestongee of Abans Group and M. Kandasamy of Oxonia Institute raised the issue of the competency and qualifications of the liquidator.

In this regard, he had filed papers to remove the liquidator on the basis that the liquidator up to date had difficulties but had not taken constructive action to mitigate the hardship to depositors. The two depositors have requested for a court panelled liquidator from SJMS Associates.

The application would be supported after the liquidator submits the interim report on September 19 if it was found to be inadequate.
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