Central Investments and Finance PLC (CIFL) yesterday wrote to the Central Bank of Sri Lanka, listing in detail the chain of events which has led to the present predicament of the company, while mentioning in detail, the actions taken by the company to recover the investments. We reproduce the full letter of the company which has been sent to the Central Bank's Director-Non Bank Financial Institution Supervision Mrs. N. Daulagala.
21 May, 2015, The Director-Non Bank Financial Institution Supervision The Central Bank of Sri Lanka 8th Floor, No. 30, Janadhipathi Mawatha, Colombo 1. For the kind attention of Mrs. N. Daulagala
Dear Sir,
Detailed Report on Actions already taken by CIFL to recover the investments This refers to your letter ref. 24/03/005/021 dated 19 May 2015 regarding above.
We take this opportunity to recap all actions taken by the current members of the Board of Directors to revive the company and to recover the investments, since we were asked to get involved more closely with the operations of the company by the Central Bank of Sri Lanka by their letter dated 23 December 2012. We give below the events with documentary proof (in chronological order) to prove that the directors have used 'due care and skill' within their capacity to revive the company:
1. We recruited a retired banker Gamini Karunathilake to fill the vacancy created by removal of the former CEO J.K. Wickramarathna within 2 weeks (i.e. 15 January 2013).
2. The actual status of the company's finances were analyzed and the following facts were reported to your office by our letter dated 24 January 2013. This covered the following critical points: (refer 'conclusions' on page 6 of the letter)
a. CIFL funds of approximately Rs 1.5 M have been siphon out by the ASPIC group and its Chairman.
b. Company has lost further assets by operating at below break-even levels incurring around Rs 60 M a month.
c. Public funds have been mobilized by offering rates exceeding CBSL listed rates.
d. The Board has resolved in their meeting held on 21 January 2013 that the company cannot be continued as a going concern.
We went on to propose the following action to CBSL: (Refer 'Proposal' on page 6 and 7 of the letter)
i. To send an order to all share brokers through CSE suspending trading of major shareholders of CIFL (i.e. Deepthi Perera, Aspic Homes, Aspic Corporation etc.)
ii. Register caveats against properties of those responsible for the fraud.
iii. Requested CBSL to grant a loan of one billion immediately to arrest the liquidity crisis.
3. We updated your office on 8 February 2013 giving the following information: (Refer items 5 (a) and (b))
a. The Chairman and the CEO had a discussion with the group chairman of Aspic Deepthi Perera and requested to execute the deeds of transfers over the mortgaged properties against Homagama investment to which he verbally agreed.
b. CIFL also requested from him to infuse at least Rs 1.5 Billion either directly or indirectly to CIFL to operate as a going concern.
Dr. Perera accepted the views expressed by the Board and promised to recommend a suitable investor on urgent basis. We also emphasized the fact that if he fails to introduce new capital in whatever form, to grant his consent to divest his stake for us to find a suitable investor.
c. In the same letter, we stressed the 'insolvency status' of the company and its inability to prepare revival plan to go before shareholders and informing that the Board resolved that the company should be immediately liquidated to minimize further losses to the depositors and to protect the legal binding of directors. Further the Board decided to meet the CBSL officials specially the Director NBFIS and the Governor, before implementation of its decision and requested to organize a meeting with the Governor.
4. Instead of responding to our letter, we received a letter on 12 February 2013 from the Chairman of Touchwood Investments PLC, that they have concluded the acquisition of Aspic group which included CIFL, Aspic Homes and Aspic Corporation with the blessings of the Governor and the Director NBFIS and instructed us not to dispose and assets or to go into mergers, offers to sell etc. of any assets.
5. Despite the above letter they did not invest in CIFL or take over the management of the company for a considerable period. Therefore, we wrote another letter on 1 March 2013 (Acknowledged copy attached) to your office indicating the new problems we are facing on the transfer of Aspic properties to CIFL. We have categorically mentioned that Deepthi Perera's promise to transfer the properties will not take place with our reasons for such thinking. We also mentioned that we have lost confidence about Touchwood and its chairman and expressed our belief that this may be a plot between the former Aspic owners to divert the responsibilities.
We were in fact surprised about the ignorance of the former Governor and the Director NBFIS about the bad reputation of the Chairman of Touchwood in financial circles (without verifying the financial background or checking about their financial capability to invest USD 12 Million promised). On this basis, we even recommended to organize a meeting with them and to force them to infuse their capital and if they fail to do so, to consider a short-term facility under deposit insurance scheme funds by keeping the value of CIFL shares owned by this investor as security for such advance. Although we did not get any response to this request, the Central Bank proposed the 'liquidity support scheme' to troubled finance companies almost 6 months after our proposal and granted Rs 6 Billion to another finance company, while our company remained in the same situation.
6. All our revival proposals made above were ignored by the Governor and the Director NBFIS of the CBSL and proceeded with the appointment of Roscoe Meloney and 2 of his nominees to CIFL board by their letter dated 3 May 2013 (copy attached), which resulted in Roscoe Meloney becoming the Chairman of the Company and our CEO resigning from his position. We were forced to continue on the Board, obviously in non executive capacity. The asset recovery process completely halted because they became the owners of the entire group and took over the management of CIFL.
Meloney family managed CIFL for almost 2 months but did not infuse any capital, but managed to sell one block of land in Beragala and the share portfolio against our objections in the Board. We have not seen the minutes of the said board meeting because the company secretaries did not provide the minutes of the Board meeting to us for approval. The CBSL did not take any action against them, but decided to appoint People's Leasing and Finance PLC (PLC) as the managing Agent of CIFL, making all the existing directors Non Executive, by their letter dated 1 July 2013. (letter attached)
7. In our opinion, the CBSL repeated the previous mistake by appointing PLC, particularly in an honorary capacity. This was a 'repeating of history' of the case of previously failed Finance Company Industrial Finance Limited, which was also owned by the same owner Deepthi Perera) We pointed out many losses incurred due to the negligent attitude of PLC to the Director NBFIS, but they did not even listen to the former Governor to deploy a full time CEO to CIFL. We maintained the position that it was a violation of the Monetary Board decision of making us non executive directors, if we get involved in executive capacity although both PLC and even CBSL officials misinterpreted the wording of this direction.
8. Despite the above direction, even in non executive capacities, we took action to get the Aspic properties transferred to CIFL and made a request through CBSL to arrange PLC to advance funds required for the stamp duty payment.
This request was ignored by PLC despite a strong support extended to this request by the former governor based on the intervention of a politically influential former director of CIFL.
9. Meanwhile, we realized the importance of stopping the main suspect Deepthi Perera leaving the country and made a board resolution and submitted a letter to the Director, SSP Mathurata of Criminal Investigations Department (CID) on 5 July 2013 to impose a travel ban on him and a copy submitted to the Director NBFIS. To our surprise, there was no action taken by the CID to stop him from leaving the country until he finally left the country sometime in September 2013. If any action instituted on our timely request, filing recovery action against Deepthi Perera would not have been difficult.
10. Our Legal Counsel Jeevantha Jayathilake submitted a letter dated 20 August 2013 to CID requesting to accept a complaint against Deepthi Perera from us about the fraudulent activities of CIFL so that we could get a Court order to stop him from leaving the country. When our lawyers followed up this request, they had been informed by the CID office that they sought approval from the Director NBFIS which was not granted.
11. Meanwhile, the CID commenced their investigations based on a complaint made by Ekanayake (former Director NBFIS) and at the request of the CID officers, we got involved with the existing staff and also got the support from past employees and managed to prepare a very useful report for CID to carry out their investigations which helped us to understand the gravity of the fraud.
However, this report was treated as unofficial as there was an official forensic investigation done by KPMG. (We have already submitted this report to you personally when we met you at the Governor's office)
12. The above report described in 11 above, revealed that some of the properties mortgaged to us by Aspic Homes had been purchased out of our own funds and we have sought assistance from CID to get these transferred without paying stamp duty.
13. Since there were no responses to any of our above communications from the CBSL, we wrote a letter to your office on 7 December 2013 indicating that the matter is getting unduly dragged and the company is losing all its strengths and most importantly the key employees. We also pointed out the negligent attitude of PLC and requested you to activate them. Then to grant us a loan of Rs 500 million enabling us to re-commence operations so that the receivable portfolios could be made active. We also submitted a project proposal based on our business plan with this letter.
14. We have now established that the ownership of Aspic Homes has not changed despite letters written by Meloney to CBSL and to us in the past. Therefore, we have now reactivated the process of sending the letter of demand and filing action to recover the monies siphoned out by Deepthi Perera and his group of companies.
15. The legal counsel reviewed various JV agreements and their amendments and requested us to resolve the basis of computation of the claim. We have now computed the claim including the interest and penal interest as per terms of the relevant JV agreements and arrived at a total claim of Rs 3.9 Billion. The extracts of the relevant Board resolution passed on 12 May 2015 is enclosed for your ready reference.
16. In the case of Rajagiriya project, we have found a blatant fraud of CIFL funds and have directed Samantha Nandirathna to discuss and get advice from the CID officials about making a fresh complaint to CID based on the information available with us and those revealed in their investigations. We are planning to proceed on such advice.
We believe the above is a comprehensive report of our efforts made in recovering all the assets fraudulently taken out by the former group chairman and his companies (not only 'Park Lane Residencies). All four of us joined the company in or after 2011, by which all the fraudulent activities had taken place. Funds siphoned out from IPO funds had been made in the pretext of refunding public deposits to avoid attracting the attention of the Board members. When we were independent directors, we have based our decisions on financial reports submitted by 2 qualified professional accountants who held the position of Chief Finance Officer of CIFL (signed board papers available as proof). We have acted promptly on our getting to know the actual situation after getting involved in the operation at the request of the CBSL from 23 December 2012. We have acted with 'due care and skill' at all times to propose the best solutions to the CBSL to revive the company within our capacities.
However, we could not go to the shareholders to declare insolvency within the specified period from becoming aware of the insolvency situation, because CIFL is a licensed finance company and any such action could have triggered a serious impact on the finance industry.
Therefore, we sought approval from the Governor and the CBSL who forced us an alternate solution of accepting a new investor. The process of transferring assets including any recovery action died a 'natural death' due to the investor being the owner of the group. In fact, the Central Bank should have released the remaining non executive directors when a new investor was given the 'go ahead' in May 2013, but unjustifiably decided to force the remaining directors to continue on the Board. We cannot be held responsible when the company suffered due to an incorrect and negligent decision of the Central Bank officials and the fraudulent act of the new investor after managing the company for almost 2 months.
Therefore, we believe that the above facts of the case will receive your careful attention (unlike in the past) and have some mercy on the remaining directors from this unfair harassment, as we have sufficient proof that we have done our duty under the circumstances to revive the company.
Meanwhile, we assure you of our best efforts towards any positive action to revive the company.
Thank you,
Yours sincerely
Central Investments and Finance PLC (CIFL) Non Executive Directors Lakshman Rupasinghe, P.V. Pathirana, D.J.D. Jayakody and H.G.A.P. Samarasinghe.
www.ceylontoday.lk
21 May, 2015, The Director-Non Bank Financial Institution Supervision The Central Bank of Sri Lanka 8th Floor, No. 30, Janadhipathi Mawatha, Colombo 1. For the kind attention of Mrs. N. Daulagala
Dear Sir,
Detailed Report on Actions already taken by CIFL to recover the investments This refers to your letter ref. 24/03/005/021 dated 19 May 2015 regarding above.
We take this opportunity to recap all actions taken by the current members of the Board of Directors to revive the company and to recover the investments, since we were asked to get involved more closely with the operations of the company by the Central Bank of Sri Lanka by their letter dated 23 December 2012. We give below the events with documentary proof (in chronological order) to prove that the directors have used 'due care and skill' within their capacity to revive the company:
1. We recruited a retired banker Gamini Karunathilake to fill the vacancy created by removal of the former CEO J.K. Wickramarathna within 2 weeks (i.e. 15 January 2013).
2. The actual status of the company's finances were analyzed and the following facts were reported to your office by our letter dated 24 January 2013. This covered the following critical points: (refer 'conclusions' on page 6 of the letter)
a. CIFL funds of approximately Rs 1.5 M have been siphon out by the ASPIC group and its Chairman.
b. Company has lost further assets by operating at below break-even levels incurring around Rs 60 M a month.
c. Public funds have been mobilized by offering rates exceeding CBSL listed rates.
d. The Board has resolved in their meeting held on 21 January 2013 that the company cannot be continued as a going concern.
We went on to propose the following action to CBSL: (Refer 'Proposal' on page 6 and 7 of the letter)
i. To send an order to all share brokers through CSE suspending trading of major shareholders of CIFL (i.e. Deepthi Perera, Aspic Homes, Aspic Corporation etc.)
ii. Register caveats against properties of those responsible for the fraud.
iii. Requested CBSL to grant a loan of one billion immediately to arrest the liquidity crisis.
3. We updated your office on 8 February 2013 giving the following information: (Refer items 5 (a) and (b))
a. The Chairman and the CEO had a discussion with the group chairman of Aspic Deepthi Perera and requested to execute the deeds of transfers over the mortgaged properties against Homagama investment to which he verbally agreed.
b. CIFL also requested from him to infuse at least Rs 1.5 Billion either directly or indirectly to CIFL to operate as a going concern.
Dr. Perera accepted the views expressed by the Board and promised to recommend a suitable investor on urgent basis. We also emphasized the fact that if he fails to introduce new capital in whatever form, to grant his consent to divest his stake for us to find a suitable investor.
c. In the same letter, we stressed the 'insolvency status' of the company and its inability to prepare revival plan to go before shareholders and informing that the Board resolved that the company should be immediately liquidated to minimize further losses to the depositors and to protect the legal binding of directors. Further the Board decided to meet the CBSL officials specially the Director NBFIS and the Governor, before implementation of its decision and requested to organize a meeting with the Governor.
4. Instead of responding to our letter, we received a letter on 12 February 2013 from the Chairman of Touchwood Investments PLC, that they have concluded the acquisition of Aspic group which included CIFL, Aspic Homes and Aspic Corporation with the blessings of the Governor and the Director NBFIS and instructed us not to dispose and assets or to go into mergers, offers to sell etc. of any assets.
5. Despite the above letter they did not invest in CIFL or take over the management of the company for a considerable period. Therefore, we wrote another letter on 1 March 2013 (Acknowledged copy attached) to your office indicating the new problems we are facing on the transfer of Aspic properties to CIFL. We have categorically mentioned that Deepthi Perera's promise to transfer the properties will not take place with our reasons for such thinking. We also mentioned that we have lost confidence about Touchwood and its chairman and expressed our belief that this may be a plot between the former Aspic owners to divert the responsibilities.
We were in fact surprised about the ignorance of the former Governor and the Director NBFIS about the bad reputation of the Chairman of Touchwood in financial circles (without verifying the financial background or checking about their financial capability to invest USD 12 Million promised). On this basis, we even recommended to organize a meeting with them and to force them to infuse their capital and if they fail to do so, to consider a short-term facility under deposit insurance scheme funds by keeping the value of CIFL shares owned by this investor as security for such advance. Although we did not get any response to this request, the Central Bank proposed the 'liquidity support scheme' to troubled finance companies almost 6 months after our proposal and granted Rs 6 Billion to another finance company, while our company remained in the same situation.
6. All our revival proposals made above were ignored by the Governor and the Director NBFIS of the CBSL and proceeded with the appointment of Roscoe Meloney and 2 of his nominees to CIFL board by their letter dated 3 May 2013 (copy attached), which resulted in Roscoe Meloney becoming the Chairman of the Company and our CEO resigning from his position. We were forced to continue on the Board, obviously in non executive capacity. The asset recovery process completely halted because they became the owners of the entire group and took over the management of CIFL.
Meloney family managed CIFL for almost 2 months but did not infuse any capital, but managed to sell one block of land in Beragala and the share portfolio against our objections in the Board. We have not seen the minutes of the said board meeting because the company secretaries did not provide the minutes of the Board meeting to us for approval. The CBSL did not take any action against them, but decided to appoint People's Leasing and Finance PLC (PLC) as the managing Agent of CIFL, making all the existing directors Non Executive, by their letter dated 1 July 2013. (letter attached)
7. In our opinion, the CBSL repeated the previous mistake by appointing PLC, particularly in an honorary capacity. This was a 'repeating of history' of the case of previously failed Finance Company Industrial Finance Limited, which was also owned by the same owner Deepthi Perera) We pointed out many losses incurred due to the negligent attitude of PLC to the Director NBFIS, but they did not even listen to the former Governor to deploy a full time CEO to CIFL. We maintained the position that it was a violation of the Monetary Board decision of making us non executive directors, if we get involved in executive capacity although both PLC and even CBSL officials misinterpreted the wording of this direction.
8. Despite the above direction, even in non executive capacities, we took action to get the Aspic properties transferred to CIFL and made a request through CBSL to arrange PLC to advance funds required for the stamp duty payment.
This request was ignored by PLC despite a strong support extended to this request by the former governor based on the intervention of a politically influential former director of CIFL.
9. Meanwhile, we realized the importance of stopping the main suspect Deepthi Perera leaving the country and made a board resolution and submitted a letter to the Director, SSP Mathurata of Criminal Investigations Department (CID) on 5 July 2013 to impose a travel ban on him and a copy submitted to the Director NBFIS. To our surprise, there was no action taken by the CID to stop him from leaving the country until he finally left the country sometime in September 2013. If any action instituted on our timely request, filing recovery action against Deepthi Perera would not have been difficult.
10. Our Legal Counsel Jeevantha Jayathilake submitted a letter dated 20 August 2013 to CID requesting to accept a complaint against Deepthi Perera from us about the fraudulent activities of CIFL so that we could get a Court order to stop him from leaving the country. When our lawyers followed up this request, they had been informed by the CID office that they sought approval from the Director NBFIS which was not granted.
11. Meanwhile, the CID commenced their investigations based on a complaint made by Ekanayake (former Director NBFIS) and at the request of the CID officers, we got involved with the existing staff and also got the support from past employees and managed to prepare a very useful report for CID to carry out their investigations which helped us to understand the gravity of the fraud.
However, this report was treated as unofficial as there was an official forensic investigation done by KPMG. (We have already submitted this report to you personally when we met you at the Governor's office)
12. The above report described in 11 above, revealed that some of the properties mortgaged to us by Aspic Homes had been purchased out of our own funds and we have sought assistance from CID to get these transferred without paying stamp duty.
13. Since there were no responses to any of our above communications from the CBSL, we wrote a letter to your office on 7 December 2013 indicating that the matter is getting unduly dragged and the company is losing all its strengths and most importantly the key employees. We also pointed out the negligent attitude of PLC and requested you to activate them. Then to grant us a loan of Rs 500 million enabling us to re-commence operations so that the receivable portfolios could be made active. We also submitted a project proposal based on our business plan with this letter.
14. We have now established that the ownership of Aspic Homes has not changed despite letters written by Meloney to CBSL and to us in the past. Therefore, we have now reactivated the process of sending the letter of demand and filing action to recover the monies siphoned out by Deepthi Perera and his group of companies.
15. The legal counsel reviewed various JV agreements and their amendments and requested us to resolve the basis of computation of the claim. We have now computed the claim including the interest and penal interest as per terms of the relevant JV agreements and arrived at a total claim of Rs 3.9 Billion. The extracts of the relevant Board resolution passed on 12 May 2015 is enclosed for your ready reference.
16. In the case of Rajagiriya project, we have found a blatant fraud of CIFL funds and have directed Samantha Nandirathna to discuss and get advice from the CID officials about making a fresh complaint to CID based on the information available with us and those revealed in their investigations. We are planning to proceed on such advice.
We believe the above is a comprehensive report of our efforts made in recovering all the assets fraudulently taken out by the former group chairman and his companies (not only 'Park Lane Residencies). All four of us joined the company in or after 2011, by which all the fraudulent activities had taken place. Funds siphoned out from IPO funds had been made in the pretext of refunding public deposits to avoid attracting the attention of the Board members. When we were independent directors, we have based our decisions on financial reports submitted by 2 qualified professional accountants who held the position of Chief Finance Officer of CIFL (signed board papers available as proof). We have acted promptly on our getting to know the actual situation after getting involved in the operation at the request of the CBSL from 23 December 2012. We have acted with 'due care and skill' at all times to propose the best solutions to the CBSL to revive the company within our capacities.
However, we could not go to the shareholders to declare insolvency within the specified period from becoming aware of the insolvency situation, because CIFL is a licensed finance company and any such action could have triggered a serious impact on the finance industry.
Therefore, we sought approval from the Governor and the CBSL who forced us an alternate solution of accepting a new investor. The process of transferring assets including any recovery action died a 'natural death' due to the investor being the owner of the group. In fact, the Central Bank should have released the remaining non executive directors when a new investor was given the 'go ahead' in May 2013, but unjustifiably decided to force the remaining directors to continue on the Board. We cannot be held responsible when the company suffered due to an incorrect and negligent decision of the Central Bank officials and the fraudulent act of the new investor after managing the company for almost 2 months.
Therefore, we believe that the above facts of the case will receive your careful attention (unlike in the past) and have some mercy on the remaining directors from this unfair harassment, as we have sufficient proof that we have done our duty under the circumstances to revive the company.
Meanwhile, we assure you of our best efforts towards any positive action to revive the company.
Thank you,
Yours sincerely
Central Investments and Finance PLC (CIFL) Non Executive Directors Lakshman Rupasinghe, P.V. Pathirana, D.J.D. Jayakody and H.G.A.P. Samarasinghe.
www.ceylontoday.lk
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