Sri Lanka’s Ceylinco Insurance shareholder seeks forensic probe, ousting of directors
COLOMBO, Dec 08, 2014 (EconomyNext) – A key shareholder of Ceylinco Insurance Plc, Sri Lanka’s largest private insurer, has gone to court seeking a forensic audit of the firm and the removal of directors, alleging irregular deals and payments.
Global Rubber Industries (Pvt) Ltd, which holds 22.25 percent of stock, has alleged that it is being oppressed by the board of Ceylinco along with controlling shareholder Prabash Subasinghe and Global Sea Foods (Pvt) Ltd, another related company, which has shares in the insurer.
In action filed in the High Court of the Western Province, Global Rubber alleged that the directors are paying themselves more money than three other private insurers combined, while paying lower amounts as dividends, which were far below the industry levels.
The shareholder alleged that in 2011, 2012 and 2013 Ceylinco directors, who are mostly employees, paid themselves 1.42 billion rupees, while dividends to shareholders were only 924 million rupees.
This compared with 1.31 billion rupees paid out as dividends to shareholders of Union Assurance and 48.6 million rupees as compensation to key management.
At HNB Assurance dividends were 405 million rupees and key management compensation was 143 million rupees.
At Janashakthi, dividends were 1.08 billion rupees and key management compensation 76.4 million rupees over the three years.
Global Rubber Industries sought an order to terminate or change the remuneration contracts of employee-directors and the repayment of any loss to Ceylinco Insurance from what it called "disproportionate compensation."
The plaint also alleged that a company called Emerald Wealth Management (Pvt) Ltd was incorporated in 2011 as a 90 percent owned subsidiary and it was later transferred to a company called Udumbara Hydro Energy (Pvt) Ltd, in which some of the Ceylinco directors were directors and shareholders.
A company called Wealth Management (Pvt) Ltd, which was in charge of making repayments to two failed Ceylinco companies and had a common director with Ceylinco Insurance, also had shares in Emerald Wealth Management.
Regular payments were then made to Emerald Wealth Management, the petitioner alleged. In a 3.5 month period from November 2013 to February 2014 alone, 116 million rupees has been paid out in installments, the shareholder alleged.
The petitioner alleged that the amounts or reasons for making payments to a company which was a subsidiary of a firm in which a Ceylinco director held a board position were not disclosed.
The petitioner said that there were 12 executive directors when Securities and Exchange Commission rules required 6.
They sought a court order to appoint Dinesh Weerakkody, former chairman of Commercial Bank of Ceylon, and Anil Amarasuriya, former managing director of Sampath Bank as directors.
Global Rubber Industries, Global Seafoods and Subasinghe which together held 29.97 percent of the stock, said they had not been given a board seat in Ceylinco Insurance.
Global Rubber also asked for a court order to stop Ceylinco Insurance being split into general and life insurance companies without approval from shareholders.
The petitioner alleged that a company called Castle Realty (Pvt) Ltd, which was formerly known as Ceylinco Life Holdings (Pvt) Ltd, was financed by Ceylinco Insurance to buy its own shares, violating company articles.
The petitioner wanted court to order Castle Realty to sell the Ceylinco shares and repay the company.
Global Rubber alleged that current directors were using the votes of ordinary shares held in the name of CIESOT (Pvt) Ltd and entities named Employee Gratuity Trust Fund, Pension Fund, the Pension Trust Fund of Ceylinco Insurance Plc and the Gratuity Fund of Ceylinco Insurance Plc – Life division to re-elect directors.
The petitioner sought court orders to remove several directors who it alleged, have been re–elected violating rules of the insurance regulator and to limit executive directors to one-third of the total.
The petitioner also sought interim orders pending the full hearing of the case including the appointment of accountants to carry out a forensic audit of Ceylinco Insurance.