Sri Lanka Supreme Court rules -SLIC share sale null and void

Sri Lanka Supreme Court which ruled that the sale of 90% of the shares of the state-owned SLIC by Milford Holdings (Pvt) Ltd and Greenfield Pacific EM Holdings Ltd was null and void and ordered the Treasury Secretary to take over the ownership and management of the former state-owned entity The Court delivered its judgement pursuant to a fundamental rights application that was filed by President’s Advisor and politician and two former employees of the SLIC who filed two cases allegedly in the best interests of the public. In their application, the petitioners had prayed for the Supreme Court to make an order that the sale of 90% of the shares held by the Secretary to the Treasury on behalf of the Government in SLIC had been carried out in a wrongful, unlawful and irregular manner. It was also noted that in the process of the privatization, several irregularities had caused massive losses to the government and the public. The petitioners had further prayed for the Supreme Court to cancel, annul and make void the agreement dated April 11, 2003 for the sale of the shares in question and restore the ownership of all the shares of the SLIC with the government. The petitioners cited 38 respondents i, whose companies entered into an agreement on the sale and purchase of the entire issued share capital of the SLIC, former Minister of Economic Reforms, , former Secretary to the Treasury, and former Secretary to the Treasury, who also was former Chairman of the Public Enterprises Reform Commission (PERC). According to the petition, a report prepared by the Committee on Public Enterprises (COPE) released in 2007 by then COPE Chairman detailed that the Steering Committee appointed in 2002 by the Minister in charge to oversee the SLIC sale had been done so without Cabinet approval. The report also said the Steering Committee had appointed PricewaterhouseCoopers (PwC) Indonesia to act as financial advisors to the Government in collaboration with PwC Sri Lanka, without Cabinet approval and for a lucrative contract. The petitioners said that former Minister had forwarded the Cabinet Memorandum dated March 27, 2003 disclosing that 5 parties had been short-listed, recommending the sale of 90% shares of the SLIC at a consideration of Rs. 6050 million to the Consortium comprising of the Distilleries Company of Sri Lanka Ltd, Aitken Spence Co. Ltd, Aitken Spence Insurance (Pvt) Ltd with technical partner, ING Institutional & Government Advisory Services BV (Holland) and Cabinet approval had been granted on March 27, 2003. The petitioners had further alleged that during the process of the privatization, Minister had also appointed a Steering Committee to handle the sale without a Cabinet Approval and the said Steering Committee had appointed PricewaterhouseCoopers (PwC), Indonesia in collaboration with the PwC Sri Lanka without Cabinet approval on April 10, 2002 as Consultant to the government for a fee of US 1.6 million (Rs. 172.8 million). The Petitioner had alleged that this transaction was grossly in contempt of the norms of government tender evaluation process and a blatant violation of government tender procedure, to have allowed an unevaluated party who had not even expressed interest to be substituted in place of an ‘evaluated and selected party’, who had been selected and approved by the Cabinet. The petitioners further said that though the Audited Accounts of SLIC at December 31, 2001 were available on June 11, 2002, the Steering Committee for some ‘mysterious’ reason had required Ernest & Young, Auditors of SLIC, to prepare SLIC Accounts as at March 31, 2002, which Accounts had been signed by Ernest & Young on August 9, 2002 as un-audited Accounts, containing several comments expressly stating- “We have not performed an audit, an accordingly do not express an opinion”. The petitioners had complained that Ernst & Young auditors and PwC consultants were directly involved in this fraudulent conduct. They also complained that Chairman PERC who handed this SLIC transaction and later Secretary to the Treasury has been a Senior Policy Advisor to Ernst & Young, and had failed and neglected to act in the interest of the government. In addition the petitioners also said that the Net Profit of the SLIC for the year ended December 31, 2001 had been around Rs. 1,162 million. A ‘price earning multiple of around ‘10’ had been considered, but on an unexplained adjusted annual profit of SLIC of around only Rs. 420 million. They further complained that the ‘market value’ of the SLIC’s freehold properties with valuable building have not been taken into reckoning in placing a valuation on the 90% shares of SLIC. The Supreme Court held that the sale of 90% shares of Sri Lanka Insurance Corporation (SLIC) was null and void and directed the return of the shares to the Treasury Secretary. The Treasury Secretary was ordered to pay Rs. 6,050,000,000 (Rs. 6.05 billion), the value of the entire sale of the share to Milford Holdings (Pvt) Ltd and Greenfield Pacific EM Holdings Ltd, the two companies that had bought the SLIC shares in 2003. The Court further ordered the Treasury Secretary to appoint a Board of Directors comprising of accountants who have more than ten years of experience within two weeks to manage the operations of the SLIC. The Supreme Court also ordered the immediate removal of Ernest & Young, the audit firm with immediate effect. Milford Holdings Pvt Ltd holds 85% of SLIC, while DIST holds approximately 98% of Milford Holdings (as at 31 March 2008). See bellow for main investments held by Distilleries Company of Sri Lanka Main investments held by DIST through SLIC Company (as at 31 Mar 08) % held by SLIC - Life % held by SLIC - Gen % held by DIST Lanka Hospitals PLC 13.9 40.7 28.8 Aitken Spence PLC - 10.8 17.2 Asiri 14.7 11.2 0.4 Asiri Surgical - 20.0 - E-Channelling 7.1 16.4 - Commercial Bank Voting Non Voting 5.1 - 4.4 10.6 2.2 - DFCC Bank 11.3 - 6.5 HNB Voting Non Voting 4.9 - - - 2.5 0.3 NDB (31 Mar 09) 1.7 4.6 - JKH (31 Mar 09) 4.6 1.8