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Barbarians at the door   Abductees reveal abduction horror


Govt. and directors caught in legal net as Mihin Lanka crashes


Sajin Vass, Harry Jayawardena
and Dammika Perera

By Sonali Samarasinghe

President Mahinda Rajapakse's cash strapped government refuses to let go of one of its most diabolical projects - Mihin Lanka as it continues to infuse Treasury funds into the humbug budget carrier. The latest extravagance? To bring in a large consignment of expensive ground handling equipment for the carrier that has now virtually shut down.

Last month, Mihin Lanka was to lose its A321 leased from Best Air, Turkey, due to non payment of the lease and the A320 aircraft wet leased from Bulgaria is to be taken back by the owners in April for non payment. Mihin's only other aircraft dry leased from Expo Aviation is a small and ageing Fokker 27 which is already in heavy controversy over ownership.

Owes CPC

Mihin which had not paid its staff salaries for February currently owes the Petroleum Corporation Rs. 500 million. However CPC Chairman, Asantha de Mel told The Sunday Leader the CPC now refuses to trade with Mihin except on a strict cash on delivery basis, and the Treasury has in writing agreed to pay the CPC Rs.100 million as an initial payment towards the debt. That is not all the Treasury has agreed to do. Mihin owes SriLankan Airlines well over US$ 1 million for ground handling and catering services.

On December 31, SriLankan Airlines withdrew its ground handling facilities due to non payment of funds.

With the government taking over the management of SriLankan Airlines come April 1, the national carrier is having its own problems. Airline sources said a large number of staff are getting jittery about the future. Already 32 pilots are leaving, many going to Kingfisher Airlines while some 30 engineers have left, a large chunk of them to a maintenance outfit in Abu Dhabi called Gamco. Of the cabin crew some 40 have already left for more lucrative and stable prospects at Etihad and Emirates.

Exodus at SriLankan

Airline sources said an exodus of staff could well mean the airline would have to shrink its operations, reduce its frequencies and cut down on certain routes as the airline would not be able to operationally sustain itself.

Meanwhile a fight is on for top positions in the airline with current director and President Rajapakse's brother-in-law, Nishantha Wickremasinghe vying for chairmanship as present Chairman, Harry Jayawardena looks to hold on to the booty.

Newly appointed consultant, Lalith de Silva, earlier of Sri Lanka Telecom and Saudi Telecom is also in the running even as speculation was rife that BOI Chairman, Dammika Perera who was instrumental in evicting Emirates CEO, Peter Hill from Sri Lanka was eying the lucrative post. However Perera pooh poohed the idea saying he would not even take a directorship.

Nevertheless,Wickremasinghe, the brother of First Lady, Shiranthi is widely considered a sobering force within the airline with considerable senior level support.

The Chief Operations Officer post was also up for grabs as former head of commercial, Seelan, now country manager China , and head of worldwide sales and brother of Sajin Vass, Manoj Vass Gunawardena have both applied for the post.

Saddled with Mihin

SriLankan Airlines has internationally advertised the post of CEO despite earlier stating it would look for a Sri Lankan to fill the top post.

In this backdrop, SriLankan will also be saddled with the liabilities of subsidising Mihin.

Meanwhile, in an interview with LBO in January this year, Mihin Lanka's controversial CEO, Sajin Vass Gunawardena admitted Mihin would receive another Rs. 500 million from the already overburdened Treasury to pay off its debts. Top SriLankan Airline sources confirmed to The Sunday Leader that the Treasury has in writing assured the management it would take over and pay the US$ 1 million debt owed by Mihin.

On top of this the dead weight airline's total operational cost as of March 31, 2007 was Rs. 195,410,886.41 and despite extensive state patronage Mihin Lanka is incurring some Rs. 8-9 million in losses each day.

The BOI which granted approval to the airline on October 13, 2006 approved the application on several criteria including that Mihin would invest a sum of US$ 3.616 billion and that a minimum capital investment of US$100 million or its rupee equivalent should be invested in the project within a period of two years from the date of signing the agreement with the board.

However even though the project continues to be a drain on the Treasury and a burden on the already harassed public, BOI Chairman Dammika Perera told The Sunday Leader the agreement was only coming up for reassessment in three years at which time the criteria would be looked at again. In any event, he said, as this was a government venture the BOI would look at it with a view to helping out.

Pumping money

Today Mihin Lanka is in serious debt. It owes its biggest creditor, Bank of Ceylon some Rs. 2 billion in interest alone.

Banking sources question how Mihin Lanka Pvt. Ltd. could have borrowed such huge sums from the state bank that attracted interest of over Rs. 36 million a month. Banking laws decree that a single borrower could not be granted a loan over a specified amount and banks cannot give one venture a grant more than the total amount of assets.

Sajin and wife

It is also curious that with the Mihin Lanka foetus burgeoning inside him, in mid 2006, Sajin's third wife and we say third with no malice and only for sake of clarity, Tiyana Dayanthie Anthonisz, being extra careful to use her maiden name and provide not her National Identity Card but her Passport Number set up a company called Transcontinental PTE LTD., (Registration No.200611774H) regisistered office 16, Arumugam Road, #03-04, Lion Building D, Singapore (409961).

The company, Transcontinental, was incorporated on August 14, 2006 and its principal objective was. yes, you've guessed it. Passenger Sales Agent and Travel Agency. Also General Wholesale Trade (including general importers and exporters.)

It was not two months later that Mihin Lanka was incorporated - on October 27. Two months after that, on December 20, 2006 President Rajapakse was to force-feed a cabinet memorandum to his cabinet, facetiously signed by an unwilling Former Aviation Minister, Mangala Samaraweera. Rajapakse at the cabinet meeting had even accused Samaraweera of sabotaging the enterprise and told ministers: 'I don't care what people say, I am going to do this.'

Legally liable

It is in this backdrop that the liability of the directors and the cabinet becomes increasingly relevant under the law. The subscriber shareholders and directors of Mihin Lanka are Defence Secretary Gotabya Rajapakse, Air Force Commander Roshan Goonetilleke, Sajin Vass Gunawardena and President's Secretary Lalith Weeratunge who took over as a director from Treasury Secretary P.B. Jayasundera on April 10, 2007.

Under the new Companies Act No. 7 of 2007 the liability of directors is extremely stiff. Interpretation Section 529 no longer confines the definition of a director to a person who has his name on Form 48. It includes a person in accordance with whose instructions or directions the board of the company may be required to or is accustomed to act.

It also includes a person who exercises or who is entitled to exercise or who controls or who is entitled to control the exercise of powers which apart from the articles of the company would be required to be exercised by the board. In Singapore for instance, they are called shadow directors.

Therefore under the law President Rajapakse as the main sponsor of the Mihin circus act and as finance minister would stand responsible after his presidential term and blanket immunity ceases to protect him.

It also brings to focus the Defence Secretary Gotabaya Rajapakse, Treasury Secretary P.B. Jayasundera and President's Secretary Lalith Weeratunge not only as directors of the company but also in their capacity as government officials.

The cabinet itself which approved the cabinet memorandum could become collectively responsible and therefore collectively liable.

Serious loss of capital

That is not all. Section 220 deals with the duty of directors on serious loss of capital. If at any time it appears to a director that the net assets of the company are less than half of its stated capital, the board must call an extraordinary meeting and prepare a report on the nature and extent of the losses incurred by the company, the causes for the losses, and any steps taken to prevent such further losses.

If the board fails to comply, every director who knowingly and wilfully authorises or permits the failure to continue shall be guilty of an offence. Bear in mind when you read this the new definition of a director as per the latest Act.

Section 219 is equally deadly. It covers the case where a director continues to trade in insolvency. Because of the magnitude of this section we reproduce it in full: 219(1) "A director of a company who believes that the company is unable to pay its debts as they fall due, shall forthwith call a meeting of the board to consider whether the board should apply to court for the winding up of the company and the appointment of a liquidator or an administrator or carry on further business of the company.

"(2) Where a director referred to in subsection (1) fails to comply with the requirement of that sub-section and at the time of that failure the company was unable to pay its debts as they fell due, the company is subsequently placed in liquidation the court may on the application of the liquidator or of a creditor of the company, make any order that the director shall be liable for the whole or any part of any loss suffered by creditors of the company as a result of the company continuing on its business."

Therefore all directors are liable for the loss suffered by creditors as a result of a bankrupt and failed company which continues to trade and do business including obtaining loans. It is pertinent to note here that Sajin himself in an interview to LBO in January admitted Mihin had already negotiated another loan with a private bank.

Neither can you take cover under limited liability if you use a corporate vehicle to trade while in bankruptcy say company law experts. In such an event you expose yourself to personal liability like in a partnership.

The rationale for this is that the person dealing with you does not know or is lulled into a sense of false security. Therefore it is not necessary to be insolvent at the time the directors attract liability as it can happen even if the company is unable to pay its debts and should reasonably have gone into insolvency through a court application. If the company continues to trade without going into insolvency then personal liability by the directors is attracted.

Directors cannot act like Pilate

Neither can directors wash their hands off the affairs of the company as there is a strict standard of care imposed on all directors. Section 189 states that a person performing duties of a director of a company (a) 'Shall not act in a manner which is reckless or grossly negligent;' and (b) 'Shall exercise the degree of skill and care that may reasonably be expected of a person of his knowledge and experience.'

Again under the Fiscal Management (Responsibility) Act No. 3 of 2003 no ministry, department, public corporation or company in which the government owns shares may act as a law unto themselves.

Under the Act the government is required to release to the public in respect of every year a Mid Year Fiscal Position Report, the objective of which is to provide updated information of the government's fiscal performance and to enable the public to evaluate its performance and against its current fiscal statement. 

Mandatory provisions

Again it is mandatory that the Minister of Finance cause to be released to the public a final budget position report not later that five months from the end of the financial year.

The contents of this report should include the estimated and actual expenditure, revenue, cash flows for that year and any other statement to reflect fairly the financial position of the government at the end of such financial year. In preparing this report the Ministry of Finance could call for information from any government department or ministry including a company in which the government owns shares.

Two weeks ago, Chief Justice Sarath Silva was to say that those who use public funds will surely go to hell. Whether such pronouncements will materialise is not for us to say but the judiciary may be called upon to apply not the ecclesiastical law but the current law of the land including the New Companies Act of 2007 to bring the directors of this travesty to book. And that day of reckoning may come sooner rather than later.

 


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