Golden Key to repay Depositors?

Court appointed accountants probing a failed financial firm in Sri Lanka’s Ceylinco group have recommended that its chairman directors “bring in” an additional 13 billion rupees to start repaying depositors.The Golden Key Credit Card Company collapsed with debts of 26 billion of which 12.7 billion is capital and 13.2 billion is interest according to initial findings of a Supreme Court appointed committee of chartered accountants.

The committee says two sets of accounts were found and some assets have already been mortgaged to other parties, complicated a liquidation process.

Court appointed accountants probing a failed financial firm in Sri Lanka’s Ceylinco group have recommended that its chairman directors “bring in” an additional 13 billion rupees to start repaying depositors.The Golden Key Credit Card Company collapsed with debts of 26 billion of which 12.7 billion is capital and 13.2 billion is interest according to initial findings of a Supreme Court appointed committee of chartered accountants.

The committee says two sets of accounts were found and some assets have already been mortgaged to other parties, complicated a liquidation process.

Reconciling

The committee’s report to court says an audit is underway to reconcile Golden Key Credit Card Company’s computer system and customer deposit confirmations.

“The company has two sets of accounts one from the IMAS system (computer system) and a set of corrupt accounts prepared on excel sheets,” the report said citing information provided by Golden Key accounts department employees.

The three court appointed accountants, Lakshman Watawala, Nelson Nagasinghe and Mahendra Panditha, are probing Golden Key businesses and assets to repay depositors by selling them. They have requested court to ask Ceylinco Chairman and the group’s senior directors to contribute.

“In the first phase to bring in a minimum 13 billion rupees – as declared to the Magistrate’s Court – to repay depositors,” the accountants said.

The Mount Lavinia Magistrate, in whose court a criminal case is being heard in parallel with a Supreme Court fundamental rights violation action, has remanded Ceylinco chairman Lalith Kotelawala and other directors.

“Chairman and directors of Ceylinco consolidated are responsible for the proper management of all group companies and safeguarding the assets of these organizations,” the accountants report said.

Group Dues

The report has revealed that Golden Key’s 55 group firms, including nine foreign based companies, owe the parent 5.9 billion rupees.

“Most of these companies are not in operation and employees of those companies have already left,” the report said.

Golden Key subsidiaries were requested by the Supreme Court to come up with acceptable proposals to the committee to either continue operations or to sell the businesses. However 24 Golden Key firms had not submitted asset declarations to the Supreme Court appointed committee by June 10. Sixty four directors of Golden Key group had also ignored court orders to submit asset declarations, according to the report.

Included in the 5.9 billion rupees loaned to group firms is 823 million rupees given to the Golden Key ENT Hospital, in the outskirts of Sri Lanka’s capital Colombo.

Asset Transfer

The report highlights a probable sale of Golden Key’s stake in the hospital to a gratuity fund of Ceylinco Insurance, another Ceylinco group firm, for half the 500 million rupee value agreed to by the boards of the two firms, days ahead of the crisis becoming public.

The committee says the transaction needs to be investigated since it has not been registered in the name of the party that advanced the funds.

“A transaction for the sale of Golden Key Hospital was noticed and an advance taken but the transfer of shares had not gone through,” according to the report.

“Ceylinco Insurance accounts showed the purchase consideration to be 250 million.”

The report does not say who the new owners of the hospital’s shares are. However the hospital was valued at three billion rupees by Ceylinco Consolidated in a valuation submitted to court.

Ceylinco Insurance had also agreed to a sale of Golden Key’s main office in Colombo, two thirds of which is owned by the insurer, to support Golden Key’s liquidation, the report said.

The committee says some promised asset sales won’t directly benefit Golden Key depositors.

Low Equity

For instance the firm only owns a 2.6 percent stake in the Ceylino Ceysands Hotel, one of the properties put on sale by Ceylinco Consolidated and valued at 500 million rupees.

The committee adds that the valuations of asset provided to the Mount Lavinia magistrates in a list of assets the Ceylinco group plans to dispose of and repay Golden Key depositors is unrealistic.

“It was noted that the values placed on them were not realistic and the government valuer will be engaged to give a fresh value of assets.”

It says 844 million rupees in credit card dues are outstanding from employees and related parties (equal to 3.2 percent of Golden Key’s depositor liabilities) to whom statements will be sent soon “requesting payment as per the court order.”

Other debtors owe Golden Key some 359 million rupees. Liquidating other assets may prove difficult.

“Credit facilities have been obtained from banks by mortgaging properties as securities,” making it difficult to liquidate the firm’s property holdings, the report said.

“Even though vehicles are listed under GKCL (Golden Key Credit Card Company Limited), the majority of the vehicles have been acquired on a leasehold basis.

“Most of the vehicles have been taken over by the respective leasing companies,” the report said.

The accountants’ committee is also urging Ceylinco Consolidated’s chairman and senior group directors and directors of Golden Key Credit to provide a solution on the manner in which depositors are to be repaid.