Daily Mirror - Print Edition

Lanka Transformers Ltd responds to DM story

12 Dec 2024 - {{hitsCtrl.values.hits}}      

Lanka Transformers Ltd has sent a clarification regarding the article titled ‘Mismanagement of workers trust: Lanka Transformers Ltd in the Spotlight’ which the Daily Mirror carried on its edition dated September 20, 2024. 

“The Article titled “Mismanagement of workers trust: Lanka Transformers Ltd in the Spotlight” which appeared in Daily Mirror dated September 20, 2024 has been written with one sided inputs. The companies LTL, i.e. Peradev and Teckpro, owned by two employees, responsibly state that this matter has absolutely nothing to do with the LTL’s shares, its assets and liabilities, CEB’s shareholding in LTL or any public asset. 

Lanka Transformers Employee Share Ownership Trust

A Trust named “Lanka Transformers Ltd Employee Share Ownership Trust” (Trust 1) was created by the board of directors of Lanka Transformers Ltd, and a loan was given to it (to purchase shares) on the condition that no benefits should be provided to its beneficiaries (i.e. employees) until the full loan is repaid to the Company from the dividends accrued to it. A Trust Deed was duly adopted by the Board of LTL. The Board of the Company was the sole decision-making authority of the Trust (i.e. Settlor). The Boards of ABB and CEB respectively approved the said issue of new shares in 2001 in their capacity as shareholders. Thereafter the Trust bought the said 1.67 million new shares at par value and paid Rs. 16.7M back to LTL. Section 55 (1) (b) of the Companies Act No. 17 of 1982 prevailed at that point in time and allowed such lending by a company to an employee entity to buy its own shares.

The statement “Subsequently, the Board of Directors…, decided to issue 1.67 million ordinary shares … to their employees” is blatantly false. In keeping with the decision of the Board of Directors of the Company, shares were purchased by the Trust and not by Employees. Every employee in whose name shares were to be allocated (if any) had to relinquish any such allocation at the time of ceasing employment with the company. The relinquished shares were then to be allocated and/or recirculated between existing employees and/or new employees joining the Company. 

The Trust was obligated to recall the allocation if an employee was leaving by paying “market price”. The Trust was also obligated to use all of the income (by way of dividends) to settle the loan taken from Company to buy the 1.67 million shares. Thus, until the loan of Rs. 16.7M was settled in full, the Trust was unable to pay for any shares allocated to a retiring employee which had to be relinquish at time of cessation of employment due to a lack of funds. Due to this reason Trust did not ‘allocate’ any shares to any employee and sought guidance from the Board to resolve the issue. 

In the light of above, the management also obtained the views of all employees with the desire to arrive at a workable benefit distribution method to solve this problem. After an exhaustive consultative process, the Board of Directors adopted a new Trust Deed in 2010. 

In this background we categorically refute the statement in the Article that “…it came to light these Trustees have put in place an elaborate fraudulent scheme to terminate the deed of Trust dated July 10, 2001…”. The termination of the original Trust and its consequent replacement by a new Trust Deed was a decision of the Board of Directors of LTL in their capacity as the Settlor which was in compliance with all applicable laws of the country. 

Your statement that “However LTL Board of Directors did not specify the manner of distribution percentage amongst the employees. In the light of this, the Trustees decided that the senior Management would be allotted 50% of the shares of the ESOT (Trust). This resulted in 7 senior managers which included the trustees were to get the benefit of the decision of their own. This was a lavish serving on themselves” is false, and made with malice. 

In terms of the new Trust Deed, there was no provision to allocate any shares to individual employees as before. Rather the Trustees held all the shares for the benefit of beneficiaries and 75% of its dividend income (after any expenses and settling the loan to LTL) had to be distributed among all employees each year on a formula determined by the Board of Directors. This was a decision of the Board of directors that was made on 17th March 2010.

Distribution of benefits under new scheme was done every year starting from 2011, by when the Trust had fully repaid the loan taken from the company. All employees received an annual dividend-bonus based on Board approved formula and a lump sum in 2015 for accumulated dues. (An audit was carried out on the request of the Trustees by an independent audit firm which confirmed that all distributions had been done as per board approved formula of 2010).

This leads to your next inaccurate and false premise that “…It was at this point the three Directors have been placed in a unique and personally advantageous position of having virtual control of the said cumulated holding of 37% of LTL Holdings shares…”. As adverted to previously, it was the Board of Directors of LTL (in which CEB had a clear majority) and not any three Directors, that were in control of the affairs of the Trust. 

Up until the formation of Trust 1, all the directors of LTL were appointed by CEB (5 directors) and ABB (2 directors) and none of the names mentioned in the Article were directors of the Company during the formation of Trust 1. After creation of Trust 1, Mr U D Jayawardana served as a director on behalf of the Trust 1 and none of other persons mentioned in your article were directors until ABB divested its shareholding in the Company (as described below).  

Lanka Transformers Group Employee Trust (LTGET)

All material in the article with respect to the Management Buy Out (MBO) of the shares owned by ABB-Norway in LTL and how it was financed in 2005 are either false or misinterpreted/misrepresented. 

Firstly, ABB-Norway invited CEB to buy its shares and CEB, owing to its financial difficulties, declined the offer. It is only then that the management of the Company reached an understating with ABB, of which the Ceylon Electricity Board was aware of, and offered to buy ABB’s shares, on a MBO basis. The management of the Company created a Public Limited Liability Company called LTL ESOT Limited (LTLEL) (presently known as the Peradev Limited), to execute the MBO of ABB’s shareholding in the Company. The then 7 most senior employees of the Company subscribed to a single share each at Rs 10 per share to create the LTLEL as a public company in terms of the Companies Act No. 17 of 1982. 

A Trust named Lanka Transformer Group Employee Trust (‘LTGET’) was created for the benefit of all the Employees. The Trust Deed of LTGET required all current employees to be the beneficiaries. LTLEL had an issued and paid-up capital of 8.5M shares and the seven senior employees held only 7 shares out of this. All other shares (99.99%) were held by LTGET, in which every single employee of LTL Group was a beneficiary. 

As standard practice, MBOs are financed by the company at commercial terms. Obtaining finances from the Company for MBO was legally allowed as per the Companies Act. The statement, “Questions are raised as to how LTL gave security to another ‘Trust’ under its own wing to purchase its own shares.” which appeared in the Article is also false. Neither LTLEL nor LTGET obtained a loan from NDB and hence, there was no guarantee given to NDB by LTL for this transaction. Also, LTL was not required to obtain Cabinet Approval or Treasury Guarantee for LTL to obtain loans from banks and almost all loans of LTL are raised on commercial terms on the strength of LTL. Be that as it may, LTGET repaid fully the loan taken from LTL together with interest thereon and which interest was at commercial rates. To our knowledge LTL earned interest income of Rs. 215M on this loan while it paid only Rs. 39M to NDB as interest expenses, thus earning a profit of Rs. 176M. This Trust, LTGET was the 99.99% shareholder of LTL ESOT Ltd (LTLEL) until the former was terminated in 2017. 

Termination of Trusts

By 2015, LTL was operating two power plants in Bangladesh and was considering an acquisition of a switchgear factory in India. Group had large number of foreign nationals as employees who were also to become beneficiaries of the Trusts. However as per foreign exchange laws it was not possible expatriate trust benefits to foreign nationals. Further LTL’s foreign operations were hampered due to reluctance of foreign banks to provide bank financing for projects since two of the ultimate shareholders of LTL were “Trusts” rather than identifiable “natural persons” as required under international banking Know Your Customer (KYC) practices. Thus, the LTL Board decided to seek professional advice on the matter of continuation of the Trusts as shareholders of the company. The Board appointed M/s Ernst & Young and M/s F.J. & G. de Saram to advise.

As per such advice, all beneficiaries (i.e. current employees at the time) gave their written consent to the termination of the Trusts and for their entitlement under the Trusts to be replaced by shares in the two resulting companies. The termination of the Trusts were duly approved and the process was completed by 2017. The termination process was duly advised by Messrs. F. J. & G. de Saram to ensure compliance with the Trust Ordinance, the Trust Deed and all applicable laws.

The Article further states that “Meanwhile in October 2018, LTL Holdings allegedly has incorporated yet another company by the name Teckpro Investment Ltd. The three accused Directors have then issued 10 million shares of Teckpro Investment Limited for a noncash consideration of Rs.7,067 million amongst themselves and 120 individuals who are said to be some of the LTL employees. As a result, the interest of a large number of employees have been overlooked”. This too is false and in bad faith. Not only the three Directors concerned, but rather ALL the employees were issued with shares in Teckpro Investments Ltd which took over the assets and liabilities of the terminated Lanka Transformers Limited Employee Share Ownership Trust. Not a single employee was overlooked or left out. Each and every employee, as per the provisions of Trust Deeds, was given shares in Teckpro Investments Ltd. 

Article goes on to state that “…share ownership of 1.67 million shares of LTL Holdings held by these three Directors were removed from the share register and was replaced with Teckpro Investment Ltd…”. Firstly, the 1.67M shares were held by the Trustees in Trust and not by any 3 Directors in their personal capacity. All of those shares were transferred to Teckpro. 

The statement that “…Out of this 27% stake owned by newly incorporated Paradev (Pvt) Ltd, Jayawardena, Marikkar, Pitigala, …The beneficiaries were not the LTL employees…” is again false and made with malice. With the termination of LTGET, the share ownership in LTLEL (Peradev) was transferred from LTGET to ALL the employees of LTL as shareholders. The methodology for the distribution of the shares among beneficiaries was arrived at pursuant to the advice of M/s Ernst & Young. Thereafter, in 2018 the name of the LTLEL was changed to Peradev Limited. Consequently, Peradev Limited is not a newly incorporated company but is LTLEL after a name change.  

Your statement “…neither the three Trustees nor others have infused any capital in LTL subsidiaries or holding companies- Peradev and Teckpro and has no ownership whatsoever to obtain dividends…” is also false, by per se and by innuendo.

In both instances capital was obtained initially as loans from the company in a perfectly lawful manner. The loans obtained were fully repaid (together with interest) to the Company. CEB enhanced the value of its capital infusion of Rs. 97M in 1996, to more than Rs. 60 billion while having also received further Rs. 20 billion as dividends. 

Alleged Transfer of Funds from Bank Accounts

Firstly, none of the bank accounts mentioned in your Article are that of LTL or any of its subsidiaries. In the same Fundamental Rights case that was filed in 2019, which is referred to in the Article, these very same false and unsubstantiated allegations were made. As Respondents, we have placed all relevant material and clarifications before the Court (which we reproduce below) and that case was later withdrawn. The very same allegations now curiously resurface for malicious reasons. 

a. The sums shown in the paper article as paid to U D Jayawardana, MJMN Marikkar, Ravindra Pitigalage, Dammika Nanayakkara & Sudath Annasiwatte, on two occasions in 2015 were the cumulative entitlements due to them from 2007 to 2015 i.e. for nine (9) years, as per the decision of LTL Board. Similarly, all other employees who served during the respective years also received payments on the formula approved by the Board and as much as Rs. 1,287,084,763 (Rs 1,287 million) was distributed to all other employees who served the company during the period from 2007 to 2015. We are perplexed as to why your article mentions only payments made to a few individuals.

b. We now wish to draw attention to the allegation made on certain fund transfers from A/c No. 1500005578 of Commercial bank. This account is NOT a bank account of LTL or its subsidiary. It is a bank account owned and operated by Peradev. The three amounts you mentioned as “… transferred to Marikkars account” are legitimate entitlements paid to him as a beneficiary of the Trust under the scheme that was applied to all employees. 

c.You have further stated that “...Rs. 3 Billion has been transferred to an account bearing number 1500046704”. A sum of Rs. 3,095,851,393 remained in the said bank account of the Trust at the time of dissolution in 2017. As requested by all the beneficiaries (i.e. all employees) of the Trust, at its termination, this balance was transferred to the bank A/c bearing no 1500046704 of Teckpro Investment Limited with Commercial Bank of Ceylon PLC. This has been done in accordance with the legal & financial advice received from Messrs. F. J. & G. de Saram & Messrs. Ernst & Young. 

d. You have, once again, falsely stated that “…Meanwhile, a sum of Rs.371.136 million which was in the HNB A/c 076010095211 belongs to the LTL ESOT (Trust) has been fraudulently withdrawn”. A sum of Rs. 369,997,092 was left behind in the bank account of the Trust after the aforementioned transfer of Rs. 3,095,851,393. In order to close the bank account of Trust 1, this amount too was thereafter transferred to the account of the successor, Teckpro Investments Limited, with the approval of Board of Directors of LTL.

DM Reporter stands by her story 

This article was written based on the SC (FR) Application No: 355/19 filed by Wasantha Samarasinghe of the Voice Against Corruption.

When the Petitioner Wasantha Samarasinghe sought to withdraw the application by motion dated July 5, 2021, Milinda Gunetilleke PC Additional Solicitor General (ASG) representing the Attorney General- who appeared for the CEB- and few other Respondents objected to the withdrawal. Other Respondents including LTL Holdings Pvt Ltd, Upali Jayawardena, Ravindra Pitigala, Rajiv Cassie Chitty, Paradev Pvt Ltd, Teckpro Investment Limited did not object to the withdrawal of the application and they submit that this court should permit the withdrawal according to the Supreme Court Rules.

ASG Gunetilleke’s position was that the withdrawal should not be permitted for the reason that the application is filed as a matter of public interest and the withdrawal could impact parliamentary control over public finance and the role of the Auditor General.  

The ASG further stated that very serious allegations have been set out in the petition against the Respondents since the subject matter involves large amounts of state resources and serious allegations relating to handling these resources and by allowing this application to withdraw could have serious implications on public finance.

Although they claim that CEB now has only 35% shares with LTL and the Auditor General (AG) has no purview to carry out audits, at the time of the subject case was filed, CEB had 63% shares at LTL and was liable to be audited by the AG. In order to cover up the fraudulent activities and to avoid them being audited by the AG, attempts were taken by Paradev Pvt Ltd by instituting a collusive action (Case No: 41/16) to prevent the AG from conducting audits.

In order to cover up these frauds they have obtained the service of not only from a private audit firm but also legal opinions from a private legal firm although they could have obtained legal opinion from the Attorney General.

This raise eyebrows of their own employees.

Since there is a pending court case in the Supreme Court filed by two former MPs and few former employees, against these fraudulent activities, this newspaper does not wish to elaborate further on this issue.

This reporter stands by her reporting. 

Purview of Auditor General

As a shareholder of LTL, we do not agree with the assertion that “Since the CEB had more than 50% shares of LTL Holdings, the latter is liable to be audited by the Auditor General (AG) and subject to the overall supervision of the Parliament including the COPE.”. As per the Sinhala Version of the Constitution (which prevail over English or Tamil versions), Auditor General did not have a purview of auditing LTL until the adoption of 20th Amendment to the Constitution.  Even after that there were several Court Cases as per our knowledge on this matter and in any case as of now CEB has only 35% shareholding in LTL. As a shareholder of LTL, we have nothing against Auditor General but LTL as a global business venture, needs to be audited by a global firm of Auditors to be able to do business outside Sri Lanka. We are satisfied with M/s Ernst & Young which audits LTL maintaining a very high degree of proficiency and efficiency.

The said Article further alleged that “Having sought such a number of interim orders, to the surprise of LTL employees, Wasantha Samarasinghe and the other three Petitioners by an affidavit dated July 5, 2021, sought to withdraw the application as per SC Rules, to which the Additional Solicitor General (ASG) Milinda Gunathileke PC objected.” We responsibly state that , none of the employees of LTL, all of whom are shareholders of Teckpro Investments Ltd and Peradev Ltd, had any reason to be surprised by that action and petitioners, who had left LTL long time ago, withdrew their legal action having realized that there was no misappropriation of funds in the Trust affairs and satisfied that all employees three represented received appropriate compensations. 

In conclusion we state as follows. 

  1. Shares of CEB in LTL have never been in the control or ownership of the employees of LTL. 
  2. No state asset of whatsoever nature has been the subject matter of the employee share ownership Trusts or its successor entities. 
  3.  No director, employee or trustee in LTL has ever received any illegal benefit at any time from any of the LTL employee trusts or its successor employee-owned companies.
  4.  All transactions that took place under the Trusts and under the employee-owned companies have been carried out after obtaining legal advice and all required board approvals. 
  5. Financial Statements of both Trusts were audited by Independent Auditors every single year until their terminations and were always without any qualifications. (End)