Reorganising the NCB
Source: Financial Gleaner, September 29, 2000
PRIVATISATION programmes have added new significance to corporate disclosure in markets around the world during the last two decades.
As one IDB observer put it recently, "the widespread sale and listing of state-owned industries has turned millions of ordinary citizens into shareholders, a position which many of the new corporate owners would previously had thought to be limited to the financially elite". As a consequence, markets and corporate directors have had to become more sensitive to shareholder rights.
Jamaica is no exception. An estimated 35,000 first-time equity investors entered the market between 1986 and 1992 as a result of the divestment of government holdings in National Commercial Bank, Carib Cement, Telecommunications of Jamaica (Cable & Wireless Jamaica Ltd.) and Carib Steel.
One of the initial obstacles that many of these newcomers had to overcome was the fear of being taken advantage of by bigger, more seasoned players either in the boardrooms or on the trading floor.
"Markets function on the basis of information," JSE chairman Roy Johnson emphasised, "and it is critical that it be real and apparent that all material information about a listed company or its shares be made available to all investors on a timely basis. Market confidence relies on transparency and fair play."
Referring to the recent shareholder letters and advertisements by the NCB Group announcing its intention to seek reorganisation through a 'Scheme of Arrangement' under Section 192 of the Companies Act of 1965, Mr. Johnson said that it was unfortunate that the plan was being referred to as a 'fair deal', before anybody else had the opportunity to arrive at that conclusion on their own. "Not even those of us in the trade had enough information about the proposal to be able to advise our clients about its merits or otherwise", Mr. Johnson said.
Disclosure and Shareholder Rights
Under the JSE's Rules, material information is defined as, "any information relating
to the business and affairs of the company that results in or would reasonably be expected
to result in a significant change in the market price or value of the company's listed
securities." And, timely disclosure embodies the principle that all persons investing
in securities, including minority shareholders, have equal access to information that may
affect their investment decisions.
Mr. Johnson was quick to add that nothing is before him nor before the Council of the Jamaica Stock Exchange that suggests any wrongdoing associated with the proposed NCB Group reorganisation. Nevertheless, he said that when directors make recommendations to shareholders, they have a responsibility to disclose in a timely manner, the information on which their recommendations have been based.
His and the JSE Council's principal concern, Mr. Johnson said, was "to find ways in this age of advanced information technology to encourage the listed companies to communicate more effectively with the market and with the shareholders about price sensitive information."
The Securities Commission's executive director Earl Melhado revealed that at least one allegation of insider trading connected with the NCB reorganisation proposal has reached his agency, "the investigation of which, thus far, has not substantiated the claim".
Proposed NCB Reorganisation
The NCB Group intends to submit a reorganisation proposal to the Supreme Court, under
which the NCB Group, in which the current individual shareholders now hold 54.6 per cent,
would be de-listed. National Commercial Bank would then be listed with 24 per cent
ownership allotted to current shareholders. The remaining 76 per cent, as well as the
de-listed Group with the other non-banking subsidiaries and assets would go to FINSAC in
exchange for their bonds valuing about $98 million. This is the difference between the
Group's non- banking assets valued at $669 million and its liabilities of $571 million.
Reorganisation provisions of Section 192 of the Companies Act, give a company the power to
enter into a compromise or arrangement with its creditors or with its members, under the
supervision of the Supreme Court.
The Statute does not specify what pre-court communication should occur between the company and its creditors or members. However, it does require that a meeting of creditors or members be called to discuss the reorganisation plan submitted to the Court. At this meeting, a majority of those present in person or by proxy and representing three-fourths of their total value would need to agree to the compromise or arrangement.
Mr. Johnson said that it would be in the best interests of NCB shareholders to plan to attend this meeting when it is announced.
The power to enter into compromise arrangements is a standard provision of Companies Acts in most jurisdictions. In some instances, as in the case of India and Australia, the Court requires that it be satisfied that the company has taken the necessary steps to disclose all material facts and financial positions beforehand. In other jurisdictions such as Malaysia and Malta, the Court must be satisfied that grounds of sufficient gravity exist that would have otherwise warranted the dissolution and winding up of the company, before entertaining a compromise or arrangement proposal.
Undoubtedly, our own Supreme Court will also examine similar concerns when considering the NCB Group Reorganisation Plan.
* This column is part of an on-going public education programme of the Council
of the Jamaica Stock Exchange.