Crescent Star Insurance requests SECP to intervene and resolve its share dispute with DSL

February 24, 2021 (MLN):  Crescent Star Insurance Limited (“CSIL”) has requested the Security Exchange Commission of Pakistan (SECP) as a regulator to intervene and resolve its share dispute with Dost Steels Limited (DSL).

For those who are unversed, CSIL invested in DSL in accordance with the terms of the Shareholders Agreement, agreed between CSIL, DSL, and Sponsors of DSL, as per which,  CSIL should have received 93.5 million shares at Rs. 4.50/. However, due to the gross violation of the restructuring agreement agreed between DSL, its Sponsors and Summit Bank Limited (“SBL”), whereby, SBL sold the right entitlement without any lawful authority during the 2016 right issue, resulting in a shortage of shares, Accordingly, CSIL were only allocated 15 million shares at Rs. 4.50/- and DSL has yet to issue 78.5 million shares for the remaining invested amount of CSIL.    

In a letter to SECP, CSIL stated that after a lapse of almost 5 years, they are still awaiting the issuance of the shares. This particularly establishes the ill intent of the sponsors of DSL. DSL Sponsors along with the company secretary have been involved in fabricating minutes of the meeting tin- 'both Annual' General Meeting and the Board of Directors meeting, a fact which has been raised by CSIL earlier-before Pakistan Stock Exchange and SECP, however, as of yet no action has been taken against the management of DSL.

As per CSIL’s statement, DSL Sponsors have intentionally made an illegal entry in the books of DSL, whereby, DSL has assigned CSIL advance for shares of Rs. 248 million to an entity named M/s Dynasty Trading (Private) Limited. CSIL never entered into an agreement with this entity, and nor ever served an assignment notice to DSL in this regard, the company said, adding that it has written to the auditors of DSL on this matter, seeking clarification, however, till this date, despite number of letters, DSL auditors have failed to provide a clarification to CSIL.

CSIL believes this entry is particularly done with the intention to prevent it from taking any legal action against DSL and its management, as under the Companies Act, 2017, a minority action can be bought in by creditors of 10 percent of the paid-up capital.

On other hand, for CSIL investment in DSL has been subject to inquiry by SECP on multiple occasions whereas no action has been taken against DSL explaining that how they can legally carry an amount received from the shareholder in books without issuing shares and providing interest against it.

Due to the above, not only the stakeholders of CSIL (listed company) have been denied their rights and forced to suffer, the minority shareholders of DSL (75%) are also suffering for years, in addition to CSIL and the syndicate of banks involving a total stake of above 2 billion jointly between Banks and CSIL. The Mill is not in operation only due to bad management and lack of working capital, which cannot be raised due to default and bad management of DSL even though the value of the assets has been assessed by an independent valuator to be in the region of PKR 5 billion.

The Board and management of CSIL strongly believe that it has played a very active leading role in taking our DSL from a crisis situation in 2016 and saving the stakeholders, can still save the Company and the stakeholders (75%) plus creditors, by playing a role in the Company before a total collapse, if CSIL is allowed to exercise its right under contractual obligations as provided in Companies Act section 164 and effectively control the Board by 60% and through efforts start the production and look into various options available to provide the much-needed working capital.

In this regard, CSIL has requested SECP as a regulator to intervene and direct DSL to:

  1. Issue shares to CSIL against the Rs.354 million advance for issuance of shares, DSL has received from CSIL.
  2. Provide interest for the period that shares were not issued.
  3. Implement the shareholders' agreement between DSL and CSIL whereby it is agreed that CSIL will have 60% representation on the DSL board.
  4. Declare the elections held in 2020 as illegal which is in contravention of the shareholders agreement between CSIL and DSL.

In a letter to SECP, CSIL assured that it has a workable proposal for the operations of the company which will save DSL, a collapsing company to the benefit if 75% minority shareholders, financial institution, and CSIL stakeholders.

Copyright Mettis Link News

Posted on: 2021-02-24T13:49:00+05:00