The Guyana Securities Coun-cil has appealed a High Court order to meet with Demerara Distillers Ltd (DDL) and discuss whether the company is in line with regulations that require it to declare material changes in its assets.
It says the Chief Justice has erroneously usurped the powers of the council and re-written the Securities Industry Act.
The court case has been going on ever since June when DDL made a pre-emptive approach to the court asking that it restrain the council from preventing it from holding the Annual General Meeting.
That had come after the council had informed the company that it had failed to report material changes in its affairs, adding that on January 1, 2003, the company contributed 93.33% of the share capital of Decipher Inter-national Inc. Also that in the last quarter of 2002, the company entered into a contractual arrangement with Kanda and Associates to form the joint venture, Demerara Distillers Ltd-Hyderabad.
But in his August 27 ruling, Chief Justice Carl Singh called the council "unflinching in its position and did not act on DDL's invitation" to hold a meeting on the issue.
"The council in my view should hear the plaintiff and consider what they have to say... the failure to hear the plaintiff has substantially influenced me in my decision to continue the second limb of my decision which, however, will be varied and limited." He ordered that the council is still not permitted to issue an order, advice or notice in respect of the two transactions.
And he also ruled that the defendant (council) by themselves, their servants and or agents are directed to meet with and hear the representation of the plaintiff ...within four weeks."
Chief Justice Singh recalls that on June 2, 2004 CEO of the council Cheryl Ibbott wrote to DDL Chairman Yesu Persaud and informed him that in the Annual Report, two material changes were noted and that pursuant to the provisions of section 58 (3) of the SIA 1998 these material changes need to be disclosed and press releases issued on these changes which were noted to be:
The attorney for DDL responded arguing that the transactions were not material changes.
Chief Justice Singh says he is of the view that a determination at this stage of the Section 58 (3) issue would have a pre-determinative effect on the declaratory order being sought by the plaintiff at the main trial.
But in deciding upon his ruling he noted that the council is "a regulatory body with wide powers it can take such action against persons it considers to be in default of compliance with the provision of the act and the regulations made thereunder and such action can result in grave consequences for the person or body allegedly in default." Singh says the council contends it has the power under regulation to require an issuer to provide the council such information in the form and within a timeframe it may require."
But he also notes that under Regulation 18 "the council may (not must) censure the issuer as one of the form of actions it may take."
He says the use of the word "may" indicates the discretionary nature of the council's powers.
"In my view the graver the alleged breach in the opinion of the council and bearing in mind the powers it can impose and the likely damaging consequences for any perceived offender the more...ready should the council be to grant the perceived offender an opportunity to be heard."
He says that the council complains that the court is preventing it from undertaking its statutory powers. "I have been very cognisant of this fact but consider that the court is not without the jurisdiction to ensure that in the execution of its statutory functions the council does not act in a way that derogates from the basic rules of fairness."
He cites various cases where the court has intervened when upon application it sees that an institution like the council "has strayed from the path of fair procedure."
GSC through lawyer Stephen Fraser, filed its appeal on September 10 and in its supporting affidavit said there is no provision in the legislation that requires the council to hold a hearing in respect of whether a particular transaction amounts to a material breach and that it is the duty of the issuer to disclose the material change. The affidavit says Chief Justice Singh has "by his order usurped the function of the legislature and rewritten the said Securities Industry Act 1998."
"In saying the council cannot comply because it will necessarily result in acting ultra-vires the powers and authorities conferred upon us by the said Securities Industry Act." DDL on October 12 filed an affidavit in answer in which it says that the legislation and its regulations thereunder do not purport to permit, the first defendant (council) to make its findings in this matter without giving the plaintiff an opportunity to make representations on its behalf, unlike similar legislation in other jurisdictions which expressly provides in certain circumstances."
DDL also contends that under the Constitution and at common law the council is bound to give the plaintiff an opportunity to be heard before making an adverse finding.
As for the issue of the material change... DDL's affidavit says this is not defined in the Act and whether those circumstances could reasonably be expected to have a significant effect on the market price or value of the securities ... is matter on which the reasonable opinion could be held that they could not have such an effect. Any criteria by the first defendant that would indicate the contrary should only have been adopted after giving affected parties an opportunity to make representations." DDL says the definition of material change is uncertain and ambiguous and subject to other interpretation.
"For instance Regulation 8 ...provides for the disclosure by issuers of any acquisition or disposal of assets by them where such assets "represent an amount in excess of 15% of the value of the issuer's assets or consolidated profits, as the case may be... By analogy, it would be reasonable for an issuer to conclude that the acquisitions under consideration here, which represent 1/10 of the above percentage, may not be reasonably expected to affect the plaintiff's securities." The Council initially invited DDL for talks in accordance with the order in a letter dated October 4 while noting it had applied for a stay of execution. A tentative date had been set for October 14 although this meeting did not occur.
Meanwhile, Stabroek Business understands that the council has since sent a letter to DDL questioning several aspects of the company's interim report, including its reported late publication, and the non-publication of directors' interests in the newspaper.
DDL is said to be preparing a response to the council.