Melstacorp triggered the takeovers and mergers code buy acquiring shares in excess of 30 percent in Lanka Milk Food in 2011 at 105.00 rupees a share.
The company did not make an offer to the remaining shareholders, but instead bought another stake at 99.00 rupees a share on February 15, 2012.
Melstacorp had earlier challenged the Securities and Exchange Commission in the Court of Appeal in March, where the regulator said the firm was required to compensate minority shareholders or sell its stake, after its purchases of a related company, Lanka Milk Foods.
At court on July 04, SEC had settled to withdraw its case at the Colombo Magistrates Court, after Melstacorp agreed to comply with its ruling and make an offer of 105.00 rupees a shares to LMF’s remaining shareholders.
The judge also released Melstarcorp directors on a personal bail of two million rupees each, the SEC notice said.
Full SEC statement
The Securities and Exchange Commission of Sri Lanka (SEC) instituted proceedings on June 2012 in the Colombo Fort Magistrate Court against Melstacorp Limited and its Board of Directors for their failure to make a mandatory offer at Rs. 105 per share to the shareholders of Lanka Milk Foods (CWE) PLC (LMF) when they allegedly triggered the Takeoyers and Mergers Code ('the Code') on 13th September 2011 in terms of Rule 31(1) (b) of the said Code. The Hon. Magistrate on 19th June 2012 issued summons on the Defendants returnable on 4th July 2012.
In this case the Company, Melstacorp Limited without having made a mandatory offer at Rs. 105 per share to the remaining shareholders of LMF within thirty five days of having triggered the Code on September 2011, bought a further parcel of shares on 15th February 2012 at Rs. 99 per share.
When this matter was brought to the notice of the SEC, the Commission acting in terms of the powers vested in the Commission in terms of the SEC Act No. 36 of 1987 (as amended), having considered the nature of the violation gave the following determinations to Melstacorp Limited to comply with by letter dated 5th March 2012 as a remedial measure.
”That Meistacorp Limited should extend a mandatory offer to the following shareholders of LMF at an offer price of Rs 105 per share;
1. (a) To all the shareholders of LMF (other than the parties acting in concert with Melstacorp Limited) as at 13th September 2011; and
(b) To a|1the current shareholders of LMF (other than the parties acting in concert with Melstacorp Limited).
2. If any shareholders belonging to category (1) above, have disposed of any LMF shares during the period 13th September 2011 to 15th February 2012 at prices below that of Rs 105/- per share, Melstacorp Limited must pay the balance to such shareholders, irrespective of the parties the shares have been sold to.
lf Melstacorp Limited is unable to implement the above two specified conditions, in toto it should divest forthwith such quantity of shares of LMF as will result in the company avoiding liability under Rule 31 (1)
(a) or (la) of the Takeovers and Mergers Code."
Melstacorp Limited whilst admitting their obligation to make a mandatory offer to the Commission refused to comply with the direction to pay the compensatory balance to the shareholders of LMF who had disposed of their shares between 13th September 2011 to 15th February 2012 at a price below Rs. 105 per share and wanted the Commission to restrict the computation of the period to a period of 60 days in order to pay the compensatory balance as stipulated in (2) above. The Commission after having considered this request saw no valid reason to change its original decision and requested the Company to implement the determinations conveyed by SEC's letter dated 5th March 2012 without further delay.
For this purpose, the SEC even extended the time period within which for the Company to do so.
Melstacorp Limited did not comply within the stipulated time period and filed a Court of Appeal Application against the Commission and its Members seeking inter olio, writs of certiorari to quash the determination of the Commission that, Melstacorp Limited must pay the balance to such shareholders of LMF who have disposed their shares during the period of 13th September 2011 to 15th February 2012 at a price below that of Rs. 105 per share irrespective of the parties the shares have been sold to, and also to quash the determination of the Commission which states that "if Melstacorp Limited is unable to implement the determinations given on 5th March 2012 in to to divest such quantity of shares of LMF immediately so that the Company is no longer liable under Rule 31( 1) (a) or (b) of the Takeovers and Mergers Code”.
However Melstacorp Limited did not support this matter in the Court of Appeal on two consecutive occasions when the matter came up for support. As such as ofthe date of going to press no notice on the Commission has been issued by the Court of Appeal nor any interim relief been granted against the Commission by the Court of Appeal.
As Melstacorp Limited failed to implement the determination of the Commission which was issued on 5th March 2012, in its totality, the Commission filed action in the Colombo Fort Magistrate Court against Melstacorp Limited and its Board of Directors for their failure to make a mandatory offer to the shareholders of LMF within thirty five days of triggering the Code, in terms of the provisions of the Securities and Exchange Commission of Sri Lanka Act No 36 of 1987 (as amended). The Hon. Magistrate of Colombo Fort on 19th June 2012 issued summons on the Defendants returnable on 4"1 July 2012.
In the meantime Melstacorp Limited by its letter dated 228th June 2012 has made an application to the SEC seeking a settlement agreeing inter alia, to unconditionally follow the determinations of the SEC dated March 2012 and to withdraw the Writ application filed by them in the Court of Appeal against the SEC, if the SEC would consider withdrawing the action filed in the Magistrate's Court against the Company and its Board of Directors.
When this case was taken up in Court this morning (fourth July 2012) the Colombo Fort Magistrate, Hon. Kanishka Wijeratna fixed the said matter for inquiry or settlement on 21St September 2012 after Mr Darnith Thotawatta, Senior State Counsel, appearing for the SEC informed Court that the Defendants had made an application for settlement to the SEC and the said matter was under consideration by the SEC. The Defendants were released by the Honourable Magistrate on personal bail of Rupees two Million each.
The SEC's secretariat has now been notified that the Members ofthe Commission have considered the request for settlement conveyed by the letter dated 28th June 2012 and the terms of settlement contained therein and has agreed to withdraw the case as a settlement subject to the prior fulfilment of the following conditions by Melstacorp Limited.
1. that Melstacorp Limited unconditionally withdraw the CA (Writ) Application number 127/2012 filed by the company against the SEC and its members in the Court of Appeal with due notice to the SEC as to the date this matter will be supported for withdrawal in the Court of Appeal and
2. unconditionally implement in toto the determinations of the SEC dated O5th March 2012