This followed the acquisition of 5% of LMF by Melstacorp on September 13, 2011 with the SEC contending that this acquisition had triggered an obligatory mandatory offer requirement.
This was on the basis of that Melstacorp was acting in concert with Distilleries Company of Sri Lanka and Milford Exports (Ceylon) Limited who together controlled less than 50% of the voting shares of LMF when they acquired the 5% on September 13, 2011.
SEC has said in its annual report that although the company had first admitted that they had triggered the mandatory offer requirement, "despite several opportunities given by the SEC to correct the breach of the rule" the company had failed to do so. The SEC has thereupon instituted legal action in the Magistrate’s Courts.
Melstacorp then sought a writ in the Court of Appeal disclaiming liability on the ground that it was already in management control of LMF and sought the revocation of the SEC directive issued on March 5, 2012 requiring the mandatory offer.
In July 2013, Melstacorp had applied to the SEC to settle this matter pending before the Appeal Court and the case the SEC had filed against Melstacorp and its directors in the Colombo Magistrate’s Courts on the basis set out by LMF in their statement of objections filed in the writ application in the Appeal Court.
This stated that Mills Enterprises Limited was an additional party acting in concert with Distilleries Company and Milford Exports at the time Melstacorp purchased the LMF shares in September 2011. Including Mills as a party acting in concert took the interest of the parties in concert to over 50% of LMF thereby negating the mandatory offer requirement.
The SEC said that this fact had not been disclosed by Melstacorp initially to either the SEC or the Court, previously.
The SEC noting that Melastacorp had not associated itself initially with Mills as a party acting in concert prior to the issuance of the SEC directive of March 2012, nevertheless decided to accept Melstacorp’s explanation and give it the benefit that Mills, by construction, was acting in concert with the members of the consortium that increased their stake in MLF in Sept. 2011.
Mills shareholding had taken the aggregate shareholding of all parties acting in concert in LMF to over 50%, thereby removing the necessity to make a mandatory offer in terms of the Code.
The SEC has decided to accept this explanation although Melstacorp had not named Mills Enterprises as a party acting in concert prior to the SEC directive of March 2012 for the institution of the court case.
The SEC has therefore withdrawn its directive of March 5, 2012 requiring Melstacorp to make a mandatory offer under the Takeovers and Mergers Code and Melstacorp had withdrawn the Writ application in the Court of Appeal and the SEC has withdrawn the case filed in the Colombo Magistrates Courts against the Melstacorp and its directors under the terms of the settlement.