September 6, 2024
Introduction
Today’s Commentary returns to the saga of the Banks DIH Limited and its share exchange which has roiled the market, creating a huge problem for insurance companies, commercial banks and pension schemes. Meanwhile the company displays hubris, disdain and contempt for its shareholders, almost inviting them to go to court. Like the politicians, Banks claims that it “has the votes”, less than ten percent of shareholders by number – but with four shareholders accounting for 82% of the votes cast – to compel all shareholders to exchange their shares in a company that has operated successfully for 68 years to become a shareholder in a shell holding company.
The manner in which the Company has gone about this Scheme of Arrangement is amateurish, without a proper understanding of the law, and violative of every element of transparency, shareholder relationship, basic communication and good corporate governance. In its haste to disenfranchise its shareholders, the company appears to have overlooked the definition of a shareholder to include “a person who agrees to become a shareholder and whose name is entered in the company’s register of members.” [s. 535 (u) (i) of the Companies Act[.
As if that were not bad enough, the company did not address in its application to the Court, or at the Special Meeting of the shareholders, the requirement of section 219 (1) ( e ) for provision to be made for any persons, who within such time and in such manner as the Co directs, dissent from the compromise or arrangement. It is regrettable and unfortunate that the Court did not appear to consider this vital minority shareholder protection in giving its approval of the Scheme of Arrangement. This oversight was compounded by an ex parte application from which the regulator, or any person acting on behalf of the minority shareholders, was excluded. Was this an accident, an oversight or a recognition that such a scheme, properly interrogated, had little chance of succeeding and its only recourse was this awful option.
Emboldened by its victory over unsuspecting shareholders, the company is now on a campaign of coercion to have shareholders exchange their shares in Banks DIH Limited for shares in a company of which they know nothing, and which is no more than a shell. But there is a truly consequential matter of law which the company appears not to know or understand: and that is that for the acquiring company, the pre-acquisition profits of a subsidiary are capital and not revenue. By allowing themselves to be duped into the share exchange, shareholders are giving up some $53,400 Mn. of distributable profits.
Alphabet/Google vs. Banks DIH/Banks DIH Holdings
A couple nights ago, on a Private Sector Commission group chat, there was circulated, without comment or identity, the following:
‘Alphabet Inc. will replace Google Inc. as the publicly traded entity and all shares of Google will automatically convert into the same number of shares of Alphabet, with all of the same rights. Google will become a wholly owned subsidiary of Alphabet. Our two classes of shares will continue to trade on Nasdaq as GOOGL and GOOG.’
Whether this is a case of a “little knowledge” can only be speculated, but it seems that another PSC former official was the purveyor of the post. Surely context matters and Delaware, USA laws applicable to cannot Alphabet/Google cannot be assumed to apply to Guyana. In fact, it is inapplicable. Here are some of the principal differences. The Alphabet and Google 2015 transaction was no sham restructuring, but a genuine separation of Google’s core businesses from its other more risky ventures and projects, such as self-driving cars. If not by design, but surely in effect, the only change is that pre-SoA Banks DIH shareholders are cancelled and become shareholders of a new holding company, a separate legal entity hiding behind what lawyers call a veil. Other than this unequal exchange, there is no restructuring with Banks DIH continuing to hold its subsidiaries, including Citizen’s Bank Limited and Banks Automative and Services Inc.
Another reason for the Alphabet/Google exchange was to increase transparency. In the case of Banks DIH Limited, the motive is the very opposite. No more would shareholders be able to ask questions about Banks’ procurement policies, or the logic of transactions passing through Florida on their way to Europe, or question the role of its directors, independent and non-independent. Under the new Arrangement, a handful of directors, including Banks DIH Chair and CEO, will form the entire Board of the holding company.
Regulatory oversight
The Alphabet/Google restructuring was subject to rigorous regulatory scrutiny by the U.S. Securities and Exchange Commission (SEC). Alphabet’s Form 8-K filing was highly comprehensive, with detailed financial disclosures, governance changes, and segment reporting. The regulatory filings included risk factors, pro forma financials, and extensive information to ensure transparency and protect shareholder interests. The Form had over one hundred Exhibits, full particulars of the directors and officers, compensation plan, Code of Conduct and Transfer Restriction Agreements with Directors.
Banks DIH went surreptitiously and directly to the Courts, bypassing the Regulator, not once but twice. And the only document of any relevance is a report used as the basis for the action which is hidden from shareholders because it is confidential. Again, I ask whether the battery of advisers is aware of section 140 of the Companies Act. Maybe it realises that compliance would require recognition of dissenting shareholders. Whatever it otherwise is, this is a clear case of contempt for shareholders and disregard for corporate governance.
Transparency
Alphabet provided investors with detailed disclosures, including segment reporting and, likely, pro forma financial statements to help investors understand the financial implications of the new structure.
Banks DIH has offered none. Shareholders did not have any information to make an informed decision and those who supported the resolution were taking a shot in the dark, a leap of faith in a company whose share price slid from $300 in March 2022 to $108 in April 2024.
While the Scheme of Arrangement states that the new exchanged share will be listed at the price of DIH shares at the time of delisting ($180), the SOA states that those shares have been valued at $1 each! Maybe the directors will explain why a share valued at $1 will be listed at $180.
Retained Earnings
When Google restructured into Alphabet, Alphabet was not subject to any restrictions on retained earnings as is the case in Guyana. No wonder then, as the SOA has volunteered, the shares in the new holding company are valued at $1 per share.
Conclusion
Meanwhile, there is no trading in the shares of Banks DIH Limited while Thirst Park tries its best to persuade shareholders to exchange their shares, and to get the belated approval of the Guyana Securities Council. As other companies which have sought to privatise public companies, including J.P. Santos Limited and Guyana Stockfeeds Limited, Banks DIH Limited will never be able to reduce the number of its shareholders below 50, the “private company” requirement under the Securities Industry Act. So, there will be two public companies, Banks DIH Limited and Banks DIH Holdings Inc., one which is traded on the Stock Exchange, and the other not traded.
Did these companies not consider this possibility as well? Or will they now seek another Court Order by the ex parte route? One wonders whether in his sunset years, Chairman Clifford Reis and company will be able to fix the worst company law/corporate governance fiasco in Guyana’s history, all of their own making. Directors have two principal duties – a fiduciary duty to the company which encompasses its shareholders and employees as well as a general duty of care. It would be a colossal tragedy if these are sacrificed on the altar of anyone’s ego.