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NIB US$90m judgment debt - More questions than answers

BY: Enoch Darfah Frimpong

Dr Percival Kuranchie - MD, NIBThe US$90 million judgment debt against the National Investment Bank (NIB) by the Commercial Court shows a carefully spun web of complex financials acts by some key former officials of the bank to bring the once vibrant finance house to its knees.

The court had ruled that NIB was to pay Dominion Corporate Trustees Limited, a UK-based offshore company US$90 million for the bank’s failure to pay up for promissory notes worth US$60 million it guaranteed in 2007 through the former Managing Director of the bank, Mr Daniel Charles Gyimah, who allegedly did the transactions on the  blind side of the board at that time and other management staff.

By the terms of the Aval guarantee, the investors in the notes were entitled, upon maturity of the notes, to claim its value directly from the NIB without recourse to Eland International Ghana Limited.

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Though officials of the bank have served notice to appeal against the judgment and have moved to assure the customers to remain calm, there are worries that the ruling could affect the prospects of the bank.

The bank said in a release that “we want to reassure customers that their monies are safe with the bank and that any information alluding to a collapse of the bank and a loss of customers’ monies are totally false”.

 The release further stated that the bank would immediately “exercise its right to file an appeal and order a stay of execution against the ruling”.

The bank further states that the “verdict of the judge did not reflect the facts that were presented before the Court and therefore believes that the Court of Appeal will uphold its appeal and reverse the orders made by the Commercial Court”.

The biggest concern, however, is that the issuer of the promissory note, Eland International Ghana, who has defaulted in the payment was rather left off the hook.

Eland International Ghana issued 30 promissory notes with a face value of US$2 million each all totaling US$60 million for its business.

The notes were discounted at 75 per cent, which meant that investors actually paid US$45 million and at maturity were to be paid a total sum of US$60 million, thereby making a profit of US$15 million.

 The US$45 million was paid into Eland International escrow by Sphynx PCC and Iroko Securities Ltd and deposited into the NIB account at the Ghana International Bank in London.

Within two weeks, the monies had been disbursed same in various amounts in favour to the following beneficiaries: International Caps Trading Pte Ltd, AA International FZE,  Sphynx   Ltd USA and named individuals in the persons of Avind Kumar Bhatnagar, Eland International Ghana, and the son of Mr Daniel Gyimah, Mr Stephen Gyimah on the exclusive  instructions unlawfully  issued by the then managing director of the NIB Mr Daniel Charles Gyimah.

According to the bank, the former managing director single-handedly sign and committed the bank to the guarantee per aval in the quantum of US$60 million a sum which is more than 100 per cent of its mandate by provisions of the Banking  Act 2004 (Act 673) and other extant  laws  and regulations  in the country including  the regulations of the bank.

But the big issue that the bank has to contend with is whether it can move and sue Eland International  Ghana  Ltd  to recover the funds or if the bank can charge the former managing director for willfully causing financial loss to the bank through his actions and inactions.

Furthermore, it would be important for the veil to lifted on the beneficiaries of the US$45 million.

Again,  whether the bank can  lift the veil of incorporation  of  Eland International Ghana Ltd  to find the real directors and owners of the company and subsequently sue them for breach of contract.

For a bank that was rescued by the Bank of Ghana with some GH¢75 million to salvage it from total collapse a few years ago, the ruling if not reversed may have dire consequences on bank going forward.

 The bank had before the US$90 million judgment debt being on the mend trying to bolster its fortunes with an investor memorandum, which is aimed at raising some US$125 million.

NIB was established by an Act of Parliament in March 1963 - the National Investment Bank Act (Act 163), with an authorised capital of £10 million pounds sterling   of which as much as 75 per cent was taken up by the government and the remainder by the public.

As at  December 31 2011, its stated capital stood at GH¢70 million.

The bank presently boasts of being the biggest provider of medium and long-term loans, as well as working capital to its numerous customers It says that it has been a market leader in arranging and providing funds from various sources for on lending.  However, with the latest court ruling, the bank’s core operations may be at risk.

Despite government being the majority shareholder of the bank, NIB which is a limited liability will have to cough up the money.

It is unclear whether the bank will be able to cough up this amount, but according to a copy of the bank’s latest audited financial statements, the balance sheet shows total assets of GH¢879 million as at December 2011.

Total shareholders’ fund is about 10 per cent of total assets at GH¢84 million. With the current exchange rate  the debt slapped on the bank stands at GH¢180 million, thus more than twice the amount of shareholders’ funds.

However, NIB has intimated that it will appeal the court’s ruling. An appeal could either confirm or overturn the ruling of the lower court. If the decision is upheld, the dents will wipe off the shareholders’ funds.

At their annual general meeting on 10th May last year, the bank passed a resolution to increase its ordinary shares to one billion ordinary shares of no par value plus 500 million preference shares.  Should the bank succeed in its appeal the bank will not be made to settle the US$90million judgment debt.

Story by Suleiman Mustapha/Graphic Business