Accra, Sept. 7, GNA - The Bank of Ghana (BoG) has given the green light to the Consolidated Discount House (CDH) Insurance Company Limited to restart operations, a statement from BoG said on Tuesday.
CDH Insurance Company survived a probing search of CDH Group of companies by the Central Bank, Securities and Exchange Commission (SEC) and the National Insurance Commission (NIC).
BoG in a statement on August 9 2004 said it had observed with much concern the gross mismanagement of CDH Limited, which had contributed to the erosion of its capital base to the state of insolvency and, therefore, decided to take over direct control of the Company for two weeks but this was later extended for another two weeks. CDH Financial Holdings Limited; CDH Discount House Limited; CDH Securities Limited, CDH Asset Management Company and CDH Insurance Company Limited make up the CDH Group.
Only CDH Insurance Company was found to have maintained a more distinct management structure, a positive networth and more satisfactory record keeping:
"Therefore, the moratorium placed on its operations has been lifted to enable it to resume normal operations," BoG said.
"In view of its linkages with the CDH Financial Holdings Limited, the shareholders would be instructed to take appropriate steps to insulate it from any adversities of the group."
The decision of the Bank followed a month-long investigation into the operations of the CDH Discount Company Limited and its affiliates. The Central Bank, in collaboration with the Securities and Exchange Commission and the National Insurance Commission, placed a moratorium on the operations of the CDH Discount Company Limited and its affiliates on August 9.
The statement announced that the operational licence of CDH Discount Company has been suspended until further notice.
The licences of the CDH Asset Management Company Limited CDH Securities Limited would also remain suspended by the Securities and Exchange Commission until further notice, Bog said.
Further, the activities of the CDH Financial Holdings Limited would remain frozen since it has operated as a financial institution without licence.
The statement said the shareholders had been given a 30-day deadline within which to inject fresh capital to bring the companies' negative networth to positive networth and also meet the minimum capital requirements.
"The shareholders will also be required within the specified period to submit credible management and Board restructuring programmes. "In the event that the shareholders are not able to meet the required capitalisation and the other necessary conditions thee licences of the companies would be revoked.
"The Bank of Ghana, in consultation with the Government, would like to assure all customers who purchased Government of Ghana Securities such as Treasury Bills, Notes and Bonds through CDH Discount Company Limited that the Government would honour these debt obligations."
The statement said these decisions were without prejudice to any other legal or administrative measures that could be initiated against the companies and their officials, directors and shareholders.
Giving details on their findings and the reasons for their decisions, BoG said four weeks of intensive work by staff of the companies and officials of the auditors, PriceWaterHouseCoopers and with technical support provided by staff from the regulatory agencies, unearthed several lapses.
"The CDH Group Management accounts indicated that the Group maintained a negative networth. Most members of the group except CDH Insurance Company were insolvent."
The statement said the group maintained an inappropriate management structure, which resulted in major inefficiencies with serious consequences.
"Governance practices of the companies were weak. Board meetings were very irregular and did not address critical operational issues." With the exception of the CDH Insurance Company, the rest of the companies did not keep proper records and therefore could not produce financial statements as required by law. They had also not filed Annual Returns as required by the Companies Code since 2001.
The statement said CDH Financial Holdings Limited, although not licensed under any of the financial laws, had operated in various ways as a banking/non-banking financial institution.
"The operations of CDH Financial Holdings Limited and the other members of the group, except the CDH Insurance Company Limited, revealed apparent violations of provisions of the Companies Code, the Securities Industry law 1993 (PNDCL 333) and Regulations, and the Financial Institutions (Non-Banking) Law 1993 (PNDCL 328) and the Exchange Control Act, 1961 (Act 71)."
The objectives of the exercise were, among other things, to assist the companies to update the accounting transaction records so as to prepare credible financial statements and reports, and, to establish the financial position and viability of each member group as well as the consolidated group position.
The original two-week deadline was extended by a further two weeks for a comprehensive report to be prepared by the auditors, Messrs PriceWaterHouseCoopers due to the poor state of record keeping. The companies were assessed in terms of their solvency positions, compliance with the statutory and prudential requirements, accounting records and internal controls, as well as the general operations and management practices.
Law Associates Inc, Solicitors of Mr Fred Apaloo, Managing Director of the CDH Group, described the action of the Bank as illegal and arbitrary because it did not follow laid down procedures.