Three questions on majority shareholding

THE EDITOR: The Business Community have heralded the acquisition of the majority shareholding in Republic Bank by Colonial Life (CLICO), as a resounding success. But, is it really?

(1) The Company Law of the Republic of Trinidad and Tobago does not embrace the consequences inherent in acquisitions. Therefore, we have to look at the organisation of a Company in the exercise of its functions of what can happen, and has happened in many jurisdictions, where insurance companies seek to control the banking sector. The relevant organs of the Republic Bank would be its shareholders in general and extraordinary general meetings, and its board of directors.

* In general and extraordinary general meetings; the majority shareholders, in this case, CLICO, can pass resolutions to elect new board members and set policy guidelines for the board of directors to follow. In other words, management policies can be dictated by CLICO in the general and extraordinary general meetings of Republic Bank. Given the very healthy reserve presently of Republic Bank, this can cause “frowning of eyebrows”, because by setting such policies can mitigate against the transparency of operations of Republic Bank.

* The board of directors: As a general principle in Company Law, a board of directors and each and every board member must act for the benefit of the company as a whole. However, the board of directors as we have previously mentioned, is subject to the exercise of the powers of the shareholders in general and extraordinary general meetings. Admittedly, the managing director of the Republic Bank has stated that he has had no interference from his shareholders.
However, with a majority shareholder, the board of directors have to comply with the dictates of the resolutions passed, whenever Republic Bank meets in general or extraordinary general meetings.

(2) What would be the rights of a minority shareholder?
Under Section 242 of the 1995 Companies Act, a minority shareholder, if he feels oppressed, can institute derivative action. By this action, the minority shareholder (s) will have to allege and establish oppression by the majority shareholder. In our experience in other jurisdictions, including the Laws of England and Wales, in a land mark case in 1974 (Wallsteiner V Moir), these actions are successful after the damage is done. It equates success to failure.

(3) What now can be done, to monitor closely and seek to reverse these actions?
Legislation must be introduced with retrospective effect. Such legislation would need bipartisan cooperation from both the PNM and UNC. The objective of this legislation is to ensure the efficiency of the market mechanism, whereby each and every citizen of Trinidad and Tobago can purchase shares at fair market value, rather than speculative market value in which shares of a subsidiary of the Barclay’s Bank and CIBC (Cayman) change hands to CLICO.

Since the mid-1970s, the Central Bank has done considerable research in formulating strategies for takeover and mergers. Such researchers included Mr Rabindra Moonan, who can amplify on the scope and extent of the research completed. Further, upon the 1992 victory of the PNM, marginal though it was, Dr Lenny Saith announced they would be introducing legislation on monopolies and mergers: 12 years later, and with the resumption of office and Dr Saith, the Minister of Public Administration; nothing has been done.

This is very disturbing to a citizen who is subject to the market mechanism. This is because reliance is placed on the fairness and not be exposed to any manipulation of the market mechanism. We call upon both political parties to see the necessity for a bipartisan approach, otherwise the fundamental freedom and rights as enshrined under Section 4 and 5 of the Constitution of the Republic of Trinidad and Tobago will be vulnerable to the action of market manipulators. The moral of our letter is to seek to ensure that the business community is not given uncontrolled power.

DR SHASTRI MOONAN, BSc MS MALD PhD Attorney-at-Law
BRIAN GARNER, Engineer/Accountant