Financial Times

No fines for default board firms

By Duruthu Edirimuni
So much for harping about good corporate governance and building accountability in corporate entities.

The Colombo Stock Exchange (CSE) default board has a different story to say as it exhibits 31 companies mainly for violating the rules on non-submission of annual reports for the financial year and non-submission of financial statements for the quarters. These are listing requirements of the CSE .

Rajiva Bandaranaike, Senior Manager Marketing, CSE said that the companies transferred to the default board shall remain on it so long as such non-compliance or the violation exists.

The rules state that in addition to being in the default board, the companies may be fined by the CSE Rs. 500 per day for delays in submission of half yearly reports and annual provisional accounts.

However, The Sunday Times FT learns that the CSE has still not enforced this rule in any company.

Also, there is no specific time limit to take action, such as de-listing, against companies that violate the rules on submission of their accounts.

CSE officials said that fining a company could put them in further difficulty and that de-listing a company will put the shareholders in a quandary as there would then be no way for them to dispose of their shares.

There have been nine companies in 2002 and nine in 2003 that have been transferred to the default board. One company was transferred this year and the rest have been there since 2001.

As for the investors trading in shares of companies listed on the default board, stock market analysts said that there are certain investors who are ignorant of this issue and have inadequate knowledge of stock market rules.

They said that the whole idea of the default board is to safeguard investors and issue them a warning to not invest in 'the default board companies' as they may be having issues with their auditors in relation to complying with the accounting standards.

However, others argue that the CSE transfers companies to the default board on a very strict technical basis such as not missing the deadline to submit quarterly reports by a day or so.

They said that if a company has been showing a fairly decent performance in the past and paying dividends, but is on the default board, investors still tend to trade on the company shares.

The stockbrokers said that savvy stock market players would however be very cautious in trading in default board company shares.

Chinthaka Ranasinghe, Head of Research at John Keels Stockbrokers, said with transparency and corporate governance being so important in today's context, there is definitely a question mark over companies transferred to the default board.

"How can anyone be sure that they will pay dividends on time when they cannot submit their account reports on time?" he asked.

He said that many investors do care about companies' compliance with the listing requirements and are picky about what they buy.

He said that it is recommended that such company shares should not be bought by investors.

Back to Business