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The Central Bank resolves four insolvent financial institutions to protect depositors

The central Bank says that the Monetary Board has approved a resolution mechanism for repayment of depositors

of three finance companies and legitimate investors in government securities-linked investments in Entrust Securities PLC.The three finance companies are The Standard Credit Finance Ltd., City Finance Corporation Ltd. and Central Investments and Finance PLC.

All three companies got into a chronic financial position in 2008 and 2009 due to fraud and mismanagement of funds and, therefore, these companies did not have assets to pay off deposits. All restructuring efforts made by the Central Bank,from time to time, could not produce envisaged results as those who managedthese companies failed to arrange an infusion of new capital. As a result, these Department of Supervision of Non-Bank Financial Institutions
18.10.2016 companies became insolvent and were out of business since then.

The Central Bank says that the Entrust Securities PLC, a company with a primary dealer license to trade government
securities, got into a chronic liquidity and insolvency crisis during latter part of
2015 as a result of fraudulent use of funds placed by customers for investment
in government securities. The Central Bank on January 4, 2016 suspended the
Board of Directors of the Entrust and vested its operations in the National
Saving Bank to protect the investors.
The Monetary Board reviewed the lack of progress so far and took
cognizance of the fact that there was no further room to revive these companies
to enable them to repay depositors and investors in the foreseeable future. Given
the long-delay involved so far, the Monetary Board approved the company
resolution plans submitted by the Department of Supervision of Non-banking
Financial Institutions to repay deposits and investments annually commencing
from 2017 over a reasonable period of time with a fair interest rate during this
repayment period.

In the case of the three finance companies, repayment will cover Rs. 4,868
mn of nearly 11,878 depositors. In the case of the Entrust, investments secured
with government securities amounting to Rs. 3,100 mn belonging to 107
investors will be settled in the coming weeks. In respect of unsecured
investments in the Entrust amounting to Rs. 8,508 mn belonging to 24
individuals and entities, government securities will be allocated and be repaid
under the repayment plan to be implemented with the managing support of the
Seylan Bank PLC.
The Central Bank will complete the required administrative
procedures and communicate details to all those depositors and investors. Once
the repayment plan is legally finalized, those companies will be dealt with
through applicable laws for liquidation.

As part of the resolution plans, the Central Bank will set up a new
Enforcement Division in the Department of Supervision of Non-bank Financial
Institutions to institute legal action against Directors and managers who have
been responsible for the fraud and misappropriation of funds and to make every
effort to recover such funds from them.

Therefore, all those who are stakeholders to these resolution plans are kindly
requested to co-operate with the Central Bank in order to end this long-standing
issue in the public interest.

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