Disputes, probes and crisis - The corporate world shaken

For quite some time now, a few big names in the corporate world have been hitting the headlines, some for all the wrong reasons. Whether it’s the MCB or Air Mauritius, Mauritius Telecom or CIM Finance, they all have their respective tribulations impacted on their services, their customer base or on the economy in general?

The recent judgment delivered by the Intermediary Court, finding the Mauritius Commercial Bank Ltd guilty, is another big blow to our banking and financial services sector. The Court concluded that one employee of the bank was vested with too much authority, and this allowed him to commit a fraudulent act, to the detriment of the National Pensions Fund (NPF). The Court also highlighted that the internal control system was inadequate, thus liable to be misused.  The case has dragged on for nearly 15 years. Readers will recall that the matter broke out when a massive fraud to the tune of Rs 886 million was discovered by the bank in 2003, causing serious prejudice to the NPF. The bank has decided to appeal against the Court’s decision.

Air Mauritius: A turbulence costing Rs 242 million
Air Mauritius is another big corporate name caught in severe turbulence. It all started when on 5 October, 11 pilots called in sick. The airline was then forced to cancel four flights, leaving hundreds of passengers stranded. Air Mauritius reacted by dismissing three pilots and the government even cancelled the residence permit of one of them, a foreign citizen, and threatened to deport him.  The latter managed to obtain a Court injunction to stay on the island. The pilots claim to be operating at their maximum legal and physical limits due to a severe shortage of pilots, hence their demand for review of working conditions. The tug of war with Air Mauritius has been ongoing since long, with no decision reached. According to the authorities, the ‘disguised strike’ has resulted in financial losses amounting to Rs 242 million as various flights had to be cancelled, causing immense inconvenience to passengers.

Swan: No takeover of Medscheme
Swan General Ltd (Swan) and Medscheme (Mtius) last year applied to the Competition Commission of Mauritius (CCM) in relation to a proposed acquisition of 51% of the issued shares of Medscheme by Swan. The CCM initiated a review in the form of an investigation into the proposed transaction under the merger control provisions of the law. During the investigation, the CCM assessed whether the proposed acquisition is likely to result in substantial lessening of competition within the markets for health insurance, health insurance administration services, acquisition of health services in Mauritius. However, in December 2016, the parties informed the CCM that they no longer intend to proceed with the proposed transaction. Consequently the merger situation that was being reviewed, ceased to exist and hence there was no merger situation to be reviewed. Consequently, the investigation has been discontinued with no further action.

Mauritius Telecom: Damages to Emtel
In August 2017, the Supreme Court issued a ruling in favour of mobile network operator Emtel in a case dating back 20 years. Emtel had previously accused Mauritius Telecom of unfair competition, while arguing that the Information & Communication Technologies Authority (ICTA), as the regulator, had failed to act. Emtel was awarded an exclusive GSM contract from 1 January 1989 to 31 December 1995, while in March 1996 Mauritius Telecom launched mobile activities via its subsidiary Cellplus Mobiles Communications, despite not being granted a licence to offer such services until 5 September 1996. With the judge ruling that Emtel had suffered in the period where Mauritius Telecom was offering mobile services without a licence, it was also determined that the ICTA had failed to intervene in the matter. As a result, Emtel has won damages to the tune of Rs 554 million. The losing parties have decided to appeal against the decision.

Resale Price Maintenance: Amnesty Programme attracts many
On 05 June 2017, the Competition Commission of Mauritius (CCM) had launched an ‘Amnesty Programme’ for resale price maintenance (RPM), offering a one-off and time-limited opportunity to any enterprise involved in RPM to report such conduct and undertake to comply with the Competition Act 2007, in exchange for immunity from financial penalties. The RPM Amnesty, initially made available for a four-month period until 5 October 2017, has subsequently been extended to 20 October 2017, in view of the successful response rate of companies. Many big names in the corporate world are likely to be practising RPM, whether deliberately or unintentionally, and they wish to become compliant. It should be noted that RPM is illegal in Mauritius under the Competition Act. RPM exists with a supplier establishing the minimum or fixed price or price level at which the product must be re-sold to customers, thus impeding the discretion of resellers to cut prices. Even where a supplier ‘imposes’ a minimum price, fixed price or price level to be observed by the reseller, it may amount to a RPM, irrespective of whether the reseller agreed under pressure.

Chicken market probe lays no egg
Innodis Ltd, Panagora Marketing and Avipro Ltd were recently under scrutiny by the competition watchdog for alleged potential collusive agreements to fix price or quantity of chicken in Mauritius. However, in May 2017, the Competition Commission ruled out that there was no evidence that these companies have breached the provisions of the Competition Act. The investigation lasted nearly five years. Panagora Marketing Co Ltd, Avipro Co Ltd and Innodis Ltd all supply chicken products and are competitors on the market for chicken. During the investigation, the Executive Director assessed three forms of potential collusive agreements, namely: a) Potential agreement to increase price of chilled chicken relative to price of frozen chicken; b) Potential agreement on price parallelism; and c) Information exchange and facilitating practices. There were evidences of contacts and communication between the parties, but these occurred before the coming into force of the relevant legislation. Thus, such conduct was not illegal at that time.

CIM: An undertaking given
Cim Finance Ltd has offered an undertaking to the Competition Commission (CCM) in relation to the fees charged to merchants for using its hire purchase facilities. The Undertakings follow a review by the CCM of the conduct of Cim Finance Ltd in relation to the difference which exists between the merchant fees charged to different merchants. Cim Finance Ltd offers via merchants, hire purchase facilities to end consumers for which it currently charges an interest rate (the maximum Annual Percentage Rate (APR) of this interest is capped at 12. Cim Finance Ltd also charges merchants providing hire purchase facilities supplied by Cim Finance Ltd a merchant fee, also known as a ‘merchant discount’. The CCM was concerned that smaller merchants are charged significantly higher merchant discounts as compared to larger ones. This difference in the merchant fee, can, amongst others, prevent, restrict or distort competition among merchants by putting smaller merchants at a competitive disadvantage and hinder their ability to compete with larger merchants, increasing barriers to entry in the market for hire purchase and constituting an exploitative conduct. Following the review, Cim Finance Ltd has promptly and proactively offered Undertakings to the CCM to bring remedial actions.

New Mauritius Hotels: Storm in a teacup?
New Mauritius Hotels (NMH) faces controversy over a share acquisition transaction by Rogers, ENL and Swan groups. Sunnystars Holding, a minoity shareholder in NMH, contested the transaction. There have been various media reports on the subject. On 20 February 2017, the Financial Services Commission (FSC), referring to the allegations reported in the press relating to dealings in shares of New Mauritius Hotels Ltd, stated that, from the evidence gathered so far and the materials available on record, it does not consider that any breach of the Securities (Takeover) Rules 2010 has taken place. However, on 30 March 2017, the FSC appointed Mr Kriti Taukoordass as Investigator to carry out a special investigation into whether there may have been a breach of the Securities Act and the Securities (Takeover) Rules 2010 in relation to the transactions, concerning the shares of New Mauritius Hotels Limited, by Rogers and Company Limited, ENL Land Ltd and Swan Life Ltd. On their side, ENL Land and Rogers reiterate having followed all due diligence procedures during the transactions, deny any breach of any legal provisions and dismiss all allegations made in the press.

 Arvind Nilmadhub : “No major impact”

Economist Arvind Nilmadhub states that the court judgment in respect of the Mauritius Commercial Bank will have no major economic impact, as the bank is very robust and stable. “This judgment may however serve as a lesson to the banking community and financial institutions at large so that those responsible ensure their systems are foolproof. The judgment will also be remembered for long but will not affect trade or investment of even FDI flow. Regarding the issues affecting other companies, it’s business as usual.”

 Eric Ng : “No risk for shareholders”

Eric Ng, economist, says that the recent judgment against the Mauritius Commercial Bank Ltd will have no impact, neither on the economy, nor on the Stock Exchange or on investment in general. “It must be noted that the disputed sum, i.e Rs 886 million, has already been refunded to the NPF account since long. Financially the shareholders of the bank do not risk anything and the share price is also not at risk. Regarding reputational risk, I don’t think the bank will suffer as, strictly speaking, it’s not the bank that is guilty but one of its employees who abused the system, and this dates back to 15 years ago. By now, the system has been reinforced. At that time, probably, it was not. Bank customers also have nothing to lose.”