Judge blocks attempt to wind up EFCL

A HIGH COURT judge has sternly rejected a petition by the Education Facilities Company Ltd (EFCL) to have the company wound up.

On Thursday, Justice Carol Gobin dismissed EFCL’s petition which was objected to by dozens of contractors who said they were owed millions for unpaid contracts.

She also had some harsh criticisms of the move to wind up the company even as it owed contractors millions.

“I have found that the government deliberately starved EFCL of funding – guaranteeing its demise, even as its corporate purpose could not have been said to be spent or frustrated. There could be no more cogent or conclusive evidence of control.

“This was a chokehold followed by a winding-up petition, the purpose of which was to have the court certify the death.

“It hardly requires further proof.”

In April, last year, the EFCL asked for permission to be wound up. The judge rejected the assertion of insolvency.

In its petition, the EFCL said it had no income, had ceased to carry on the business of project management, was insolvent, and could not meet current debts from cash or other assets.

It asked for its petition to be granted in the public’s interests since it could not repay its debts – estimated at $889,561,246 – to contractors for work done.

The EFCL’s petition outlined the company’s debt woes which totalled $46,737,205.09 at the time the petition was filed.

EFCL has not paid. The sums are in addition to the $800 million owed to contractors.

The company also has 79 unsatisfied judgments/awards, some of which date back to December 2016. The total amount owed on those judgments/awards, up to February 25, was $321,376,009.75.

It also said some $112 million ordered to be paid to contractors was not reflected in invoices in EFCL’s possession and it was also, at the time, defending 30 claims in which $119 million was being demanded.

The debt plus millions of dollars in court judgments against it, led to the State's decision to close down the company, the petition said.

In denying the petition, Gobin said there was no dispute that it is unable to pay its debts.

However, she agreed with the objectors' complaints that allowing the entity to be wound up was an abuse, and will deprive them of their property.

Gobin said the EFCL was different from the ordinary company.”

“A company which is wholly owned by the corporation sole is unlike the ordinary private commercial company.

“Unlike shareholders in private corporations, the corporation sole is accountable to the Parliament and to the citizens of this country, first under the Constitution of our Republic. “

She said to allow a winding up, in the absence of accountability by a corporation sole or state enterprise, was “impermissible.”

“It is hard to resist the conclusion that the petition is presented in an attempt to supplant constitutional, statutory and monitoring policy –with a box-ticking exercise…This is an abuse.”

“...Respect for the separation of powers does not require a court to ignore the attitude of the minister to his responsibilities to the Parliament and by extension the public.”

In her decision, Gobain maintained, “There is no cogent evidence of a recommendation of the directors that EFCL should be wound up.

“...I have formed the view that this was a decision of the shareholder only. The petition is presented by the shareholder.”

She went on to add, “ I have considered the evidence and I am not satisfied that the petitioner has discharged the burden of proof.”

She said a joint select committee of Parliament report on the EFCL, “clearly identified” that the company’s challenges were “essentially caused by a lack of funding and reduction in

the number of projects.

“Government could only have intended the inevitable consequences of its actions.”

“...The evidence clearly established that the dire financial position in which EFCL finds itself and which rendered it “insolvent” is a direct result of the starving of funding and halting its flow of projects by the government.

“...It is hard to understand given the constitutional, statutory and monitoring

policies which govern state enterprises, how the Minister of Finance can claim ignorance of or no responsibility for the mess.

“The buck stops with the corporation sole. The attempt to lay the blame for the alleged financial accounting and audit failures exclusively at the feet of the company is, in the absence of explanations as to why the corporation sole and the Ministry of Education failed to discharge important monitoring and oversight functions, is rejected.”

She also said the evidence before her established “gross recklessness” when it came to litigation brought against the company.

“Substantial default judgments were entered with interest accumulating by the day. The debt was simply allowed to mount. It is astounding that this was allowed to happen with a seeming disregard for the effects on the public purse.

“When this recklessness is viewed against the grounds in the petition, it is hard to avoid a level of cynicism.”

In her hard-hitting decision, she also described the MTS arrangement as the “most disturbing aspect of the petition,”

The EFCL was moved under the “direct management” of the Finance Ministry. In 2018, the MTS took over school repair projects for the Education Ministry.

“EFCL is unable to carry out the objects for which it is established only because of the execution of a deliberate plan to redirect project management services through another company.

“And this has been achieved while citizens including the several objectors who are owed debts for services provided through EFCL have been left without their payment. The corporation sole has moved on.”

Gobin maintained that state companies were not the private property of the shareholder.

“They cannot be allowed to become pawns in a game which allows arbitrary shutting down of one while another’s portfolio is expanded to absorb its activities especially when creditors of the former are left foundering.”

She said there was no evidence as to whether procurement under MTS is now being managed by the finance ministry or the details of the arrangement.

“This raises a wider issue of the bona fides of the petition and the purpose of it,” she said since the issue was raised by an objector and not the petitioner.

“The claim that EFCL has not been providing services and so should be wound up when it has been replaced by another company on government’s directive, is without more, misleading.

“It is quite absurd when proffered as a ground for winding up. No evidence has been provided to demonstrate that MTS is any better organised…

“What has been achieved from the move over from EFCL to MTS facilitates a troubling degree of arbitrariness. It raised suspicions of deliberate manipulation to wield unfairness and unequal treatment of creditors. This did not assist the petitioner’s credibility.”

She also said the premises for the claim that it was “just and equitable” to wind up the EFC “no longer stands.”

Gobin further noted there was “clear acknowledgement” by the Cabinet of EFCL’s debts and to allow the winding up and appoint a liquidator would only lead to a complex, drawn out and costly exercise.

“A liquidator can bring nothing to the table in these circumstances except perhaps some temporary reprieve for the State.”

She also said the corporate veil - which, metaphorically symbolises the distinction between a company as a separate legal entity and the shareholders - was “voluntarily removed” by the Government itself exposing it to liability and enforcement by those contractors who say they are owed millions.

According to the judge’s reasons, the EFCL should be “assimilated” into the Government which may be liable for its debts.

She also held that the claims by the contractors that the Government would have been unjustly enriched because they fulfilled the terms of their contracts “could not be disputed.”

In her ruling in which she sided with the objectors, Gobin also segued to discuss the procurement legislation. She said the April 2023 proclamation was “rightly hailed” as the most significant piece of legislation since Independence.

However, she said, “History has a way of repeating itself. It is with a sense of déjà vu that the country looks on as the vexed issue of exemptions has already begun to rear its head.

“Of the first two approved by the legislature is one which concerns procurement by the Judiciary.”

She said that this came after the Judiciary expressed administrative concerns to the law was a “ cause for consternation.”

“It is deeply embarrassing. In the absence of full disclosure by the Judiciary, the public has been left guessing as to whether the Judiciary was unready, unable or simply unwilling to comply with the law.

“A public response may go some way to quelling the concerns.”

ABOUT THE EFCL

The EFCL was established in 2005, under the then Patrick Manning-led Government, as a special purpose company tasked to be the executing arm of the Ministry of Education in terms of construction of new schools and the continuous refurbishment/repairs to existing schools.

The EFCL used the services of local private contractors to source workmen and material to build/repair schools.

In March, last year, the Joint Consultative Council for the Construction Industry (JCC) said it was alarmed at the manner in which the Government has chosen to deal with the winding up of the EFCL. "

It said in a statement, "The EFCL owes well over $600 million to its creditors, of which the majority comprise monies owed to contractors and consultants, most going as far back as 2015.

"Acting on behalf of the Ministry of Education, the EFCL engaged private companies to provide goods and services for which they did not have the funds set aside to pay.

The financial hardship imposed on companies by this refusal of the ministry/EFCL to pay legitimate debts after their own several due diligence audits, and even after lawful judgments, since 2016 has forced some private companies to downsize and others to simply fold up."

LEGAL TEAMS

EFCL as petitioner: Deborah Peake, SC, Ravi Heffes-Doon, Tamara Toolsie, Savitri Sookraj-Beharry.

Objectors: Avory Sinanan, SC, Devesh Maharaj, Ajay Babal, Kelly Cabral for Quipcon Ltd, Atlantic Project Consultants, Adam’s Project Management, GM TRansport and Frank Mahabir.

Renisa Ramlogan for Pricemaster Hardware, Ultra Lift Ltd, D’Abadie Discount Hardware and Parksquare Development.

Prakash Ramadar, Ted Roopnarine and Nira Boodan for Mikhail Heerasingh, Winston Seenath for Valens General Contractors and Mata Pollard for Tohmatus Technologies.