Bharath: Government can remove unwanted state board members if needed

FORMER ministers in the ministry of finance Vasant Bharath and Mariano Browne have offered advice on the appointment of boards of directors of state and state interest companies after the April 28 general election.

The UNC won the election 26-13-2. The boards of these companies were appointed under the previous PNM government from September 7, 2015 to April 28.

They made their comments after statements made by Prime Minister Kamla Persad-Bissessar on this topic at a post-cabinet news conference on May 29 and developments at some of these companies.

On May 29, Persad-Bissessar said, "I want to tell all boards who are refusing to resign… we are calling upon them to do the right thing.”

She added while most directors had complied, there were some who had not.

In a statement on June 4, Bharath said, "The practice of board turnover at elections reflects Trinidad and Tobago’s Westminster tradition."

Bharath said, "It has become a custom and governance norm that state-controlled boards offer their resignations on a change of administration as new governments typically prefer boards aligned with their policy mandates."

But he added, "However, changes should be measured and cautious because although alignment is beneficial, wholesale change can lead to a state enterprise without a board that cannot function effectively."

Bharath acknowledged Persad-Bissessar's recognition of the conventional stance that directors of companies where the state had an interest should resign when a new government assumed office.

He also noted Persad-Bissessar's promise that capable directors could be reappointed.

"Constitutional and corporate rules make clear, however, that this is a principle of political convention, not a legal requirement."

Bharath said, "In fact, the Constitution itself contains no provision automatically ousting boards on a regime change. It simply defines “controlled” enterprises (by share or director majority) for oversight purposes."

He drilled further into the issue.

"For state‐owned or state‐controlled firms incorporated under the Companies Act, removal of directors follows general corporate law. Section 75 of the Companies Act allows shareholders to remove any director by ordinary resolution at a meeting."

He said, "In practice, the government (as shareholder via the minister of finance as 'corporation sole”) can convene such a meeting to vote out directors."

Bharath examined state entities such as the Water and Sewerage Authority (WASA) which were established by specific acts of parliament. This legislation prescribes how board members are appointed or removed. These changes are usually done either by the line minister for these entities or the cabinet.

He said in the case of the WASA Act, it "explicitly empowers the (public utilities) minister to issue directives to the board."

State enterprise policy, Bharath continued, offers further insight into how changes can be made at the boards of state agencies.

He said through that policy, government appointed and removed the directors of boards of state agencies through their respective line ministries.

"In effect, the normal procedure is that boards appointed under the outgoing government are asked to submit resignations to the new administration."

Bharath repeated the resignation of directors was voluntary.

He said should directors not resign, the company must follow the process outlined in the Companies Act to remove them.

Different rules for publicly traded companies

The ability of a government to unilaterally dismiss a board, he continued, depends on its level of control.

Bharath said, "The Constitution defines an enterprise as 'controlled by the state' only if the government is entitled to appoint a majority of the board or holds at least 50 per cent of its shares."

Those entities are called majority-state firms.

In such companies, he continued, the state can generally replace boards via shareholder resolutions.

Bharath said in companies where government had no controlling stake, "its instructions carry no legal force."

Corporate law, he continued, vests management “in the directors” of a company and this means external directives lack authority.

Bharath cited Angostura and the Point Lisas Industrial Port Development Corporation (Plipdeco) as examples of such companies.

He said Angostura was a publicly traded company with significant private ownership.

Bharath recalled after the election, Angostura's board said it would remain in place “in the best interests of the majority of the company’s shareholders.”

A recent media report said three of its directors (Dr Maryam Abdool-Richards, Gerard Cooper and Tricia Coosal) had resigned.

On June 4, sources claimed Angostura chairman Terence Bharath resigned. But that could not be confirmed.

Bharath said Plipdeco was 51 per cent state‑owned but its board similarly resisted immediate dismissal.

He noted Plipdeco chair Annette Wattie wrote to Works Minister Jearlean John to explain the proper avenue to address the matter would be a in shareholders' meeting.

"She noted an upcoming AGM (annual general meeting) could be used to change directors, and that even a legal opinion supported staggered resignations."

Bharath said Wattie also noted the former PNM government did not remove a Plipdeco board that it found in place in 2015 until 2021.

"This exchange underlines that even a majority‑state entity is subject to corporate procedure."

He said should board members of such companies resign voluntarily, the company must follow the statutory removal process.

"Practically, this means the minister (as shareholder) can call a special shareholders’ meeting under the Companies Act and move an ordinary resolution to remove the directors."

He said adequate notice, usually 21 days, must be given.

Within that time, Bharath continued, "directors in question may submit written objections which must be circulated to shareholders."

He added, "In effect, the outcome still depends on shareholder votes."

Bharath repeated the removal of directors in state and state-interest companies was governed first by the legal form of the entity.

"Where the company is under the Companies Act, directors can be removed only by the process set out in the act (vote of shareholders, with due notice). In statutory authorities, the enabling legislation prescribes the process (often removal by the appointing minister)."

Bharath said from a practical perspective, it was pointless for members of state-controlled boards to "hold on" because the finance minister, as corporation sole, had the legal authority and ability to remove them through a special meeting of shareholders.

"Political practice tends to be that boards are refreshed after elections, but this remains a convention rather than a binding legal rule."

In a separate statement, Browne said the boards of companies listed on the stock exchange must be left alone by government.

"They are commercial enterprises that do not depend on government largesse and are being run for profit."

Browne said governments were not the only shareholders in such entities and the private sector's interest should be subject to the normal appointment process at the annual general meetings.

"This is for continuity, transparency, and the primacy of shareholders interest not government."

To date, WASA, Urban Development Company of TT (Udecott), Angostura and Trinidad Petroleum Holdings Ltd (TPHL) are the only state/state-interest companies where board members have officially resigned.

Outside of state entities created by individual legislation, the state enterprises performance manual of the Finance Ministry lists 80 state/state-interest companies.

Within this figure, there are 44 wholly-owned (100 per cent state controlled); seven majority-owned (majority owned but not 100 per cent); three less than 50 per cent owned (state does not have controlling interest) and 26 indirect companies (the state is represented by one of its agencies which may or may not have majority interest in the company).

Examples of wholly-owned companies

Lake Asphalt of TT (1978) Ltd

National Gas Company (NGC)

National Petroleum Marketing Company Ltd (NP)

Udecott

Caribbean New Media Group Limited (TTT)

Examples of majority-owned companies

Agricultural Development Bank

Business Development Company Ltd

Plipdeco

Caribbean Airlines

Examples of less than 50 per cent owned companies

Metal Industries Co Ltd.

DFL Caribbean Holdings Ltd

Examples of indirect companies

Phoenix Park Gas Processors Ltd

National Flour Mills

TSTT