Damas board ordered to quit; fines imposed
Dubai, March 21, 2010
The Dubai Financial Services Authority (DFSA) today announced tough actions against UAE jeweller Damas International Limited and its board of directors for their failure to exercise appropriate corporate governance over the company and its subsidiaries.
The action includes the resignation of the Damas board, the appointment of a new board to govern Damas, and measures to enhance the governance, systems and controls of Damas so as to protect the company, its assets and shareholders’ interests, said a statement.
The sanctions include financial penalties against Damas, Tawhid, Tawfique and Tamjid Abdullah, (Abdullah Brothers) and voluntary bans, for periods up to 10 years, on the Abdullah Brothers from acting as directors of Damas or any company in the Dubai International Financial Centre (DIFC), it said.
Damas has also agreed to the appointment of new auditors for the fiscal year commencing April 1, 2010.
Today’s announcement follows an investigation by the DFSA into “unauthorised transactions” that were announced to the market by Damas on October 15, 2009.
The chief executive of the DFSA, Paul Koster said: “Maintaining international governance standards and internal systems and controls as well as ensuring investor confidence is fundamental to the integrity of the market in the DIFC.
“This action will remind directors of public companies that they owe a duty to the company and their shareholders, which supersedes any duty they have to their private interests.
“The range of measures, announced today, will assist Damas to conduct its business in accordance with the laws and rules of this jurisdiction,” he said.
“In pursuing the objectives of the DIFC, the DIFC Registrar of Companies and the DFSA collaborated and concurred on the foregoing measures in its regulatory efforts to enhance corporate governance within Damas.” Koster said.
Key findings of the DFSA Investigation:
The amount owed by Abdullah Brothers to Damas was approximately Dh365 million ($99.4 million) plus the value of approximately 1,940 kg of gold, the price of which is to be fixed on a date agreed by Damas and the Abdullah Brothers, the statement said.
These drawings required the prior approval of the Damas Board of Directors and/or shareholders of Damas, which was not obtained, it said.
The DFSA found that :
• The Abdullah Brothers engaged in the practice of withdrawing Damas funds for their own personal use and did not disclose the drawings or other transactions to, or seek the approval of, the Board; and
• Obtained drawings as loans from Damas on non-commercial terms.
• Tawhid Abdullah contravened DFSA laws and rules in that he failed to disclose, immediately, to the Board the drawings; the use to which the drawings would be put; and his interest in properties sold to Damas.
• Tawfique and Tamjid Abdullah contravened DFSA administered laws and rules in that they failed to make adequate and reasonable enquiries into the transfer, purpose and use of the drawings of Damas funds.
• Tawfique Adbullah, as chairman, failed to provide to the board information about the directors drawings, in a timely manner, and in a form and of a quality appropriate to enable the directors to discharge their duties.
• Damas and its board contravened DFSA laws and rules in that they failed to establish and maintain appropriate systems and controls to safeguard shareholders’ investments and the assets of Damas; ensure the Damas chairman supplied the board with sufficient information to carry out its functions; and ensure the audit committee carried out its functions.
• Damas also failed to: disclose, without delay, the nature, content and details of the drawings; and obtain the consent of shareholders to provide financial assistance to the Abdullah Brothers.
Damas, each of the non-executive Damas directors and the Abdullah Brothers have entered into Enforceable Undertakings (EUs) with the DFSA, the statement said.
In particular, Damas and the board have accepted the DFSA’s position regarding their corporate governance failures and agreed to implement a range of corporate governance measures and controls. These include that Damas:
• Obtains the resignation of each non-executive board member of his and her directorship within 30 days of the EU, and that each not seek reappointment to the Board for a period of two years;
• Calls an extraordinary general meeting of shareholders to appoint a new board within 30 days of the EU;
• Appoints, and appropriately allocates and apportions, board and senior management responsibilities;
• Establishes appropriate measures to ensure the board receives the information it requires to act on an informed basis;
• Establishes appropriate and proper systems and controls;
• Appoints a full-time compliance officer and company secretary;
• Establishes appropriate measures to manage and mitigate risk;
• Agrees to appoint a new auditor;
• Pays a financial penalty in the amount of Dh2.569 million ($700,000), of which Dh367,000 ($100,000) is to be paid within 30 days of the EU with the balance suspended but payable upon a failure by Damas to comply with a term or condition of the EU; and
• Pays the cost of the DFSA’s supervision of compliance with the EU in the amount of Dh92,000 ($25,000).
The Abdullah Brothers have undertaken to:
• Repay the amount owing to Damas;
• Disclose and particularise to Damas each of their assets over a value of Dh300,000 ($82,000);
• Grant to Damas a legal mortgage or other enforceable security over their assets;
• Resign as directors of Damas, within 30 days of the EU and its subsidiaries within a timeframe suitable to the DFSA;
• Not act as a director or officer of Damas and any DIFC company for periods of five and 10 years;
• Pay the costs of the DFSA investigation; and
• Pay a financial penalty in the amount of Dh11.010 million ($3 million), of which Dh1.101 million ($300,000) is to be paid within 180 days of the EU with the balance suspended but payable upon a failure, by any of the Abdullah Brothers, to comply with a term or condition of the EU. -TradeArabia News Service