CDH Discount House Under Liquidation

CDH DISCOUNT LIMITED: REVOCATION OF LICENCE BY THE BANK OF GHANA
It will be recalled that on Monday 9th August 2004, the Bank of Ghana in collaboration with the Securities and Exchange Commission and the National Insurance Commission, placed a moratorium on the operations of the CDH Discount Limited and all its affiliates.

This decision became necessary after the Bank of Ghana had reviewed the operations and performance of the CDH Group and identified serious management and internal control lapses including poor record keeping and breakdown in financial controls.

During the period of the moratorium, Messrs PriceWaterhouse Coppers, a firm of auditors, were commissioned to assist the companies within the group to update the accounting and transaction records so as to prepare credible financial statements and reports. This was to establish the position and viability of each member of the group, as well as the consolidated group position.

At the end of the exercise, the CDH Group accounts indicated that the group maintained a negative net worth. All members of the group, except the CDH Insurance Company Limited were insolvent and illiquid. It was further established that the group maintained inappropriate management structures and weak governance practices which resulted in major inefficiencies.

The operational licences of the CDH Discount Limited, CDH Asset Management Limited and CDH Securities Limited were suspended. The activities of the CDH Financial Holdings Limited were frozen since it had operated as a financial institution without a licence. The moratorium on the CDH Insurance Company Limited was lifted.

It would also be recalled that, the CDH Group were given additional 90 days moratorium up to 5th February 2005, to enable the Interim Management Board (IMB) produce a robust and acceptable plan for the recapitalisation of the Group and the restructuring of the board and management. This decision followed from the inability of the IMB to satisfy the requirements for the restoration of the licences of the CDH Discount Limited, CDH Asset Management Limited and CDH Securities Limited within the earlier moratorium period granted the company and its affiliates.

The Interim Management Board, which is now the Reconstituted Board of the CDH Group submitted a Restructuring Proposal containing recapitalisation strategies and restructuring arrangement.

The Restructuring Proposal on the CDH Discount Limited was found to have the following shortcomings:

? It did not include a comprehensive Business Plan, which demonstrates the vision of the company, the financial viability, as well as corporate structures and governance.

? The proposal did not have key management personnel, which is a requirement for obtaining licence from the Central Bank.

? The proposal did not demonstrate how the company intends to leverage its franchise to become a profitable entity and to create shareholder value.

? The capitalisation proposal hinged on assumed inflows involving debt conversion, debt recovery, restructuring of claims of creditors and sale of assets, most of which contained commitments that were conditional and not assured.

? The cash flow projection for the first twelve months of operation, under the restructuring proposals showed a negative cash flow, which could further worsen the insolvency position of the company.

It is concluded that:

1. The capitalisation proposal would not fully address the insolvent position of CDH Discount Limited.

2. There are uncertainties associated with the capitalisation proposals particularly with regard to the exposure of CDH Discount Limited to its major debtors as well as creditors.

3. CDH Discount Limited will face liquidity problems within the first 12 months of operation, should its licence be reinstated.

4. The easily realisable assets of the Discount company are its claim on the Holding company, including office building and equipment which were collectively used by the three affiliates.

Furthermore, the Holding company was found to be involved in unauthorised transactions resulting in liabilities the value of which is yet to be determined.

Given the circumstances, the Bank of Ghana has revoked the licence of the CDH Discount Limited, and the activities and the accounts of CDH Financial holdings Limited would remain frozen until the value of its outstanding debts and liabilities has been determined.

ISSUED BY: BANK OF GHANA WEDNESDAY, APRIL 6, 2005