A Flawed Merger
By Stanley French

In view of the present debate on the re-establishment of the St. Lucia Development Bank, we reprint the following article previously published in The VOICE of Thursday, April 22, 2004. The article, copyright of the author, is posted on financialrambling.blogspot.com
The twentieth Annual Meeting (AM) of the shareholders of the National Commercial Bank of Saint Lucia Limited (NCB) held at the National Cultural Centre on Saturday, 28 April 2001 was an historic occasion. According to the minutes of that meeting, 409 members of the company were present which compares with 421 and 23 at the AM of April 2000 and April 2002 respectively. The meeting was historic, not for its attendance, but because for the first time in St. Lucia shareholders of a company (NCB) owned by public subscription were meeting to consider a special resolution for the amalgamation of two companies i.e. NCB and St. Lucia Development Bank (SLDB), a company wholly owned by the Government of St. Lucia (GOSL).
The Special Resolution read as follows:
“Be it resolved that the National Commercial Bank of Saint Lucia Limited and the Saint Lucia Development Bank amalgamate into one Company under the provisions of the Companies Act of Saint Lucia No 19 of 1996 and the Conclusion of the Cabinet of Ministers of the Government of Saint Lucia.
Be it further resolved that the amalgamated Company shall be known as the East Caribbean Financial Holding Company Limited which said Company shall own the following subsidiary companies to the extent indicated:
(a) Bank of Saint Lucia 100%
(b) Mortgage Finance Company of Saint Lucia Ltd. 100%
(c) Offshore Finance & Services Company of Saint Lucia Ltd. 100%
(d) Insurance Company of Saint Lucia Ltd. 55%-100%
(e) Property Holding & Development Company of Saint Lucia Ltd. 55%-100%
(f) Legal & Financial Services Company of Saint Lucia Ltd. 40% -100% “
The notice was signed by the Company Secretary/Legal Officer on behalf of the Board of Directors.
Before AM 2001, the NCB Board of Directors sent a Management Information Circular to the Company’s shareholders providing information on the proposed amalgamation/merger. A summary of the contents of the Circular is as follows:
(1) The Prime Minister invited a Committee comprising Messrs. Marius St. Rose (NCB Managing Director), Rudy Gurley (SLDB Chairman and NCB Director), Adrian Augier (Office of Private Sector Relations) and Dr. Bernard La Corbiniere (Permanent Secretary, Ministry of Finance and Economic Affairs and NCB Director) to explore the possibility of the merger;
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(2) The Terms of Reference of the Committee were stated as follows:
(a) Advise on the desirability and benefits of such a merger.
(b) Develop feasible proposals regarding purpose, objectives, functions, ownership and financial structure, governance, organizational arrangements and general modalities and principles for the merged entity.
(c) Prepare an operation plan for the implementation of the merger.
(d) Negotiate and seek consensus on the proposals with the Government of Saint Lucia and the Boards of Directors of the two institutions.
(3) The Committee identified six advantages arising from the merger of the two institutions;
(4) The Committee agreed that the merger was a desirable initiative and recommended the merger to the Government;
(5) The Cabinet of Ministers by Cabinet Conclusion No. 29 of 2001 concluded that the institutions proceed to effect an amalgamation (a copy of the Cabinet Conclusion was appended to the Circular);
(6) Selected components of the proposed initial capital structure of the merger were stated;
(7) Selected aspects of governance of the proposed merger were stated;
(8) Cabinet considered a Memorandum dated October 30, 2000 by the Ministry of Finance and Economic Affairs and agreed to the merger; and
(9) “The Cabinet Conclusion was then tabled before the Boards of both Banks, who thereupon agreed to proceed to merge the two Banks into one institution by July 1st, 2001.”
The Circular, including appendix, was some eight (8) pages long.
Apart from Government’s 100% ownership of the preference shares, shareholders of the East Caribbean Financial Holding Company Limited (ECFH) are of two types i.e. substantial and minority. A substantial shareholder is one who owns at least 10% of the number of shares and is entitled to one Board member for every 10%. Thus, at the time of the merger in 2001, Government had 4 directors (40% shareholding) and Barbados National Bank one (10.92%). With Government’s sale of 13% of its shares to the National Insurance Corporation (NIC) in 2002, Government and NIC had two and one Board member respectively.
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A minority shareholder holds less than 10% but in accordance with Section 134 of the Companies Act No. 19 of 1996 such shareholders can pool their holdings to achieve 10% and thereby have a seat on the Board. Thus, Antigua Commercial Bank (4.22%), National Commercial Bank of St. Vincent and the Grenadines (3.95%), National Commercial Bank of Dominica (3.95%) and St. Kitts, Nevis, Anguilla National Bank (1.98%) have by written agreement pooled their voting rights and have one Board member for their 14.10%.
It is to be noted that the Board’s substantial shareholders represented at least 65.02% of the shares at the time of the merger. The Government, quasi-Government and representatives of minority shareholders who have been beneficiaries of Government’s surplus vote constituted the majority on the Board.
The mechanism by which the Committee communicated its findings and recommendations to the Government is not stated. However, it is reasonable to assume that it was a written report for such an important and serious matter. Nowhere is the availability of such a report to minority shareholders stated. A report was certainly not sent to minority shareholders with the Management Information Circular. Therefore, minority shareholders, unlike the NCB Board, had limited information for consideration of such a major matter as the merger.
Before AM 2001, I had discussed the Circular with some Jamaican friends with immense experience in banking and financial matters. I noted that they either frowned on the proposed merger and/or found the Circular contemptuous of minority shareholders by the manner in which it had presented the matter to them. At the AM, I made no contribution with respect to the discussion on the proposed merger. I am aware of the attitudes of Boards to minority shareholders’ opinions in what Sir Blom Cooper has described as “a culture of studied indifference.” There were the predictable utterances of the Board, given the statements in the Circular. Some minority opinion supported and some disapproved of the proposed merger. I was particularly impressed by a minority shareholder who (I subsequently learned was an accountant) strongly disagreed with the merger of the development and commercial banking institutions and recommended they be separate subsidiaries under the umbrella of the ECFH. The merger was approved by a show of hands. If it was not, the Chairman had the legal authority to overrule such a defeat by calling for a poll on the resolution thereby ensuring victory with the majority shares controlled by the Board.
It has become doctrinal in some corporate circles in St. Lucia (officially released by at least one Board to the company’s shareholders) that minutes of meetings should state decisions, conclusions and the points arising out of discussion of major matters. I have no objection to the doctrine but I expect it to be honoured more in the observance than the breach.

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I had pointed out at AM 2001 that the minutes of the preceding meeting were skeletal. Under Any Other Business, I made a simple request – that, in light of the historical importance of the meeting, the minutes should state the points arising out of discussion of the merger by shareholders and their various representatives and proxies.
However, the minutes of AM 2001 stated the following at Section 7:
“Tabled: A resolution for the amalgamation of the National Commercial Bank of Saint Lucia Limited and the Saint Lucia Development Bank in accordance with the terms and conditions outlined in the Agreement for Amalgamation between National Commercial Bank of Saint Lucia Limited and Saint Lucia Development Bank, which said agreement had been made available to all shareholders.” (my emphasis).
In a memorable contribution, a minority shareholder recommended that the commercial (NCB) and developmental (SLDB) institutions be made subsidiaries and not merged. It is easy to ignore the viewpoints of minority shareholders when a Board represents the majority interest of substantial shareholders. It was a widespread view that the oil of commercialism did not mix with the water of development. SLDB was entering the marriage with a healthy dowry and confidence supported by seven previous loans from the Caribbean Development Bank, a thorough institution. It remains to be seen what becomes of the Government’s assurance that the development component of the merger will be sustained, particularly with respect to credit facilities for small and medium-sized enterprises.
It is reasonable to assume that the Agreement for Amalgamation would have been available to the Board members of NCB but the Agreement was not sent to shareholders, as asserted by the minutes, either before AM 2001 or since. The Committee’s report on its Terms of Reference was also not available to Shareholders. Shareholders therefore had inadequate information for consideration of the merger.
Section 221 of the Companies Act No. 19 of 1996 states the following:
“(1) The directors of each amalgamating company shall submit the amalgamation agreement for approval to a meeting of the shareholders of the amalgamating
company of which they are directors, and, subject to subsection (4), to the holders of each class or series of shares of that amalgamating company.
(2) A notice of a meeting of shareholders complying with section 111 shall be sent in
accordance with that section to each shareholder of each amalgamating company;
and the notice –
(a) shall include or be accompanied with a copy or summary of the amalgamation agreement; and
(b) shall state that a dissenting shareholder is entitled to be paid the fair value of his shares in accordance with section 226; but failure to make the statement referred to in paragraph (b) does not invalidate an amalgamation
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(3) Each share of an amalgamating company carries the right to vote in respect of an amalgamation, whether or not the share otherwise carries the right to vote.
(4)The holders of shares of a class or series of shares of an amalgamating company are entitled to vote separately as a class or series in respect of an amalgamation when the amalgamation agreement contains a provision that, if contained in a proposed amendment to the articles, would entitle those holders to vote as a class or series under section 215.
(5)An amalgamation agreement is adopted when the shareholders of each amalgamating company have approved of the amalgamation by special resolution of each class or series of the shareholders entitled to vote on the amalgamation.
(6) An amalgamation agreement may provide that at any time before the issue of a certificate of amalgamation the agreement can be terminated by the directors of an amalgamating company, notwithstanding approval of the agreement by the shareholders of all or any of the amalgamating companies. “
The Circular did not provide a summary of the Amalgamation Agreement. It is noteworthy that the Management Information Circular for the amalgamation did not bring to the attention of shareholders that By-Law No.1 for the merged company (ECFH) was the NCB By-Law No. 1.
It is a corporate convention in St. Lucia that the agenda for Annual Meetings provides an item up-front for the consideration of the accuracy and acceptability of minutes by the identification of errors and omissions. This item has not been permitted by NCB and ECFH Boards. At the AM of May 2003, as a housekeeping item with respect to a point of procedure, I requested that the agenda be amended to include as item no.2 the consideration of the minutes of the previous AM (for 2002) for errors and omissions. The Acting and Presiding Secretary mined the book by Mr.Grenville Phillips, entitled “The Administration and Conduct of Corporate Meetings”, for reasons why my request could not be granted. I recognize that the book is of some value, being the first of its kind in the Caribbean, and pointed out that it was merely one person’s opinion, but to no avail. The book is treated like the Pope’s definition of cafeteria religion in the United States i.e. one takes this and that but bypasses this and that. The following major statement in it is ignored:
“Shareholders are entitled to ask at annual meetings any questions which are not sensitive with respect to the operations of the company and entitled to answers to them.”
The Chairman of ECFH decided that the agenda was settled and its amendment would not be entertained. Later in the AM, a shareholder brought to the attention of shareholders the major error with respect to the availability of the Amalgamation Agreement.
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Following AM 2003, I have requested and received in July 2003 my copy of the Amalgamation Agreement from ECFH. However, I was appalled to receive simultaneously an “ammended” (sic) copy of the erroneous minutes of AM 2001, section 7 of which reads as follows:
“Tabled: A Resolution for the amalgamation of the National Commercial Bank of Saint Lucia Limited and the Saint Lucia Development Bank in accordance with the terms and conditions outlined in the Agreement for amalgamation between National Commercial Bank of Saint Lucia Limited and Saint Lucia Development Bank. The said terms and conditions were contained in the Management Information Circular which had been made available to all shareholders.”(my emphasis).
This treatment of minutes is unacceptable. The “amended” version, not available to all shareholders, was signed by the Chairman and the current Secretary.
Comparison of the Amalgamation Agreement dated 31st. March 2001(still not available to all shareholders) and the Special Resolution passed by shareholders at AM 2001 reveals that Section 4 of the Amalgamation Agreement does not include Legal and Financial Services Company of Saint Lucia Ltd; which is listed in the Special Resolution, as a proposed subsidiary of ECFH.
Whatever the legal implications of the foregoing, corporate governance in St. Lucia needs serious attention. It is expected that sooner or later students and professionals of corporate law and practice will be commenting on the matter.
In conclusion, it is my view and that of some professionals in law and banking that the merger is flawed and needs to be revisited.