FILE PHOTO: The Education Facilities Company (EFCL) on Long Circular Road, Maraval. –
WITH only $4,508 in its RBC Royal Bank account and $46,000 worth of assets – office furniture and fixtures – the company says it cannot pay its debts, is insolvent and “its continued operation should not be permitted to continue.”
It is also saddled with a $2,278,576.78 wage bill for its 41 employees and investigations by the EFCL’s new management have revealed poor accounting practices over the years.
These were some of the reasons advanced by EFCL’s acting chief executive officer Gayatri Badri Maharaj in the winding up petition filed in the High Court in February.
In the petition, the company’s acting CEO said the 41 employees – whose contracts were terminated when the decision was taken to wind up the company – were not paid since September 2021, and outstanding salaries from October 2021 to January 2022, totalled $2,278,576.78.
Some employees have filed trade disputes against the company for their salaries.
The petitioner told the court up-to-date audited financial statements were not available. The most recent statements are for 2014/2015 prepared in December 2017. Efforts were also made to have audited financials for 2015/2016 but that exercise stalled because of concerns raised about the absence of documentation from the company.
The EFCL again tried to commission the preparation of updated management accounts up to January 2022, but said this, too, was unsuccessful because of a number of reasons including being unable to verify certain balances because of no documentation.
“The absence of documentation is significant.” The petition said files were kept in a random haphazard manner and there appeared to be the deletion of electronic records, including employee e-mails, so it has been unable to retrieve or locate supporting records of transactions, including contracts. This was what the acting CEO encountered upon assuming office, the petition said.
As it went into some accounting details, the petition said balances brought forward, as at October 1, 2020, were not audited and accounts receivables did not balance to the general ledger with a significant difference of about $500 million.
The petition also said the accounting software indicated a sum of $44,821,269, representing project management fees, were not paid by the State and $889,561,246 due to contractors were also unpaid.
However, the petition said because of the lack of documentation, it was likely that those sums were inaccurate/materially misstated and/or the company could not verify its accuracy.
“Over the years, the company has been plagued with systemic mismanagement, high turnover of staff, employees lacking qualifications for the positions held, poor supervision and management of contracts.
“The company has also been plagued with persistent allegations of fake invoices, corruption, bid rigging, manipulation of procurement procedures to favour specific contractors, nepotism and favouritism.
“EFCL has consistently failed to adhere to reporting timelines including to the Ministry of Finance and its supervising Parliamentary committee,” the petition said, as it referred to a joint select committee report on the effectiveness of the EFCL, dated March 2018.
Hearing of the petition has been set for April 25 before Justice Carol Gobin at a virtual hearing at 11.30 am. In a recent advertisement, creditors, in support of or opposed to, the making of an order to have the company wound up, were advised to attend the hearing.
In its petition, which Newsday obtained, Badri Maharaj said the company had no income, ceased to carry on business and there is no reasonable prospect its business can be carried on.
It also said the board of directors, appointed on November 1, 2021, examined the state of the company and recommended to the shareholder it should be wound up. The company’s ten shares of $1 each are held by the Finance Minister who is the corporation sole.
The petition outlined the EFCL’s debt woes. It said between February 21, 2019, and October 22, 2021, EFCL received 33 demands for payment from contractors. These totaled $46,737,205.09 and EFCL has neglected to pay the sums. The company also owes some $800 million to contractors.
The company also has 79 unsatisfied judgments/awards, some of which date back to December 2016. The total amount owed on these judgments/awards, up to February 25, was $321,376,009.75.
It also said some $112 million of the sums ordered to be paid to contractors are not reflected in invoices in EFCL’s possession.
It is also currently defending 30 claims in the High Court and Industrial court in which $119 million is being claimed.
“All of the company’s bank accounts are the subject of garnishee orders in the sum of $149 million, with the consequence that the company cannot find its daily operations or carry out all or any of its main objects. Some of these garnishee orders are in respect of matters where default judgments were entered against EFCL.”
The EFCL ws established as a special-purpose state enterprise on March 11, 2005 under the Patrick Manning administration. Its functions involved repairing and maintaining early childhood education centres and primary and secondary schools. It was also responsible for the Education Ministry’s textbook rental programme.
The EFCL was moved under the “direct management” of the Finance Ministry. In 2018, the National Maintenance Training and Security Company Ltd (MTS) took over school repair projects for the Education Ministry.
Government funding ‘dried up’ in 2020
The petition said EFCL’s income was derived solely from project management fees paid by the Education Ministry and sums payable to contractors for work done were also provided by that ministry once verified.
In 2017, EFCL entered a loan agreement with RBC Trust and others for $286,565,896.00 (secured by a Government guarantee) to refinance a facility granted to EFCL in 2014 to finance its obligations in relation to the construction of early childhood care and education centres, primary and secondary schools and payments to contractors, consultants and vendors.
The sum owing on that loan remains at $156,308,670.55. The petition said there was a reduction in EFCL’s active projects in the financial year 2016/2017 – from 118 to 20 schools – and in June 2020, EFCL was directed by the Education Ministry “not to engage or re-engage contractors or consultants without explicit written instructions from the permanent secretary.”
Since October 2020, its “source of income has dried up.” The petition also said for some time now, the EFCL has been unable to cover operational expenses. In February 2021, one judgment creditor levied on the company and seized the majority of its furniture, with very little remaining, the petition said.
“As a consequence, EFCL is unable to carry on business.”
In support of the winding up petition, the petitioner said this course of action was being sought because the EFCL was unable to pay its debts; cannot meet current debts from cash or assets; was insolvent; can no longer carry out any of the main objectives for which it was established and “it is in the public interest.”
“On a winding up, its assets will be available to satisfy its legitimate creditors pari passu in lieu of being expended in continued operations.
“EFCL should be wound up so that all its assets remain available to satisfy its legitimate creditors, pari passu, to the extent possible, and not expended, whilst in a state of insolvency, for continued operations.”
(In law, the pari passu principle means that all unsecured creditors in insolvency processes, such as liquidation and bankruptcy, must share equally any available assets of the company, or any proceeds from the sale of any of those assets, in proportion to the debts due to each creditor.)
“EFCL is plainly insolvent and is unable to pay its debts… The present state of affairs is inimical to the interests of EFCL’s creditors,” the petition said, adding that the winding up of the company will provide for “equitable and fair distribution” amongst creditors.
“It ensures that some creditors do not profit at the expense of others and halts an unchecked scramble by individual creditors to achieve advantage in favour of a collective, co-operative approach,” the petition said.
Already, some contractors have already signalled their intention to oppose the winding-up action. Additionally, in April, a group of contractors and consultants formed an alliance to recover money they are owed.
In March, the Joint Consultative Council on the Construction Industry (JCC) expressed alarm at the way the Government had chosen to deal with the debt-ridden EFCL. In a statement, it said it appeared the Government intended to wind up the company instead of dealing with its debts to legitimate creditors.
The JCC said the EFCL owed its creditors “well over $600 million,” most of which represents money owed to contractors and consultants going as far back as 2015.
Newsday was told the EFCL had admitted and acknowledged the debts to some contractors, however, some contractors are questioning this, alleging those debts were paid to a select group of contractors.