Legal actions taken against PPC to recover unpaid dividends

By Franklin Castrellón

Panamanian lawyer Pedro Meilán filed an action on August 25, 2017 before the Ministry of Economy and Finance (MEF) and the Comptroller’s Office in order to recover the dividends that, according to him, Panama Ports Co (PPC), a subsidiary of Hutchison Port Holdings, has stopped paying the State under the figure of “well hidden” assets.

Meilán bases his complaint on the fact that, in accordance with clause 2.4 of the Contract Law No. 5 of 1997, which governs the contractual relationship between the State and PPC, the State received a 10% stake in the company’s real capital as part of the terms of the concession granted that year for the operation of the ports of Balboa and Cristobal.

The same agreement establishes that “in case of capital increases, Panama Ports shall make the corresponding adjustments, in order to maintain the State’s shareholding in Panama Ports at 10%”. Clause 10 also commits PPC to “provide financial information and periodically that of operation to the State, as holder of 10% of Panama Ports’ shares,” Meilán said in his complaint.

Patrimonial injury

The complainant states that an audit carried out on PPC between January and April 2009 revealed that this company had a profit of $750 million, without the State having received its percentage for the shares it holds in the company. Based on the information obtained, the whistleblower estimates the “Hidden Goods” are at least $72.5 million, a sum that could increase “once the company’s actual revenues can be determined after the appropriate expert tests.”

Paul Wallace, Panama Ports Company SA Executive Director.

Paul Wallace, Panama Ports Company SA Executive Director.

To the resulting amount should be added, specifically, interests, fines, surcharges and an additional 15% as compensation, in accordance with article 27 of Law 69 of 2009, “which prohibits equalization in contracts and other legal modalities in which the State is a party, reforming provisions of public procurement and other provisions.

It was not until 2015 that PPC gave the State the first contribution in terms of dividends, a modest one million dollars, which many experts consider a derisory sum. Meilán himself considers it absurd that in almost 20 years of operation, PPC has only contributed $1 million, taking into account that this company accounts for approximately 58% of the container movement of the Panamanian port system.

The complainant cites as an indication that PPC may not be reporting its financial statements and its operations in a transparent manner to the partner that granted the concession (the Panamanian State) the fact that the company has refused to comply with clause 10 of the Contract Law (contained in Addendum No. 1 dated December 1, 2005).

In its complaint, Meilán renounces the 30% participation that is recognized by the Fiscal Code (article 83) to the authors of complaints that entail the recovery of hidden goods.

The hidden good

According to Meilán, the meager dividend paid after almost 20 years, combined with high PPC revenues, suggests “a possible concealment of profits and dividends that should have been paid to the State. It is for this reason that he is convinced that this situation creates the figure of Hidden Goods, according to Article 80 of the Tax Code.” Among the national assets held by individuals that may have been acquired from the State, the norm cites the following: The other movable and immovable property of the State and the National Treasury and monies that individuals have illegally acquired.

The claimant maintains that “the possible acquisition by an individual of money that the State has as a shareholder of Panama Ports, on such money it is clearly a hidden asset, since it would be money from the National Treasury that would be illegally acquired by individuals”.

Meilán alleges that if PPC is left with 10% of dividends that correspond to the State, or if it creates expenses to avoid reflecting income or dividends, it is evading payment illegally and to the detriment of the State, which constitutes a “Well Hidden Asset”.

As a special request, Meilán asks the MEF to be designated “special proxy” with sufficient power to file arbitration proceedings against PPC “in order to terminate the contract for breach by the company of several of its obligations”.

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