LAHORE, Nov 9: The Lahore High Court is considering a comprehensive plan for the revival of the collapsed Taj Company as a full-fledged “corporate entity” with its unsecured creditors (or depositors) as its shareholders.

The plan envisages conversion of the deposits into shares by a debt:equity swap. In exchange for each unit of debt of Rs50 of a depositor, he will be allotted one ordinary share of Rs10 in the company credited as fully paid-up. The depositors shall be free to retain their shares for earning dividends or dispose them of for value.

As a result of the swap, the plan says, the legal personality of the Taj Company would not change nor would its assets be transferred to any third party.

The plan has been submitted to Justice Jawad S. Khwaja of the Lahore High Court, who is seized of the matter, by Advocate Tariq Kamal Qazi as amicus curiae. Its implementation, however, is subject to the sanction of the court and the approval of the affected depositors.

The depositors are stated to be in favour of implementation of the scheme, a copy of which was made available to Dawn on Friday.

The plan says the company’s liabilities of Rs2.422 billion far exceed its assets of merely Rs539 million by Rs1.883 billion. Thus, it is evident that the entire equity of the existing shareholders has already been wiped out. If the company were to be wound up, there is no question that the contributors (or the existing shareholders) could be paid anything.

The affected depositors, likewise, will not be able to receive more than 20 per cent of their deposits, the value of which has already considerably gone down owing to inflation. The depositors have not received any profit on their deposits since late 1980s. In fact, the depositors may not be able to get even one-fifth of their deposits as the distress sale by the liquidators is unlikely to fetch the market price of the company’s assets.

The plan aims at preventing liquidation of the company and transfer the management to an elected board of directors. Its objective is to ensure payment to the secured creditors in the normal course of business by entering into fresh agreement with them, bring about a compromise between the affected creditors and the company, and restructure the share capital of the company. The Taj Company was incorporated as a limited company in May 1929. It has a paid-up capital of Rs8,009,710 divided into 800,971 ordinary shares of Rs10 each. It began accepting deposits from the general public on extremely high interest rates that made it impossible for its owners to pay back. As a result of which, some 23,090 depositors — including widows, pensioners, and others — lost their life savings of almost Rs2.550 billion. Besides, the secured creditors — Industrial Development Bank of Pakistan, Investment Corporation of Pakistan and Habib Bank — also lost Rs20.590 million (minus adjusted mark-up of Rs12 million).

The company’s management was removed and it was placed under the control of a board of administrators. It has operated under the administrators since December 1990. In May 1998, the LHC ordered winding up of the company on an application moved by the Registrar of Companies and appointed three lawyers as joint official liquidators. However, as a result of another application moved in a civil appeal, the Supreme Court restrained implementation of the winding up orders in November 1998.

The operations of the company, says the revival plan, under the administrators have demonstrated that it is in a position to “generate profits as a going concern”. According to its profit and loss account, the company earned an operating profit of Rs9.010 million during financial year 2000 as compared to Rs8.066 million in 1999.

The plan points out that 1,918 depositors of up to Rs25,000 have been paid in full while another 2,456 having deposits up to Rs50,000 have received 40 per cent of their amounts. Other (deserving) depositors have got 20 per cent of their deposits. The total amount paid to the depositors so far stands at Rs176.042 million.