Profit spends an inordinate time on company websites: it’s often the most useful resource out there in terms of gleaning information. We have seen all sorts of websites: the slick, the janky, the suspicious, the ostentatious.
But perhaps the saddest website we have ever come across is PECO’s (Pakistan Engineering Company Ltd). Just a pixelated shot of a lone transformer with the heading ‘Coming Soon’ superimposed on top. We will be back soon, PECO repeats, in a feeble attempt to convince the reader.
Will it, though?
PECO’s rise and spectacular fall is worthy of a few seasons of Netflix crime shows. We don’t have Pakistani scriptwriters sending off their best work to the network giant yet, but we have the next best thing: detailed Profit stories. As we wrote in 2019: this is the story of a company you may never have heard of, but one that includes just about every ingredient of corporate drama that you can imagine. There are allegations of embezzlement, corruption, potential insider trading and what may well be a high-stakes battle for the control of a publicly listed company with a substantial shareholding of the government.
Exactly how many dramas can one company have? Since 2019, the company has simply gotten worse. There is no update to the financial data we printed three years ago, because there have been no quarterly or annual reports since then. But there have been numerous legal headaches since then. Primarily, this is a tale in three parts. We’ll start with the latest sorry tale, and work our way backwards.
Part one: The suppliers revolt
On May 26, 2021 – just a few weeks ago – the company secretary wrote to the Pakistan Stock Exchange a somewhat alarming development: that five different suppliers had filed a winding up petition in the Lahore High Court.
Essentially, the suppliers were saying that the company was not fit to exist anymore. Why? In the petition, the suppliers accused PECO of the following: that it was being run and managed by people who had failed to maintain proper or ture accounts; that there was “fraud, misfeasance and malfeasance”; and that cheques issued by PECO to petitioners were dishonoured.
Who are the accusers? That would be Ishtiaq Steel Industry, Inam Steel Re-rolling mills, Al Majeed Ibrahim Steel Industries, AKK Enterprises (all based in Lahore), and Anwar Traders, (based in Gujranwala).
According to their version of events, last year, the petitioners made a bunch of purchase orders and supplied materials to PECO. The petitioners also created several sales tax invoices, specifying the amount paid. Most of these were required to be paid after three months of receipt php the saif medical.
Yet despite multiple reminders, these were not paid. There is now an overdue bill of Rs150.5 million not paid by PECO. Of that Rs77.8 million is to be paid to Ishtiaq Steel, Rs17.9 million to Inam Steel, Rs14.9 million to Al-Majeed, Rs16.1 million to AKK Enterprises, and Rs23.7 million to Anwar Traders.
On December 1, 2020, they issued a notice of demand to PECO to make a payment within 30 days. On December 14, PECO sent a letter that said that it could not clear its debts because of the financial duress of the company.
On January 14, the suppliers gave another notice, with a grace period of seven days to receive the payment. And again, PECO maintained that it cannot clear its debts because of the state of the financial duress of the company.
In response, the suppliers said that since there is no reasonable change of PECO recommencing its business, and because it is unable to pay its debts, it has become insolvent, its financial condition has deteriorated beyond any reasonable chance of recovery, let alone conducting business at a profit in the near future.
“It is also just and equitable that PECO would be wound up by the honourable court.” the petitioners said. They also wanted the Lahore High Court to appoint an official liquidator to take over the assets of the company,
Oh, and to bolster their case, the suppliers said that only makes sense to wind up the company, considering that the Securities and Exchange Commission (SECP) is also investigating them.
Part Two: The SECP investigates
Entirely separately, and yet perhaps more alarmingly, the SECP opened an investigation into PECO’s affairs in March 2021.
According to the documents, there are two major reasons why the SECP did this. The first is straightforward enough, and to do with basic regulatory requirements: the company has not been holding annual meetings, or filing reports. For instance, the SECP noticed that no quarterly reports were filed for September 2018, December 2018, March 2019, September 2019, December 2010, or March 2020. Additionally, no annual general meeting has been held for the year ending June 2019. There were also allegations that employees have not been paid salaries, and that tax returns have not been filed.
The second reason is a little more ridiculous. In December 2018, Mairaj Anees Ariff was removed as CEO by the board in December 2018, while his term was set to expire (anyway) in March 2019.
But it seems, Ariff did not let go of PECO. Not only did he continue to act like he is CEO, and MD, but apparently he illegally leased PECO – yes, leased – to one of his friends, Tahir Bashir Khan , without obtaining approval from the board of directors, or the Ministry of Industries and Production. Since June 2020, it has been Khan who has been running the show.
There are separate allegations that Ariff was illegally operating bank accounts in the name of the company, and siphoning off funds intended for the company.
In a meeting held with the SECP in December 2020, Abdul Majeed, the lawyer for Ariff, denied there were problems. Instead, he said that Ariff had every right to fire directors, a rather unusual claim, as generally it is the shareholders that have the right to appoint or replace the board of directors.
Meanwhile, the five directors who had been fired had a different view. They told the SECP in a hearing on January 20, that the MD has usurped all powers, and that the premises had been leased out to Tahir Bahsir Khan. Additionally, they alleged that Tahir Khan was using his personal connections in the police and the National Accountability Bureau (NAB) to harass the directors.
The SECP saw this situation as untenable, and has opened an investigation.
Part Three: Exactly who is Mairaj Ariff?
Which leads to the final drama: who is this Mairaj Ariff who has been allegedly harassing and firing directors, despite not being in charge anymore?
The issue began in March 2016, which is when the government appointed a civil servant – Mairaj Anees Ariff – as the CEO of PECO. It proved to be a controversial move. Many private shareholders believed that Ariff was unqualified for the job, and was running the company into the ground.
Meanwhile Ariff took this personally, and well that no one was handing him control. In October 2018, he wrote a letter to NAB alleging that three senior company officials – the CFO, the General Manager Audit, and General Manager Works – were acting as “front men” of the private sector shareholders (it is up for debate what that means). He then went on to fire the three officials and have them physically barred from entering PECO’s offices.
The CFO, Mian Anwar Aziz, apparently was forced to falsify accounts, and was fired when he refused to comply.
Separately, PECO’s accounts in United Bank were suspended after some company officials submitted documents to the bank requesting a suspension of these accounts. However, these were restored in 2019, after NAB intervened.
Perhaps none of these problems would have even surfaced if the company had been doing well. PECO’s revenue has plummeted in the period between 2016 and 2019. Shareholders blamed Ariff, while Ariff blamed ‘meddling officials’.
Either way, Mairaj Ariff was removed from his position in February 2019 through a unanimous vote of the board of directors. One would have thought that would have stopped the drama. But apparently not: instead Ariff himself can’t seem to stop ‘meddling’ with the company.