Corporate Laws

Suggested Answers
Final Examination – Winter 2014

Ans.1 Rex Global Corporation shall, within thirty days of the taking over deliver to the registrar for
registration a return containing the prescribed particulars of:

(i) alteration in the charter, statute or memorandum and articles of Rex Global or any such
instrument due to takeover of the company.
(ii) changes in the name of the directors, chief executive or secretaries along with their
particulars.
(iii) appointment of Mr. Qamar as a principal officer along with his consent.
(iv) change in the name, address and other particulars of the person authorised to accept service
of process, notices and other documents on behalf of the company along with his consent
to do so.

As the company intends to close Lahore office, it shall thirty days before the close of Lahore
office

(i) give a notice of such intention to the registrar;

(ii) publish a notice of such intention at least in two daily newspapers circulating in the
province of punjab.

Ans.2 Responsibilities of Metro Limited (ML)

(i) The director of ML shall ensure that, except where in their opinion there are good reasons
against it, the financial year of MSPL coincides with the ML’s own financial year.
(ii) ML is required to attach to its financial statements for the year ending 31 December 2014,
consolidated financial statements of the group presented as those of a single enterprise.
(iii) Consolidated financial statements shall comply with the disclosure requirement of the
Fourth Schedule of the Companies Ordinance, 1984 and International Accounting
Standards
(iv) The auditor of ML shall also report on consolidated financial statements.
(v) The consolidated financial statement shall be signed by the same person by whom the
individual balance sheet and the profit and loss account of the holding company are
required to be signed.
(vi) The consolidated financial statements shall disclose:
 any qualifications contained in the auditors’ reports on the accounts of MSPL for the
financial year ending with or during the financial year of ML.
 any note or saving contained in such accounts to call attention to a matter which
would properly have been referred to in such a qualification, in so far the matter
which is the subject of the qualification or note is not covered by ML’s own accounts
and is material from the point of view of its members.

Responsibilities of Metro Securities (Private) Limited (MSPL)

(i) As the financial year of MSPL precedes the day on which the ML financial year ends by
more than three months, MSPL is required to make an interim closing on the day on which
ML’s financial year ends i.e. December 31, 2014 and prepare financial statements for
consolidation purposes.
(ii) MSPL would also be required to have theses interim financial statements reviewed by its
statutory auditors who shall issue a review report thereon.

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 Corporate Laws
Suggested Answers
Final Examination – Winter 2014

Ans.3 According to the Companies Ordinance,1984 BTL would require to consider the following
matters in the given situation:
(a) As the directors of BTL have decided to increase the capital, in spite of their apprehension,
they have to offer such shares to the members in proportion to the existing shares held by
each member and such offer shall be made by notice specifying the number of shares to
which the member is entitled and limiting a time, within which the offer, if not accepted,
will be deemed to be declined.

(b) In case, the company intends to raise further capital without issuance of right shares, it will
follow the following procedures:
 The directors shall apply to the Federal Government for their approval to raise its
further capital without issue of right shares.
 A special resolution shall be passed by the members in the general meeting of the
company should be accompanied with the application.

Conditions to be complied with in each option, considering by the directors.

 In the case of issuance of shares to ABC Limited:
(i) Condition mentioned in (b) above
(ii) The value of plant and machinery shall be determined by a consulting engineer
registered with Pakistan Engineering Council and borne on the panel of at least two
financial institutions as a valuer ;
(iii) the value of assets taken over shall be reduced by depreciation charged on consistent
basis;
(iv) the goodwill and other intangible assets shall be excluded from the consideration; and
(v) certificate from a practicing Chartered Accountant shall be obtained to the effect that
the above mentioned conditions have been complied with.
 In the case of issuance of shares to Faraz
Conditions mentioned in (b) above would only be required to comply with.
 In the case of issuance of shares to employees of the company
BTL may issue a certain percentage of further issue to its employees under “Employees
Stock Option Scheme” to be approved by the Commission.

Ans.4 (a) To consider and pass the following special resolution with or without modification:

Resolved that approval of the members of the Company be and is hereby accorded to
recommend winding up of the company, through voluntary winding up, as may be deemed
expedient, immediately.
Resolved further that the Chief Executive Officer and Company Secretary be and are
hereby authorized to take any/all action (s) as may be required for the execution /
implementation of the above resolution on behalf of the Company.
(b) A fixed or specific charge attaches to the specific, clearly identifiable and defined asset of
the company as soon as it is created. From then, the company cannot transfer or dispose of
such property.
A floating charge does not attach to any specific property of the company until the
company commits some act or default (i.e. charge crystallizes). It is free to dispose of the
property unencumbered.

A fixed charge takes priority over a floating charge.

All charges, both fixed and floating have to be registered with the Registrar within 21 days
of their creation.

If such charge is not registered, the charge created by the company becomes void against
any liquidator or other creditor.
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 Corporate Laws
Suggested Answers
Final Examination – Winter 2014

Ans.5 (a) Though CL was formed for a period of three years a winding up would not commence
unless a resolution in this regard has been passed. Therefore, it would be necessary for the
directors of CL to have a resolution passed in the general meeting of the company.

Under the provisions of the Companies Ordinance, 1984 the company shall from the
commencement of winding up cease to carry on its business except so far as may be
required for the beneficial winding up thereof.

In view of the above provision of law, CL may continue its activities even after
commencement of winding up so far as it is necessary for completing the project.

Moreover, since it is a members’ voluntary winding up, the corporate state and the powers
of CL shall continue until it is dissolved notwithstanding anything to the contrary in its
articles.

However, it would not be advisable to commence winding up before the completion of the
project as it may not be possible for the company to sell its assets and pay off its liabilities
prior to completion of the project.

Therefore director of CL should extend the period fixed for the duration of the company by
making necessary amendments in the article of association of the company.

(b) Declaration of solvency must contain the following:

 That the company will be able to pay its debts in full within a period not exceeding
twelve months from the commencement of the voluntary winding up.
 A statement of the company’s assets and liabilities/profit and loss account and balance
sheet at the latest practicable date before the declaration.

A declaration is required to be made within five weeks immediately preceding the date of
passing of the resolution for winding up and is delivered to the registrar before the date.

Ans.6 (a) (i) Fit and proper criteria refer to the conditions which certain key individuals
associated with an NBFC are required to comply with.
(ii) This Criteria is applicable on the following persons:
 Promoters and major shareholders of the NBFC;
 Director of the NBFC;
 Chief executive of the NBFC;
 Key executives of the NBFC;

(iii) The fitness and propriety of a director shall be assessed by taking into account all the
relevant factors including but not limited to the following:
 Integrity and track record of such person;
 Financial soundness of such a person;
 Competence and capability of the person; and
 Conflict of interest of such person with the business of the NBFC.

(iv) The Fit and Proper Criteria is perpetual in nature and an NBFC shall always ensure
compliance with the provisions of Fit and Proper Criteria.

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 Corporate Laws
Suggested Answers
Final Examination – Winter 2014

(b) Saleem shall not be considered as eligible for appointment as director of an NBFC if he is:

(i) a director in any other NBFC engaged in a similar business in Pakistan.

(ii) a director, chief executive, chief financial officer, chief internal auditor, research
analyst or a trader (by whatever name or designation called) in a stock brokerage
house or in any company or entity owned and controlled by a member of a stock
exchange; and
(iii) a member of a stock exchange engaged in the business of brokerage or is a spouse of
such member or in control of more than 20% shareholding, directly or indirectly
through his close relatives.

(c) The NBFC rules refer to fit and proper criteria notified by SECP that are applicable on all
key executives. The same criteria shall also be applicable on COO.

However, for the appointment of internal auditor, following rules shall be followed.

 Appoint a person having minimum three years experience as internal auditor who is:
─ a chartered accountant; or
─ a cost and management accountant; or
─ a certified internal auditor; or
─ a certified information system auditor; or
─ a member of a recognized foreign accountancy organization; or
─ An individual having master’s degree in commerce or business administration with
specialization in finance; or

 Appoint a chartered accountancy firm having satisfactory Quality Control review and
not being the statutory auditors to whom this function is outsourced.

Ans.7 Under the provisions of Companies’ Share Capital (Variation in Rights and Privileges) Rules ,
2000

(a) AL may issue more than one kind of share capital which may have different classes of
share under each kind.

(b) AL may issue the shares to a local investor with the following right and privileges:
(i) Different voting rights; voting rights disproportionate to the paid up value of share
held; voting rights for specific purposes only; or no voting rights at all;
(ii) Different rights for entitlement of dividend, right shares or bonus shares or
entitlement to receive the notices and to attend the general meetings; and
(iii) Rights and privileges for indefinite period, for a limited specified period or for such
periods as may from time to time be determined by the members through special
resolution.

Ans.8 Faizan Associates (FA) may get required permission on fulfillment of the following conditions:

(i) FA shall prove to the satisfaction of the Commission that

 It is capable of being formed as public limited company.
 The company will promote commerce, art, science, religion, sports, social services,
charity or any other useful objects.
 It intends to apply its profits or other income for promoting its objects.
 It prohibits the payment of any dividend to its members.

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 Corporate Laws
Suggested Answers
Final Examination – Winter 2014

(ii) Payment of remuneration for services or otherwise to its members, whether holding an
office in the company or not, shall be prohibited.
(iii) No change in the memorandum and the articles shall be made except with the prior
approval of the Commission.
(iv) The limit of liability of its members shall not be less than a reasonable amount having
regard to all the circumstances of the case.
(v) Patronage of any government or authority, express or implied, shall not be claimed unless
such government or authority has signified its consent thereto in writing.
(vi) The Commission may also direct to include the above conditions in the memorandum of
association of the company.

Ans.9 (a) (i) Under the listing regulations of Karachi Stock Exchange, if a company does not pay
listing fees for a period of two years, the Exchange can place the company on
defaulters segment. However, a period of ninety days is given to the company to
rectify the default before taking any further action.

Hence the action taken by the Exchange is valid if the time period of two years has
lapsed.

(ii) If FFL fails to pay listing fees within the period of ninety days, the Exchange shall
immediately suspend trading in shares of the company and simultaneously issue
compulsory buy-back directions to the majority shareholders having control of FFL
to provide all the shareholders an option for selling their shares to the majority
shareholders and the shares tendered by the shareholders shall be purchased by the
majority shareholders

The price for such buy-back of shares shall be fixed by the Exchange in accordance
with listing regulations.

Upon completion of the compulsory buy-back of shares by majority shareholder or

failure of the company to comply with the compulsory buy-back directions within
such reasonable time as may be specified by the Exchange in its notice, but not
exceeding 90 days in total from the date of such directions, the name of FFL shall be
delisted through a notice in writing by the Exchange under intimation to the
Commission.

In case FFL is also listed on another stock exchange in Pakistan but not in similar
default at such other stock exchange, the Exchange shall not issue any directions for
compulsory buy-back of its shares and shall delist the company.

If FFL is in default at all the stock exchanges where it is listed, the compulsory buy-
back directions shall be issued by all the stock exchanges in coordination with each
other.

(b) (i) John Secada would be required to open “Special Convertible Rupee Account” with
any Authorised Dealer in Pakistan.
(ii) He may remit funds from abroad or by transfer from a foreign currency account
maintained by him in Pakistan. The balance available therein can be used for
purchase of any share quoted on the Stock Exchange.
(iii) Payment for such purchase of shares may be debited to the account on production of
stock broker’s memo showing sale of shares to the account holder.

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 Corporate Laws
Suggested Answers
Final Examination – Winter 2014

(iv) Disinvestment produce may be credited provided evidence of the sale price in the
shape of stock broker’s memo is produced.
(v) The fund available in such special account can be transferred outside Pakistan or
credited to a foreign currency account maintained in Pakistan at any time without
prior approval of the State Bank.
(vi) Dividend income can also be credited to the above accounts.
(vii) Transfers from one such account may also be made to special account of another
person, in case of transfer of shares between the two account-holders.

Ans.10 Fresh election of directors

Mr. Wahid has acquired more than 12.5% (3/20 = 15%) shares in the company. Therefore, he
may apply to the Commission for requiring the company to hold fresh election of directors in the
forthcoming annual general meeting of the company.

The Commission may, if it deems appropriate in the interest of the company, its minority
shareholders or the capital markets generally, direct the company to hold the election of directors
in the manner provided in Companies Ordinance 1984, and the company shall comply with such
directions.

If fresh elections are held on the directions of the Commission, Mr. Wahid shall not sell or
dispose of his shares for at least one year from the date of election of directors.

(The End)

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