Certificate in Accounting and Finance Stage Examination
13 June 2024
1 hour 45 minutes – 58 marks
Additional reading time – None
COMPANY
LAW Term Test – 1
Instructions to examinees:
(i) Answer all EIGHT questions.
(ii) Answer in black pen only.
Q. 1 Select the most appropriate answer from the options available for each of the following Multiple Choice
Questions. Each MCQ carries ONE mark.
(i) Who is liable or responsible for the payment of compensation, in case of misstatement in prospectus, to every
person who subscribes for any shares on the faith of prospectus?
(a) Director of the company at the line
(b) Issuer company
(c) An auditor, legal advisors, banker, broker
(d) None of these
(e) All of these
(ii) In which of the following situations a company will have to issue prospectus or abridged prospectus along with
the application form:
(a) In relation to shares or debentures which are not offered to the public
(b) In relation to issue of shares or debentures to the existing members or debenture holders
(c) In relation of issue of shares which are uniform with shares previously issued and quoted on a recognized stock
exchange
(d) in relation to shares or debentures which are to be offered to the public
(iii) A prospectus is required to be duly signed by:
(a) the chief executive and a director
(b) every person who is named therein as a director or proposed director
(c) the chief executive, a director and the chief financial officer
(d) every director including the chief executive
(iv) Candid Oils Limited has class A and class B ordinary shares of Rs. 10 each, carrying voting right of one and
two votes per share respectively. A special resolution was passed to bring the voting rights of class B shareholders
equal to class A shareholders. However, two shareholders of class B are not satisfied with this resolution and
intends to apply for its cancellation. They can do so if:
(a) they hold more than 10% shares of class B and apply to the Court
(b) they hold 10% or more shares of class B and apply to the Court
(c) they hold at least 10% shares of class B and apply to the Commission
(d) they hold at least 20% shares of class B and apply to the Commission
(v) Minimum subscription is:
(a) the total authorised share capital of a company as stated in the prospectus
(b) the whole amount of the share capital other than that issued or agreed to be issued as paid up otherwise than in
cash, if no amount of minimum subscription is so fixed
(c) the whole amount of the subscription received from applicants, if no amount of minimum subscription is so
fixed
(d) the amount to be generated from public for which prospectus is issued
Company Law Page 2 of 4
(vi) Any dividend payable in cash by a listed company may be paid:
(a) only through electronic mode directly into the bank account designated by the entitled shareholders
(b) by cross cheques issued in the name of the entitled shareholders
(c) by dividend warrant at the registered address of entitled shareholders
(d) in any of the above manner at the discretion of the distributing company
(vii) Anas, Asadullah, Ameen and Arqam are founder partners of Fast Movers Forwarders (FMF). In January
2020, all partners had purchased shares of Quality Tiles Limited (QTL), a listed company. In June 2020, they
contested the election of directors of QTL and got elected as directors out of seven positions. Being majority
directors of QTL, they cancelled the contract of existing logistics service provider and awarded the contract to
FMF.
Whether the aforesaid contract is valid?
(a) Yes, because it is approved by the majority of the directors and the board is fully empowered to manage the
affairs of the company
(b) No, the contract need to be approved by majority of such directors who are not interested in the said contract
(c) No, the contract must be laid before the general meeting for approval
(d) No, the contract must be approved by the general meeting as well as by the Commission
(viii) Casual vacancy on the board of directors of a listed company must be filled:
(a) by calling an extra ordinary general meeting within ninety days from the date of such vacancy
(b) by the directors not later than ninety days from the date of such vacancy
(c) by the directors or the members in general meeting, as the case may be, in accordance with the provisions
contained in the articles of association
(d) by the members in the upcoming annual general meeting
(ix) Sunstone Limited is a public company with nine directors and a paid-up capital of Rs. 40 million (face value
of Rs. 100 each). Khurram and Asim were elected as directors in the recent elections by securing 400,000 and
300,000 votes respectively. However, subsequently both of them resigned.
Nasir was appointed to fill the casual vacancy created by Khurram while Asim’s position is still vacant. Board is
not satisfied with Nasir’s performance and wish to replace him with Saim. A resolution has been moved in general
meeting to remove Nasir from his position. Nasir will be able to secure his position if number of votes casted
against the resolution equals to or exceeds:
(a) 450,000
(b) 400,000
(c) 350,000
(d) 300,000
(x) Which of the following business decisions requires approval of members in a general meeting?
(a) Approval of interim dividend
(b) Approval to invest excess funds in fixed term deposits
(c) Selling all the shares of subsidiary company to the highest bidder
(d) Acquiring shares of another company at seven times higher the book value per share of that company
(xi) Election of directors of Rhinestone Limited (RL) having share capital of Rs. 4 million (face value of Rs. 10
each) was held on 5 March 2021 in which seven directors were elected. Yasir, Samia and Noureen, the
shareholders of RL are of the opinion that the elections were not held fairly and material irregularities were noted.
They intend to apply to the Court for re-election. The shareholders will be eligible to file their application if they
hold atleast:
(a) 40,000 voting shares and submit application by 4 April
(b) 40,001 voting shares and submit application by 20 March
(c) 80,000 voting shares and submit application by 4 April
(d) 80,001 voting shares and submit application by 20 March
(xii) A director of a public company shall ipso facto cease to hold office if he is absent from:
(a) three consecutive board meetings without leave of absence
(b) three consecutive general meetings without leave of absence
(c) all meetings held during the last three months
(d) three consecutive audit committee meetings (12)
Company Law Page 3 of 4
Q. 2 Eagle Limited (EL) is finalizing negotiations for a USD 2 million long-term loan with Oilbird International Bank
Inc. (OIB), a foreign lender. OIB requires security in the form of a charge on EL’s immovable properties in
Pakistan by 12 March 2024. While advised to register the charge, EL believes this is not necessary as OIB is a
foreign bank.
Under the provisions of the Companies Act, 2017, advise EL’s management on the following:
(a) Whether, with whom and within what timeframe does EL need to register the charge? (03)
(b) Assume EL was required to register the charge, but failed to do so. State the consequences of such failure.
(03)
(c) Assume EL registered the charge. However, three months after registration, the repayment period of loan is
extended by OIB at EL’s request. What will EL need to do in this scenario? (02)
Q. 3 Cadmium Limited (CL) is an unlisted company in the manufacturing sector. It has issued two classes of shares
i.e., class A and class B. On 21 August 2023, CL passed a special resolution to vary the rights of class A
shareholders. This resolution sought to limit the voting powers that had previously been granted to class A
shareholders. CL has filed all the required documents with the registrar within the specified time. However, some
class A shareholders are dissatisfied with the special resolution and wish to challenge it.
In light of the provisions of the Companies Act, 2017, advise class A shareholders on the possible course of
action available to them. Also, elaborate on CL’s duties if a decision is made against it. (06)
Q. 4 On 26 October 2022, the board of directors of Axis Cement Limited (ACL) unanimously approved the
appointment of Fareed Shah as the chief executive for a period of two years under the terms and conditions
specified in the contract.
On 9 March 2023, Seema Shah, the spouse of Fareed Shah, got elected on the board of Brut Cement (Pvt)
Limited.
On 10 March 2023, an urgent meeting of ACL’s board was held, in which most of the directors were of the view
that Fareed Shah had ipso facto ceased to be the chief executive as a result of aforementioned fact, and demanded
the immediate cancellation of his contract. However, the chairman of the board pointed out that the terms and
conditions of Fareed Shah’s contract specifically prohibit its earlier cancellation.
Under the provisions of the Companies Act, 2017, advise ACL’s board with regard to the following:
(i) The view point expressed by the directors about the cessation of office of chief executive and cancellation of
Fareed Shah’s contract. (03)
(ii) How directors’ demand may be implemented in the presence of specific provision in the Fareed Shah’s
contract which prohibits earlier cancellation of the contract? (03)
Q. 5 Under the provisions of the Companies Act, 2017 briefly describe the following:
(i) special resolution (04)
(ii) chief executive in relation to a company (03)
Company Law Page 4 of 4
Q. 6 Rail Holding (Private) Limited (RHL) has three subsidiary companies: Gannet Leaf Limited (GLL), which is
unlisted, and Budgerigar Sea Limited (BSL) and Vulture Bird Limited (VBL), which are listed.
The group compliance department has brought attention to the following matters concerning group directors:
(i) Wasim Yasin, an elected director in GLL, survived a car accident on 2 March 2024, but is mentally
incapacitated due to serious head injuries.
(ii) Aziz Bahadur, a non-executive director in BSL, suffered a stroke in August 2023, and has not attended
any board meeting since then.
(iii) Faraz Ghani, a director in VBL, was granted a loan of Rs. 2 million by the board in February 2024,
repayable within a period of six months.
(iv) The following names are selected from the data bank of the Commission’s notified entities, as potential
independent directors for the upcoming May 2024 elections:
Haseeb Ijaz on the board of VBL. He served as the chief executive of BSL from 2018 to 2021.
Bahram Hasan on the board of VBL. He served as a director in VBL from 2013 to 2022.
Daniyal Ehtisham on the board of BSL. He served as a director in BSL, nominated by a creditor,
from January 2023 to February 2024.
Under the provisions of the Companies Act, 2017, advise on the following:
(a) Implication(s) of the matters referred in (i), (ii) and (iii) above, on the board of respective companies. (06)
(b) Suitability of each of the selected persons referred in (iv) above, to contest the upcoming elections of
respective companies as an independent director. (05)
Q. 7 Platinum Limited (PL) was formed with an authorized capital of 20 million shares of Rs. 10 each. At the time of
formation, Anas, Asad, and Ameen acquired 1 million shares, 2.5 million shares, and 6.5 million shares,
respectively. Together, these represent PL’s total paid-up capital.
On 2 August 2023, Asad sold 0.5 million shares to Arqam.
On 6 September 2023, PL convened an extraordinary general meeting and passed a special resolution to increase
its paid-up capital and resolved an alteration in its articles of association, setting the minimum shareholding
requirement for each of its shareholders to 2 million shares.
Analyse the effect of the alteration on the shareholders in light of the provisions of the Companies Act, 2017. (04)
Q. 8 ‘Organizations working for useful objects of the society often need protection of limited liability for such work.’
However, there are certain conditions subject to the fulfilment of which an exemption may be granted to an
entity from using the word ‘Limited’ to its name. Describe those conditions and also specify the authority who
may grant such exemption under the Companies Act, 2017. (04)
(THE END)
