Corporate LAW, Made Easy (Updated)

Corporate Laws
Made Easy
Compiled and edited by: Syed Atif Hassan Abidi
Corporate Laws Made Easy
Preface
PREFACE
The Examinations of ICAP are a demanding test of students ability to master the wide range of knowledge and skills required of the modern professionals. Subject of Corporate Laws is one of the efforts made by ICAP in this context for enhancing students knowledge about detailed overview of corporate and other laws & rules prevailing in Pakistan. The best and most recommended source for this subject is the Bare Laws such as Companies Ordinance 1984, Miscellaneous Rules, Regulations, Codes and Sundry Laws. The basic problems faced by the students in this subject is the selection of source as the bare laws are sometimes too difficult to understand or too lengthy to digest & revise at final prep for the ICAP Exam. For these reasons there arise needs to have some comprehensive and easy notes for this subject. For this purpose these notes are being prepared using different sources but importantly emphasizing on the original sources. Following sources are being used in compiling these notes Companies Ordinance 1984 (Volume 1) Other Rules, Laws & Regulations Sir Naeem Baig (CAPS) class notes ATFL (Vol 1 & 2) Notes made by Muammad Asif (A.M, AFF Lahore) Notes made by self
How To use:
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It is highly recommended that first of all you should thoroughly read from the original ordinances, rules etc. Then you should develop your own notes / short points to have the course contents in your grip and also for revision purposes. You may either consult these notes as guideline for preparation of your own notes or you may select these notes for your revision, Its totally upto you. Syllabus outline by ICAP is the most important thing to ensure completeness which unfortunately is being ignored by most of the students, hence loosing the grip on the complete course. Therefore the syllabus outline is provided in these notes as table of contents and all topics are cross referred with that outline. I have tried to ensure completeness in these notes and where not completed, I have referred towards the best sources available for that data. However human error is expected so if you find anything missing or some spell or logical mistakes in these notes please mail me about such errors by referring to page no. at my mail id aforatif@gmail.com. In most of the cases fines & penalties are not incorporated in these notes I am especially thankful to following persons for effective coordination in making these notes Khawaja Altamsh Muhammad Asif Umar Farooq For notes & other study material for module E visit and download mails from E-Mail id: atifnotes@gmail.com
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Hope these notes could serve you. May ALLAH bless all of you with success in every exam of both lives. Please also pray for me Thanks
Syed Atif Hassan Abidi May 13, 2008
Password: a4atif
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ICAP Syllabus Outline
ICAP Syllabus Outline MODULE E PAPER E 16: CORPORATE LAWS (100 marks) INTRODUCTION The syllabus aims to provide the knowledge and understanding of corporate and other relevant laws, rules and regulations and to familiarize with the secretarial practices including the knowledge of handling various matters usually expected to be performed by the secretary of a corporate entity. Case studies / scenario based questions in addition to descriptive Questions will be set in the examination. The examinees are expected to possess detailed knowledge of the Companies Ordinance 1984 over and above what they have learnt at the Intermediate stage. Topics examined at the Intermediate stage may or may not be directly re-examined here, however, examinees would need to utilize knowledge and skills learnt earlier. The knowledge required for Companies Rules would also be comprehensive but for other Laws and regulations only general knowledge would suffice.
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INDICATIVE GRID SYLLABUS CONTENT AREA WEIGHTAGE 1. Practical aspects in respect of areas of the Companies Ordinance, 1984 covered at Module D examination in Company Law paper. 2. Companies Ordinance, 1984 from section 261 onwards. Second schedule 3. Various Rules under the Companies Ordinance 4. Secretarial Practices 5. Other laws and regulations TOTAL Note: The weightages given above are for guidance purposes only and deviations in setting of papers may be expected.
40 30 15 15 100
CONTENTS:
1. Areas of the Companies Ordinance, 1984 covered at Module D Examination in Company Law Paper. In the Corporate Laws paper at Final level, students are to have a more in-depth knowledge and understanding of those parts of the Companies Ordinance, 1984 which were covered in the Company Law paper at Module D, however, the emphasis of testing at the Final Examination level would be application of those provisions from a practical viewpoint. Testing would focus on the level of understanding of those provisions and their application. 2. Other specialized areas of the Companies Ordinance, 1984. a. Part VIII Investigation and related matters. b. Part VIII A Non Banking Finance Companies (NBFC) Provisions as to Establishment and Regulation of NBFC c. Part IX Arbitration, arrangements and reconstruction.
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d. Part X Prevention of oppression and mismanagement. e. Part XI Winding-up i) Modes of winding-up, and provisions relating to contributories (sections 297 and 306) ii) Winding-up by court; provisions relating to the following: - Cases in which companies may be wound-up by the court (section 305 and 306). - Petition for winding-up (section 309 and 310). - Commencement of winding-up by the Court (Section 311). - Official liquidators (section 321 to 331, 333 and 334, 336 and 337, 339 to 341 and 346 to 350). - Enforcement of court orders (section 355 to 357) * For section 328 and 329, students are only required to be familiar with the contents of statement of affairs to be made to official liquidator and report by official liquidator. iii) Voluntary winding-up (Sections 358 to 401) iv) Provisions applicable to every mode of winding-up - Status of companies being wound-up (section 402) - Proof and ranking of claims (Section 403 to 407) - Supplementary provisions as to winding-up (Section 421, 422 and 431 to 434) f. Part XIII Winding-up of unregistered companies g. Part XIV Companies established outside Pakistan (Section 450 to 462) h. Part XV Registration offices and fees (section 468 and 469) i. Part XVI General legal proceedings, offences etc. (Section 494 and 496) Second Schedule - Salient features of disclosure requirements for prospectus or statement in lieu of prospectus and understanding of the reports and certificates to be included in the prospectus. 3. Various Rules under the Companies Ordinance a. Explanatory provisions only of Companies Rules 1985; knowledge of the contents of the Forms is not expected. b. Capital Issues The rules for issue of capital by companies, premium on shares, issue of shares for consideration other than cash and related aspects, covered by the Companies (Issue of Capital) Rules, 1996 and Stock Exchange Rules. c. Companies (Appointment of Legal Advisors) Rules, 1975. d. Companies (Buy-back of Shares) Rules, 1999. e. Companies' Share Capital (Variation in Rights and Privileges) Rules, 2000. f. NBFC Rules 2007 (Complete), Rules No. 1 to 10 of NBFC Rules 2003 & Schedule VIII (Fit and
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09 10 11 11
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31 32 33 (N-3) iv
Proper Criteria)
4. Secretarial practices Floatation of shares and securities including prospectus, offer for sale and convertible securities, stock exchange listing rules, underwriting, brokerage, etc.; and discount and premium on shares; application and allotment of shares, issue of share certificates and bonus and right shares and transfer and
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transmission of shares of companies, investigation and dividend. a) Filing requirements, maintenance of statutory books and registers under the Companies Ordinance, 1984. b) Meetings of shareholders and directors and all proceedings thereto, including notices, agenda, quorum, voting, poll, proxies, resolutions and minutes. c) Functions and responsibilities of the Securities and Exchange Commission of Pakistan under the SECP Act (Act No. XLII of 1997). 5. Other laws and regulations a) Foreign Exchange Regulations Foreign Exchange Manual 8th Edition i) Chapter XIX Loans, overdrafts and guarantees Part A: Rupee loans Foreign exchange regulations relating to definition of foreign controlled companies, provisions for general permission for lending to foreign controlled companies for working capital, local borrowings by foreign controlled companies for capital expenditure. Part B: Foreign private loans Private foreign currency loans, repatriable foreign currency loans by foreign controlled companies for meeting working capital requirements, foreign currency loans (repatriable and nonrepatriable basis) by Pakistani firms and companies functioning in Pakistan. ii) Chapter XX Securities Knowledge and application of provisions relating to rules and regulations governing acquisition and holding of foreign securities, issue, transfer and export of Pakistani securities to non-residents, general exemption from the restriction on transfer and issue of Pakistani securities to non-residents, procedure for issue of shares to non-residents, trading of quoted shares by non-residents, and special instructions regarding shares transferred under the Central Depository System CDS of the Central Depository Company. b) Stock Exchange Listing Rules and Guidelines especially those relating to secretarial matters, public issue of shares, Code of Corporate Governance and Transfer Pricing. 34 38 61 59
Laws governing certain specialized institutions c) Banking Companies Ordinance, 1962 Sections pertaining to audit and accounts, mainly sections 34 to 38 of the Banking Companies Ordinance, 1962. d) The Central Depositories Act, 1997 and Central Depository Companies (Establishment and Regulation) Rules 1996 Understanding of provisions relating to - Central Depository System; and - Effect of the Central Depository on provisions of the Companies Ordinance, 1984 relating to interalia, sending of notices to members, registration of transfers, payment of dividend, maintenance of register of members, issue of bonus and right shares and effect on the rights of members. e) Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980. Provisions relating to the following: - Definitions (Section 2) - Registration of Modaraba Companies (Section 4 to 6) - Provisions applicable to Modaraba (Section 7 to 23,33,37,41 and 42) Modaraba Companies and Modaraba rules, 1981 - Rules 2 to 4,7 to 13,16 to 20-B,23 and 25 to 28 - First Schedule (Form no.1,9 and 11 including annexures) - Third Schedule - Fourth Schedule (salient features of matter to be specified in prospectus and reports to be set out therein) 45
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f) The Insurance Ordinance, 2000 provisions relating to statutory and special audits and maintenance of accounts, mainly sections 45 to 49, 51 and 52 and the Securities and Exchange Commission (Insurance) Rules 2002 including regulations and Format accounts. Broad understanding of the Code of Corporate Governance for listed and unlisted insurance companies. g) The Securities and Exchange Ordinance 1969 and the Securities and Exchange Rules, 1971 provisions pertaining to issuance of shares and securities to the general public (mainly section 9 ) and Insider Trading. h) 1. Competition Ordinance 2007 (Chapter I,II,IV,V), 2. COMPETITION ( MERGER CONTROL) REGULATIONS 2007 Excluding The SCHEDULE., 3. COMPETITION ( Leniency) REGULATIONS 2007
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i) Listed Companies (Substantial Acquisition of Voting Shares and Takeover) ordinance, 2002. j) Rules and regulations framed by the Federal Government from time to time, as may be specifically notified by the Institute of Chartered Accountants of Pakistan for inclusion in the syllabus. Note: Where specific reference to an Act, Ordinance, Rules, Regulations, Guidelines or SRO gazette notification is given it is to be assumed that it covers any subsequent amendments that may be made therein from time to time. 57.44
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Notes: N-1. Areas of the Companies Ordinance, 1984 covered at Module D Exam in Company Law Paper. Should be prepare from the same source as were being prepared in Module D. Some commonly acceptable standard sources for preparation of Module D course are PAC Book for Module D (Company Law) ATFL (Volume 1) Companies Ordinance 1984 (Section 1 to 262) N-2. Secretarial Practices This portion involves Practical application of Management & Administration portion of Module D course. Following sources are very helpful for preparation of this portion Foot notes of S.A.Salam Ordinance in the portion of Meetings & Administration Chapters of Meetings & Administration in ATFL. (Vol 1) ICAP Past Papers
N-3. NBFC rules 2007 & Competion Ordinance As these both are new addition in the syllabus, hence notes could not be prepared for these topics, however our relevant portion in these rules have been taken from original NBFC Rules 2007 & Competition Ordinance 2007 alongwith its regulations and those files are also attached with the mail containing this file Corporate Laws made Easy from gmail id reffered in Preface to this booklet.
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Specialised areas of Companies Ordinance 1984
Investigation and Related matters (SEC 263 to 282) Investigation of affairs of company: SECP may appoint inspectors to investigate and report on affairs of company on: Application of Members or Shareholders having 1/10th voting securities. Application of persons comprising 1/10th in number of the persons entered in register of members [Co not having Share Capital] Application of Registrar if he called for information or explanation and it was not given or was unsatisfactory. Order of court Resolution of company in general meeting. Discretion of SECP, if there are circumstances suggesting that:
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Business is conducted to defraud Creditors, Members or any other person or Oppressive to members or purpose is fraudulent/ unlawful. Person in management are guilty of Breach of Trust, Misfeasance or Misconduct. Members are deprived of reasonable return. Members are not given reasonable information. Shares are allotted for inadequate consideration. Business is not managed on sound principles/prudent practices. Financial position is indicating insolvency. Application must be supported by Evidence showing good reason for investigation. SECP may require any security for cost of investigation. Commission shall give a show cause notice to company. Power of Inspector Inspector to be Court for following purposes: Enforcing attendance of persons and examining them. Compelling discovery & production of books and papers. Issuing commissions for examination of witness. If Inspector thinks necessary, he can also investigate (after approval of Commission) the affairs of: Any body corporate which is (or at any relevant date has been) companys associated company as Subsidiary, Holding, Subsidiary of holding or Holding of subsidiary. Any body corporate which is or was managed by a Chief Executive who is or was also Chief Executive of the company. Any person who is Chief executive, Managing agent or an associate of Chief executive or managing agent. Inspectors Report Inspector may (or on direction of SECP shall) make interim reports and on conclusion of investigation shall make final report to SECP Such report shall be typed or printed as SECP may direct SECP shall forward a copy of inspectors report to: Registered office of the Co. with directions of SECP Members at their request [who applied for investigation] Court [if applied by court] SECP may forward a copy, on request of and on payment of prescribed fee to: Members/ Body corporate/ Persons interested in affairs of Company Persons whose interest as creditor appears to be affected SECP may send copy to registrar which such directions as think fit. SECP may get report/any part published itself or may direct Company to do so. Copy of report shall be admissible in any legal proceedings as evidence of opinion of inspector.
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Court Orders If reasons proved after investigation Commission may apply to Court and Court may: 1. Remove any Director, Chief Executive, Managing agent or other officer. No compensation for loss of office If Directors removed [casual vacancy filled in accordance with the provisions of AOA] If CE removed [Directors shall elect another person as CE] If all directors including CE removed [General Meeting for election of directors be called] Directors etc. so removed will be ineligible for such post for 5 years or such lesser period as directed by the Court 2. Direct Directors to carry out changes in management and in accounting policies. 3. Direct any existing contract, which is to the detriment of the Co., to be annulled or modified. No compensation payable on modification or annulment of contracts 4. Direct company to call a meeting of members to take remedial actions on specified matters. Proceedings for recovery of damages & property SECP can proceed for recovery of Damages [in case of fraud, breach of trust, misconduct] Property [which has been misapplied or wrongfully retained] Expenses of Investigation: Firstly paid by Commission and subsequently reimbursed from Persons convicted of prosecution or persons who have applied for investigation. Imposition of restriction on shares & debentures and prohibition on transfer: If SECP think fit, for finding out relevant facts about any shares, it may impose following restrictions Transfer of shares void Not be issued No voting rights No further shares issue in right of those shares No payment from Company to anyone for sum due No change in directors, CE, Managing agent unless by operation of law. Enquiries and investigation against Company shall not be effected by Resolution passed by Company for winding up Petition submitted by court for winding up Civil/Criminal proceedings initiated against Company/Officers
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NON BANKING FINANCE COMPANIES (sec 282 A L) Section 282-(A) [Application of this Part] 1. An NBFC, which includes companies licensed by SECP to carry out any one or more of the following forms of the business: a) Investment Finance Services (Investment Banks) IFC b) To perform a business of Leasing Service c) Housing Finance Service d) Venture Capital Investment (Project Investment, Risky Investment) e) Discounting Services f) Investment Advisory Services g) Asset Management Services 2. Such other companies as the Federal Government may notify for this purpose. Section 282-(B) [Powers to make rules] Federal Govt. may make rules for establishment and regulation of NBFC Section 282-(C) [Incorporation of NBFC] 1) NBFC shall not be incorporated without prior approval by the SECP. 2) NBFC shall not carry on any business unless it holds a license from SECP for that business. 3) NBFC shall not commence business unless it has minimum prescribed capital for each form of business. Section 282-(D) [Power to issue Directions] The SECP may issue directions from time to time where it is satisfied to do so in the public interest to prevent the affaires of NBFC being conducted in a manner detrimental to the interest of shareholders or the persons having interest in the NBFC to secure proper management of NBFC by rectifying situations NBFC shall be bound to comply with such directions. Section 282-(E) [Powers to remove] Where SECP satisfied that Association of any chairman, director, chief executive or any other officer of the NBFC is detrimental to the interest of NBFC, its shareholders or the person interested, the SECP by make an order remove such person from their office. Section 282-(F) [Power to supersede BOD] Where the SECP satisfied that Association of BOD with the NBFC is detrimental to its interest it may supercede the BOD for such period as it may specify. The suppression period shall not exceed three years. Section 282-(G) [Powers to require to furnish information] Section 282-(H) [Special Audit] SECP shall monitor the general financial conditions of NBFC and may order for special audit carry out detail scrutiny of affairs of NBFC. On receipt of special audit orders, NBFC may be directed to do/ abstain certain acts Section 282-(I) [Inquiry by Commission] SECP may call an inquiry or inspection by persons appointed by it. The inquiry officer may call any information inspect and cease books of account and documents of NBFC. All the directors, managers and officers and related persons shall furnish necessary information to the inquiry officer. Section 282-(J) [Penalty for failure, refusal to comply with provisions]
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Fine not more than 5,000,000 to NBFC or officers including auditors All directors/managers/officers liable unless proved not being part of guilty Cancellation of license after giving opportunity of being heard. SECP may move court for winding up No appeal can be made unless 25 % of penalty amount(refundable) filed If officers/auditor fails to deposit penalty up to 6 months, SECP may in writing disqualify him for any office in NBFC or any Company Section 282-(K) [Penalty for making false statements] Fine not exceeding 100,000 Imprisonment not exceeding 3 years; or both Section 282-(L) [Procedure for amalgamation of NBFC] NBFCs may be amalgamated with each other provided a scheme containing the terms of such amalgamation has been placed in draft before the shareholders of each NBFC separately and it is approved by a resolution passed by a majority of 2/3. Notice of above general meeting shall be given to each share holder and this notice shall also be published at least once a week for three consecutive weeks in not less than two newspapers. Any share holder who has voted against the scheme and descend from the scheme of amalgamation shall be entitled to claim from NBFC in respect the shares held by him. The decision of SECP on the value of shares shall be final for all purposes. Once the scheme for amalgamation is approved by the requisite majority of shareholders, it shall be submitted to the SECP for sanction. If the scheme is sanctioned by SECP it shall become binding on the concerned NBFC and all their shareholders. Remaining/surviving entity shall transmit a copy of the sanctioning order of the SECP to the registrar. On receipt of sanction order the registrar shall strike off the name NBFC which has been amalgamated and it will cease to function. The property and liability of the amalgamated NBFC shall be transferred to and vest in resulting/surviving entity. The business and undertaking amalgamated NBFC shall also become the business of resulting entity.
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Arbitration, Arrangements and Reconstruction (SEC 283 to 289) Compromise is an agreement terminating disputes between parties. Arrangement involves reorganization of capital by consolidation or division of shares of different class. Power of companies to refer matters to Arbitration: Company may refer matter to arbitration by: By Written agreement According to Arbitration Act 1940 On existing or future difference between itself and other company or person Parties to arbitration may delegate to arbitrator powers to settle any term or determine any matter capable of being lawfully settled. Power to make compromise or arrangements with Creditors/Members: When Compromise or Arrangement is proposed between Company and Creditors or Members: 1. Court shall, on application, order a meeting of creditors or members to be conducted. 2. If a majority in number representing 3/4th in value of creditors or members approves it, it will be binding on all Creditors/Members 3. Court shall make an order sanctioning Compromise/Arrangement provided Court is satisfied that all material facts have been disclosed Company would file Copy of order to Registrar within 30 days Copy of order shall be annexed to every MOA and AOA issued after it. Court may at any time
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Stay commencement of any suit/ proceedings against the Company Give such directions or make such modification as think fit by it.
If court is satisfied that Compromise/Arrangement cannot work satisfactory, it may (self or on application by registrar/interested person) make an order of winding up.
Information as to compromise or arrangement with Creditors/Members: Where a meeting of Creditors/Members is called, every notice shall accompany a statement showing: Terms of compromise/arrangement explaining its effect. Material interest of Directors (including C.E.) as Directors or Members or Creditors. Effect of Compromise/Arrangement on these interests so far as different from like interests of other persons. If a notice is given by advertisement, it shall either Accompany such statement or Mention the place where statement could be obtained by Creditors/Members free of charge. Same information required for Trustees of any deed securing issue of debentures, if compromise affects rights of Debenture holders. Every director, CE, Managing agent, Trustee for debenture holders shall give to Company Notice of such matters related to himself necessary for compromise or arrangement Such further info as requested by Company Provision for facilitating Reconstruction and Amalgamation: If an application of Compromise/Arrangement proposes a Reconstruction/Amalgamation, Court may make provisions relating to all or any of following matters:
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1. 2. 3. 4. 5. 6.
Transfer to the transferee company of whole or part of undertaking, properties and liabilities. The allotment/appropriation of any shares/debentures or other interest by the transferee company. Continuation by or against the transferee company of any legal proceedings. Dissolution, without winding up, of the transferor company. Provisions regarding any person dissenting from scheme or contract. Other matters.
After the order of transfer, all properties and liabilities stand transferred and removed from charge, if the order contains so. Certified copy is filed with registrar within 30 days. Power and Duty to acquire shares of members dissenting from scheme or contract: If a scheme of transfer of shares is approved by 9/10th shareholders (holders of shares whose transfer is involved, other than shares already held by transferee Company at date of offer) within 120 days of offer from Transferee Company:
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Transferee company may give notice to dissenting members within 60 days of its intention to acquire their shares and Company will be bound then to acquire shares on same terms and conditions, as given in scheme for transfer of shares, of approving shareholders. Dissenting shareholders may apply to court within 30 days of notice. If court thinks fit, it may direct otherwise. If court rejects application a. Order of rejection is to be filed by Transferee Company to Transferor Company b. Within 30 days (of notice or order whichever is later) c. Price payable (kept in a separate account in a Schedule bank) will be handed over to transferor company d. Instrument of transfer also filed to transferor Company, executed on behalf of shareholders by any person appointed by trustee e. Transferee Co shall Register Transferor Company as holder of those shares Within 30 days of registration inform dissenting share holders of the fact & receipt of amount payable to them Where Transferee Company already holds more than 1/10th shares, above provisions would not apply unless: Every holder of Transferor Company is offered the same terms. And The holders, who approve the scheme, shall be 3/4th in majority having 9/10th remaining shares.
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When Transferee Company becomes holder of 9/10th shares in cumulative: It will give notice to remaining shareholders. Remaining shareholders may within 90 days of notice require Transferee Company to acquire their shares.
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Provisions relating to offer or circular containing offer Each such offer or recommendation by directors of transferor to accept shall Contain such info as may be prescribed Contain statement by transferee company ensuring that steps taken for availability of cash Presented to registrar for registration o Registrar may refuse to register if info not provided Appeal against orders of registrar can be filed to SECP
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Oppression, Mismanagement and Rehabilitation (SEC 290 to 296)
Prevention of Oppression
Who can apply: 1. Member(s) having 20% or more Issued share capital or 2. Creditors having interest equivalent to 20% or more Paid up capital or 3. Registrar, if affairs conducted/will be conducted in an Unlawful, Ultravires MOA, Oppressive or Prejudicial manner Order of Court: If Court is of the opinion, on any such petition that Co affairs conducted in a manner aforesaid To wind up Co would unfairly prejudice Co/members Court may order: 1. Regulating Companys affairs in future 2. Purchase of shares of any members of Co or by other member of the co or by co itself. If purchase by co, reduction accordingly of companys capital. Where any order makes any alteration in companys MOA/AOA It is as valid as if duly made by Special Resolution of co Copy of order to be filed with Registrar within 14 days. Power of Court: 1. Court may terminate or modify any agreement between co and any Director including Chief Executive, Managing Agent or Other officer on terms and conditions as may in the opinion of court are just & equitable. 2. Court may set aside any transfer/delivery of goods, payment execution or other transaction within 3 months before application, which is deemed in his solvency to be a fraudulent preference. 3. Court may decide any other matter including change in management. 4. Court may on application of any party to the proceedings make interim orders [Any claim for damages against co would be inadmissible.]
Management by Administrator
Representation to the SECP If any time creditors having interest of amount not less than 60% of paid up capital represents to SECP that: 1. Companys members/creditors/directors/person connected with management of company is guilty of Breach of Trust, Misfeasance or Misconduct. 2. Affairs are conducted in Unlawful, fraudulent, Oppressive, and prejudicial manner. 3. Members are deprived of reasonable return. No adequate dividend for consecutive 3 years 4. Industrial project or unit to be set up or belonging to company is not completed, commenced or smoothly operated such that: i. Market value or net worth of share has fallen below 75% of Par value. ii. Debt/Equity ration has fallen beyond 9:1. iii. Current ration fallen beyond 0.05:1 5. Industrial unit owned by company is not in operation for 2 years. 6. Accumulated losses exceed 60% of paid up capital. SECP may appoint an Administrator within 60 days of receipt of representation to manage the affairs of company on specified terms Administrator may be appointed from Panel maintained by SECP
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Other person by giving notice to SBP if that person is not on panel Provisions relating to Administrator Receive such remuneration as SECP may determine On appointment management of companys affairs vest in him shall exercise all powers of director/management Director/management shall cease He can cancel any purchase/sale agency contracts which is patently to benefit any director or person related with management He is not liable to compensate or pay damages for Loss of office Termination of contract After purpose of appointment fulfills, SECP may permit the company to appoint directors and Administrator shall cease to hold office. No suit can be filed against Administrator for acts done in good faith in pursuance of these rules. SECP may issue such directions to Administrator as it deems desirable and he may apply to SECP any time for instructions about different matters. Any person aggrieved by orders of SECP or Administrator (termination of contract) may appeal to Federal Govt. within 60 days of order. Any order or decision of SECP under this section shall be final and shall not be called in question in any court Provisions of this section shall apply notwithstanding anything contained in MOA, AOA & Companies Ordinance 1984.
Rehabilitation of sick units by Federal Govt.

Provisions apply to Industrial unit owing by company facing financial/operational problems, declared sick by Federal Govt. After declaration as such, any institution, authority, committee or person authorized by Federal Govt., may draw a Rehabilitation Plan which may include any or all of the following provisions a) b) c) d) e) f) g) Reconstruction, Compromise or Amalgamation. Alteration of share capital and variation of rights Alteration of loan structure, rescheduling and conversion into share capital carrying special rights. Acquisition/transfer of shares of sponsors/persons managing affairs of company. Issue further share capital including shares containing special rights Removal and appointment of Directors including CE or other officer Amendments, modification & cancellation of existing contracts Without any compensation. h) Alteration of MOA, AOA or change in Accounting Policies. Plan shall be submitted to Federal Govt. for approval. After approval, it will be published in Official Gazette. Federal Govt. or any person authorized by Federal Govt. shall supervise Rehabilitation Plan. Copy of plan sent to registrar by Federal Govt. for registration and it should be kept with other documents of the Company Provisions shall apply notwithstanding anything contained in MOA, AOA, CO 1984.
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Winding up of unregistered Companies (SEC 443 to 449) What is Unregistered Company Includes any Partnership, Association or Company consisting of more than 7 members. Not includes A Railway company incorporated by UK or Pakistani Law A company registered under any previous Companies Act or under Co.Ord1984. Provisions of winding up No unregistered company shall be wound up voluntary or subject to supervision of court [Only By Court.] For determining Court having jurisdiction Company shall be deemed to be registered in Province where its Principal Place of Business is situated. Principal place of business where proceedings are started, deemed to be registered office of company. Circumstances of winding up are: a. If the company is dissolved, or ceased to carry on business or is carrying on business to wind up affairs. b. If company is unable to pay debt. c. If Court thinks it just and equitable. Company when deemed unable to pay debt: 1. A creditor whose Rs. 25,000 or more is due, serves his notice and company within 30 days neither pays nor secures nor compound for satisfaction of creditor. 2. A suit has been instituted against any member for any sum due from the company/member on behalf of company and a notice is served to company and company neither pays nor secures within 15 days. 3. Execution issued on a decree obtained in favor of creditor and it returned unsatisfied in whole or in part. 4. If it is proved to the satisfaction of Court Court shall take into account Prospective and Contingent Liabilities Contributories: All those liable to contribute for payment of liability, expense of winding up and adjustment of rights among themselves. If he dies/gets solvent, his heirs/assignees shall be contributories. Miscellaneous Provisions Companies established outside Pakistan would be wound up as an unregistered company Provisions of this ordinance with respect to staying and restraining suits and legal proceedings between petition for winding up and order for winding up shall extend to suits & proceedings against any contributory No suit/proceedings can be continued/started against unregistered company being wound up against any contributory of company Except by leave of court Court & Official liquidator may exercise any powers on unregistered company being wound up as it is a company registered under Companys Ordinance 1984 If unregistered company has no power to suit/to be sued in a common name Court may order all properties, interests, rights & obligations to be vest in Official liquidator Official liquidator may, after giving indemnity as directed by court, bring or defend in his official name any suit/proceedings
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Companies established outside Pakistan (sec 450 to 462) Documents to be delivered to Registrar Every foreign Company incorporated outside Pakistan having a Place of business in Pakistan within 30 days of Establishment or Change of place in Pakistan shall deliver following documents to registrar: Certified copy of charter, statue, MOA & AOA or other instrument defining constitution in English/Urdu(or translation in English/Urdu) Full address of Registered Office or Principal Office in the country of incorporation List of directors, chief executive and secretaries with detailed particulars. Return showing complete particulars of Principal Officer in Pakistan. [Name (sur,former,father,husband), nationality(present,former), designation & addresses] Complete particulars of Persons authorized to receive notices etc. together with his consent. Full address of office in Pakistan, deemed to be Principal Office in Pakistan. Return containing particulars of change, where any change in above info / docs, within 30 days of change Documents to be given every year: 1. Prescribed no. of copies, not less than 3, of audited B/S and P&L with such particulars as are required to be filed by a company registered in Pakistan. 2. List of Pakistani members and Debenture holders. Within earlier of 45 days of date of submission to the public authority of country of incorporation, or Within 6 months of the date up to which accounts are prepared Certain obligation of Foreign Companies: Maintain at Principal Officer a register of Pakistani members and debenture holders which shall be open to inspection. In prospectus, inviting share or debenture, state country of incorporation. For issue of Prospectus authorization of Federal Govt. is must. State the name of Co, country of incorporation, outside every office in English/Urdu Mention liability, if limited, on each prospectus, advertisement & outside every place of business in English, Urdu and vernacular language. Also state above particulars on every document. Service of document on company Deemed to be sufficiently served a) By giving to person authorized in this behalf. b) By leaving or posting to place of business where i. Address of authorized person not provided ii. Authorized person is dead, ceased to reside at provided address or refused to accept the documents on Companys behalf. Miscellaneous provisions: If Co fails to comply requirements It shall have no effect on validity of any contract, dealing or transaction entered into by the Company and liability to be sued Company can not bring any suit, claim, set-off, counter claim unless all requirements met. Provisions of Companies Ordinance 1984 relating to name, power of registrar for investigation/inspection shall apply to this Company. Where Company intends to cease having place in Pakistan it shall 30 days before ceasing to have place of business Intimate to Registrar. Publish notice of such intention at least in 2 newspapers. [Obligation of Company to deliver documents shall also cease] Restriction of going house to house for sale of securities (except offices)
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Registration offices and fees( SEC 468, 469) Registrar not to accept defective documents (SEC 468) If in the opinion of the registrar, any document required or authorized by or under this Ordinance to be filed or registered with the registrarcontains any matter contrary to law, or does not otherwise comply with the requirements of law; is not complete owing to any defect, error or omission; is insufficiently legible or is written upon paper which is not durable; or is not properly authenticated; The registrar may either require the company to file a revised document on specified form & within specified time Refuse to accept or register the same. Where the registrar refuses to accept any document for any of the reasons aforesaid The same shall not be deemed to have been delivered to him in accordance with the provisions of this Ordinance unless revised document provided in specified time. The registrar shall communicate his decision in writing to the company. If registration of any document is refused, the company may either Supply the deficiency and remove the defect pointed out or, within thirty days of the order of refusal, prefer an appeal to Registrar, where the order of refusal has been passed by an additional registrar, a joint registrar, a deputy registrar or an assistant registrar SECP, where the order has been passed, or upheld in appeal, by the registrar An order of the SECP shall be final and shall not be called in question before any Court Acceptance of documents presented after prescribed time (SEC 469.) Where any document required or authorized by or under Companys Ordinance to be filed or registered with the registrar within a specified period is presented after the expiry of such period, the registrar may accept same on payment by the company or other person concerned of such additional fee as may be prescribed by the Commission, not exceeding 3 times the amount of the specified fee payable in respect thereof No such document shall be deemed to have been filed with the registrar until the specified has been paid in full. Acceptance of the document by the registrar shall not absolve the defaulting company or other person concerned of any liability arising from the default, delay in filing or other failure to comply with the requirements of Companies Ordinance. General Proceedings, offences etc ( SEC 494, 496) Liability of directors for allotment of shares for inadequate Consideration ( SEC 494) Any director, creditor or member of a company may apply to the Court for a declaration that any shares of the company specified in the application have been allotted for inadequate consideration. Every director of the company who 1. is a party to making the allotment of such shares 2. had knowledge that the consideration so received by the company was inadequate, or 3. failed to take reasonable steps to ascertain whether such consideration was in fact adequate Shall be liable, jointly and severally with his co-directors, if found by court after full enquiry into circumstances of transactions, to make good to the company the following amount [Consideration to be received consideration inadequately received] Penalty for carrying on ultra virus business (SEC 496) If any business or part of business carried on or any transaction made, by a company is ultra vires of the company Every person who acted as a director or officer of the company and is responsible for carrying on such business shall be liable to a fine not exceeding 5,000 rupees and shall also be personally liable for the liabilities and obligations arising out of such business or transaction.
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Introduction to winding up (SEC 297 to 304) Meanings & Objectives of Winding up A proceedings in which all affairs of company are wound up, its rights & liabilities ascertained and the claims of its creditors are paid off out of the proceeds of the assets of the Company including contributions by its members to necessary extent. Where any surplus assets are left, the same are distributed to members of company in proportion of their rights under AOA Then company is dissolved in compliance with formalities of Company.Ord.1984 Consequences of winding up Winding up puts an end to business of company Winding up doesnt means that company s financially embarrassed, even a solvent company may sometimes wind up in apprehension of future losses
Effects of winding up as regards to different persons are Company: Company continues to be a corporate entity with all rights. Only Management & Administration passes to Liquidator. Shareholders: A new statutory liability comes into existence No transfer or change in shareholdings except with approval of Liquidator. Creditors: They have to lodge claims with Liquidator and Prove debt (except secured creditor). Cannot file or continue suit against company except with leave of court. Employees Winding up by court appears to be a notice of termination They an prove claims/damages in respect of wrongful termination Voluntary winding up does not necessary operates as notice of discharge Directors Directors/ CE and officers cease to hold office except for the purposes of winding up Committee of inspection or creditors in general meeting may sanction continuance Properties of company No disposition of properties without leave of court
Modes of winding up Company can be wound up in any of the following modes 1) By court [Compulsory winding up] 2) Voluntary 3) Under supervision of court
Contributories
Contributory means every person liable to contribute to the assets of a company in the event of its being wound up, and include the holder of any shares which are fully paid up; and persons who are deemed to be contributories or alleged to be a contributory
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Liability of contributory accrues on commencement of liability but payable at time specified in calls made on him for enforcing the liability. Liability of contributories as past and present members Past and Present members will contribute money to pay all debts, liabilities, expenses of winding up and adjustment of rights of contributories among themselves with following qualification: No contribution from past member if member ceases to be a member one year before winding up or debt was contracted after he ceased to be a member. Past member will contribute only if court deems it necessary that present members are unable to pay debt. For company limited by shares, maximum liability shall be upto amount unpaid on shares. For company limited by guarantee, maximum liability shall be upto amount undertaken by member. For company limited by guarantee having share capital, maximum liability shall be amount unpaid on shares as well as amount undertaken by member. A sum due to any member in respect of dividend, profit etc. shall not be a debt. Ordinance not applied where liability of individual is restricted and funds of company liable (e.g. policy of insurance) Liability of director whose liability is unlimited: In addition to his liability as ordinary member, such director shall be liable to contribute as if he were a member of unlimited company provided: If he ceased to be a director one year before winding up or if debt was contracted after he ceased to be a member. Contribution will be made only if court deems it necessary subject to Articles.
Contributories in case of death, insolvency or winding up of member. Death: 1. His legal representative will be liable 2. Deceaseds property if default is made by legal representatives in payment of money Insolvency: 1. His assignee 2. May be proved against the estate of insolvent. Winding up: 1. Liquidator. 2. May be proved against assets of body corporate.
______________________________________________________________________________________ Note: ICAP have specifically excluded following sections from course of Corporate Laws, Module E Winding up by Court [ 307, 308, 312 to 320, 332, 335, 338, 342 to 345, 351 to 354 ] Provisions applicable to every mode of winding up [ 408 to 420, 423 to 430, 435 to 442 ] Please refer to ICAP course outline for any change therein.
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Winding up by Court (SEC 305 to 357) Petition for winding up Winding up by Court shall be deemed to commence on presentation of petition for winding up to Court. Following persons may file petition to court subject to certain conditions mentioned 1. Company, after Special resolution Company has to file particulars of assets, liabilities and suits against it 2. Creditors including contingent or prospective creditors Have to give security for costs of winding up 3. Contributories If no. of members reduced below minimum numbers (2 or 7). Shares have been held by him for at-least 6 months during last 18 months. 4. Registrar (with sanction of SECP) 5. SECP, after investigation that Business of company is Illegal, ultravires MOA or oppressive to members or Management is guilty of fraud or misfeasance or misconduct Circumstances in which company may be wound up by Court 1. On Special resolution by members of Company 2. Default by company in a. Holding Statutory meeting b. Holding Statutory report c. Holding any 2 consecutive AGM 3. 4. 5. 6. 7. 8. 9. Number of members fall below minimum number. Company. does not commence business within 1 year of incorporation Company suspends its business for whole year. Company Ceased to be a listed company. if was so Unable to pay debt. If court thinks it just and equitable. Where the business of company is a. Illegal b. Ultravires Memorandum. c. Oppressive to minority shareholders, promoters and members d. Management is guilty of fraud, misfeasance, or misconduct towards MOA, AOA or Co Ord.1984.
Minority share holders means shareholders together holding at least 20 % of the share holding Company when deemed unable to pay its debts. 1. If a creditor of lesser of 50,000 or 1% of Paid Up Capital serves a notice at registered office of company for payment of sum, himself or through agent or legal advisor and within 30 days Company. neither pays the same Nor secures Nor satisfies creditor by compounding it 2. If court order in favor of creditor and still he remains unsatisfied 3. It is proved to court that company is unable to pay debt Court shall take into account Contingent and Prospective liabilities
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Official liquidator
Official Liquidator occupies dual position on winding up He represents company & creditors He is bound to be impartial, not to make secret profits He is paid agent of company: bound to carry out duties with due care and skills
Appointment of Official Liquidator (OL) Court shall maintain a panel of persons form amongst persons specified by SECP From this panel 1or more OL or Provisional Manager (PM) shall be appointed Such person with 3 days of communication of order shall inform court of his inability to act so A person other than panel can be appointed if 1. Court considers it. or 2. On application of creditor whom 60% of issued share capital or more is due 3. Notice of fact sent to Registrar. OL shall forthwith start his duties till conclusion of winding up Where more than 1 person are appointed, court shall declare whether any act shall be done by all or some or anyone Court shall decide whether any security needed to be given by OL Resignation, removal & Filling Vacancy: OL Cant resign before conclusion of winding up o except on personal disability to the satisfaction of court Can be removed by court any time. Any vacancy in office of OL to be filled by Court, o Outgoing OL shall continue to act until successor takes his place. Remuneration of OL OL is paid remuneration for his services as follows %age of amount realized on disposal of assets There may be different %age for different class of assets Fixed by the Court having regard to amount and nature of work done
Or
In addition to remuneration Court may permit payment of monthly allowance for meeting expenses of winding up for period of 12 months from date of commencement Subsequently, remuneration can not be enhanced but may be reduced by court anytime If OL resigns, removed or otherwise ceases to hold office before conclusion He shall not be entitled to any remuneration Remuneration already paid shall be refunded to company General provisions as to Official Liquidator Past acts of OL having defects on appointment or qualification are valid till discovery. Winding up procedure shall be completed within 1 year. Extension may be granted by court For one month at a time, maximum for six months On ground that any proceedings by or against company are pending in a Superior Court. If OL is convicted of misfeasance, breach or default, he shall cease to hold office Be disqualified for 5 years to hold any other office including that of Director in any company. A Receiver can not be appointed for assets in the hands of Liquidator
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except by leave of court. OL shall maintain proper books to make entries or minutes of proceedings, any other prescribed matters Creditors and contributories can inspect it OL shall take property of company in custody from any directors etc He may contact dist. Magistrate having jurisdiction over that area
Statement of affairs When: Within 21 days from the relevant date or time extended by OL, PM, or Court till 45 days. Relevant date for purpose of this statement of affairs means o where PM or OL is appointed, its date of appointment or o where no such appointment is made, the date of winding up order. Who: Statement shall be submitted and verified by persons who Were directors, chief executive or secretary at the relevant date Have within 1 year of relevant date Been Directors, Chief Executive or Officer Taken part in formation of company Been in employment of company and are capable of giving required information Been in employment of a company which is the officer of the company. Particulars 1) The assets of company stating separately, Cash in hand, Cash at bank and Negotiable securities 2) Debts and liabilities of company 3) The names, addresses and occupation of the creditors of the company stating separately o Secured debt (with particulars, value and date of security given) o Unsecured debt 4) Names, addresses and occupation of debtors and amount likely to be realized from them. 5) Where property of company is in possession of any other person, name of person and place property. 6) Places where company conducted its business in last 6 months from relevant date and name of incharges there 7) Detail of pending suits or proceedings in which company is a party 8) Any other prescribed information. Any Creditor or Contributory can take copy on payment of prescribed fee. OL may reimburse expenses incurred in preparation of report from companys assets. Expenses may include preparation of affidavit for verification purposes
Report by Official Liquidator On winding up order as soon as possible, after receipt of Statement of Affairs, not later than 30 days or further 30 days extendable by court shall submit a preliminary report To Court Such statement shall contain following particulars 1. Capital issued, subscribed and paid up 2. Estimated amount of assets and liabilities giving separately a. Cash, Bank and negotiable securities b. Debts due from Contributories c. Debts due to company and securities(if any) available against them d. Movable and Immovable properties of company e. Unpaid calls 3. Cause of failure if company has failed
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4. Whether in his opinion, further inquiry is desirable to any matter relating to formation, promotion, or conduct of business If OL thinks fit, he may make a further report stating Manner in which company was formed or promoted Whether in his opinion any fraud has been committed by any person (director or other officer) in its formation or promotion since its formation. Certified copy of report shall also be sent to registrar simultaneously. Liquidators Account OL shall present to court an account of his receipts and payments and dealing as liquidator at prescribed times but not less than twice in a year Account shall be in prescribed form, made in duplicate & verified by declaration Court may have such accounts get audited. 1 copy held with court and other delivered to Registrar along with auditors report Each copy shall be open for inspection by any person on payment of prescribed fees OL shall send it to every creditor and contributory along with auditors report.
Powers of Official Liquidator OL shall with sanction of court or committee of inspection have following general powers To institute or defend any suit, action, prosecution or other legal proceedings (civil/criminal) in the name and on behalf of the company To carry on business necessary for beneficial winding up. To sell movable and immovable property of company by Public auction or private contract. To pay any classes of creditors in full To compromise or make arrangements with creditors having any type of claim against company To compromise all calls, debts, liabilities or claim/damages between company and contributories, debtors or other persons apprehending liabilities and all questions affecting assets or winding up of company OL shall have following powers subject to any general/special directions of court or committee of inspection To execute all deeds and use company seal To prove, rank and claim in bankruptcy/insolvency of any contributory for any balance against his estate and receive dividends in bankruptcy/insolvency in respect of that balance To accept, make, or endorse bills of exchange To raise on security of assets of company any money requisite To take out in his official name letter of administration to any deceased contributory, do any other act for payment due from contributory To appoint an agent to do business which he himself can not do To do acts to recover payments due from a contributory To do other acts as are necessary for winding up and distribution of assets
Certain obligations of Official Liquidator OL shall maintain proper books to make entries, or minutes of proceedings, any other prescribed matters. Creditors and contributories can inspect it. OL shall take property f company in custody from any directors etc, for which he may contract Dist. Magistrate having jurisdiction over that area Provisional Manager At any time after presentation of petition and before Winding up orders, court may appoint a person eligible for appointment as official liquidator.
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Court shall give notice to company and provide opportunity to make representation Court may dispense such notice for reasons to be recorded. PM shall have same powers as official liquidator Court may limit and restrict his powers in appointment or subsequent order. PM shall cease to hold office when order of winding up being made. Committee of Inspection Official liquidator shall within 30 days of orders, summon separate meeting of creditors and contributories of company for determining Whether COI inspection should be appointed to act with official liquidator Who should be its members Where Winding up order made on ground that company is unable to pay its debts, it is not necessary for official liquidator to conduct such meeting If there is a difference between creditors and contributories, court shall decide it Distribution by official liquidator Official liquidator shall, subject to directions creditors/contributories within 30 days of receipt. of court, distribute surplus funds among
Surplus funds means funds that come in hands of official liquidator after providing Expenses of Winding up Preferential payments Claims against company which are subject matter of adjudication/assessment. Amount retained for this purpose shall be invested in Khas deposit certificates that shall be deposited with court and distributions shall be made when claims are settled. Dissolution of Company Under following circumstances court shall make an order that the Company be dissolved from date of order and the company shall be dissolved accordingly o When affairs of company have been completely wound up o When court is of the opinion that official liquidator cannot proceed for winding up for want of funds and assets. o For any other reason just and reasonable of the case Dissolution shall not extinguish any right of debt due to company against or from any person. Copy of order shall be forward to registrar within 15 days of making. Registrar shall make a minute of dissolution of company. Powers of the Court Court may fix a time within which creditors are to prove their debts/claims or to be excluded from any distribution made before these debts proved. Adjust rights of contributories amongst themselves, so distribute any surplus to entitled persons. When assets are insufficient to satisfy the liability, court may make an order of payment out of assets for costs, charges and Winding up expenses in such order/priority as court may think fit. At any time after Winding up order require any of ; Contributory, trustee, receiver, banker, agent, officer, employee or auditor of company to convey, surrender, deliver or transfer to OL any Money, property, books, papers or documents of company in his hands. Court may at any time after Winding up order, order any contributory to pay any money due from him/estate of person whom he represents to company. In following cases a contributory can setoff any amount, due to him from company, otherwise than as a member of company
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In case of unlimited companies Limited company, where directors liability is unlimited Cases where creditors are paid in full, as regards call made after. Settlement of List of Contributories As soon as may be possible after making a winding up order, court shall settle a list of contributories with powers of rectify register of members where necessary and shall cause the assets of the company to be collected and applied in discharge of its liabilities. In settling list of contributories, court shall distinguish between Person who are contributories in their own rights Person who are contributories as being representative of or liable for debts of others. Court may dispense with settling list of court where it is not necessary to make calls to adjust right of contributories. Enforcement of Orders All orders made by court under companies ordinance may be enforced in same manner in which decree of such court in any suit be enforced. Such orders for winding up shall be enforceable in any place of Pakistan in the same manner as at place of jurisdiction. Where any order of court is to be enforced by any other court A certified copy of order to be produced to proper officer of court required to enforce the same. Production of such copy shall be evidence of that order. Such 2nd court shall enforce matters in the same manner.
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Voluntary Winding up (SEC 358 to 395) Circumstances for voluntary winding up: A company may be voluntary wound up under following circumstances 1. When period, if any, fixed by articles expires; or 2. Where event, if any, occurs the occurrence of which AOA provides for dissolution and company in general meeting passes a resolution for it 3. Where Company resolves by general meeting that company be wound up voluntary Voluntary winding up deemed to commence at date on which resolution passed. Consequences of winding up: Company ceases to carry on business o except for requirements of winding up. Corporate state/powers continue until company is dissolved. Notice of resolution: Notice of resolution for winding up company is to be given within 10 days By advertisement in Official Gazette In newspapers having circulation in Province of registered office For listed; also in Province of Stock exchange (English & Urdu) To Registrar Declaration of solvency: Directors of company (if more than 3, majority of Directors including Chief Executive) shall at a meeting of Board of Directors make a declaration, verified by affidavit to the effect that they have made full enquiry and concluded that 1. Company has no debts or 2. Company is able to pay its debts within 12 months of commencement of winding up. Declaration shall not be effective unless Made within 5 weeks immediately preceding date of resolution Delivered to registrar for registration within 5 weeks of passing of resolution Supported by auditors report on P&L A/C and Balance Sheet. If Directors make declaration without reasonable ground they will be punishable Imprisonment of six months or Fine Rs. 10,000 or Both o If debts are not paid within specified period, it will be assumed that directors did not have any reasonable ground.
Members Voluntary winding up

Appointment of liquidator: Company in general meeting shall appoint one or more liquidators to wind up affairs and distribute assets, receiving Such meeting may fix Remuneration, otherwise it will be same as in winding up by court On appointment all Powers of Directors, Chief Executives & other officers cease except so far as Company in general meeting or liquidators allows for
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Giving notice of resolution to wind up company. Appointment of Liquidator Filing consent of Liquidator. If any vacancy occurs by death & resignation or otherwise in office of liquidator, company in general meeting may fill, subject to arrangement with creditors. For this purpose general meeting may be called by Out going liquidator: or Continuing liquidator or Any contributory or Court on application of Registrar or Any other person interested in winding up Meeting shall be held in manner provided by Co.Ord 1984 or AOA or court may determine Company shall give notice to registrar within 10 days of appointment, filling vacancy etc
Calling creditors meeting in case of insolvency Liquidator shall call a meeting of creditors where 12 months expires without paying debt or Liquidator thinks that company is unable to pay debt in stated time. OL shall present Statement of Affairs. Creditors may appoint different liquidator who has consented to act as such. Notice of meeting, Return of meeting and Statement of Affairs are to be sent to Registrar within 10 days of meeting. Duty of Liquidator to call general meeting at end of each year: If winding up continues for more than 1 year liquidator shall summon a general meeting of company at End of 1st year of commencement of winding up Within 30 days of extended period, where proceedings are not concluded during 1st year and extension is granted.
P P P P
Liquidator shall lay before general meeting Audited receipts and payments Dealing as liquidator & conduct of winding up Reason for delay, steps taken, time required. Return of convening meeting, notice, statements shall be filed to Registrar within 10 days. Final meeting and Dissolution: 1. As soon as affairs of company are fully wound up, Liquidator shall Make up a report & accounts of winding up, showing how it has been conducted and how property being disposed off. Call a general meeting of Company for giving report + notice + any explanation Get accounts audited and copy of audited accounts with auditors report shall be sent to each contributory by post at least 10 days before meeting 2. Notice for meeting must be published at least 10 days before meeting 3. Within 1 week after meeting Liquidator shall sent followings to Registrar: a. Copy of his report and account b. Return of holding meeting + minutes or c. Return of non-holding meeting + fact of no quorum
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4. Registrar shall register it these documents after scrutiny 5. On expiration of 3 months company deemed to be dissolved. 6. Court may order to defer date of winding up on application of liquidator or interested person and certified copy of this order is to be filed with Registrar. Powers to accept shares etc. as consideration: Liquidator of transferor company, with sanction of special resolution of company, may have general or special authority to Accept shares or interest in profits of Transferee Company for distribution among members of Transferor Company Any dissenting member of transferor company shall apply to liquidator within 7 days for Abstain from carrying resolution into effect Purchase of his interest at price determined by agreement/arbitration
Voluntary winding up by creditors

Meeting of Creditors: Company shall call a meeting of creditors on or very next day of members meeting on which resolution of winding up was passed. Notice of both meetings shall be sent together Notice of creditors meeting shall be advertised in same manner Directors and Chief Executive of company shall Cause, a full statement of companys affairs together with list of creditors(and estimated amount of their claims), to be laid before creditor meeting. Appoint one of directors to preside at meeting, who shall attend & preside accordingly If meeting of voluntary winding up is adjourned, resolution passed at creditors meeting shall be deemed to have been passed immediately after adjourned meeting is held Notice of any resolution passed at creditors meeting is to be given to registrar within 10 days along with consent of appointed liquidator. Appointment of liquidators: Creditors and company at their respective meetings may nominate a person who has given written consent to act as liquidator If liquidator not appointed by either of creditor or company, liquidator appointed by other shall be liquidator. If creditor & company select different persons as liquidator, creditors shall override company Company shall within 7 days of nomination by creditors may apply to court for an order directing Person nominated by company shall be liquidator instead of or jointly with nominated by creditors Any other person to be liquidator (by Court) On appointment all Powers of Directors, Chief Executives & other officers cease except so far as Company in general meeting or liquidators allows for Giving notice of resolution to wind up company. Appointment of Liquidator & filing his consent If COI or Creditor(if no COI) may sanction continuation Committee of Inspection (COI) Creditors at their meeting may appoint a COI containing not more than 5 members
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Company shall appoint not more than 5 of its members to act as members of COI at meeting for passing winding up resolution or subsequently Creditor may refuse all/any of said persons, unless court direct otherwise o Court may on application by company, appoint other person to act as member in place of those rejected by creditors
Main Difference between members & creditors voluntary winding up The winding up for which declaration of solvency has been made and delivered to registrar is termed as Members Voluntary winding up, otherwise it would be Creditors voluntary winding up
Provisions same in members/creditors voluntary winding up Remuneration of auditor Filing vacancy of liquidator Powers of liquidator to accept shares etc as consideration Creditors meeting in insolvency
Subject to following Exception
Same Same Powers not exercised unless court/COI sanction it
Liquidator bound to call meeting of both creditors and members Liquidator bound to call meeting of both, and Person obtaining order shall file same with registrar within 10 days (not 14 days)
Final meeting and dissolution
Provisions applicable to every Voluntary Winding Up

Accounts and Statements to be audited All accounts and statements being placed before meetings of creditors or contributories shall be duly audited by an auditor. Auditors report shall be annexed to these accounts etc Auditor shall submit his report within two months of end of period. Distribution of property of company Properties of company on winding up be applied in satisfaction of its liabilities pari passu. Subject to such application, distributed to members according to their rights, unless AOA provides otherwise. Powers and duties of liquidator in voluntary winding up Exercise powers of court of setting lists of contributories Exercise Powers of court to make calls Creditor/contributory may apply to court with respect to any powers exercise by liquidator Liquidator shall pay debts of company and shall adjust rights of contributories among themselves Following powers/duties are same as in winding up by court Distribution of funds Period of winding up [1 year/ extended period by court]
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Liability for misfeasance or breach of trust etc Determination of duties by court among more than 1 liquidator Power of court to appoint & remove liquidator Court may appoint liquidator, he would have same powers/obligations as in winding up by court Court may remove & appoint new one on application of creditors/contributory/registrar Remuneration fixed by court as in case of winding up by court Miscellaneous Liquidator within 14 days of appointment publish in Official Gazette and deliver notice to registrar Any arrangement between company, in course of winding up, and creditors shall, subject to appeal within 21 days, be Binding on Company if sanctioned by special resolution Binding on creditors if accepted by 3/4th in number & value of creditors
P P
Liquidator may apply to court for public examination of promoters, directors etc Expenses of winding up including remuneration of liquidator shall be paid in priority of all Where company is being wound up voluntarily and order is made for winding up by court, court may adopt all/any of proceedings of voluntary winding up Power to apply to court to have questions determined or powers exercised Liquidator or any contributory or any creditor may apply to court to Determine any question arising in winding up of company Exercise all/any powers of court as if it was winding up by court. Court may, if think fit, accede wholly/partly for above on conditions as think fit Copy of order staying proceedings of winding up forwarded by company to registrar.
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Winding up subject to supervision of court (SEC 396 to 401) Power to order winding up subject to supervision Where co has passed resolution for voluntary winding up, court may Of its own motion or On application of any person entitled to apply court for winding up make an order of continuance of voluntary winding up but subject to supervision of court with such liberty to creditor/contributory etc, & with such conditions as think fit. Petition of continuance of voluntary winding up under supervision of court shall be deemed to be petition for winding up by court for purposes of legal proceedings Winding up subject to supervision of court and effect on liquidator Court shall appoint an official liquidator who would replace liquidator appointed by company On application by creditor/contributory/registrar/persons authorized by SECP Liquidator shall, subject to restrictions imposed by courts, exercise all his powers as liquidator of voluntary winding up without sanction of court Order for winding up under supervision shall not affect duties, obligation etc of liquidator under voluntary winding up If order for winding up under supervision is made and subsequently order for winding up by court is made, court may appoint voluntary liquidator as official liquidator Either provisionally or permanently Either with or without addition of any other person Court shall use all powers as if it were a winding up by court Regards to wishes of creditors and contributories Court may in following matters shall have regard to the wishes of creditor or contributories as proved by sufficient evidence In directing between winding up by court and winging up under supervision of court In appointment of liquidator In all matters relating to winding up under supervision of court
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Provisions applicable to every mode of winding up Status of company being wound up Company being wound up shall continue to be a company for all purposes till its final dissolution All powers of Co.Ord 1984 shall apply to company mutatis mutandis
Proof & Ranking of claims

In every winding up all debts payable on a contingency and all claims against the company, present or future, certain or contingent, shall be admissible to prove against company A just estimate being made, if possible, of value of debts/ claims In case of insolvent company: subject to provisions of Co.Ord or law of insolvency For winding up of insolvent companies, rules & provisions of law of insolvency shall apply Preferential Payments: Rent, Rates, and Taxes of Federal Govt., Provincial Govt., or Local authority payable within 12 months Wages and Salaries payable to employees not exceeding 4 months from the relevant date Accrued Holiday remuneration and Termination benefits. Insurance payable as employer (except in case of Reconstruction or Liquidation) Amount due in respect of compensation for death or disability of employee under Workmens Compensation Act 1923. Amount due to employees for: Pension fund Provident fund Gratuity fund Other Welfare fund Expenses of investigation payable.
Avoidance of Transfer: Transfer of Shares after commencement of winding up is void unless approved by Liquidator. Transfer of property (movable or immovable) made within one year before commencement of winding up is void unless in ordinary course of business and in good faith for valuable consideration.
Disclaimer of property (Sec 407).
Supplementary Provisions
Payments received by Liquidator: Liquidator shall open an account in a Scheduled Bank in company name. All receipts shall be deposited within 3 days in that account. If liquidator retains amount exceeding 500 rupees or such amount as authorised by Court, he shall be punishable as follows: Make good any loss Pay surcharge @ 2% p.m. Disallowance of all or part of remuneration Removed from office by Court.
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Unclaimed dividends and undistributed assts: Money With liquidator (after 6 months) shall be submitted to SBP + credit to Federal Govt. in Company Liquidation Account Liquidator shall forthwith submit to Registrar a statement containing particulars of persons entitled to participate along with official receipt of SBP Liquidator responsibility ceases on receipt of deposit from SBP. Thereafter Registrar can make payment after approval of authority. Any money unpaid after 15 years shall be transferred to general revenue A/C of Fed.Govt Books, accounts and other proceedings to be kept by liquidator: At Registered Office. Any Creditor/Contributory can inspect it. Federal Govt. may alter any requirement. Appointment of Auditor: Same provisions as applicable to companies not in the process of being wound up, Except All obligations of management with respect to audit vest in liquidator Appointment of auditor made By authority appointing liquidator i.e. (Court, Members, or Creditors) and same shall fix his Remuneration Where no auditor is appointed, liquidator shall inform Commission who will appoint.
Liquidator to exercise certain powers subject to sanction (sec 421). Meetings to ascertain wishes of creditors (Sec 422)..
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Various Rules under Companies Ordinance
Companies (Issue of Capital) Rules 1996
POLICY FOR ISSUE OF CAPITAL (First Offer)

A company which owns a Loan Based Project or Equity Based Project and proposes to raise capital through public offer for the first time shall comply with the following conditions: 1. LOAN BASED PROJECT Financial plan b approved by institution financing the project. Size of capital to be issued shall be in accordance with the financial plan approved by the Institution financing the project. Underwriting is not mandatory. The auditor shall certify that the Sponsors subscription has been received in full and at least 80% utilized in the project. Stock Exchange shall certify that Atleast 30% of plant & machinery has been installed Last consignment of plant & machinery has been shipped. The Sponsors shall all the time retain at least 25% of the capital of the Company. 2. EQUITY BASED PROJECT The fixed capital expenditure shall be entirely financed by Equity. The project must be appraised by a Financial Institution or a Commercial Bank or an Investment Bank. The appraisal report shall be accompanied by a certificate from the auditor conforming that: Capital allocated to the Sponsors, Foreign and Local investors have been fully paid. The land for the project have been acquired L/Cs has been established and shipment schedule for plant & machinery with the supplier has been finalized. The issue shall be fully underwritten and the Under Writers (Not being Associated Co.) shall include atleast two financial institution including Commercial Banks and Investment Banks. The Under Writers shall evaluate the project in their independent Due Diligence Report. Sponsors subscription must be received in full before public issue and auditors must certify the same The Sponsors shall retain atleast 25% of the capital of the Company for the period of 5 years from the date of public subscription.
ISSUE OF SHARES ON PREMIUM

A Company may issue shares to the public on premium subject to the following conditions: Company shall have profitable operation record of at least one year. The premium on public offer shall not exceed the amount of premium charged on placement (local or foreign) [Names & addresses of such institutions must be disclosed in prospectus] The issue shall be fully underwritten. The Under Writers shall give justification of premium in Due Diligence Report. The Due Diligence Report shall form the part of material contract. Full justification of the premium shall be disclosed in prospectus. Employees getting preferring allocation shall be charged premium at the same rate as to the public. If there is preferential allocation at Par to any person Such shares shall not be saleable for the period of two years. These persons shall be issued Jumbo Certificate with the marking Not saleable for two years. After the expiry of prescribed period the shares would be splited into Marketable Lots
ISSUE OF RIGHT SHARES BY A LISTED COMPANY

The company shall not make a right issue within 1 year of 1. First issue of capital to the public; or
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2. Further issue of capital through right issue. The company while announcing right issue shall clearly state 1. The purpose of right issue 2. Benefits to the company & use of funds 3. Financial projection for three years. That shall be signed by all the directors who were present in the meeting in which the right issue was approved. The decision of the company to issue right shares shall be communicated to the SECP and the respective stock exchange on the day of decision. The company may charge premium on the right shares up to free reserves per share as certified by the companys auditor, provided where a company purposes to charge premium on right issue above the free reserves per share shall be required to fulfill additional conditions: 1. At least 40% share holders undertake to subscribe their portion of right at such premium. 2. The remaining right issue shall be fully under written and the under writers shall give the full justification of premium in Due Diligence Report.
The right issue of following shall fully and firmly under written Loss making company or A company whose market share price during preceding 6 months has remained below than par value, Book closure shall be made within 45 days of the announcement of the right issue. Payment and renunciation date once announced shall not be extended except under special circumstances with the permission of respective stock exchange. If announcement of bonus and right issue is made simultaneously the resolution of the Board shall specify whether the bonus shares covered by the announcement qualify for right entitlement.
ISSUE OF BONUS SHARES BY A LISTED COMPANY

The decision of directors regarding bonus issue shall be communicated to stock exchange & SECP on the date of decision. [If SECP closed at that time, on very next day before 09:45 am] Free Reserves retained after bonus issue must be 25 % of enhanced capital [ Free Reserves Bonus ] = atleast 25% [ Capital + Bonus ] The auditor shall certify the same. All contingent liabilities shall be deducted while calculating free reserves. FREE RESERVES Free reserves includes any amount which has been set aside out of reserves or other surplus after adjustment of all intangibles or fictitious assets and is free that it is not retained to meet any specific liability, diminution in value of asset contingencies and commitments. But does not include the followings Reserve for revaluation of assets Goodwill reserve Depreciation reserve Development allowance reserve Workers Welfare Fund Provision for taxation [ deferred/current ] Capital redemption reserve
ISSUE OF SHARES AGAINST CONSIDERATION OTHERWISE THAN IN CASH

Following are the conditions for valuation of assets representing consideration for shares: Value of assets shall be determined by consulting valuer registered with Pakistan Engineering Council and is on the penal of atleast two financial institutions as valuer. Value must be net of depreciation.
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Goodwill and intangible assets shall be excluded from the consideration. A certificate from a practicing CA shall be obtained for compliance of above conditions.
OFFER OF SHARES BY CERTAIN PERSONS

A person who holds more than 10% of shares of the company may offer such shares for sale to general public subject to following conditions: Size of capital be offered to the public shall be not less than lesser of 100,000,000 or 25% of the capital No premium shall be charged unless the company has profitable operations of one year. In case the premium is charged other formalities regarding premium Offer shall be under written Under writers shall give justification in due diligence report. Full justification of premium shall also be disclosed in offer for sale. Due diligence report forming part of material contracts.
OFFER FOR SALE BY A PRIVATIZED COMPANY

Where a company has been privatized by the Federal Govt. or the Provincial Govt. the new management shall not offer shares to the public for a period of 3 years from the date of privatization at a price higher than a purchased price per share. Purchase Price per share may be adjusted by right or bonus shares or similar distribution made out of pre acquisition reserves. SECP shall relax these rules for reason to be recorded, if requirements of these rules doesnt seem to be practicable.
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COMPANIES (APPOINTMENT OF LEGAL ADVISOR) ACT, 1974 RULES 1975 A company having capital not less than 500,000 shall appoint legal advisor Purpose Remuneration Eligibility No person other than advocate or registered firm of advocates Company shall not appoint an advocate or firm of advocates to be the legal advisor, if at the time of appointment, the number of companies of which such advocate or firm is legal advisor, will exceed: In case of advocate In case of firm 3 product of 3 and number of partners To advise the company in the performance of its functions and discharge its duties in accordance with the law The appointment shall be on retainership basis, not less than Rs.1,500 per month
If a company contravenes the above provisions the responsible person of the company shall be punishable with simple imprisonment for a term which may extends to 3 months or fine or both Legal Formalities Every company shall obtain certificate from legal advisor once a year that he or they are not engage in more than 3 companies as legal advisor The company within 15 days of appointment of legal advisor furnish to the Registrar particulars of legal advisor (Just like form 29)
COMPANIES Rules 1985 As per course outline issued by ICAP only explanatory provisions of Companies Rules 1985; Knowledge of contents of the Forms is not expected
Important Rules & Forms [ As per recommendations of Sir Naeem Baig (CAPS) ]
Rule 2 Rule 5 Rule 6 Rule 14 Form 1 Form 3 Form 7 Form 10 Form 16 Form 21,22,23 Form 25 Form 26 Form 27 Form 28 Form 29 Form 31,32 Form 34 Form 35 Form 38-46
Definitions Availability of Name Association not for profit Application for extension in AGM Incorporation of Companies Return of Allotment Notice of increase in nominal Capital Mortgages & Charges Modification in Mortgages & Charges Related to Commencement of business Statutory Report certification Special resolution List of Person consenting to act as Directors Consent of Directors Particulars of Directors, CE etc Beneficial ownership Pattern of Shareholding Extension of period of dividend Related to Foreign Company
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THE COMPANIES (BUY BACK OF SHARES) RULES 1999 Company shall have sufficient cash available Company shall have following ratios Debt Equity Ratios 75:25 Current Ratio 1:1 The above ratios shall be disclosed in the explanatory statement annexed with the notice of meeting. Decision of Purchase The Directors of the company in a meeting shall take decision of Purchase Purchase price Number of shares to be purchased They shall fix a date for General Meeting of the company to pass Special Resolution. The decision of the Directors shall be communicated to the SECP and SE on the date of decision. The tender notice shall contain the following information: Maximum No. of shares to be purchased. The manner in which offer to be communicated. The last date by which the offer to sell shall be made by the shareholder. The names and addresses of the designated branches of the authorized banks. Purchase Procedure 1. A shareholder interested to sell his share to the company in response of the tender notice shall make offer to sell in writing to the designated branches of the authorized banks providing following information: Name of the shareholder Father name / Husband name NIC No Address No. of shares offered Shares distinctive number [If shares are not in CDS] Folio number [If shares are not in CDS] The account number [If shares are in CDS] 2. The company shall take a decision within 10 days of the closing date. 3. In case the offer exceeds the required purchase the acceptance shall be made by the company on pro-rata basis in lots of 500. 4. The acceptance of the offer shall be communicated to the shareholder within 10 days of the decision. 5. The shareholder whose offer has been accepted shall submit to the bank share certificates along with verified transfer deed within seven days of the receipt of the acceptance of the company. Where the shares are in CDS a confirmation from the CDC about the availability of shares along with authorization to transfer the shares to the designated bank. 6. In case the company bank (Designated) does not receipt the shares within 7 days the acceptance of the company shall be deemed to have been revoked. 7. Company shall pay the price of shares purchased within 7 days of the receipt of shares. Other Formalities The purchase shall be disclosed in the Balance Sheet as reduction of capital and necessary details would be provided in the Notes to the Account. Company shall submit to SECP & Registrar concerned a Return & Declaration of Solvency within 30 days of purchase in manner set out in schedule to these rules.
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COMPANIES SHARE CAPITAL (variation in rights & privileges) RULES 2000 KINDS & CLASSES OF CAPITAL A company limited by shares may have more than one kind of share capital and may have different classes of share under each kind. Where a company intends to have different kinds of share capital it shall specifically so provide in its memorandum & articles. NATURE OF RIGHT & PRIVILEGES Different voting rights Voting right disproportionate to the paid up value of shares Voting right for specific purpose No voting right Different right of entitlement of: Dividend Right shares Bonus shares Receiving of notices of meeting and to attend those meetings Right & Privileges for period: Indefinite period Definite period Period determined by members from time to time in special resolution
OTHER CONDITIONS The company has to pass to pass special resolution if it intends to issue different kinds of capital No company shall issue further capital of any kind except with the approval of SECP Offer of further capital of any kind shall be made to each existing share holder proportionately without any discrimination. If any of the existing share holder decline to accept the offer of further capital, the shares so declined shall be disposed off by the directors in such manner as may be provided in the articles or special resolution. If the capital of different kind is offered to general public this fact shall be distinctly mentioned in offering documents together with respective rights & privileges.
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LISTING REGULATIONS OF KARACHI STOCK EXCHANGE Eligible Security Defaulter Counter Listed Security It means a security which the CDC has declared to be eligible for deposit with the CDS It means a separate counter setup by the SE for trading of listed securities who have committed irregularities in respect of listing regulations. Any Share, Scrip, Debenture, PTCs, Modaraba Certificates, Musharika Certificates, TFCs, Bonds, or such other instrument has the Federal Govt. may by notification specified and which is accepted for listing on the SE. A company which has listed on the SE. whose securities has listed on the SE and includes a provisionally listed company. It is department in state Bank that provide information about the loan given to different companies
Listed Company Credit Information Bureau (CIB)
Listing Of Companies & Securities No dealing in the securities of company shall be allowed on the SE either on ready quotations board or future counter unless the company and the securities have been listed and permission for such dealing has been granted in accordance with listing regulations. The above permission shall be granted upon an application made by the company in prescribe form. o The SE in granting such permission will consider among other things, sufficiency of public interest in the company or security. Board of SE will be sole authority to grant, refuse or defer such permission. Board shall decide permission within 3 months of application o If refused, the reasons shall be communicated to applicant & SECP within 2 weeks. o Applicant can reapply after 6 months with fresh application. Board may require additional documents other than prescribed If not provided, application deemed refused.
Undertaking The company or authorized representative shall undertake that: Securities shall be quoted at the discretion of SE SE shall have right to suspend or remove any security without notice. Furthermore company cannot bind SE to remove its securities. The provision of listing regulations shall supersede the articles of association that are not in conformity. SE can delist company/security on non compliance. Offer of Capital by Companies / Modarabas to the Public The capital is upto Rs.500,000,000 Capital beyond 500,000,000 Allocation of capital to overseas Pakistani Allocation of capital to employee Atleast 50% shall be offered to public Atleast 250,000,000 or 25% of the capital which ever is higher. Shall not exceed 20% of public offer. Shall not exceed 5% of the public offer
In case of Modaraba applying for listing 30% of the capital of the Modaraba shall be subscribed by Modaraba Company, sponsors, friends, relatives and associates. Balance 70% shall be offer to the public as per Modaraba Rules. The allocation of capital to: a. Sponsors in excess of 25% b. Allocation of shares under pre-IPO placement including employees shall not be saleable for a period of six months from the date of public subscription. Prospectus, Allotment, Issue and Transfer of Shares
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No company will be listed unless it is public company and has a minimum capital of Rs. 200 Million. Company registered in AJK or in the Northern areas of Pakistan shall be eligible for listing and will be treated at par with the company registered in Pakistan. No company shall be listed unless the public issue has been subscribed by not less than 500 applicants. Company may make public offer of security to be the eligible security in CDS. The application for shares shall be accepted only through Bankers to the Issue. The directors shall not participate in the public subscription. Company shall inform the SE about the subscription receipt with in 3 working days of the closing of the subscription list. The company shall take decision about the acceptance of applications within 10 days of the closure of the subscription list. The company shall refund application money to the unsuccessful applicants within 10 days of above decision. [ Afterward charges @ 1.5% per month.] In case of over subscription the company shall immediately file ballot register with the SE. The company shall dispatch share certificates to successful applicants in marketable lot within 30 days If the security is eligible security the CDC procedure will be followed. Company shall consolidate / split, as may be required by security holder in writing, certificates into marketable lots within 30 days of application. The company shall verify signature of the share holder within 48 hours of the receipt of application. The company shall verify signature of the shareholder within 48 hours of the request. The company shall complete the transfer receipt immediately on receiving the share for transfer. Prospectus / offer for sale with performa application shall be published atleast in 1 english and urdu newspaper of Karachi, Lahore & Islamabad between 7 & 30 days of opening of subscription lists. The company shall give minimum of 21 days notice to the SE prior to the closure of share transfer book for any purpose. Company shall issue transfer receipts immediately after receiving shares for transfer Company shall not charge any transfer fee. Duration for one time closure [7 days but not exceeding 15 days] Duration for total closure closures in year [Not exceeding 45 days] Dividend & Entitlement It is applied on only listed companies. a) The company shall inform SE regarding decision of the directors relating to the announcement of dividend, bonus issue, right issue, and other entitlement. atleast 21 days before the book closure. b) Interim dividend warrant shall be dispatch within 45 days from the date of commencement of book closure. c) Final dividend warrants shall be dispatch to the shareholder within 45 days from the date of AGM at which it has approved. Dividend warrants are dispatched through registered post. d) The company shall inform the SE as soon as dividend warrants are posted to the share holders. e) All dividend warrants, in addition to the registered office of the company shall be encashable at Karachi, Lahore, Hyderabad, Sakkhar, Quetta, Multan, Faisalabad, Islamabad, Rawalpindi and Peshawar for the period of 3 months from the date of issue. f) Every company shall send to the SE 300 copies of annual report and interim report as soon as these are send to the share holders. Annual General Meeting a) Company shall hold its AGM within 3 months of close of its financial year. b) The Modaraba shall hold its ARM (Annual Review Meeting) within 4 months of close of its financial year. c) The period holding of AGM may be extended for a period of maximum 60 days with SE approval. a. SE shall give that approval on production of similar approval from SECP. b. Fee : 1st month / part => 10,000 2nd month / part => 12,500 d) The company shall obtain prior approval from the SE in respect of time and date of AGM. e) Company shall furnish copies of minutes of AGM and every EOGM to the SE within 60 days of the meetings.
P P P P
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f)
Company shall furnish a complete list of its shareholders as at 31st December each year, within 30 days.
P P
Increase in capital a) Exery listed company shall advice the SE regarding all decisions taken by the BOD for changes in capital through issuance of right & bonus shares. b) Company shall issue right letters in marketable lots within 30 days from the date of reopening of share transfer register. c) Company shall issue bonus shares within 45 days from the date of reopening of share transfer register. Listing of Subsidiary Company A listed company distributing shares of its unlisted subsidiary company in the form of dividend, right issue etc (in kind) shall get such company listed on the SE. Company shall immediately notify to the SE regarding any change in the BOD. Listed company shall obtain prior approval of the SE for any amendment in the Mamorandom and Articles of Association. Intimate SE regarding issue of Participation Term Certificate De-listing, Suspension and defaulter counter A company may be de-listed, suspended or placed on the defaulter counter for any of the following reasons: If the shares of a company are quoted below 50% of the face value for a continues period of 3 years. If the company has failed to declare dividend or bonus: o o o For 5 years from the declaration of last dividend and bonus. For 5 years from the date of commencement of production.[For manufacturing company] For 5 years from the date of commencement of business [in all other case].
If the company has failed to holds its AGM for continues period of 3 years. If the company has failed to pay annual listing fee for 2 years. If the company has failed to comply with the listing regulations. If the company refuse to join CDS. Company has gone into liquidation, voluntary or by court. Securities on default counter shall be affected separately, (prices quoted separately) Suspension or delisting shall be communicated to company and notified to trade by posting it on notice board of SE. Voluntary De-Listing A company intending to seek voluntary de-listing shall intimate to the SE immediately regarding Intention of the majority shareholders/sponsors to purchase all the shares from other shareholders with the purpose to de-list the company. Reasons of voluntary de-listing Minimum price at which the shares are proposed to be purchased. The minimum purchase price proposed by the sponsors will be the highest of benchmark price based upon any of the following: Current market price Average market price (Annual Average) Breakup value based historical cost whereas [ Breakup value = Equity/no. of shares ] Earning multiplier approach Fair value of shares = Estimated Earning x Price Earning Ratio *Estimated Earning = Average price per share of last 3 years. *Price Earning Ratio = Market Price per share / EPS The maximum price at which the sponsors had purchased shares from the market during the
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12 months Now SE shall determine the minimum percentage of shares to be purchased by the sponsors to qualify for de-listing. In case of disagreement of the sponsors on minimum percentage of shares to be purchased. The sponsors shall file an appeal with the SECP within 10 days of the decision of the SE. The decision of the SECP shall be final and binding. The sponsors cannot withdraw their offer to purchase their shares if such proposal has been approved by the company in a general meting by not less than 3/4th majorities through a special resolution. The SE may for any reasons refuse to accept the proposal of the company. The copy of the special resolution passed by the company for voluntary de-listing send to SE immediately alongwith complete list of the shareholders. Together with the application of de-listing the company shall submit an undertaking from a purchase agent (who may be commercial bank, investment bank or a member of SE.) The offer to purchase at the relevant price from the other shareholders shall remain open atleast for a period of 60 days. The application for voluntary de-listing shall be accompanied with the consent of purchase agent. The company after passing special resolution shall convey to all the shareholders the decision of the majority shareholders through a register post alongwith copy of special resolution. A notice in this regard shall also be published in two widely circulated news papers including one in Karachi. On completion of purchase, the company shall submit the following information. Total no. of shares issued Shares owned by majority shareholders before the offer Shares purchased under the offer Total shares currently owned by the majority shareholders Shares still outstanding with minority shareholders The sponsors shall continue to remain obliged to purchase the shares still outstanding with the minority from them at relevant price for a period of 12 months from the expiry of initial pay back period. The company once de-listed under listing regulation shall not be allowed to re-listing for a period of 5 years. Transfer Pricing No listed company shall use a price other than the arms length price Except in rare circumstances subject to the approval of the BOD, if it is in the interest of the company to do so. Directors shall approve transfer pricing policies for related party transaction. For each related party, company shall maintain following records: 1. Name of related party; 2. Nature of relationship with related party; 3. Nature of transaction; 4. Amount of transaction; 5. Terms and conditions of transaction, including the amount of consideration received or given; 6. Basis or method for determining such consideration; 7. Detailed assumption and estimates underlying the transfer price and details of computation of transfer price; and 8. A statement whether, in managements opinion, such consideration is an arms length price. The record of all related party transaction shall also be placed before the Board of Directors at each Board meeting for formal approval and before the Audit Committee of the company. Transactions not executed as arms length shall be separately placed. The listed companies shall present the record of related party transactions together with all relevant documents, agreements, calculations and explanations to the statutory auditor for the purposes of the statutory audit. All listed companies shall publish and circulate a statement along with their annual reports to setout the status of their compliance with the best practices on Transfer Pricing All listed companies shall ensure that statement of compliance with the best practices of Transfer Pricing is reviewed and certified by statutory auditors.
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CODE OF CORPORATE GOVERNANCE
Board of Directors
Independent director A director who is not connected with the listed company or its promoters or directors on basis of family relationship and does not have any other relationship with listed company or its associate or related party. Executive and Non Executive directors Executive directors are working whole time director and non-executive director, on the other hand include independent person who give outside view point to the BOD of the company and do not devote their whole working time to the company. The guiding factor distinguishing between executive and non-executive director is the extent of their involvement in the management of the company. ED can be defined as paid director and NED as non paid director Independent Non Executive Directors All listed companies shall encourage effective representation of independent non-executive directors including directors representing minority interest on the BOD, so that, the board as a group includes core competence relevant to each listed company. Minority share holders as a class are facilitated to contest election of directors by obtaining proxies. a. The company shall annex to the notice of general meting at which director election are to be held, a statement (by the candidate from the minority share holders who seeks to contest election of the BOD). b. This statement shall include the profile of that candidate. c. Also annex, on request of candidate, an additional copy of proxy form duly filled by the candidate, and transmit the same to all shareholders. The directors of the listed company shall also include atleast one independent director representing institutional equity interest of a banking company, DFI (Development Financial Institute), NBFI (including modarabas, leasing companies or investment bank), mutual funds or insurance company. Directors nominated by creditors (sec 182) or Federal govt. or by foreign equity holders shall not be taken as independent director. Independent director representing an institutional investor shall be selected by such investors through a resolution of its BOD and the policy with regards to selection of such person for election on BOD of investee company shall be disclosed in directors report. Executive director shall not be more than 75% of the elected directors including chief executive, except a. Where relaxed by SECP b. Banking company which is required by prudential regulations not to have more than 25% directors as paid executive directors. The directors of listed company at the time of filing of their consent to act as director shall give a declaration that they are aware of their duties and powers under the relevant clause of Memorandum & Articles of Association and Listing regulations of SE. Qualification & Eligibilty to act as director A company shall not have a person a director who is a director of 10 other listed companies. No person shall be selected as director of listed company if a. His name not borne on register of National Tax Payers (except: non resident) b. He has been convicted as defaulter of Banking company, DFI or NBFI. c. He being a member of SE has been declared as defaulter. That person or his spouse shall not be engaged in business of stock brokerage, Unless specifically exempted by SECP Tenure of Office 3 Years Any casual vacancy shall be filled by directors within 30 days
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Responsibilities, Powers & Functions of BOD Directors shall exercise their powers/duties in best interest of the company. Every listed company shall ensure that a. A statement of ethics and business practices is prepared and signed by each director and employees in acknowledgment of their understanding and acceptance of the code of conduct, and the same is circulated annually by the directors to establish a standard of conduct for the director and employee. b. The director shall adopt of vision and mission statement and overall corporate strategy for the company and also formulate significant policiesregarding to 1. Risk management 2. Human Resource Management, 3. Procurement of goods and services 4. Marketing 5. Determination of terms of credit and discount to customers 6. Write off bad debts 7. Acquisition and disposal of fixed assets 8. Investments 9. Borrowings of money 10. Donations and charities etc 11. Determination & Delegation of financial powers 12. Transactions with associated companies and related parties 13. Health safety and environment. A complete record of the significant policies alongwith dates on which they were approved or amended by the directors shall be maintained. BOD shall define level of materiality keeping in view circumstances of company and recommendations of any technical/executive sub-committee. The directors shall establish a system of sound internal control which is effectively implemented at all levels. The following powers shall be exercised by the BOD documented by a resolution passed at a board Meeting. Investment and dis-investment of funds, where, maturity period is 6 months or more [Except in case of Banking Co, DFI, NBFI, Trust & Insurance Co] Determination of nature of loans and advances Write off of bad debts & determination of provision on doubtful debts Write off of inventories and other assets Determination of terms & circumstances in which a law suit may be compromised and claim in favor of company may be waived, released etc. Appointment remuneration and terms and conditions of the employment of chief executive officer and other executive directors of the company shall be determined and approved by the BOD. In case of modarba or NBFI, whose main business is investment in listed securities, BOD shall approve and adopt an investment policy, which is stated in their annual report. All listed companies shall make appropriate arrangements to carry out orientation courses for their directors to acquaint them with their duties & responsibilities and to enable them to manage affairs of the company. Meetings of the BOD The chairman of the listed company shall preferably be elected from the non-executive directors. BOD shall clearly define roles and responsibilities of chairman and chief executive, whether or not these offices are be held by separate individual or same individual Chairman shall, if present, preside over meetings of BOD. BOD shall atleast meet once in every quarter of financial year. Written notices (including agenda) shll be circulated not less than 7 days before Except in case of emergency meetings where the period is reduced/waived The chairman will ensure that the minutes of meeting of the board are properly recorded and circulated to the directors and officers who entitled to attend meeting not later than 30 days of the meeting unless a shorter period specified in AOA.. If director of the company is of the view that his dissenting notes have not been appropriately recorded in the minutes, he may refer to the company secretary to require him to append his dissenting notes with
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minutes of meeting. If company secretary fails to do so he may file an objection with the SECP. Significant issues to be placed for decision by BOD The following matters and significant issues shall be placed for information consideration and approval by the BOD: Annual business plan Cash flow projections and other forecasts Budgets alongwith variance analysis Quarterly operating activities Internal audit report, including cases of fraud and irregularity Management letter issued by external auditor Details of joint ventures and agreements with distributors and agents Promulgation or amendment of any law rules/regulations/accounting standards which may affect the listed company Status and implication of law suits by and against the company Any show cause notice, demand, prosecution etc from revenue regulatory authorities Default in payment of loans Failure to recover material amounts Significant accident, dangerous occurrence and instances of pollution involving the listed company Dispute with the labor and proposed solution. Payment of goodwill or brand
Chief Financial Officer (CFO) and Company Secretary(CS)

Appointment & Removal The appointment, remuneration and terms and conditions of the employment of the CFO and CS and the head of internal audit shall be determined by CEO with the approval of the board. They shall not be removed except by the CEO with the approval of the board. Qualification CFO Member of recognized body of professional accountant ; or Graduate from recognized university or equivalent having atleast 5 years experience of financial and corporate affairs of a listed company or a bank or a financial institution.
CS
Member of recognized body of professional accountants Member of recognized body of corporate chartered secretary MBA, M.COM, LLB having atleast 5 years of relevant experience
Requirement to attend Board Meetings 1. The CFO and company secretary shall attend the meeting of BOD and would not be deemed to be directors and cast vote at the meeting 2. They shall not attend such part of meeting of BOD which involves consideration of agenda items relating to CFO, CS, CEO or any director. Corporate & financial Reporting Framework
Responsibility of Financial Reporting and Corporate Compliance

Responsibility
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No listed company can circulate its financial unless the CFO and CEO present the financial statement duly endorsed by their signature for consideration and approval of the directors. The directors after consideration and approval shall authorize the signing of financial statement for circulation and issuance. The company secretary shall furnish a secretarial compliance certificate in a prescribed form as part of annual return filed with the registrar of company to satisfy that secretarial and corporate requirement of the Companies Ordinance 1984 has been complied with.
Directors Report (Sec-236) The director shall include their statement to the following effect in the directors report prepared under section 236 of the Companies Ordinance, 1984 The financial statement prepared by the management of the listed company, present fairly its state of affairs the results of operations, cash flow and changes in equity. Proper books of account have been maintained. Appropriate accounting policies have been consistently applied in preparation of financial statement and accounting estimates are based on reasonable and prudent judgment. International accounting standard as applicable in Pakistan have been followed in preparation of financial statement and any departure there from have been adequately disclosed. Internal control is sound and effectively implemented. There is no significantly doubt on the ability of company to continue or going concern. There is no material departure from the best practices of the corporate governance. The following matters shall also be disclosed in the directors report (if necessary): If the company is not considered to be going concern the reason shall be disclosed. Significant deviation from last year operating results along with reasons. Keep operating and financial data of last 6 years in summarized form. If the company has no declared dividend or issue bonus shares, the reason shall be given. Where any statutory payments (Taxes & Duties) are outstanding the reason shall be disclosed. Significant plans and decisions like corporate restructuring, business expansion and discontinuance of operations shall be given along with future prospects risks and uncertainty. Statement on the value of investment of provident fund, gratuity and pension fund shall be disclosed. Number of boards meeting held during the year and attendance by each director shall be disclosed. All trade in shares of Company, carried out by its directors, CEO, CFO, Company Secretary and their spouses & minor children. The pattern of share holding shall be reported to disclose the aggregate number of shares (alongwith name wise detail) held by: o Associated companies and related parties (name wise) o NIT and ICP (name wise) o Directors, CEO and their spouses & minor children (name wise) o Executives; [Employee of company other than CEO & Directors whose annual basic salary > 500,000] o Public sector company and corporations (Government owned) o Banks, DFI, NBFI, insurance companies, modarabas and mutual funds o Share holders holding 10% or more voting rights Frequency of Financial Reporting Quarterly unaudited financial statements having directors review on affairs of company be published and circulated within 1 month. Half yearly statements shall have auditors limited review and shall be circulated within 2 months. Annual reports shall be circulated within 4 months.(Now 3 in Companies Ordinance 1984) Listed companies shall immediately disseminate information to Stock exchange and SECP which affects their share price.
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This information may include but shall not be restricted to information regarding a joint venture, merger or acquisition or loss of any material contract; purchase or sale of significant assets; any unforeseen or undisclosed impairment of assets due to technological obsolescence, etc.; delay/ loss of production due to strike, fire, natural calamities, major breakdown, etc.; issue or redemption of any securities; a major change in borrowings including any default in repayment or rescheduling of loans; and change in directors, Chairman or CEO of the listed company.
Auditors not to hold shares Auditors (partners, spouse, minor children) can not sale, purchaseor hold shares in listed company or its associate. If they hold prior to appointment, they will notify in 14 days and will dispose those in 90 days. Disclosure of interest by directors holding companys shares Where any director/CEO sells/buys share of its company, he shall notify Company Secretary immediately and also deliver written record of price, No. of shares/certificates within 4 days to Company Secretary. This notice shall be presented by companys secretary at immediate next Board Meeting If there is default in giving notice by director etc, companys secretary shall place this matter before immediate Board meeting. Every listed company shall determine a closed period prior to announcement of interim/final results and any business decision which may materially affect share price. No director/CEO/Executive shall deal in shares of that company whether directly on indirectly, during that closed period. Offer of shares by company proposed to be listed Every company proposed to be listed at time of public offer shall comply with the requirement as given in the related listing regulations According to listing regulation of KSE, company shall offer higher of i. 250 million or ii. 25% of share capital. For companies having share capital < 500 million, atleast 50 % shall be offered Divestiture of Shares by Sponsors/Controlling Interest In the event of divestiture of not less than 75% of the total shareholding of a listed company, other than A divestiture by non-resident shareholderS in favour of other non-resident shareholders; or A disinvestment through the process of privatization by the Federal or Provincial Government at a price higher than the market value ruling at the time of divestiture, then Directors shall allow the transfer of shares after it has been ascertained that an offer in writing has been made to the minority shareholders for acquisition of their shares at the same price at which the divestiture of majority shares was contemplated. Where the offer price to minority shareholders is lower than the price offered for acquisition of controlling interest, such offer price shall be subject to the approval of the SECP
Audit Committee
Composition The director shall establish an audit committee which shall comprise not less than three members including chairman Majority of members shall be from Non-Executive directors (NED). Chairman of the committee shall be preferably from NED. The names of the members of audit committee shall be given in the annual report. Frequency of Meetings
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The audit committee shall meet atleast once every quarter of the financial year. These meetings shall be held a. Prior to approval of interim results of the company b. Before and after the completion of external audit. A meeting of the audit committee shall also be held if requested by external auditor or the head of internal audit. Attendance at Meetings The CFO and the head of internal audit and a representative of external audit shall attend meetings of the audit committee at which issues relating to the accounts and audit are discussed. Provided, that atleast once a year the audit committee shall meet alone with the i. External auditor [without presence of CFO and head of internal audit.] ii. Head of internal audit [without presence of CFO and external auditor.] Reporting Procedure Audit committee shall appoint a secretary who shall circulate the minutes of the meeting to the members of committee, directors and CFO within the fortnight. Terms of Reference of Audit Committee The BOD of the company shall determine the terms of reference of audit committee Audit committee shall inter alia (along other things) be responsible for recommending to the BOD, the appointment of external auditor and shall consider any question of resignation or removal of external auditor, audit fee and other services by external auditors. The terms of reference also includes the following: Determination of appropriate measures to safe guard companys assets Review of preliminary announcements of results prior to publication Review of quarterly, half yearly and annual financial statement prior to approval of BOD, focusing on: Major judgment areas Significant adjustment resulting from the audit Going concern assumption Changes in accounting policies Compliance with applicable accounting standards Compliance with listing regulations & other statutory requirement Facilitating the external auditor and discussion with them on their major observations. Review of management letter issued by external auditor and management response thereto. Ensuring coordination between internal and external auditor Review of scope, extent and resources of internal audit function. Consideration of major finding of the internal investigation Ascertaining that the adequacy and affectivity of internal control system including financial and operational controls and accounting system and reporting structure Monitoring compliance with the best practices of the corporate governance Instituting special projects, value for money studies or other investigations on any matter specified by BOD in consultation with CEO. Any other matter as may be assigned by the BOD
1. 2. 3.
4. 5. 6. 7. 8. 9. 10. 11. 12.
Internal Auditor
In listed companies, there should be an internal audit function. Head of internal audit shall have access to the chair of audit committee. Company shall ensure providence of Internal auditors reports for review by external auditors. Auditors shall discuss any major findings with relation to the reports with audit committee, which shall report significant matters to BOD.
External Auditor
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No listed company shall appoint as external auditor who is not been given satisfactory rating under the QCR program of ICAP. The external auditor shall be compliant with IFAC guidelines on code of ethics as adopted by ICAP. The BOD shall recommend the appointment of external auditors for one year as suggested by audit committee. The recommendations shall be included in the director report. If change of auditor recommended before 3 consecutive years, reasons should be included in Directors Report. No listed company shall appoint external auditor to provide services in addition to audit Except in accordance with the IFAC guidelines. All listed company in the financial sector shall change their external auditor every five years. Financial sector include Banks, NBFCs, Modarbas and Insurance companies. All listed companies other than these financial sector companies shall at minimum rotate the engagement partners every 5 years. No listed company shall appoint as CEO, CFO, Internal auditor or director who was at any time during the preceding 2 years a. Partner of the firm of external auditor; or b. An employee who is involved in the audit of the company; or c. Close of relation of such partner or employee. The company shall acquire the external auditor to furnish the management letter to its board of directors not later than 30 days of audit report. Every listed company require a partner of the firm of auditor to attend the AGM at which accounts are approved. Compliance with the Codes The listed company shall publish in the annual reports a statement of compliance with the best practice of the code of corporate governance. This statement shall be reviewed by the external auditors. SECP may relax any of best practices, if it is impracticable to comply, for reasons to be recorded.
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BANKING COMPANIES ORDINANCE, 1962 (BCO) Accounts The provisions of BCO relating to preparation of accounts are applicable to: Every banking company incorporated in Pakistan Every banking company incorporated outside Pakistan in respect of business transacted through branches in Pakistan The accounts are prepared on the expiry of every calendar year The accounts are also published in the prescribed manner in newspaper The accounts shall be signed by In case of banking company incorporated in Pakistan Manager or principal officer and atleast 3 directors (if directors < 3, then all) In case of banking company incorporated outside Pakistan Manager or principal officer in Pakistan and by another officer next in seniority The requirement of Companies Ordinance, 1984 in respect of preparation, transmission and filling of accounts etc shall be applicable
Audit B/S and P & L prepared in accordance with provisions of BCO shall be audited by a CA who is borne on penal of auditors maintained by SBP. Auditors shall hold office for 3 years [cannot be removed before expiry of term except approval by SECP] Accounts & Audit report shall be furnished as returns to SBP within 3 months of close of period to which they relate. [ further extension of 3 months in special circumstances ] Every banking company incorporated outside Pakistan is required to display at a prominent place in the principal office and in every branch in Pakistan, copy of latest accounts not later than 1st Monday of August. These accounts shall remain displayed until replaced by subsequent accounts. Audit is conducted as per direction of SBP 3 copies of accounts shall be sent to Registrar
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CENTRAL DEPOSITORY ACT, 1997 Overview The CDS is an electronic book entry system to record the transfer of securities. Central Depository Company (CDC) has implemented it that works similar to a Bank. Securities will be deposited in CDS and transaction would be completed electronically, thereby, removing the difficulties of counting, verification, storage and transportation of certificates including settlement on the stock exchange. 3 main reasons for implementation of CDS o Exceptional growth in Stock market of Pakistan during the last several years o Problems of manual delivery, settlement & transfer procedures o Recommendation by Group of Thirty (Private International Body) Basic Operations of CDS Deposit of existing securities into CDS Withdrawal of security from system Free transfer or book entry transfer without physical movement Pledge and de-pledge of securities DVP delivery vs. payment facility Various corporate actions under Companies Ordinance, 1984 Elements of CDC Account Holder Participant (Just like members of Stock Exchange) Issuer Eligible pledge DVP (Delivery Verses Payment) A/c Holder Account Structure Main Account House Account Sub Account Group Client Account (Omnibus Account) Cash Account / DVP Account Main Account Each participant in the CDS is allocated a main Account by virtue of being participant in system. This account is mainly used as transit account for movement of securities and settlement of deliveries by the participant. House Account It is used for securities beneficiary owned by the participant Sub Account (Client Account) It is used for keeping the securities belonging to the client of the participant. A participant is allowed to open any number of sub-accounts Group Client Account Group Accounts are used by the clients who do not want to utilize the facility of sub-accounts. Each group account contains securities owned by the group of clients. The detailed break up of securities held by each member is maintained outside CDS Cash Accounts The participants who opts DVP facility are required to deposit a rolling settlement fund to be used for settlement of DVP obligations. Balance of that fund would be stored in that account
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CORPORATE ACTIONS
Meetings CDS will provide a list of beneficial owners to enable the issuer to issue notices of general meetings under the Companies Ordinance, 1984. When shares are in CDS the beneficial owner has to produce original NIC or passport while attending the meeting. When proxies are appointed; the form of proxy shall be witnessed and enclosed by attested copies NIC or passport of the both appointer and the proxy.Form of proxy shall contain CDS A/C # of appointer. Dividend The CDC will prepare a list of beneficial owners who are entitled to receive the dividend on the date of book closure. This list shall contain necessary information like particulars, no. of shares, face value of shares, gross dividend, income tax, Zakat and net dividend etc. The company and the issuer or its appointed Registrar will prepare dividend warrant on the basis of above information and dispatch to beneficial owners. Bonus shares In case of bonus shares the CDC, on receipt of intimation from the company shall increase the holding of each beneficial owner with the bonus shares. Right shares The CDC shall provide list of beneficial owners to the company together with right entitlement. The company shall prepare letter of right and dispatch to the beneficial owner. The CDC accounts of beneficial owners shall be credited after subscription of right money. Consolidation and sub division of capital CDC will calculate new share balance on the basis of existing share holding. A program will run which will replace the old balances with the new balances.
ESTABLISHMENT OF CDC
Eligibility for Registration Company must be Public Company The company must have entered into technical collaboration agreement for equity participation with international institution. Atleast one stock exchange must be a shareholder of CDC. Directors shall fulfill prescribed criteria and the promoters must be person of means and integrity and have special knowledge of the matters which the company has to deal. Promotors, directors & employees etc shall be free from any default. Registration Application on prescribe form [Form I] to SECP. Application fee is Rs. 500,000. If the SECP is satisfied from the information and applicant is eligible for registration & it would be in the interest of capital market it shall grant registration certificate. The registration is valid for one year and renewable on payment of fee of 100,000..
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MODARABAS COMPANIES AND MODARABA (Floatation & Control) ORDINANCE, 1980 Modaraba Means a business in which a person participates with his money and another with his efforts or skills or both his efforts and skills and includes unit trusts and mutual funds by whatever name called. Means a fund raised through floatation of Modaraba. Means a certificate of definite denomination issued to the subscriber of the modaraba acknowledging receipt of money subscribe by him. Means a company engaged in the business of floating and managing modaraba. Means the Registrar of modaraba and Modaraba Company appointed by the Federal Govt. for the purpose of this Ordinance. The Federal Govt. has constituted a religious board which consists of three members one of whom is chairman and two members are religious scholars and chairman shall be a person who is to be qualified for a Judge of High Court.
Modaraba Fund Modaraba Certificate Modaraba Company Registrar Religious Board
Registration
No company shall operate as Modaraba Company with out registration to Registrar (Modaraba) Eligibility for Registration 1. Company must be incorporated 2. Minimum capital requirement: If the company is only engaged in floatation and management of Modaraba, not less than 2.5 million If the company is engaged in other business, atleast Rs. 7.5 million of which Rs. 2.5 million must be set aside for modaraba management. 3. The directors and officers must fulfill the following conditions: Normal criteria (as mentioned in Companies Ordinance, 1984) The promoters and directors should be in the opinion of Registrar persons of means and integrity and have special knowledge of the matters which the modaraba company has to deal. Registration A company which is eligible for registration as Modaraba Company may make an application on prescribed form to registrar. (Form IX) Contents of Application (Form IX) 1. Particulars of the company: Name Status Date & placement of registration Address Authorized and Paid up Capital Details of persons or group controlling the company Names of subsidiary, holding and associated companies Description and place of business 2. Particulars of Directors and Officers General particulars Names of associated company and the company where they have directors in the past Financial standing Professional qualification Experience along with supported documents
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Affidavit of each person 3. Documents to be attached The application shall be accompanied by following documents: Five copies of MOA & AOA Five copies of certificate of incorporation Five copies of latest audited accounts Precise description of business being done The undertaking that any change made by the company in the MOA & AOA and the BOD as may be required by the Registrar
If the Registrar is satisfied that the applicant shall be eligible for registration and it is in the public interest to do so, it may grant registration.
Types of Modaraba
Specific Purpose Modaraba Multi Purpose Modaraba A modaraba having one specific purpose or objective A modaraba having more than one specific purpose or objectives A modaraba may be either for a fixed period or for an indefinite period.
Business Objects of Modaraba The business objects of modaraba must not be opposed to the injunction of Islam. The Registrar shall not permit the floatation of modaraba unless the Religious Board has certified in writing that the modaraba is not a business opposed to the injunction of Islam. The business objects of modaraba are contained in prospectus and being not a company it has not any MOA & AOA. Modaraba to be Legal Person Modaraba shall sue and to be sued in its own name but through the modaraba company. The assets and liabilities of each modaraba shall be separate and distinct from another modaraba and also from the modaraba company. Capital of Modaraba The capital of modaraba shall be called certificate capital. There is no provision in the Modaraba Ordinance for the minimum capital required, however, modaraba is to be listed on SE it has to follow the Listing Regulations in this regard. (200 million) As per Modaraba Rules the modaraba company must subscribe 10% of the modaraba fund, however, through subsequent guideline the Registrar of modaraba has increase this requirement to 20%. Further more listing requirement has provided that 30% of the modaraba fund shall subscribe by Modaraba Company, directors, sponsors, friends and relatives etc. The modaraba certificates do not carrying any voting rights and these are transferable like share through transfer deed. Floatation and Authorization of Modaraba A modaraba company registered under the Modaraba Ordinance can apply to the Registrar for obtaining permission to floating modaraba. It shall submit an application on prescribe form-I. Contents of Form-I Name and address of Modaraba Company and its registration number Name and type of modaraba indicating exact purpose objectives and duration of modaraba Description of business operations, organizational set up, plans and prospects along with feasibility report
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Details showing how the business and operation shall be conducted and how the operation will no be opposed to the Principals of Islam Amount of modaraba fund to be floated, its division and conditions Amount to be subscribe by Modaraba Company and amount to be set aside for modaraba management Form of modaraba certificate [Same as Share Certificate]
The following documents shall be annexed with the application: Certified copy of the registration certificate of the modaraba company Five copies of prospectus signed by all directors of Modarba Company. Five copies of the latest audited accounts of the company The registrar after obtaining a certificate from the Religious Board and after being satisfied that it is in the public interest shall grant a certificate to the modaraba company authorizing it to float a modaraba. Listing on the Stock Exchange After getting authorization from Registrar Modaraba the Modaraba Company shall take necessary steps for listing of Modaraba on SE inviting general public to subscribe to the modaraba certificate. (Listing procedure is same) Prospectus of Modaraba The disclosure requirement of the prospectus of modaraba are more or less the same as provided in the Companies Ordinance, 1984, however, the Modaraba Ordinance and Rules prescribe independent disclosure of the prospectus of Modaraba which are given in the forth schedule to the Modaraba Rules. The prospectus is signed by all the directors of Modaraba Company. The copy of the prospectus is filed with registrar of Modaraba for registration. The business operation of Modaraba are provided in the prospectus which are vetted by the religious board. The Modaraba must be floated within 12 months of the date of authorization.
Conditions Applicable to Modaraba Company and Modaraba A Modaraba Company shall not carry on any business which is carried on by Modaraba floated by it. Neither the Modaraba Company nor any of its director/officer shall obtain any loan or advance from modaraba fund. No allotment of modaraba certificate is made unless a prospectus approved by Registrar has been issued and the minimum subscription has been received. All money received from the applicants of modaraba fund shall be deposited in a separate bank account. Modaraba Company shall issue modaraba certificate within 30 days of allotment. Modaraba Company shall maintain register of certificate holders. Modaraba Company shall maintain separate bank account, fund ,assets and liabilities of each Modaraba.
Remuneration of Modaraba Company The remuneration of Modaraba Company shall be not more than 10% of the annual net profit of the modaraba on the basis of audited accounts Accounts and Audit Accounts A Modaraba Company is responsible to ensure that proper books of accounts are kept for each Modaraba at the registered office of the Company. Modaraba Company shall be responsible to prepare, circulate and file accounts of Modaraba in a prescribe manner. (Accounts are maintained like listed companies, IAS are applicable, Disclosures are prepared
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according to 3rd schedule to the Modaraba Rules)

P P
Authentication of Accounts The accounts of Modaraba are authenticated by the chief executive and two directors of the Modaraba Company.
Audit
Qualification of Auditor Same as provided in Companies Ordinance, 1984. Appointment of Auditor The appointment of auditor of Modaraba is made by a Modaraba Company with the approval of Registrar. The auditor of Modaraba shall be independent of the auditor of the Modaraba Company. The terms of appointment of the auditor of Modaraba and including fee etc. shall be approved by the Registrar annually. Removal of Auditor A Modaraba Company seeking to appoint auditor other than the existing auditor, must inform the existing auditor in writing given reasons of change and copy to Registrar. The Registrar, if he desires and after obtaining necessary clarifications and explanations from the existing auditor shall take the decision, which shall be final. An auditor may resign from his appointment with the approval of Registrar. Profit Distribution of Modaraba A Modaraba may distribute profit in cash or issue of bonus certificates out of capitalize reserves or profit. Dividend may be interim or final. (Same in case of Companies Ordinance, 1984) If 90% of profit is distributed to the modaraba certificate holders, the income of the modaraba shall be exempt from tax. The Modaraba Company before declaring the dividend may set aside necessary reserves to comply with Prudential Regulation for Modaraba. Return of Allotment Whenever the company makes any allotment of modaraba certificates it must file with the Registrar a return of allotment within one month of allotment. Annual List of Certificate Holders Every Modaraba Company shall in respect of Modaraba prepares and file with the Registrar a list of certificate holders & summary in the following manner: Within 18 months from modaraba floatation and Thereafter, once atleast in every year
The above list is prepared on the date of reopening of the register of the certificate holders relating to final dividend and if there is no such date, 31st December of the year. The list is filed with the Registrar within 30 days of the respective date.
P P
Mortgage & Charges All the charges created on the assets of Modaraba are to be registered with the registrar within 21 days of the creation of the charge. (procedure is same as in Companies Ordinance, 1984) Increasing the Modaraba Fund (Nominal Fund)
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A Modaraba Company may under the authority of a board resolution decide to increase the modaraba fund. The fund shall be increased after alteration of prospectus with the approval of Registrar. Before giving approval the registrar at the expense of Modaraba shall issue a notice in news paper for the proposed increase for knowing the opinion of modaraba certificate holders and others within the period not less than 14 days. After getting permission from Registrar Modaraba company shall be authorize to increase the authorize fund/nominal fund. Further Issue of Modaraba Certificates in the Form of Right Same as in case of Companies Ordinance, 1984
Annual Review Meeting of Modaraba (ARM) Each Modaraba shall hold an ARM of its certificate holders in the town in which the registered office of the Modaraba Company is situated. The purpose of meeting is to review the performance of Modaraba during the year. It is held within the 4 months of the close of financial year of Modaraba. There is no voting right of certificate holders in the meeting. For the purpose of notice of the meeting the provision of Companies Ordinance, 1984 is applicable mutatis mutandis.
Winding up of Modaraba
Circumstances in which Modaraba may be wound up Voluntarily i. A Modaraba may be wound up voluntarily under the following conditions: Time period for which the Modaraba was formed has been expired The specific purpose for which the Modaraba was formed has been achieved All the directors of Modaraba Company shall make a declaration (Declaration of Solvency) that they have made full inquiry about the affairs of Modaraba and they have formed an opinion that Modaraba shall be able to discharge its liabilities and pay the amount of modaraba fund in full within the period of 12 months. The above declaration shall be supported by auditor certificate and it shall have no effect unless it is filed with the Registrar within 90 days expiry of period for which Modaraba has formed or accomplishing the purpose of Modaraba.
ii.
iii.
Circumstances in which Modaraba may be wound up by Modaraba Tribunal A Modaraba shall be wound up by the Tribunal on an application made by the Registrar if: i. In case of voluntary winding up the required declaration has not been filed ii. In case the registrar has declared that: iii. Misc On application to Registrar of 10% or more certificate holders of Modarba, there can be an inspection of modarba or a particular transaction. A Modarba Company can also be replaced by a new modarba company or by an administrator by Registrar. Modaraba has unable to pay its liabilities Accumulated losses of the Modaraba exceeds 50% of the paid up fund Business of the Modaraba has been conducted for a fraudulent purpose
The Tribunal of the opinion that it is just and equitable that Modaraba should be wound up.
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INSURANCE ORDINANCE, 2000 Every insurer in respect of all insurance business and in case of insurer incorporated outside Pakistan in respect of insurance business transacted in Pakistan, shall maintain proper books of accounts A Register of records of policies( with particulars) A Register of records of claims( with particulars) Other books & Records as may be prescribed. Every Insurer shall furnish a statement of Assets & Liabilities. The accounts shall be signed in the following manner: Insurer incorporated in Pakistan; Chairman plus 2 directors plus Principal Officers with names Insurer incorporated outside Pakistan; Principal Officer in Pakistan plus two directors or closest comparable officer equivalent thereto.
Audit Every Insurance Compnay shall appoint an auditor who shall be Approved by SECP to perform audit of Insurance Companies Authorised by Companies Ordinance 1984 to perform audit of public companies. SECP may appoint an auditor (other than companys) to investigate such accounts, statements and books as SECP may direct. [Special Audit] Audited accounts shall be submitted to SECP within 4 months from end of period.
[Further extension 15 days]
Following course grid is not covered in this portion..

Securities and Exchange Commission (Insurance) Rules 2002 including regulations and Format accounts. Broad understanding of the Code of Corporate Governance for listed and unlisted insurance companies Please refer to original sources for these regulations and code.
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SECURITY & EXCHANGE ORDINANCE, 1969 SECURITY & EXCHANGE RULES, 1971 LISTING OF SECURITIES (Section 9) Any Issuer (Company) who intends to get its securities listed on the Stock Exchange shall submit an application in a prescribed form to the Stock Exchange and a copy to SECP. Stock Exchange if satisfied may list the securities for dealing on the Stock Exchange. If the Stock Exchange refuses to list the securities then company can file petition with the SECP. SECP through an Order may direct the Stock Exchange to list the securities. Where after listing of the security the SECP or the SE find that The application is deficient in any material respect; or The issuer (Co.) has failed to comply with any prescribed conditions or rules The continued listing of the security would not be in public interest The SECP/SE may by order require the issuer to correct the deficiency or comply with the prescribed conditions or may revoke the listing. A listed security may de-listed on the application of issuer. o The SE may deny or grant the de-listing for the protection of investor. o Where SE refuses to de-list a security the SECP on the petition of issuer may direct the SE to de-list the security. The SECP or the SE, if thinks appropriate may suspend the trading of any listed security for a period of 60 days and the suspension period and the suspension period may be extended for another 60 days.
Prohibition of deal on Stock Exchange by Insider [ SECTION 15(A) ] No person who is or has been at any time during preceding six months associated with a company shall directly or indirectly deal on SE in any listed security or cause any other person to deal in the security if he has the information which: 1. Is not generally available 2. Relates to a company 3. Would if become available it is likely to materially effect the price of that security. Liability for contravention of Section 15(A) [ SECTION 15(B) ] Where a person contravenes the provision of Sec-15(A) the SECP shall issue a show cause notice. If the person to whom the notice has been issued satisfied the SECP that: a) Any dealing on SE or any information communicated was not made with the intention of making any profit or causing a loss to a person. b) The dealing on the SE or any information was communicated in good faith in discharge of legal responsibilities, then the SECP withdraw the notice. If SECP is not satisfied with the explanation of person, it may direct him to pay any other who suffered loss for any contravention of Sec-15(A) compensation to pay, which shall not less than the amount of loss sustained by the other person. Where the loss is not determined the amount of compensation equal to gain approved or loss avoided by a person shall be payable to SECP as arrears of Land Revenue. In addition to the compensation a person shall be punishable to imprisonment for a term which may extend to 3 years or with a fine which may extend to 3 times of the gain approved or loss avoided or both.
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LISTED COMPANIES (PROHIBITION OF INSIDERS TRADING) (GUIDELINES 2000) ISSUED BY SECP INSIDERS Means Directors, Chief Executive, Managing Agent, Chief Accountant, Company Secretary or Auditor of a listed company or a beneficial owner of not less than 10% shares in a listed company or A person who is or was connected or is deemed to have been connected with a company and who is reasonably expected to have access to unpublished price sensitive information (UPSI) by virtue of his connection. CONNECTED PERSONS It means ant person who is a director or occupies the position as an Officer or an Employee of the company or holds a position involving a professional or business relationship with a company and who may be reasonably expected to have an access to the unpublished price sensitive information in relation to the company. PERSONS DEEMED TO BE CONNECTED 1. Companies under the same management or groups. 2. Members of stock exchange. 3. Banks 4. Mutual funds 5. Employees of self regulatory organization. e.g. Tax Department 6. Relatives of aforesaid persons. UNPUBLISHED PRICE SENSITIVE INFORMATION (UPSI) UPSI means any information which relates to the following matter relating to the company and which is not generally knowing or published but if it is published or known, it may materially affects the price of securities of that company in the market. 1. 2. 3. 4. 5. 6. 7. 8. Financial results of the company. (Interim or Final) Intended declaration of dividend. (Interim or Final) Issue of Bonus or Right Shares. Any major expansion plan. Any amalgamation, Merger or Takeover. Disposal of major part of undertaking. Any other information which may affect EPS. Any change in policies, plans, and operations.
Prohibition on dealing, communication and councelling regarding Insiders Trading No person who is or has been at any time during the preceding six months associated with a company shall: Deal in security of a listed company on a SE on the basis of UPSI. [Either on his own behalf or on behalf of any other person] Communicate any UPSI to any person with or without his request. Counsel any other person to deal in the security on the basis of UPSI. A person who deals, communicates or counsel in contravention of above provisions shall be liable to Pinal action under section 15-B of the SECP Ordinance 1969. INVESTIGATION BY SECP Where SECP is opinion that it is necessary to investigate and inspect the records of an insider it may appoint an inquiry officer. The inquiry officer shall furnish a inquiry report to SECP SECP shall communicate the findings in the report to the insider who shall be provided an opportunity of hearing. On receipt of explanation from the insider the SECP may call upon the insider to take such measures as the SECP may deem fit to protect the interest of investor. The SECP may without prejudice to its right to initiate criminal prosecution under section 15-B of the Ordinance, gives such directions as it may deem fit which includes the followings: Directing the insider not to deal in securities in any particular manner. Prohibiting the insider from disposing off the securities acquired in violation of these regulations. Restraining the insider to communicate or counsel any person to deal in the securities.
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Listed Companies (Substantial Acquisition of Voting Shares & Takeover) Ordinance, 2000 Acquirer Any person who directly and indirectly acquires or has proceeded to acquire voting shares in the target company, or control of the target company either by himself or through any person acting in concern. Includes the right to appoint majority of directors or to control management or policy decisions whether by virtue of shareholding, management right, shareholder agreement or voting agreement. A listed company whose voting shares or control is directly or indirectly acquired or intended to be acquired. It means public offer for acquisition of voting shares of a target company and includes any competitive bid. From date of public announcement to closure date of public offer It means public announcement of public offer for acquisition of voting shares and includes public announcement of competitive bid. Means a person who cooperates with the acquirer to acquired voting shares or control of target company. Before making public announcement, acquirer shall appoint a Bank/Financial Institution or member of Stock Exchange to act as so.
Control
Target Company Public Offer Offer Period Public Announcement Persons acting in concern Manager to the offer
This Ordinance not to be applied to certain transactions Shares issued under pre-IPOs Right issue Shares allocated under underwriting arrangements. Acquisition of shares by financial institution as enforcement of securities. Acquisition of shares by succession inheritance. Schemes of mergers & reconstruction of companies. Acquisition of more than 10% of voting shares of company (Sec 4) Any acquirer who acquires voting shares (taken together with existing shares), which would entitled to acquires more than 10% voting shares in a listed company shall disclosed the aggregate of his shareholding to the Stock Exchange. The above disclosure shall be made within 3 working days of the acquisition. If he acquires more shares but remain below 25%, he shall not be liable to disclose if additional acquisition is within 12 months. Substantial acquisition of voting share and acquisition of control of a listed company Additional acquisition (Sec 5 & 6) No person shall directly or indirectly acquire Voting shares (taken together with existing shares) which would entitled such person to more than 25% of voting shares in a listed company; or Control of a listed company. Unless such person makes a public announcement of the offer to acquire voting shares or control of listed company. Before making public announcement the person shall make necessity disclosure to the Target Company and stock exchange. No acquirer (who has acquired more than 25% but less than 50% of the voting shares or control) shall acquire additional voting shares or control unless such persons makes a public announcement of the offer. Provided such acquire shall not be required to make a fresh public announcement of the offer within period of 12 months from the previous announcement. Number of shares to be acquired
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Offer by acquirer shall be a %age of Total Capital If no of shares offered for sale by shareholders are more than shares offered to be acquire, acquirer shall in consultation with mnager to the offer accept shares on proportional basis. o Provided that acquisition shall not be less than minimum marketable lot or entire shares, if they are less than marketable lot. Public announcement 1. The announcement shall be published at least in one Urdu and one English newspaper. 2. The public announcement shall contain prescribed information. 3. Copy of announcement shall be submitted to SECP through manager to the offer atleast 2 days before issuance. 4. The announcement shall also be sent to all stock exchange where company has registered and to target company. 5. It shall not contain any misleading information. General obligation of acquirer Within 2 working days of public announcement, the acquirer shall send to the target company, a copy of proposed offer letter along with copy to SECP. The acquirer shall ensure that the offer letter is sent to all the shareholders of Target Company whose name appear on register of members on date specified in Public Announcement. Date of acceptance of public offer shall not be later than 60th day from day of Public Announcement. The acquirers shall complete all the procedures including the payment to shareholders who had accepted the public offer within 30 days from the date of closure of public offer
P P
General Obligations of the vote of target company The board of directors of Target Company shall not during the offer period: a. Sell or transfer undertaking of company or any of its subsidiary. b. Encumber the assets of company or its subsidiary c. Issue any right or bonus shares d. Enter into any material contract The Target company shall furnish to the acquirer a list of its shareholders for sending offer letter. During the offer period, the board of directors shall not appoint additional directors or fill any casual vacancy by person representing acquirer. BOD may, if think fit, give their unbiased comments & recommendations to shareholders on public offer. Target Company shall facilitate transfer in name of acquirer, the shares. The acquirer who has acquired 30% of voting shares shall be entitled to the proportionate representation on the board of directors. a. The acquirer shall serve a notice to the target company, the copy of which shall be sent to stock exchange. b. On receipt of notice, the BOD of Target Company shall cause a Board meeting within 10 days. c. BOD of Target Company shall fill the casual vacancy created by the resignation of 1 or more existing directors to accommodate the acquirer. In case the acquirer does not get proportionate representation on the board of Target Company or the number of casual vacancies created is not sufficient, he may serve a notice to target company for holding fresh directors election and a copy of notice to SECP. The BOD of Target Company shall hold the election within 30 days of the receipt of above notice. The BOD so elected shall hold the office during the remainder period of outgoing directors. Any irregularity in the election of directors may be brought to the notice of SECP within 7 days of such election. The SECP may declare the election null & void and order for fresh election under supervision of SECP. Inquiry & Action by SECP SECP may appoint inquiry officer to undertake an inquiry for following purposes: o To inquire into the complaints received from investors holding not less than 10% of the total voting
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power in the Target company regarding any irregularity in substantial acquisition process. o To inquire suo moto (upon its own knowledge or information) in the best interest of security market o To ascertain whether the provision of this Ordinance is complied with. The inquiry officer as soon as possible shall submit a report to SECP SECP shall communicate the findings to the acquirer, seller the Target Company and manger to the offer. On receipt of reply from the respective parties, SECP may pass following appropriate directions and take appropriate measures in the best interest of security market Directing the persons concern not to further deal in the securities Prohibiting the concerned person from disposing off the securities acquired in violation of provisions of this Ordinance. Directing the concerned person to sell the securities acquired in violation of provisions of this Ordinance. Taking any other action. Penalties If any person contravenes the provision of this ordinance he may debarred as acquirer for next 3 years. In case the BOD or management of Target Company contravenes any provision of this Ordinance the directors, chief executive and company secretary shall stand disqualify to hold such offices in a listed company for next 2 years. Fine = Rs.1,000,000 + Rs.10,000 / day for continuing default
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Foreign Exchange Regulations
Foreign Exchange Regulations (Loans)

Rupee Loan
Foreign Controlled Company means a firm, branch or office of a company or a firm which is: In case of company incorporated outside Pakistan, a branch office. In case of company incorporated inside Pakistan 50% of the shares or more is subscribed by foreign nationals or 50% of the directors or more are foreign nationals In case of equal shareholding, Chief executive is foreign national. In case of partnership 50% or more of the capital is owned by foreign nationals or The majority of the partners are foreign nationals No loan to company controlled by persons resident outside Pakistan (i.e. FCC) Lending to FCC for working capital: Authorized dealers can give Rupee loan to FCC to meet working capital requirements subject to Prudential Regulations. Lending for Capital expenditure: FCCs are normally required to meet their capital expenditure requirements out of 1. Their Rupee resources 2. From loans raised abroad with the permission of FG/State bank. In special circumstances, such companies are allowed to raise Rupee loans through medium and long-term local borrowing. FCC engaged in manufacturing are permitted to meet their requirements of capital expenditure by: 1. Taking loans from banks, DFI and other financial institutions 2. Issuing participation term certificates.
Foreign Private Loan

No loan from abroad: Borrowing from abroad is prohibited except with approval of SBP. SBP has given general permission to private sector entrepreneurs to obtain foreign currency loans subject to following conditions: 1. Loans are obtained from i. Banks or financial institutions abroad ii. Parent companies of multinationals iii. Suppliers as supplier credit including credit under PAYE Scheme. 2. Loans do not involve government guarantee 3. Obtained for financing the foreign currency cost of projects covered by Govt.s Industrial/Investment Policy. 4. Loans should be contracted on best possible terms. 5. Repayment period of such loans should not be less than five years. Foreign currency loan by FCCs: FCCs are allowed to contract foreign currency loans from Banks or financial institutions abroad Their head offices Other overseas branches/associates Following are conditions in this behalf:
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Loans are obtained for working capital requirements Repayment period should not exceed 12 months. Rate of interest should not exceed 1% over LIBOR. Such loan can be rolled over for further period not exceeding 12 months. Branches of foreign companies in Pakistan are not allowed to pay interest on such loans. Foreign contractors are not allowed to pay interest. Procedure for obtaining and repayment of such loan: FCC approaches Authorized dealer. Authorized dealer gets satisfaction that applicant is FCC. On confirmation, FCC can contract loan and repatriate the amount for credit to their Rupee account with authorized dealer. On receipt of loan, Authorized dealer issues a proceeds realization certificate and record the particulars of loan. On maturity having received inward remittance, authorized dealer will allow payment of Interest tax and Principal. While reporting remittance of interest a certificate confirming applicable LIBOR and Payment of tax will be attached with Form-M. While reporting remittance of Principal, a copy of proceeds realization certificate will be attached with FormM. Foreign currency loan for working capital by Pakistani firms and companies functioning in Pakistan: Pakistani firms or companies (except banks) can obtain foreign currency loan on: Non-Repatriable basis Repatriable basis Conditions for non-repatriable loan: Loan would be treated as rupee loan to the extent of rupees generated out of inward remittance. Principal and interest will be paid in Pakistan and will not be remitted to abroad. Conditions for repatriable loan: Loan is interest free. Period of loan is not less than one year. No bank guarantee for securing such loan from Pakistan. No forward cover. No facility of absorption of exchange risk by Govt. of Pakistan. Agreement for repatriable loan will be provided to SBP for registration. Repayment Schedule will also be provided to SBP for registration along with proceeds realization certificate (after remittance). Foreign currency loan for any other purpose: Individuals, firms, companies resident in Pakistan, FCC and branches of FCC (except banks) are allowed to obtain loans from abroad in foreign currency on repatriable basis for any purpose subject to following conditions: For Principal: There is no ceiling on amount of loan. Repayment period should not be less than 5 years. Repayment should be made in equal installments. For Interest: Interest rate will not exceed LIBOR+1.5% Interest will be paid in arrears on half yearly or yearly basis. Borrower shall be free to pay tax at a fixed or floating rate according to above formula. Payment will be subject to deduction of Pakistani taxes. Others:
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Exchange risk will be borne by borrower. No forward cover will be provided by authorized dealer. No bank guarantee from Pakistan. Agreement will be provided to authorized dealer for registration who will handle all related transactions and on completion of disbursement, he will intimate details to Investment Division at Karachi along with proceeds realization certificate. Thereafter, authorized dealer will be free to remit installment of principal and interest on due dates.
Foreign Exchange Regulations (Securities)

Security includes shares, stocks, debentures, debenture stocks, govt. securities, deposit, deposit receipts in respect of deposit of securities and units or sub units of unit trusts but does not include bills of exchange or promissory notes other than govt. promissory note. Foreign Security A security issued elsewhere than in Pakistan and any security which is payable in foreign currency or elsewhere in Pakistan. Person resident outside Pakistan (i.e. non-resident) A foreign national, including a foreign national of indo-pak origin (resident in Pakistan) A Pakistani holding dual nationality resident in Pakistan A company registered in Pakistan which is controlled by a person resident outside Pakistan. Import/Export of Securities: Import of securities (Foreign and Pakistani): No restriction on import into Pakistan whether Pakistani or foreign securities. Export of Pakistani securities: Specific/general prior approval of SBP through authorized dealer. Export of foreign securities: A Pakistani national can hold foreign securities. To send abroad for sale/transfer, he should apply to State Bank through Authorized dealer for export license. Permission will be granted if authorized dealer declares that o Security will be received back in Pakistan within specified time. o If sold, sale proceeds will be repatriated to Pakistan. (Application may also be given for exchange of Pakistani securities with foreign securities) Transfer of securities to non-resident: Transfer of securities to non-resident is prohibited except with permission of State Bank. It includes transfer of: o Pakistani securities (held by person resident in or out of Pakistan) o Foreign securities (held by Pakistani national) Pledge or hypothecation to non-resident is also prohibited. Concerned company/non-resident should apply to State Bank through authorized dealer. Exemption to rule no transfer of securities outside Pakistan Issue/transfer/export allowed on repatriation basis to: 1. Non-resident Pakistani 2. Pakistani having dual nationality 3. Foreign national 4. A firm or trust or mutual fund registered and functioning outside Pakistan Conditions to be satisfied: i. Price must be paid in foreign exchange through normal banking channel or out of foreign currency account in Pakistan. ii. Purchase price is not less than a. Price quoted on stock exchange (in case of listed shares)
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b. Break up value of shares (in case of unlisted shares) This exemption applies in following cases: 1. Issue of shares out of new public offer (irrespective of nature of business) 2. Transfer of listed shares (irrespective of nature of business) 3. Placement of new/initial shares with foreign investors by a public or private listed company which is: a. A manufacturing company b. A service organization in sectors open for foreign investors as per Investment Policy of government. 4. Transfer of shares of above companies (3b) 5. Issue of right and bonus shares to non-resident holding shares under exemption. 6. Issue of government securities to foreign nationals 7. Transfer of Pakistani securities by non-resident to eligible non-resident on same repairable basis. 8. Issue of NIT units to followings: a. Non-resident Pakistani b. Pakistani having dual nationality c. Foreign nationals Procedure for issue of shares to non-resident: Issued to non-resident out of new public offer: Company may open foreign currency account in Pakistan or abroad for collection. For unsuccessful applicants, money shall be refunded. For successful candidates, money shall be repatriated into Pakistan and account will be closed within one week. PRC is obtained from authorized dealer. In case of subscription directly received in Pakistan, shares may be issued for equivalent rupees as per PRC. Issue to non-resident against Plant and Machinery: An application along with import documents shall be submitted to Exchange Policy Department for issue of Exchange Entitlement Certificate. Exchange Entitlement Certificate will be issued by State Bank at average of selected authorized dealers buying and selling rates on date of filing of Bill of Entry with Customs. Company can issue shares to non-resident up to value mentioned in Exchange Entitlement Certificate. Issued against Foreign currency: If payment is made in foreign currency to foreign currency account with authorized dealer, authorized dealer will issue a certificate showing date wise deposit and buying exchange rates at separate dates. Company issue securities on equivalent rupees at exchange rates shown on certificate. Trading of quoted shares by non-resident: Non-residents are allowed to trade freely on stock exchanges in Pakistan. Non-residents will open Special Convertible Rupee Account with authorized dealer. Such account can be fed by: Remittance from abroad. Transfer from a Foreign currency account in Pakistan. Account will be debited on purchase of quoted shares. Account will be credited on proceeds of disinvestments and dividend. Fund available in SCRA can be transferred to: Another country Another foreign currency, without prior approval of State Bank. Authorized dealers will submit to State Bank, a statement showing position of balance in SCRA on each Saturday within 2 days of weekend.
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Special instructions regarding shares transferred under CDS of Central Depository Companies: General:
Special account will be opened at CDC for each non-resident investors. There shall be no netting or adjustment and payment/receipt in respect of sales/purchase will be settled independently.
Initial transfer in CDC: While approving initial transfer: Company will ensure that shares are registered on repatriation basis in the name of non-resident. If shares are not so registered, company will obtain requisite documents issued in the name of nonresident e.g. brokers memo, PRC and transferees certificate (if shares purchased from another non-resident). Subsequent transactions in CDC: For investment involving SCRA, authorized dealer will maintain complete records of all transactions and statement of SCRA will be furnished to State Bank. For investment not involving SCR, original documents (brokers memo, PRCs) will be submitted to company by Participant along with certificate that shares are in the name of CDC and have been deposited/withdrawn from non-resident account at CDC. Company will update non-residents record and will furnish to authorized dealer. Authorized dealer will keep it for onward submission to SBP. Dividend, Bonus, Right shares: CDC will issue to respective company a list of beneficial non-resident shareholders. For non-residents not investing through SCRA, company will verify holding from its records. For non-residents investing through SCRA, company will obtain undertaking cum certificate from authorized dealer.
Documents to be submitted on issue/transfer of securities to non-resident: By company to authorized dealer within 30 days of transfer/issue. MOA/AOA/COI if not already submitted. SECPs approval State Banks Exchange Entitlement Certificate Encashment certificate and/or PRCs from authorized dealer Copy of Boards resolution Remittance to non-resident through authorized dealer: Company may export securities to non-resident on Repatriation basis through authorized dealer. Authorized dealer may also allow remittance in respect of: Dividend (net of taxes) Disinvestment proceeds not exceeding the market value or breakup value
Books and audit: Authorized dealer shall maintain complete record of shares held by non-resident including proof and shall produce for audit by inspection team of State Bank. Record shall not be destroyed until audited.
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Compiled and edited by: Syed Atif Hassan Abidi

Corporate Laws Made Easy

Syed Atif Hassan Abidi May 13, 2008

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