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New scheme has been launched on public demand

April 15 - 21, 2002

In continuation of its ongoing campaign for regularization of companies and corporatisation of business sector, the Securities and Exchange Commission of Pakistan (SEC) has launched another scheme titled "Companies Easy Exit Scheme" (CEES) for those dormant companies, which are desirous to get their names struck off the register of companies.

Addressing a Press Conference, the Chairman, Securities and Exchange Commission of Pakistan Mr. Khalid A. Mirza in his office in Islamabad on Monday told newsmen that the new scheme has been launched on public demand. During the implementation of Companies Regularization Scheme 2002, which provided lot of concessions to the defaulting companies, the SEC received a number of representations that the names of dormant companies should be struck off the register of companies as in past, many sponsors incorporated limited companies with the idea of doing some business but due to various reasons they could not start or continue such businesses and, therefore, the companies could not become/remain operational. These companies have not filed statutory returns and even now sponsor thereof do not find it appropriate to file returns, as they want to close the companies. Such sponsors have the option to wind up the companies voluntarily but voluntary liquidation is not only difficult, it involves additional costs. The new scheme provides substantial relief in the winding up process; he added that the Companies Regularization Scheme was launched on January 1, 2002 to give relief to those companies and their managements which had in the past defaulted in filing various statutory returns as required under the Companies Ordinance, 1984. The scheme provided the defaulting companies an opportunity to regularize their affairs within three months (upto March 31, 2002) without any penalty. Now, the Commission has decided to extend this period upto April 30, 2002, with one time additional fee and with two-time additional fee upto June 30, 2002. Approximately 3,500 companies availed this opportunity in the initial period expiring March 31, 2002.

The SEC Chairman disclosed that according to the record maintained in the SEC that in Pakistan we have 692 listed companies, 2,212 non-listed public companies and 39,444 private limited companies. Out of total of over 42,000 companies registered with the Registrar of Companies 27,000 companies were found to be defaulters in one way or the other. The limited companies play a dynamic role in the economy of a developing country as such companies are part of the organized corporate sector as well as the capital market. Although a large number of companies exist on record, no concrete efforts have been made in the past, especially before the conversion of Corporate Law Authority (CLA) into SEC, to visualize the actual strength of the corporate sector and know the exact position of active companies. He claimed that for the first time in the history of this country each and every registered company was approached, through correspondence as well personal visits in order to ascertain the general position. Nearly ten thousand companies were just not traceable on their given addresses. They are virtually closed and their sponsors have moved to different places of to different business.

Continuing Mr. Khalid Mirza said that fully conscious of the fact that corporatisation of business in a route is documentation of recovering providing of a solid foundation for development of economy, the Commission focused attention on it from day one. SEC, in the first phase, focused on improving the services rendered by CROs relating to incorporation of companies, availability of names, issuance of certified copies, facilitating inspection of files, registration of mortgage charges etc. SEC proudly claims that these matters are now expeditiously disposed of (in far less time as compared to other countries in the region). CROs not only dispose of cases expeditiously, there is visible change in their behaviour and they are more friendly and cooperative. A company is incorporated within two days, names for proposed companies are made available on the same day and other applications are disposed of on the same day or at the most on the following day.

To encourage corporatisation of economy, SEC in October 2000 reduced the rate of registration fee for smaller companies. (The registration fee of companies with authorized capital upto Rs.10 million is less as compared to India, Malaysia and other neighbouring countries). Since SEC computerized companies' record, it has been noticed that many companies have defaulted in the past in filing of statutory returns. Such defaults are very seriously dealt by the Law which provides penalties, prosecution of management leading to imprisonment and three times additional filing fee. The defaults are of two types i.e. (1) filing of returns with delay and (2) no returns filed at all.

Since SEC considers the private limited companies and non-listed public companies as nurseries for ultimate listed corporate sector in the country, it was decided to take a lenient view in the matter of late filing of returns and through general order by SEC in February 2001, CROs were directed to record the statutory returns filed with minor delay without initiating penalty proceedings against management. A large number of companies were benefited through this order.

In the meantime, the Commission had been thinking to provide a one time opportunity to those companies which had altogether failed to file the statutory returns. Accordingly, the Companies Regularization Scheme was launched. The defaulting companies filed the overdue returns by payment of additional fee equal to the normal fee in addition to normal fee, instead of paying three times additional fee and they were absolved from penalties under the Companies Ordinance, 1984.

The CEES is in continuation of the same effort. Section 439 of the Companies Ordinance, 1984 which deals with the matter of striking the name of companies off the register of companies speaks about issuance of notices to the companies and in case of non-receipt of reply or on the intimation from the company that it is not in operation, the registrar may publish a notice in the Official Gazette and on expiry of three months, strikes the name of the company off the register of companies and notifies the fact in Official Gazette. The procedure for proposed scheme is the same except that the action is to be initiated on application of the company. Since the scheme is being launched on demand of the sponsors of such companies and it would facilitate them, it has been decided that the cost involving publicity and processing the application and publication of notification in the Official Gazette should be recovered from applicants and some application fee should be charged.

The scheme would be operative for a period of one month i.e. April 01, 2002 to April 30, 2002. The companies neither having any business nor any assets and liabilities would submit the application for seeking to get their names struck off the register of companies. Rate of application fee for Private Limited Companies would be Rs. 3,500 and for Unlisted public companies, Associations u/s 42 / Guarantee companies u/s 43 would be Rs. 7,500.

The board of directors/shareholders of the company shall pass a resolution regarding furnishing the aforesaid application. One of the directors preferably chief executive of the company shall also furnish a declaration duly verified by an affidavit administered before Class I Magistrate that the company has no assets / liabilities and that it is not carrying on any business or any operation. The company shall also furnish a certificate from the company's auditors and in case, the auditor of the company is a person other than a practicing Chartered Accountant or a practicing Cost and Management Accountant, the certificate shall be obtained from a practicing Chartered Accountant or a practicing Cost and Management Accountant accordingly.

On receipt of applications, notices will be published in Official Gazette inviting any objection from possibly interested parties against such striking the company name off the register of companies. If no objection is received and registrar is satisfied that the company is really not in operation and has no assets or liabilities, the name of the company shall be struck off the register of the companies.

It may also be mentioned that the Commission realizing its responsibility for nourishing the corporate sector has already taken up with the CBR, the case of limited companies for some relief as compared to other entities on the following matters:

(i) At present all companies are required to deduct withholding tax at source. Initially companies with paid up capital upto Rs. 3 million were exempt from this provision but this limit was reduced to Rs. 1.5 million and finally all companies made liable to deduct withholding tax.

(ii) Limited companies are liable to turnover tax and even advance tax calculated on the basis of turnover.

(iii) The self-assessment scheme in case of limited companies requires certification of accounts by chartered accountants.

(iv) In other forms of businesses, there is basic exemption of Rs. 60,000/and further tax rates range from 5% to 35% of income, whereas in the case of limited companies, fixed rate of 45% is applicable.