All the amendments suggested by the Securities and
Exchange Commission of Pakistan (SECP) in the Companies Ordinance, 1984,
with a view to update the law and remove practical difficulties have
been approved by the cabinet. Briefing newsmen on the amendments,
Commissioner, SECP Mr. Abdul Rehman Qureshi said that the SECP had
undertaken a comprehensive review of the Companies Ordinance, 1984,
which was long over due as it was found deficient in many respects to
meet the current problems in the corporate sector in the changed
scenario. For this purpose, the SEC appointed a committee in January
2001, which reviewed the 1984 Ordinance thoroughly. The committee made
an objective study of the said law and submitted its report wherein a
number of amendments in the Ordinance, were recommended.
The proposed amendments were widely circulated,
inviting suggestions from professional accounting bodies, trade
organizations, stock exchanges and legal experts. The proposals were
also placed on the Commission's website and released to the press. A
roundtable conference of the corporate experts, professionals,
businessmen and representatives of stock exchanges and trade
organizations was also held in Lahore for seeking their point of view
about the proposed amendments. The comments received from the
professional bodies, legal experts and other relevant quarters were
considered and appropriate changes were made in the draft law.
The suggested amendments mainly relate to
introduction of the concept of single members of private companies and
reduced number of directors of public companies, providing right of
appeal against refusal of transfer of shares by the directors,
empowering the SEC to rectify the register of mortgage to be maintained
by the registrar and companies, reduction in period to present annual
audited accounts in annual general meetings of companies, providing
copies of minutes of meetings to the directors, appointment of qualified
company secretary by listed companies, streamlining and simplifying the
provisions relating to investment in associated companies, quorum of
listed companies, winding up of the companies, removal of auditors,
preparation of accounts of subsidiaries of listed companies and
consolidation of accounts to bring it in conformity with International
Accounting Standards. The amendments would help in smooth working of the
Commission, development of corporate sector, stabilizing the stock
market, protection of interest of investors and removing certain
The salient features of the proposed amendments
include the following:
Incorporation of single member company 'SMC'.
Presently for the formation of a private company, at least two persons
are needed. Now, as a result of an amendment, a new concept of single
member private company 'SMC' has been introduced to admit the entry of
individual businessman in the corporate sector. According to it, an
individual trader or manufacturer would be able to form a company having
its own separate entity enjoying the privilege of limited liability.
This new concept would not only be beneficial to the investors but would
also go a long way in the expansion of a disciplined corporate sector.
The concept of single member companies is working successfully in
At present all companies were required to prepare and
lay before the members-in annual general meetings their audited accounts
and statement of income and expenditure within a period of six months of
the close of their accounts. They may seek a further extension of three
months, it means nine months were available to companies for the
finalization and presentation of their accounts in the annual general
meetings. Now a period of four months has been provided to the companies
for presentation of audited accounts before shareholders. This can
easily be completed in this era of information technology.
The private companies which convert into public
companies after one year of their incorporation have been exempted to
hold their statutory meetings.
It was also observed that the conditions and
restrictions relating to the investment in associate undertakings
imposed under the existing provisions were too harsh, causing negative
impact on the business of sister concerns. While liberalizing the
provisions, the maximum limit of thirty per cent of the paid up capital
plus free reserves of the investing company has been removed and the
role of the regulator to grant waiver to certain companies has been done
away with. Members of a company may now be able to make final decision
through special resolution, after having full disclosure of the
According to the existing provisions of the Companies
Ordinance 1984, the promoters who want to establish a public company
were facing difficulties in associating other persons as promoters and
directors just to complete the requirement of having minimum seven. The
amendment would enable the promoters to establish a public company with
a minimum number of three members/directors.
A person who has been declared as defaulter in
repayment of loan to a financial institution exceeding such amount as
may be notified by the Commission from time to time has been made
ineligible to become director of a listed company. Likewise a member of
a stock exchange or his spouse would not be able to become director of a
It was also considered that mostly the liquidators
cause extraordinary delays in finalizing the winding up proceedings and
they with a view to keep them under the discipline and to complete the
process within the prescribed period, a provision has been inserted that
no individual may be assigned the liquidation of more than three
companies at a time and their remuneration may be stopped on the expiry
of prescribed period of one year.
Although the companies are bounds to register
transfer of shares within 45 days after the receipt of application for
registration of transfer of shares, yet the directors can refuse
transfer of shares within 30 days on some valid grounds. As no remedy is
available in case shares are not transferred within the prescribed
period or without any valid reason, an amendment has been made providing
a right of appeal before the Commission against such refusal to transfer
of shares or delay in transfer of shares.
Besides, in case of delay in filing of documents with
the registrar for the registration, modifications and satisfaction of a
mortgage or charge created by companies in favour of banks and financial
institutions, the extension in time is required to be obtained from the
High Court. In order to facilitate the companies donor agencies and the
banks etc for earlier registration of the mortgages or charges, the
powers of granting extension are proposed to be transferred to the
Keeping in view various complaints from members of
the Board of Directors of companies that minutes of the meetings are not
recorded timely and copies thereof are not provided to them, suitable
amendments has been incorporated making it compulsory that copies of
such minutes will be provided to every director within 14 days of the
date of such meetings.
An elaborate procedure of election of directors of
companies having share capital is provided in the Companies Ordinance,
1984 but no procedure and system exists for the election of directors of
companies not having share capital. Now a specific procedure for
election of director of the companies not having capital is required to
be provided in the articles of such companies.
Appointment of a whole time qualified company
secretary by a listed company has been made mandatory for efficient
corporate compliance. A single member company has also been made liable
to appoint a secretary.
Presently removal of auditors during the period of
one AGM to the next AGM has remained disputed and question has always
been raised as to whether an auditor can be removed or not. Now specific
provisions for removal of auditors has been provided through which a
company may remove its auditors through special resolution (by the
majority of 3/4 members). However, appointment of auditors in place of
removed auditors will be made with the approval of the Commission.
The quantum of penalty for non-compliance to the
provisions relating to audit has been increased from two thousand rupees
to one hundred thousand rupees.
Quorum of a general meeting of a public listed
company has been increased from three members to ten members present in
person representing not less than 25% of total voting power.
Since the subsidiary companies of the listed
companies are equally important for the shareholders of listed companies
and public interest is indirectly involved therein, the private and non-
listed public companies which are subsidiaries of listed companies has
also been made liable to prepare their accounts in accordance with
requirements of Fourth Schedule to the Companies Ordinance.
The existing provision of Companies Ordinance, 1984
provides that holding company shall annex accounts of its subsidiaries
with its accounts and no provision exists about consolidation of
accounts of holding and subsidiary companies. However, relevant
International Accounting Standard provides for consolidation of such
accounts, which has been accordingly inserted in the Ordinance.