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Company Law
Solution
Part 1 MCQs
1. (c)
2. (c)
3. (c)
4. (a)
5. (b)
6. (d)
7. (c)
8. (b)
9. (d)
10. (d)
11. (d)
12. (d)
13. (b)
14. (a)
15. (d)
Part 2
Ans 1
Ans 2
(a) The prescribed procedure for changing ML’s principal line of business are
as follows:
ML shall alter the provisions of its memorandum of association through
special resolution.
ML shall file duly authenticated special resolution with the registrar within
15 days from passing of special resolution.
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ML shall report to the registrar within 30 days from the date of change, on
the specified form and file the amended memorandum of association.
Registrar may give direction of change of name if the name of ML does not
commensurate with the principal line of business.
(b) The name proposed by the promoters is not valid under the provisions of the
Companies Act, 2017 due to following two reasons:
i. The word “Authority” cannot be used as it implies connection with a
Government. According to the Companies Act, 2017 “no company shall be
registered by a name which contains any word suggesting or calculated to
suggest any connection with a Government.”
ii. However, in order to overcome this the promoters with the prior approval in
writing of the Commission may be able to get the company registered with such
word.
iii. The word “Limited” is missing from the name of the company. According
to the Companies Act, 2017 the word limited is required to be written at the end
of the name of a company.
iv. However, if the group of persons intend to form a limited liability
company with charitable and not for profit objects then they have to apply to
the Commission for a licence and the Commission, if satisfied, may allow them to
be registered as a limited liability company without addition of the word
“Limited” to its name.
Moreover, it should also be ensured that the proposed name is not identical with
or resemble or similar to the name of already registered company or
inappropriate or deceptive.
Ans 3
HL can issue new class Charlie shares only if it is permitted by the memorandum
and articles of association. Since HL’s articles and memorandum lack any such
classification, the directors are first required to alter the provisions of HL’s articles
of association and memorandum of association by getting a special resolution
passed by general meeting.
It should however be noted that where such alteration affects the substantive
rights or liabilities of members or of a class of members, it shall be carried out
only if a majority of at least three fourths (3/4) of the members or of the class of
members affected by such alteration, as the case may be, exercise the option
through vote either personally or through proxy.
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An altered copy of the articles of association shall be filed with the registrar,
within 30 days from the date of passing of the resolution. The registrar shall
register the same and then the alteration shall be effective.
Ans 4
i. Since a prospectus approved by the Commission shall be valid for a period of 60
days from the date of such approval. BL must publish the prospectus by 2nd March
2021. However, as the directors intend to publish it on 1st April 2021 they must
apply to the Commission for extension in time limit. The application for extension
must contain the reasons for extension in time.
ii. Publication of the prospectus
In Newspapers
The prospectus shall be published in full text or in such abridged form as may be
prescribed, at least in one Urdu and one English daily newspaper. The prospectus
shall not be published in the newspapers less than 7 days or more than 30 days
before the commencement of the public subscription.
On Website
The prospectus in full text shall be uploaded on the website of the issuer and shall
remain there from the date of its publication in the newspapers till the closing of
the subscription.
iii. BL must ensure that the expert is a person who has the power or
authority to issue a certificate in pursuance of any law for the time being
in force and who is not and has not been engaged or interested in the
formation or promotion or in the management of the company.
Ans 5
(a)
i. According to the companies act 2017 a person cannot be appointed as CEO and
director if he has been convicted by a court of law for an offense involving moral
turpitude (conduct that is believed to be contrary to community standards of
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honesty, good morals, or justice, e.g. murder, kidnapping, etc.). Hence Me. Farukh
cannot be appointed as CEO of ABC limited.
ii. According to the companies act 2017 a person cannot be appointed as CEO and
director if he is lacking fiduciary behaviour and a declaration to this effect has
been made by the Court at any time during the preceding 5 years. In given case 5
years period has been lapsed so Mr. Rizwan can be appointed as CEO of ABC
limited.
iii. There is not a single provision in companies act 2017 which prohibits a person
to be CEO of a company in case his wife is employee in brokerage house. Hence
Mr. Lala can be appointed as CEO of ABC limited.
(b) According to the companies act 2017 the directors of a company by a
resolution passed by not less than three-fourths of the total number of directors
for the time being, or the company by a special resolution, may remove a chief
executive before the expiration of his term of office.
Therefore, the chief executive of BPL can be removed only if the proposal is
supported by:
at least 12 directors of the BPL, or
by 3/4th majority of the members in the general meeting either present in
person or by way of proxy.
Since Farman has only 10 nominee directors on the board of BPL and has 69.2%
shareholdings, it cannot remove the existing chief executive without the support
of Faizan or his nominee directors.
Ans 6
(a)
i.
According to the companies act 2017 The appointment by a director,
of an alternate or substitute director to act for him during his
absence from Pakistan of not less than 90 days, will not be deemed to
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be an assignment of office. But in this case absence of Ahmad was not
due to travelling foreign. Hence this step by Ahmad is void ab initio.
According to the companies act 2017 A directors’ agreement to a
written resolution, passed by circulation, once signified, may not be
revoked. Hence in this case if resolution was signified then directors
cannot revoke it.
ii.
(b) A director shall be treated to have vacated the office of director if:
he becomes ineligible to be appointed as director;
he absents himself from three consecutive meetings of the board without
seeking leave of absence;
he, his partnership firm in which he is a partner or any private company in
which he is a director, accepts any loan or guarantee from the company in
contravention of Companies Act; or
accepts any office of profit (other than that of chief executive or a legal or
technical adviser) without sanction of the company in a general meeting .
A company may include additional grounds for vacation of office in its articles.
Ans 7
(a) Quorum of HL’s EGM when meeting is requisitioned by directors/members
10 members present personally or through video-link representing 25% of total
voting power, either of their own account or as proxies, unless HL’s articles
require a larger number.
Quorum of FGL’s EGM when meeting is requisitioned by directors/members
Where FGL has share capital, 2 memberspresent personally or through videolink representing 25% of total voting power, either of their own account or as
proxies, unless the FGL’s articles require a larger number.
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Where FGL does not have share capital, then as provided in SGL’s articles of
association.
Quorum of HL’s & FGL’s EGM(s) if meeting is requisitioned by the Commission
If the meetings are called on the direction of the Commission, then Commission
may give such ancillary/consequential directions as it thinks expedient in relation
to the calling, holding and conducting of the meeting. Accordingly, Commission
may direct that one member present in person or by proxy shall be deemed to
constitute a meeting.
(b) Possible causes
The Commission has power to call general meeting of the company in case of:
There is default in conducting AGM or statutory meeting.
The directors did not proceed to call an EGM on the requisition of members.
The Commission may give such directions in relation to the calling, holding and
conducting of the meeting and
preparation of any document required with respect to the meeting as the
Commission may think fit.
Powers of SECP
One member may be quorum
The above-mentioned directions may include a direction that one member of the
company present in person or by proxy shall be deemed to constitute a meeting.
Cost of conducting the meeting
Any meeting so conducted shall, for all purposes, be deemed to be a meeting of
the company duly called, held and conducted, and all expenses incurred for such
meeting shall be paid by the company unless the Commission directs the same to
be recovered from any officer of the company.
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Penalty
If any person makes default in holding a meeting of the company called by the
Commission or in complying with any directions of the Commission, shall be liable
to a penalty of level 3 on the standard scale.
Ans 8
(a) The restrictions imposed under the provisions of the Companies Act, 2017 on a
company with regard to declaration of dividend are as follows:
Dividend shall not be declared by a company otherwise than out of its profits.
Dividend declared in general meeting shall not exceed the amount
recommended by the board.
Dividend shall not be declared by a company for any financial year, out of the
profits of the company made from the sale or disposal of any immovable
property or assets of a capital nature comprised in the undertaking or any of the
undertaking of the company, unless the business of the company consists,
whether wholly or partly, of selling and purchasing any such property or
assets, except after such profits are set off or adjusted against losses arising from
the sale of any such immovable property or assets of a capital nature.
Dividend shall not be declared out of unrealized gain on investment property
credited to the profit or loss account.
(b) According to the companies act 2017 company may withhold dividend with
approval of commission up-to 45 days if the dividend could not be paid by reason
of the operation of any law. Hence in given case dividend to SPL’s directors can’t
be paid due to court’s order so directors of SPL can withhold it up-to 15 march
2021 with approval of commission (as 45 days complete on 24 march 2021).
Ans 9
(a) The registrar can enter in the register of mortgages and charges a
memorandum of satisfaction or release of charge without receiving any
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intimation of the company, on evidence being given to his atisfaction with
respect to any registered charge, that:
(i)
Debt for which the charge was given has been paid or satisfied in whole
or in part
(ii)
(ii) Part of property or undertaking charged has been released from the
charge or has ceased to form part of company's property or undertaking
(b) ■ a charge on any immovable property wherever situated, or any interest
therein;
■ a charge on any moveable property of company;
■ a charge for the purpose of securing any issue of debenture;
■ a charge on book debts of the company;
■ a floating charge on undertaking or property of the company, incl
■ a charge on a ship or aircraft, or any share in ship or aircraft;
Effect of non-registration
■ Charge created by a company shall not be taken into account by the
liquidator or any other creditor unless it is duly registered under the
company act, 2017.
Ans 10
(a)
■ He or any firm (of which he is a partner) or any private company (of which he is
a director)
o Without sanction of general meeting accepts or holds any office of profit under
company other than chief executive or a legal or a technical adviser; or
o Accepts a loan or guarantee from Company in contravention of the Act
■ Absents himself (without leave of absence from the directors) for 3 consecutive
meetings of BOD
■ Becomes ineligible under Companies Act 2017 [Any additional grounds may be
specified in AOA for this]
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(b)
(i) The shareholders are not justified in their claim because as per the
requirements of the Companies Act, members are allowed to approve the
dividend declared by the directors. They can reduce that amount but cannot
increase it.
(ii) No. The Companies Act 2017 specifically prohibits the payment of dividend
from such profits.
Ans 11
(a) As STL has nominated one of its directors on JL's board, both the companies
became associated companies due to common directorship. Therefore,
STL's plan of further investment would be considered as investment in
associated company. Accordingly, STL can make further investment in JL
only under the authority of a special resolution which shall indicate the
nature, period, amount of investment and terms and conditions attached
thereto.
(b) In the case of a listed company, the business review section must, to the
extent necessary for understanding the development, performance or
position of the company's business, include:
(i)
the main trends and factors likely to affect the future development,
performance and position of the company's business;
(ii)
the impact of the company's business on the environment;
(iii) the activities undertaken by the company with regard to corporate
social responsibility during the year; and
(iv) Directors' responsibility in respect of adequacy of internal financial
controls as may be specified.
Ans 12
(a)
Though BL was formed for a period of five years a winding up would not
commence unless a resolution in this regard has been passed. Therefore, it would
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be necessary for the directors of BL to have a resolution passed in the general
meeting of the company.
In view of the above provision of law, BL may continue its activities even after
commencement of winding up so far as it is necessary for completing the project.
However, it would not be advisable to commence winding up before the
completion of the project as it may not be possible for the company to sell its
assets and pay off its liabilities prior to completion of the project.
Therefore, director of BL should extend the period fixed for the duration of the
company by making necessary amendments in the article of association of the
company.
The liquidator shall not resign or quit his office as liquidator before conclusion
of the winding up proceedings except for reasons of personal disability to the
satisfaction of the Court. Therefore, Ahmed cannot resign. The power of
accepting or rejecting the resignation of liquidator before completion of
winding up proceeding rests with the Court and not with the
management/directors of the company.
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