Management and
administration
Directors
Recap
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Who is a director
Manners in which a person becomes a director
Minimum number of directors (Sec-174)
First directors and subsequent directors
Election of directors
The declaration on Oath shall be filed
Fresh elections of directors( sec 178 A)
Circumstances under which Elections declared invalid
Ineligibility to become a Director
• Vacation of office by the directors
Restriction on directors remuneration
[sec 191]
1. The remuneration of a director for performing extra
services including the holding of the office of the
chairman shall be determined by the directors of
members in general meeting according to the
provisions of the articles.
2. No remuneration for attending the meeting of the
directors shall exceed the scale approved by the
company or by the directors according to the
provisions of the articles.
Restriction on assignment of office by
directors (section 192)
• A director of a company cannot assign his office to another
person unless it is approved by a special resolution in general
meeting even if its allowed by the articles.
• The appointment by a director with the approval of the
directors, of an alternate or substitute director during his
absence from Pakistan of not less than three months shall not
be deemed to be an assignment of office.
Proceedings of Directors (section 193)
• The quorum of the directors’ meeting of a listed company
shall not be less than one third of their number or four
whichever is greater.
• The directors of a public company shall meet at least once in
each quarter of the year.
Attendance of directors in the board meeting through
tele/video conference
(SECP circular no .18/2005 and circular no.20/2005)
• SECP has allowed all the Companies to hold their
board meetings through tele/video conferencing.
• Where it is not possible for directors to be physically
present at the venue of the meeting.
• Such meetings shall only be valid if the minutes have
been approved and signed by all the directors who
have participated in such meetings.
Attendance of directors in the board meeting through
tele/video conference
(SECP circular no .18/2005 and circular no.20/2005)
• Listed companies are advised to avail this facility only
in emergent situation.
• It would also be responsibility of a company’s
secretary or in case of his non existence
• The chief executive of the company to secure the
tele/video recording of the proceedings of the
meeting and keep it in his custody.
Loans to directors (section 195)
• Public company or a private company which is a subsidiary of
a public company shall not make any loan or give guarantee or
provide security:
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To the director of the company,
To a partner or relative (spouse and minor children) of such director,
To a firm in which such director or relative is a partner,
To a private company in which director or relative is a partner,
To a private company in which such director is director or a member,
To a body corporate whose 25% voting powers may be exercised by
one or more such directors or their relative, or
– To a body corporate whose chief executive or directors act in
accordance with directors/instructions of lending company’s chief
executive or director.
Powers of Directors of a company
(section 196)
• The directors may exercise all such powers of the company as are
not by the ordinance, or by the articles, or by special resolution
required to be exercised by the company in general meeting.
However following powers are exercisable by the directors and these
powers shall be exercised by means of a resolution passed at their
meeting:
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to make calls on unpaid capital,
To issue shares and debentures,
To borrow money,
To invest funds,
To make loans,
To approve accounts and bonus to employees,
To incur capital expenditure
Powers of directors
• To sell any fixed assets in accordance with the
limits prescribed by the commission.
• To appoint chief executive
• To approve a contract for sale, purchase or supply of
goods or rendering of services in which director is
interested.
• To under take obligations under leasing contracts
exceeding one million Rs.
• To declare interim dividend.
Acts done by director through
consent in General meeting
• Acts done by the Directors of a public or subsidiary of a public
company only through consent in General meeting..
• Sell, lease or disposing of the undertaking
• This provision shall not apply to a company whose main
business is selling or leasing
• Remit, give any relief or extension of time for the repayment
of debt out standing against any person specified in
subsection1
Contravention of sec 196
• In case of contravention the person shall be
punishable with a fine which may extend to
one hundred thousand rupees and shall be
individually and severally liable for the losses
or damages arising out of such loan.
Liabilities of Directors:
• The companies ordinance 1984 requires the director to do or
refrain from doing various acts on behalf of the company. The
ordinance also require them to file various forms with the
registrar and make them responsible for various documents
issued by the company.
Liabilities of Directors:
• If the directors do not perform their duties they are liable to
certain penal actions which may result in disqualification from
being a director of that company or any company. Some of
the acts of directors which may entail penalties are as follows:
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Any false statement (sec492),
Wrongful withholding of property (section 493),
Allotment of shares for inadequate consideration (section 494),
Carrying on ultra vires business (section 496), and
Refusal to transfer shares of a public limited company or failure to give
notice of refusal. (section 78)
Disclosure of interest
• Every director shall disclose his concern or interest in any
company or companies or bodies corporate, firms, or other
association of individuals which shall include the
shareholdings, in such manner as may be prescribed. Such
disclosure shall be made on three particular point of time:
• (i)
At the first meeting of the Board in which he
participates as a director;
• (ii)
At the first meeting of the Board in every financial
year; and
• (iii)
Whenever there is any change in the disclosures
already made, then at the first Board meeting held after such
change.
Disclosure of Interest by Directors and
other officers: (Sec214-216)
• At a meeting of directors, a director of a company shall
disclose the nature of his concern or interest, direct or
indirect, regarding any contract or arrangement in which:
– He is entered into, or to be entered into, by or on behalf of the
company, and
– He is concerned or interested in any way, whether directly or
indirectly.
Time for disclosure:
• In the case of a contract or agreement to be entered
into:
– At the meeting of directors at which the question of
entering into the contract or arrangement is first taken into
consideration, or
– Where the director was not concerned or interested in the
contract or agreement on the date of meeting at which the
question of entering into a contract or agreement is first
taken into consideration, at the first meeting of the
directors held after he becomes so concerned or
interested.
Continued…
• In the case of any other contract or arrangement at the first
meeting of directors held after the director becomes
concerned or interested in the contract or agreement.
• For the purpose of above provision, a general notice given to
the directors to the effect that a director is a director or a
member of a specified body corporate and is interested in any
contract or agreement which may, after the date of the
notice, be entered into with that body corporate or firm, shall
be deemed to be a sufficient disclosure of concern or interest
in relation to any contract or arrangement so made..
Interested Director not to participate
or vote (section 216)
• Such director shall not be allowed to participate or vote in the
proceeding of directors, however the above restriction shall
not apply to:
– A private company which is neither a subsidiary nor a holding
company of a public company
– Any contract of indemnity against any loss which the directors or any
one or more of the, may suffer by reason of becoming or being
sureties or society for the company
– In case of directorship contract with a public company if interest is
only due reason that he is a nominee director and does not hold
enough number of shares to qualify him for the appointment as a
director..
Directors lacking fiduciary behavior:
(section 217)
• The court may declare a director to be lacking fiduciary
behavior if:
– The director does not disclose his interest or concern regarding any
contract or arrangement in which: he is entered into, or to be entered
into by or on behalf of the company, And; he is concerned or
interested in any way whether directly or indirectly
Disclosure of Directors’ interest to
members in certain cases (section 218)
• The company shall make out and attach to the directors’
report an abstract of the term of the appointment or contract
or variation, together with a variation, together with a
memorandum clearly specifying the nature of the concern or
interest of the director, where;
– The company appoints or enters into a contract for the appointment
of: Chief executive, Managing agent, Whole time director ,or Secretory
of the company OR
– The company varies any contract already in existence.
Register of contacts, Arrangements and
appointments in which Directors are interested
(sec 219)
• Every company shall make a register in which it will enter
particulars of all contracts, arrangements or appointments to
which section 214, or 215, or 216, or 217, or 218 apply
including the following particulars:
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The date of the contract, arrangement or appointment,
The names of the parties thereto,
The principal terms and conditions thereof,
The date on which it was placed before the directors,
The names of the directors for and against the contract, arrangement
or appointment and the names of those remaining neutral,
– The name of director or officer concerned or interested in the
contract, arrangement or appointment and the nature of his interest
therein.
Register of Directors’ shareholdings
etc. (section 220)
• Every listed company shall keep a register as
respects each director, each office and every
other person holding not less than ten percent of
the beneficial interest in the company, number,
description and amount of any shares in the
company or any other body corporate, being the
company’s subsidiary or holding company..
Directors’ duty to disclose
shareholdings (section 221)
• A director, officer, and a person holding not
less than 10% of the beneficial interest in a
company shall inform the company about his
shareholdings within 15 days of his
appointment as director, officer etc or
acquisition of shareholding
Submission of statement of beneficial
owners of listed securities (sec 222)
• Every director, chief executive, chief accountant, managing
agent, secretory or auditor of a listed company who is or has
been the beneficial owner of any of its equity securities and
every person who is directly or indirectly the beneficial owner
of any of its equity securities, shall submit to the registrar and
the commission the prescribed form (form 31) containing the
particulars pertaining to the beneficial ownership of such
securities and notify the particulars of any change in the
interest aforesaid (form 32).
• Time limit prescribed by law for these two returns in thirty
days for form 31 and fifteen days for form 32 respectively
Prohibition of short selling (sec 223)
• Directors, chief executives, managing agent,
chief accountant, secretory or auditor of a
listed company and persons who are directly
or indirectly beneficial owners of not less than
10% of the listed equity securities of such
company are prohibited from short selling.
Trading by Directors, Officers and
Principal Shareholders (sec 224)
• Where any of the above mentioned persons:
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Directors,
Chief executive,
Managing agent,
Chief accountant,
Secretory, or
Auditor of a listed company, or
Persons directly or indirectly, owning more than 10%
of equity securities of the company
makes any gain, on the purchase of sale, or sale
purchase of any equity securities of a listed company
(Continued..)
within a period of less than six months, such persons shall
make a report and tender the amount of such gain to the
company. Simultaneously he shall send an intimation to this
effect to the Registrar and Commission.
• Where the above mentioned persons fail to tender, or
the company fails to recover, any such gain within six
months after its accrual, or within sixty days of a demand
thereafter, whichever is later, such gain shall vest in SECP.
• Such gains shall be deposited in the prescribed manner.
In case of default SECP may direct its recovery as arrears
of land revenue. However these provisions shall not
apply to a security acquired in good faith in satisfaction
of a debt previously contracted.
(Continued..)
• Where contravenes the provision of sections 222, 223, or
224 shall be liable to a fine upto Rs.30,000 and a further
fine upto Rs.1000 for each day of default.
Upcoming topics
• Company's Chief executive
• Company's Secretary