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Final Examinations

Module E
6 June 2016
3 hours 100 marks
Additional reading time 15 minutes

The Institute of
Chartered Accountants
of Pakistan

Corporate Laws
Q.1

Sun Energy Limited (SEL) was incorporated on 1 January 2016. The statutory meeting of
SEL is scheduled to be held on 9 June 2016. The statutory report to be presented to the
shareholders has been signed by the CFO, the CEO and a non-executive director of the
company on 20 May 2016. However, the auditors of the company have refused to verify
the statement of receipt and payments on the grounds that a payment of Rs. 12 million
dated 12 May 2016 has not been included in it. The CFO contends that the payment had
not been included because the contract against which the cheque was issued has been
cancelled with mutual consent and the party has returned the payment by way of a
pay-order dated 20 May 2016.
In the light of the provisions of the Companies Ordinance, 1984, you are required to:
(a) comment on the observations of the auditors and the contention of the CFO.
(b) identify the non-compliances by SEL in the above circumstances.

Q.2

(03)
(05)

Abid Brothers Limited (ABL) owns two industrial undertakings, one in Peshawar and the
other in Karachi. ABL has decided to go into members voluntary winding-up.
Accordingly, an extraordinary general meeting of ABL was held on 1 December 2015 in
which Akber and Farid were appointed as the Liquidators. Akbar was responsible for
disposing of the Peshawar factory whereas disposal of Karachi factory was assigned to
Farid.
On 1 June 2016 Farid resigned without assigning any reason. He has written a letter
claiming 20% of the agreed remuneration after deduction of the amount already advanced
to him. According to him, he has completed 20% of the work assigned to him.
Akber has held negotiations with Hercules Limited (HL), a listed company, who has
offered one million shares as purchase consideration for Peshawar factory. However, he
expressed his concerns about the time involved in the liquidation process and has requested
for reconsideration of his remuneration.
In context of the provisions of the Companies Ordinance, 1984 you are required to explain
the following:
(a)
(b)
(c)

Q.3

Whether ABL can accept Farids resignation and his request for payment of
remuneration?
Whether Akbers request for increase in remuneration may be accepted?
What conditions would have to be complied with if Peshawar factory is sold to HL as
per their offer? Describe Akbars response if some shareholders of ABL do not agree
to the terms of sale of Peshawar factory.

(03)
(02)

(06)

Latif held more than 13% voting shares in Clovers Limited (CL), a listed company,
throughout the year 2015-16. During the year, he made number of sale and purchase
transactions in CLs shares and earned substantial amount of gain.
You are required to discuss Latifs responsibilities under the Securities Act, 2015 in respect
of the above transactions.

(08)

Corporate Laws

Q.4

Page 2 of 4

Rahat Mills Limited (RML) and Global Limited (GL) are listed companies and their
financial years end on 30 June.
RML has been purchasing its raw material from Beta Limited (BL) for the last five years
under an agreement. The purchase prices are reviewed by the Board of Directors of RML
after every six months.
Nadir, who is an elected director in RML, acquired 5% shares in BL on 15 January 2016.
On the same day, he served a general notice to the directors of RML about his interest in
BL.
Nadirs wife Shehla was appointed as a director in GL on 1 March 2016 as a nominee of
Zahid and Zubair Limited (ZZL). GL is a major customer of RML. However, Shehla has
not intimated the Board of Directors of GL about her interest because of being the wife of
the director (Nadir) of RML.
In the light of the provisions of the Companies Ordinance, 1984 explain the responsibilities
of Nadir and Shehla during the period from 1 March 2016 to 30 June 2016.

Q.5

Following are the details of matters related to investment by Sparrow Limited (SL) in its
associated unlisted companies i.e. Duck Limited (DL) and Tiger Limited (TL):
(i)

SL is planning to acquire 1.0 million ordinary shares in DL from a shareholder of DL


at Rs. 25 per share. The face value of the shares is Rs. 10 each.

(ii)

On 1 September 2015 SL had paid Rs. 10.0 million to TL for purchase of 0.5 million
right shares at 100% premium. However, due to a legal dispute, TL is unable to issue
the right shares. TL is hopeful that the matter would be resolved by 30 June 2016.

Required:
(a) Advise the Directors of SL regarding the conditions to be complied with in respect of
the purchase of shares of DL, from the shareholder, under the Companies
(Investment in Associated Companies or Associated Undertakings) Regulations,
2012.
(b) In light of the provision of Companies Ordinance, 1984 and Companies (Investment
in Associated Companies or Associated Undertakings) Regulations, 2012, explain the
rights of SL in (ii) above.

Q.6

(09)

(06)

(03)

An abstract from the statement of financial position as on 31 March 2016 of Ryan Limited
(RL) is as follows:
Rs. in million
Authorized share capital
100 million ordinary shares of Rs. 10 each
Issued, subscribed and paid up capital
50 million ordinary shares of Rs. 10 each
Share premium account

1,000

500
50
550

RL is planning to get listed on the Pakistan Stock Exchange by selling 8 million shares to
the general public at a premium of Rs. 15 each. Out of 8 million shares, RL plans to offer
1 million shares to its employees and 3 million shares to overseas Pakistanis.
You are required to advise the Directors of RL regarding the conditions to be complied by
them for issue of capital in the above circumstances under the Listing Regulations.

(10)

Corporate Laws

Q.7

(a)

Page 3 of 4

Junaid wishes to acquire 14% voting shares of Calico Limited. In this respect he
wants to appoint Manager to the offer.
State who can be appointed as Manager to the offer under the provisions of the
Securities Act, 2015.

(b)

Assuming that Junaid becomes insolvent after the public offer was made by him and
withdraws the public offer.
State the responsibilities of the manager to the offer under the provisions of the Listed
Companies (Substantial Acquisition of Voting Shares & Takeovers) Regulations,
2008.

Q.8

(03)

(03)

Annual general meeting of Fusion Enamels Limited was held on 31 May 2016 to transact
the following agenda items:
(i)
(ii)
(iii)
(iv)

Approval of the minutes.


To discuss and approve annual audited accounts.
To approve the dividend as recommended by the directors in their meeting.
To appoint auditors for the forthcoming year.

The meeting commenced at 10.30 a.m. However, soon after the minutes were approved i.e.
at 11.15 am, Farhan, the chairman, left the meeting due to misbehaviour of few
shareholders. One of the shareholders, Saleem, took the chair to conduct the meeting. The
dividend as recommended by the directors and the audited financial statements were
approved by the shareholders. Later, the meeting was adjourned to 18 June 2016 without
the appointment of auditors.
Farhan wants to pass a resolution regarding approval of loan to an associated undertaking
at the adjourned meeting.
In view of the provisions of the Companies Ordinance, 1984, and the regulations in
Table A you are required to comment on the following:
(a)
(b)

Q.9

Validity of the decisions taken at the meeting when it was chaired by Saleem.
Assuming that the meeting as chaired by Saleem was valid, what conditions would
have to be complied with for holding the adjourned meeting and for passing the
resolution as desired by Farhan.

(04)

(04)

Lucky Garments Limited (LGL) is being wound up by the Court. The Official Liquidator
after realization of the assets, has an amount of Rs. 5,600,000 available for payment to the
creditors. Details of creditors are as follows:
Salam Bank Limited (Note 1)
Wages and salaries (100 employees; payable for three months)
Income tax payable
Unsecured creditors (Note 2)

Rupees
4,000,000
1,000,000
500,000
8,100,000

Note 1:
LGL had created a charge on all the assets of the company in favour of Salam Bank
Limited.
Note 2:
Unsecured creditors are, Amin, Waseem and Kashif. The amounts payable to them are
Rs. 2,025,000, Rs. 4,293,000 and Rs. 1,782,000 respectively.
Required:
Under the provisions of the Companies Ordinance, 1984 show how the available funds
would be applied by the Liquidator under the above circumstances.

(05)

Corporate Laws

Q.10

Q.11

State the requirements of the Code of Corporate Governance, 2012 relating to the
following:
(a) Certification of companies directors under Directors Training Program
(b) Composition of audit committee

(a)

(b)

Q.12

Page 4 of 4

(03)
(03)

Under the NBFC (Establishment and Regulation) Rules, 2003 subordinated loans are
regarded as part of equity. State the conditions which must be complied with, for a
loan to be classified as subordinated loan.

(07)

State the conditions pertaining to Fit and Proper Criteria for appointment of Chief
Executive of an Investment Company which is registered under NBFC and Notified
Entities Regulations, 2008. Also state the conditions that would have to be complied
with at the end of each calendar year after appointment.

(07)

The Experts Education Foundation (EEF) is a public company registered under section 42
of the Companies Ordinance, 1984. The directors have requested for your advice relating to
renewal of its licence. The following information has been made available to you in this
regard:
(a)
(b)
(c)

The company was registered on 1 October 2011.


The company receives local grant of funds on monthly basis and foreign donations
once in a year.
A director has not paid his utility bill amounting to Rs. 500,000. The due date of the
bill was 2 April 2016.
(THE END)

(02)
(02)
(02)

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