Corporate Governance

FINAL PROJECT

L1F11BCOM0006

SAIQA YOUSAF
SUBMITTED TO SIR ABID.RASHEED

Corporate Governance

Contents
ISSUANCE OF SHARE AT DISCOUNT (UNDER SECTION 84):...................................................2
FURTHER ISSUE OF CAPITAL (Under section86)....................................................................3
MODES OF WINDING UP........................................................................................................ 4
VOLUNTARY WINDING UP...................................................................................................... 4
MEMBERS VOLUNTARILY WINDING UP................................................................................... 4
CREDITORS VOLUNTARILY WINING UP................................................................................... 4
COMMENCEMENT OF VOLUNTARY WINDING UP (under section 359)....................................5
CONSEQUENCES OF VOLUNTARY WINDING UP (under section 360)......................................5
NOTICE OF RESOLUTION TO WIND UP VOLUNTARILY (Under section 361)............................5
PROVISIONS APPLICABLE TO MEMBERS' VOLUNTARY WINDING UP.......................................6
Appointment of liquidators (under section 364)................................................................6
PROVISIONS APPLICABLE TO CREDITORS' VOLUNTARY WINDING UP....................................7
Appointment of liquidator (under section 375)..................................................................7
GENERAL PROVISIONS AS TO LIQUIDATORS (UNDER SECTION 326 SUB-SECTION 3)............7
POWERS AND DUTIES OF LIQUIDATOR IN VOLUNTARY WINDING UP (UNDER SECTION 387
SUBSECTION 5)..................................................................................................................... 8
FINAL MEETING AND DISSOLUTION (UNDER SECTION 370)..................................................8

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Question1: Mega Projects Limited is presently facing financial crunch. In order to overcome this crisis
and to improve profitability, the Board of Directors is considering raising funds through capital
injection. The existing shareholders and the potential investors may not be willing to invest at par value
which is Rs.10 per share. However, it =is estimated that the company could get just about Rs.7 per share.
The directors have therefore decided to issue shares at discount. Being a Company Secretary, You are
required to advise the directors about the procedure to be followed in this regard, under the Companies
Ordinance, 1984.

ISSUANCE OF SHARE AT DISCOUNT (UNDER SECTION 84):

When a share is issued by the company at a price that is less than the face value of the share, the share is
said to be issued at a discount. The difference between the par value (face value) of the share and the
amount received on the share is called discount on issue of shares.
Public companies are allowed to issue shares at a discount from par under section 84 of the Companies
Ordinance 1984 but only after fulfilling some legal requirements.
1. Subject to the provisions of this section, it shall be lawful for a company to issue shares in the
company at a discount:
Provided that The issue of the shares at a discount must be authorized by resolution passed in general
meeting of the company and must be sanctioned by the Commission.
The resolution must specify the maximum rate of discount 1[] at which shares are to
be issued.
Not less than one year must at the date of issue have elapsed since the date on which
the company was entitled to commence business.
The shares to be issued at a discount must be issued within sixty days after the date on
which the issue is sanctioned by the Commission or within such extended time as the
Commission may allow.
2. Where a company has passed a resolution authorizing the issue of shares at a discount, it may
apply to the Commission for an order sanctioning the issue; and on such application the
Commission may, if, having regard to all the circumstances of the case, it thinks proper so to do,
make an order sanctioning the issue on such terms and conditions as it thinks fit.
3. Issue of shares at a discount shall not be deemed to be reduction of capital.
4. Every prospectus relating to the issue of shares, and every balance-sheet issued by the company
subsequent to the issue of shares, shall contain particulars of the discount allowed on the issue of
the shares or of so much of that discount as has not been written off at the date of the issue of the
prospectus or balance-sheet.
5. If default is made in complying with sub-section (4), the company and every officer of the
company who is in default shall be liable to a fine not exceeding two thousand rupees.

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FURTHER ISSUE OF CAPITAL (UNDER SECTION86)
1. Where the directors decide to increase the capital of the company by the issue of further shares,
such shares shall be offered to the members in proportion to the existing shares held by each
member, irrespective of class, and such offer shall be made by notice specifying the number of
shares to which the member is entitled, and limiting a time within which the offer, if not
accepted, will be deemed to be declined:
[Provided that the Federal Government may, on an application made by any public
company on the basis of a special resolution passed by it, allow such company to
raise its further capital without issue of right shares:]
[Provided further that a public company may reserve a certain percentage of further
issue for its employees under Employees Stock Option Scheme to be approved by
the Commission in accordance with the rules made under this Ordinance.]
2. The offer of new shares shall be strictly in proportion to the number of existing shares held:
Provided that fractional shares shall not be offered and all fractions less than a share
shall be consolidated and disposed of by the company and the proceeds from such
disposition shall be paid to such of the entitled shareholders as may have accepted such
offer.
3. The offer of new shares shall be accompanied by a circular duly signed by the directors or an
officer of the company authorized by them in this behalf in the form prescribed by the
Commission containing material information about the affairs of the company, latest statement of
the accounts and setting forth the necessity for issue of further capital.
4. A copy of the circular referred to in sub-section (3) duly signed by the directors or an officer
authorized as aforesaid shall be filed with the registrar before the circular is sent to the
shareholders.
5. The circular referred to in sub-section (3) shall specify a date by which the offer, if not accepted,
will be deemed to be declined.
6. 3[Omitted]. The following sub-section (6) omitted by the Finance Act, 1995:
The provisions of this section shall also apply in the case of issue by a public company
of debentures partly or wholly convertible into shares or with warrants to subscribe to
the shares of the company except in cases authorized under section 87.
7. If the whole or any part of the shares offered under sub-section (1) is declined or is not
subscribed, the directors may allot and issue such shares in such manner as they may deem fit.]
Question2: A foreign investor had acquired majority shares in Marine Steel Services Limited (MSSL) in
the year 2006. Due to global recession, MSSL has incurred heavy losses and a major portion of its
equity has been wiped out. Consequently, the investor intends to wind up the operations of the company
voluntarily.

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WINDING UP OF A COMPANY
Winding up of a company is the stage, where by the company takes its last breath. It is a process by
which business of the company is wound up, and the company ceases to exist anymore. All the assets of
the company are sold, and the proceedings collected are used to discharge the liabilities on a priority
basis.

MODES OF WINDING UP
There are three ways, in which a company may be wound up. They are:
Winding up by the court.
Voluntary winding up.
Members Voluntary winding up.
Creditors Voluntary winding up.
Winding up subject to supervision of the court.

VOLUNTARY WINDING UP
A company may, voluntary wind up its affairs, if it is unable to carry on its business, or if it was formed
only for a limited purpose, or if it is unable to meet its financial obligation, and etc. A company may
voluntary wind up itself, under any of the two modes:

MEMBERS VOLUNTARILY WINDING UP

Directors of the company shall call for a Board of Directors Meeting, and make a declaration of winding
up, accompanied by an Affidavit, stating that:
The company has no debts to pay, or
The company will repay its debts; if any, within 3 years from the commencement of winding up,
as specified in declaration

CREDITORS VOLUNTARILY WINING UP

Where the resolution for winding up has been passed, but the Board of Directors is not in a
position to give a declaration on the liability of company, they may call a meeting of creditors,
for the purpose of winding up.
It is the duty of Board of Directors, to present a full statement of company's affairs, and list of
creditors along with their dues, before the meeting of creditors.
Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar
within ten days of its passing.

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(a) In the light of Companies Ordinance, 1984, advise the management as regards the following:
When would the voluntary winding up process be deemed to commence and what would be its
effect on the operations of MSSL.

COMMENCEMENT OF VOLUNTARY WINDING UP (under section

359)
A voluntary winding up shall be deemed to commence at the time of the passing of the resolution for
voluntary winding up.

CONSEQUENCES OF VOLUNTARY WINDING UP (under section

360)
Effect of voluntary winding up on status of company. - In the case of voluntary winding up, the
company shall, from the commencement of the winding up, cease to carry on its business, except
so far as may be required for the beneficial winding up thereof:
Provided that the corporate state and corporate powers of the company shall, notwithstanding
anything to the contrary in its articles, continue until it is dissolved.
How could the directors ensure that the requirements of making a declaration of solvency have
been compiled with?

NOTICE OF RESOLUTION TO WIND UP VOLUNTARILY (Under

section 361)
1. Notice of any resolution for winding up a company voluntarily shall be given by the company
within ten days of the passing of the same by advertisement * in a newspaper circulating in the
Province where the registered office of the company is situate and, in the case of a listed
company, such notice shall also be published at least in one issue of a daily newspaper in the
English language and a daily newspaper in the Urdu language having circulation in the Province
in which the stock exchange on which it is listed is situate and a copy thereof shall be sent to the
registrar immediately thereafter.
2. If a company makes default in complying with the requirements of subsection (1), it shall be
liable to a fine not exceeding one hundred rupees for every day during which the default
continues; and every officer of the company who without reasonable excuse authorizes or
permits the default or is a party to the default shall be liable to a like penalty.
3. For the purpose of this section, a liquidator of a company shall be deemed to be an officer of the
company.
(b) In order to minimize the winding up expenses, the board wants to appoint one of the directors
as the liquidator, on a monthly remuneration of Rs. 50,000. Advise the board as regards the
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requirements of Companies Ordinance, 1984 with respect to the appointment and remuneration of
liquidator, in the above situation.

PROVISIONS APPLICABLE TO MEMBERS' VOLUNTARY WINDING

UP
Appointment of liquidators (under section 364)
1. The company in general meeting shall appoint one or more liquidators, whose written consent to
act as such has been obtained in advance, for the purpose of winding up the affairs and
distributing the assets of the company.
2. The liquidator or liquidators shall be entitled to such remuneration by way of percentage of the
amount realized by him or them by disposal of assets or otherwise, as the company in general
meeting may fix having regard to the amount and nature of the work to be done and subject to
the prescribed limits.
Provided that different percentage rates may be fixed for different types of assets and
items.
3. In addition to the remuneration payable under sub-section (2), the company in general meeting
may authorize payment of a monthly allowance to the liquidator for meeting the expenses of the
winding up for a period not exceeding twelve months from the date of the commencement of
winding up.
4. The remuneration fixed as aforesaid shall not be enhanced subsequently but may be reduced by
the Court at any time.
5. If the liquidator resigns, is removed from office or otherwise ceases to hold office before
conclusion of winding up, he shall not be entitled to any remuneration and remuneration already
received by him, if any, shall be refunded by him to the company.
6. On the appointment of a liquidator all the powers of the directors, chief executive and other
officers shall cease, except for the purpose of giving notice of resolution to wind up the company
and appointment of liquidator and filing of consent of liquidator in pursuance of sections 361 and
366 or in so far as the company in general meeting, or the liquidator sanctions the continuance
thereof.
7. 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 and may also
be removed by the Court for reasons to berecorded.1
8. No remuneration shall be payable to a liquidator who fails to complete the winding up
proceedings within the prescribed period.

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PROVISIONS APPLICABLE TO CREDITORS' VOLUNTARY WINDING
UP
Appointment of liquidator (under section 375)
1. The creditors and the company at their respective meetings mentioned in sections 368 and 373
may nominate a person, who has given his written consent to act as such, to be liquidator for the
purpose of winding up the affairs and distributing the assets of the company.
2. If the creditors and company nominate different persons, the person nominated by the creditors
shall be liquidator:
Provided that any director, member or creditor of the company may, within seven days
after the date on which the nomination was made by the creditors, apply to the Court for
an order either directing that the person nominated as liquidator by the company shall be
liquidator instead of or jointly with the person nominated by the creditors, or appointing
some other person to be liquidator instead of the person appointed by the creditors.
3. If no person is nominated by the creditors, the person, if any, nominated by the company shall be
liquidator.
4. If no person is nominated by the company, the person, if any, nominated by the creditors shall be
the liquidator.
5. 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
Question3: Substantial operating losses sustained by Legend Ceramics Limited (LCL) have forced
its directors to proceed for companys voluntary winding up. Accordingly, a general meeting of
LCL was held on July 1, 2010 and Mr. Ateeq was appointed as the Liquidator. In the context of
provisions contained in the Companies Ordinance, 1984 you are required to explain the following:
The steps that Mr. Ateeq should take if the winding up is not completed till June 30, 2011.

GENERAL PROVISIONS AS TO LIQUIDATORS (UNDER SECTION

326 SUB-SECTION 3)
1. The winding up proceedings shall be completed by the official liquidator within a period of one
year from the date of commencement of winding up:
Provided that the Court may, on the application of the official liquidator, grant extension
by one month at any one time but the extensions so granted shall not exceed a period of
six months in all and shall be allowed only for the reason that any proceedings for or
against the company are pending in a Court superior to the Court in which liquidation
proceedings are in progress

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POWERS AND DUTIES OF LIQUIDATOR IN VOLUNTARY WINDING
UP (UNDER SECTION 387 SUBSECTION 5).
1. The winding up proceedings shall be completed by the liquidator within a period of one year
from the date of commencement of winding up:
Provided that the Court may, on the application of the liquidator, grant extension by one
month at any time but such extension shall not exceed a period of six months in all and
shall be allowed only for the reason that any proceedings for or against the company are
pending in a court and the Court shall also have the power to require expeditious disposal
of such proceedings as it could under section 317 if the company was being wound up by
the Court.
(b) Mr. Ateeqs responsibilities as regards final meeting and dissolution of the company.

FINAL MEETING AND DISSOLUTION (UNDER SECTION 370)

1. Subject to the provisions of section 371, as soon as the affairs of the company are fully wound
up, the liquidator shall make up a report and account of the winding up, showing how the winding up has been
conducted and the property of the company has been disposed of and such other
particulars as may be prescribed;
call a general meeting of the company for the purpose of laying the report and account
before it, and giving any explanation thereof.
2. The account referred to in clause (a) of sub-section (1) shall be audited and a copy thereof
together with a copy of the auditor's report and notice of meeting shall be sent by post to each
contributory of the company at least ten days before the meeting required to be held under this
section.
3. The notice of the meeting specifying the time, place and object of the meeting shall also be
published at least ten days before the date of the meeting in the manner specified in sub-section
(1) of section 361 for publication of a notice under that sub-section.
4. Within one week after the meeting, the liquidator shall send to the registrar a copy of his report
and account, and shall make a return to him of the holding of the meeting along with the minutes
of the meeting in the prescribed manner.
5. If a quorum is not present at the meeting, the liquidator shall, in lieu of the return referred to in
sub-section (4), make a return that the meeting was duly summoned and that no quorum was
present thereat, and upon such a return being made within one week after the date fixed for the
meeting along with a copy of his report and account in the prescribed manner, the provisions of
sub-section (4) as to the making of the return shall be deemed to have been complied with.
6. The registrar, on receiving the report and account and either the return mentioned in sub-section
(4) or the return mentioned in sub-section (5), shall, after such scrutiny as he may deem fit,
register them, and on the expiration of three months from such registration, the company shall be
deemed to be dissolved:
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Provided that, if on his scrutiny the registrar considers that the affairs of the company or
the liquidation proceedings have been conducted in a manner prejudicial to its interest or
the interests of its creditors and members or that any actionable irregularity has been
committed, he may take action in accordance with the provisions of this Ordinance:
Provided further that the Court may on the application of the liquidator or of any other
person who appears to the Court to be interested, make an order deferring the date at
which the dissolution of the company is to take effect, for such time as the Court thinks
fit.
7. It shall be the duty of the person on whose application an order of the Court under the foregoing
proviso is made, within fourteen days after the making of the order, to deliver to the registrar a
certified copy of the order for registration, and, if that person fails so to do, he shall be liable to a
fine not exceeding one hundred rupees for every day during which the default continues.
8. If the liquidator fails to comply with any requirements of this section, he shall be publishable
with fine which may extend to five thousand rupees and, in the case of a continuing failure, to a
further fine which may extend to one hundred rupees for every day after the first during which
the failure continues.