Concept Paper

for the development and regulation of the corporate sector

CORPORATE LAWS REVIEW COMMISSION

Established by the Securities and Exchange Commission of Pakistan

TABLE OF CONTENTS

1.

Introduction

2.

The Conceptual Approach

3.

Proposed contents of a Core Company Law

4.

A seriatim analysis of the Core Areas A. B. C. D. E. F. G. H. I. J. K. Objectives of the law Classification of Companies Relationship between Companies Formation and Conversion of Companies Raising and Maintenance of Capital Management and Governance Audit, Accounts and Corporate Disclosures Prevention of Oppression & Mismanagement Mergers and Acquisitions Restructuring and Liquidation Regulation and Supervision

8 8 9 10 11 12 13 15 16 18 19 20

5.

Conclusions and Recommendations

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6.

Bibliography

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1. 1.1

Introduction The corporate sector in Pakistan is regulated primarily by The Companies Ordinance, 1984 (Ordinance No. XLVII of 1984) (the Ordinance)1. The Ordinance was promulgated to consolidate and amend the law relating to companies and certain other associations for the purpose of healthy growth of the corporate enterprises, protection of investors and creditors, promotion of investment and development of economy and matters arising out of or connected therewith2. In the twenty one years since the Ordinance was promulgated, the Pakistani economy, particularly the corporate sector, has considerably evolved and expanded. Two significant developments in this regard are (a) the growth of nonbanking finance companies and (b) the introduction of single member companies. The Ordinance has been amended (inter alia in 1991, 1999 and 2002)3 to cater to these and other developments. However, these amendments have been piecemeal and narrowly focused, often resulting in a disconnect or overlap in the provisions of the Ordinance. It is, therefore, necessary to carry out a holistic examination of the Ordinance in order to assess: (a) the relevance of its objectives in the current economic environment; (b) the adequacy of its provisions, not only for the achievement of
Prior to independence, companies were regulated by The Indian Companies Act, 1913 which was a replica of the English Companies (Consolidation) Act, 1908 save certain minor variations. Post independence, Pakistan adopted The Companies Act, 1913 after making certain necessary amendments thereto. In 1959, a Company Law Commission was formed to review The Companies Act, 1913. The Company Law Commission published its report in 1962 and the recommendations made therein culminated in the promulgation of the Companies Ordinance, 1984. The first recital of the Preamble to the Ordinance. Since the promulgation of the Ordinance, first the Corporate Law Authority and then the SECP established several Corporate Law Reform Committees to review and assess the company law regime in Pakistan: In April 1991, a Committee was formed under the Chairmanship of Mian Mumtaz Abdullah, Chairman of the erstwhile Corporate Law Authority (the Review Committee). The Review Committee submitted its report to the Federal Government in 1993. Some of its recommendations were incorporated in the law through an ordinance promulgated by a caretaker government, however, the ordinance lapsed and the recommendations made therein were not placed before the Parliament. In February 1997, a Commission on Corporate Laws was constituted under the Chairmanship of Mr. Justice (Retd.) Shafi ur Rehman. It published its report in the same year. Some of its most important recommendations were incorporated in the Companies (Amendment) Act, 1999. In January 2001, the SECP established a committee to review the Ordinance. The Companies (Amendment) Ordinance, 2002 was promulgated on the basis of this committees recommendations.

1.2

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its avowed objectives, but for the creation and maintenance of a liberal, deregulated and efficient corporate sector; (c) its capacity to allow for the balanced growth of corporate enterprises, particularly small and medium enterprises; and (d) the extent of its harmonization with international best practices. 1.4 To undertake this essential exercise, the Securities and Exchange Commission of Pakistan (the SECP) established the Corporate Laws Review Commission (the CLRC) in November 2005 under the able leadership and guidance of Chief Justice of Pakistan (Retd.) Ajmal Mian and comprising, inter alia, eminent members of the legal, business and accountancy community4, to examine, assess and ultimately amend the Ordinance or to draft a new law for the regulation of the corporate sector, as may be necessary. The exercise is timely and topical: company law is in varying stages of reform in the United Kingdom, Canada, Australia, New Zealand, Malaysia, Hong Kong, Singapore, India and South Africa5. The driving forces behind company law reform, throughout these countries, are much the same: each jurisdiction recognizes the need for stronger corporate governance and seeks to address the implications of globalization and international competition, the rapid growth in the number of shareholders of companies as well as their increased sophistication, the emergence of new industries and the developments in the financial markets and in modern technology. Against this backdrop, the Concept Paper aims to formulate a conceptual framework for the development and regulation of the corporate sector in Pakistan in order to provide direction for the review of the Ordinance and to determine the question of whether the Ordinance needs to be amended or whether a new law needs to be drafted in its stead, in order to best address the views expressed in the Concept Paper. 6

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The CLRC presently comprises Chief Justice of Pakistan (Retd.) Mr. Ajmal Mian, Mr. Hameed Chaudhri, Mr. Razzak Dawood, Ms. Musharaf Hai, Mr. Sohail Hasan, Dr. Tariq Hassan, Mr. Tahsin Khan Iqbal, Mr. Qazi Jamil, Mr. Razi-ur-Rahman Khan, Mr. Rashid I. Malik, Dr. Khalid Ranjha and. Mr. S. Salim Raza. Barrister Amber Darr, Executive Director (Law) at the SECP is the Secretary to the CLRC. The names of Mr. Razi-ur-Rahman Khan and Mr. Rashid I. Malik were added to the CLRC membership by a decision of the SECP dated 30.01.2006. By a further decision of the SECP dated 19.04.2006, the names of Mr. Hafeez Pirzada and Mr. Sikander Jamali, originally in the list of CLRC members, were excluded from the CLRC and Mr. S. Salim Razas name was added thereto. In the post colonial era, the commonwealth countries have not always opted to follow the U.K. company legislation. A case in point is the New Zealand Companies Act 1993 (the NZCA 1993) which largely draws upon North American models. The Concept Paper draws upon the reform measures proposed or undertaken in these countries, wherever relevant. The views expressed and recommendations made in this Concept Paper are those of the members of the CLRC. Although the CLRC Secretariat has taken care to accurately record the views of the members, it accepts full responsibility for any errors and omissions in respect of the same.

2.

The Conceptual Approach

The [Canada Business Corporations Act] had all of the virtues its predecessors lacked. The drafters had a clear conception of what they wanted the new Act to look like and they pursued a series of welldefined and clearly articulated goals. They endorsed a strong dose of enablingism with respect to incorporation procedures and dispensed with formalism where it served no useful purpose. They embraced a principal scheme of corporate governance and combined it with a strong affirmation of non-excludable obligations to which officers and directors were subject. They were conscious of the vulnerability of minority shareholders and sprinkled the Act liberally with substantive and remedial safeguards for their protection. No less important, the Act was drafted in commendably clear language and crisp sentences. The exposure draft was accompanied by a commentary volume clearly explaining the drafters goals and what the various provisions were designed to accomplish.

J. Ziegel, The CBCA Twenty Years Later: Where Do We Go From Here?7

2.1

In recognition of the fact that the primary purpose of any law is to facilitate the public and bearing in mind the current international style of legal drafting, an ideal law for the Pakistani corporate sector may be clear, concise and comprehensible. It is desirable that the law may be a core company law 8 i.e. regulating the entity (irrespective of its corporate structure and size) rather than its activity9 and providing the basic principles governing all aspects of the operation of corporate entities within a single, comprehensive framework.

2.2

Corporations at the Crossroads (Paper presented at the Meredith Lectures, McGill University, Montreal, Canada, 1995) [unpublished], Page 1, quoted in UK DTI Paper: Modern Company Law for a Competitive Economy (August 1998), Page 34. The concept of core company law is borrowed from the New Zealand company law regime. In New Zealand, the first major break with U.K. legislative tradition came in 1978 with the separation of securities law from company law. The Securities Act, 1978 became operational in 1983 and its essential feature was the creation of a distinction between entity-based company law and activity-based securities regulation, a distinction which was very much North American in nature. Such a distinction has most recently been endorsed in India by the Report of the Expert Committee set up to review the Indian company law regime (the Irani Report, May 2005). For example, the incorporation and registration etc. of banking and insurance companies is even presently regulated by the Ordinance, whereas their business is regulated by the Banking Companies Ordinance, 1962 and the Insurance Ordinance, 2000 respectively. An anomaly was created in the Companies Ordinance, 1984 by the insertion of Part VIIIA for the regulation of non banking finance companies and section 42, for the regulation of not for profit companies.

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In keeping with this thinking, only substantive matters setting out defining or enabling provisions may be included in the law. All procedural and quantitative matters may be identified for inclusion in secondary legislation i.e. rules or regulations made in pursuance of powers provided in the law. The law may classify and provide for the regulation of companies in accordance with the following criteria: on the basis of size (i.e. as small companies, medium sized companies and large companies); on the basis of number of members (i.e. as single member companies, private companies and public companies); on the basis of control (i.e. as holding companies, subsidiary companies and associated companies); on the basis of liability (i.e. as companies limited by shares or by guarantee (with or without share capital) and unlimited liability companies) and on the basis of manner of access to capital (i.e. listed and unlisted companies). 10 The law may facilitate the formation of a company and allow for its growth and development and particularly for its smooth and easy conversion from one form to another. The law may address the issue of liquidation of companies, either dealing with it extensively within its own framework or identifying it as a subject matter fit for an independent legislation. The law may promote and endorse a strong framework of corporate governance to effectively balance the interests of the different stakeholders in a company. The law may be made flexible to address new issues and provide for corresponding legal requirements dictated by changes in the economic and corporate environment11. The law may allow companies to move towards a self-regulatory regime in the future. Correspondingly, the law may provide safeguards for members by imposing on the company the requirement to make appropriate corporate disclosures and by prescribing procedures for speedy administration of reasonable and effective sanctions in case of breach of these requirements by the company.

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Such a classification was recommended in the Irani Report [Chapter III: Classification and Registration of Companies, paragraphs 2 and 3]. This echoes the concept of the UK Company Law Reform Bill 2005, the key objective of which was to provide a flexible legal framework to cater for future developments.

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3. 3.1

Proposed contents of a Core Company Law A comparative examination of the Indian Company Law Reform Bill, 2004 (the Indian Reform Bill), the New Zealand Companies Act, 1993 (the NZCA 1993) and the UK Company Law Reform Bill, 2005 (the UK Reform Bill)12 suggests that the following aspects of the life cycle of a company may be subject matter fit for inclusion in a core company law: A. B. C. D. E. The Objectives of the Law Classification of companies The relationship between holding and subsidiary and associated companies The formation and conversion of companies The raising and maintenance of Capital (including the nature and classification of securities; the issuance, conversion, redemption and transfer of securities; rules for authorized and minimum capital; and capital maintenance). Management and governance of a company (including powers, responsibilities, meetings and procedures of Board of Directors; rights of shareholders, their meetings and procedures etc.; and rules for Corporate Governance i.e. internal and external checks and balances). Audit, accounts and corporate disclosures requirements and procedures Prevention of Oppression and mismanagement Mergers and acquisitions Restructuring and liquidation Regulation and supervision (including inspection and investigation, offences and penalties, disputes and adjudication).

F.

G. H. I. J. K.

3.2

The remainder of the Concept Paper examines each of the proposed core areas of company law, evaluating the provisions of the Ordinance in light of feedback received from the stakeholders and the general public and international best practices and in accordance with the conceptual approach outlined in the preceding section.

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By way of assistance to the CLRC, the CLRC Secretariat prepared and presented to the members of the CLRC a comparative table of the Indian Company Law Reform Bill, 2004, The NZCA 1993 and the UK Company Law Reform Bill, 2005. The aspects of a company common to all three have been identified as subject matter fit to be included in a core company law.

4.

A seriatim analysis of the core areas A. Objectives of the law

4.1

The objectives of the Ordinance are: (i) the healthy growth of the corporate enterprises (ii) the protection of investors and creditors (iii) the promotion of investment and (iv) the development of the economy. The objectives of company legislation vary across jurisdictions ranging from the Australian Corporations Act, 2001 which does not specify objectives, to the NZCA 1993 which specifies its objectives in minute detail.13 It is desirable that the Pakistani company law specifies its objectives and that the objectives be not as wide (and therefore, of necessity, vague) as the objectives of the Ordinance, nor be as narrow (and therefore too focused) as the NZCA 1993. A balance may be struck in the following formulation: 14 Whereas it is expedient to reform the law relating to companies [and certain other associations]15 for the purposes of: facilitating the growth of companies [and certain other associations], including small and medium enterprises, and progressive development of companies for achieving social and economic benefits; promoting and enhancing corporate governance for the development of good management and financial practices with a view to protecting investors, especially small investors and minority shareholders, and creditors;

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The objectives of the NZCA 1993 are to: a) reaffirm the value of the company as a means of achieving economic and social benefits; b) provide basic and adaptable requirements for the incorporation, organization and operation of companies; c) define the relationships between companies and their directors, shareholders and creditors; d) encourage the efficient and responsible management of companies; and e) provide straightforward and fair procedures for realising and distributing the assets of insolvent companies. This formulation is based on the formulation proposed by Dr. Tariq Hassan in his letter to the CLRC members dated 24th February 2006, as amended by the members of the CLRC in a full body meeting held in Karachi on 6th May 2006. In terms of section 14 and 42 of the Ordinance, the Ordinance is also applicable to certain associations. The reference to associations has been retained in square brackets as a reminder that the fate of associations must be decided at the drafting stage. If at that stage it is decided that the new law would not be applicable to associations, this reference may be deleted from the objectives clause.

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simplifying and strengthening legal, regulatory and auditing requirements and procedures with a view to ensuring enhanced compliance by companies and effective enforcement by the regulator; and fostering healthy competition among companies and their productive participation in the socio-economic development of the country. B. 4.4 Classification of Companies16

The Ordinance does not differentiate amongst companies on the basis of their size.17 It distinguishes between single member companies18, private and public companies [Sections 2(28) and 2(30) respectively]. The Ordinance also regulates companies whose liability is limited either by shares or by guarantee as well as companies with unlimited liability. The provisions of the Ordinance are also applicable to certain associations [Sections 14 and 42] and in some cases to unregistered companies [Sections 443-449]. India has recommended that the company law may provide for a less onerous regime for smaller companies19 whereas the UK Reform Bill has distinguished amongst small companies, medium sized companies and other companies in respect of accounting disclosures and filing requirements. The laws examined generally provide for public and private companies20. However, while the Indian law limits the number of members of private companies to 50 (as in the Ordinance) there appears to be no restriction on the number of members in the NZCA 1993 or the UK Reform Bill. All jurisdictions provide for limited and unlimited liability and all (save New Zealand) allow members to limit their liability by share or by guarantee. Given the similarities across jurisdictions in this regard, the company law in Pakistan may continue to cater to limited and unlimited companies (liability may be limited by shares or by guarantee or both) and private and public companies (which may be limited by shares or by guarantee or both). It is however, recommended that the cap of 50 members in respect of private companies in Pakistan may be removed and the category of public unlisted companies may be abolished. Further, the concept of single member companies may be clarified
The CLRC Secretariat prepared and presented to the CLRC members a comparative table of classification of companies as provided in the Indian Companies Act, 1956, the NZCA 1993 and the UK Company Law Reform Bill, 2005. Provisions specific to the regulation of small and medium enterprises are provided in the Small and Medium Enterprises Development Authority Ordinance, 2002 (SMEDA 2002). Not specifically defined in the Ordinance. The Irani Report, paragraphs 4.1 and 4.5. The NZCA 1993 does not differentiate between public and private companies.

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within the law. The factors distinguishing between small, medium and large companies (alongwith the benefits and liabilities pertinent to each category) may be elaborated, and the test for determining the category within which the company falls may be prescribed, based on capital turnover, the number of members or the number of employees, as may be relevant. C. 4.7 Relationship between companies21

The Ordinance envisages the following relationships between companies: companies may either be holding or subsidiary companies or associated companies. A company may be deemed to be a holding company of another in the event that it owns or controls more than 50% of its voting shares or has power to appoint more than 50% of its directors [Section 3(1)]. Companies may be deemed to be associated with each other if they are holding and subsidiary companies or if a director of one company is either a director of the other company or holds or controls 20% or more of the shares of the other company [Section 2(2)]. The definitions of holding and subsidiary companies are largely similar across India, New Zealand and the UK. However companies do not become associated or related merely by the presence of one common director on their Boards. The requirements of the Ordinance in this regard may be relaxed and it is recommended that the present law be amended to prevent companies from becoming associated simply on the basis of common directorship. It was further recommended that the UK concept of association by dominant influence may be considered for inclusion in the law. Areas of regulation from the point of view of holding and subsidiary and other associated companies that may be examined are: financial assistance that may be provided by one to the other, the extent of shareholding that one can have in the other, the procedure and requirements for election of directors and investment by one in another. The aim of any such analysis may be to facilitate the formation of groups (another term which although used in the Ordinance has not been defined) in achieving economies of scale. In this regard it is recommended that the practice of filing consolidated accounts may be made optional and companies may file such accounts only if they qualify for exemption or concession under the tax laws. It is further recommended that the formation of groups may be promoted and strengthened: initially public listed and large private companies may be allowed to form groups provided that they are able to turn around the companies they acquire or become associated with, within three years by the introduction of new business or otherwise. Corresponding amendments may be made in the Tax laws to promote the
The CLRC Secretariat had prepared a comparative table of the provisions pertaining to holding and subsidiary companies as provided in the Indian Companies Act, 1956, the NZCA 1993 and the UK Company Law Reform Bill, 2005 for the consideration of the members.

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formation of groups and the law against monopolies may be abolished and competition between companies may be encouraged. D. 4.11 Formation and Conversion of Companies

A company, irrespective of its form, may be incorporated under the Ordinance by the minimum required number of members subscribing their names to a memorandum of association and complying with the registration requirements stipulated in the Ordinance [Section 15]. Companies are traditionally registered with articles of association which set out the regulations for the company, however, this exercise is not mandatory for a company limited by shares [Section 26]. A company that seeks to alter its memorandum of association may do so only (in addition to completing all the internal procedures specified in the Ordinance) after obtaining confirmation of the change from the SECP [Section 21] whereas the articles may be amended by a special resolution of the company [Section 28]. In order to facilitate the public, the reports and white papers published in India, New Zealand and the UK22 have recommended inter alia, the simplification and automation of the procedure of name allotment, particularly that the restrictions on use of particular names may be specified within the law. The requirement for a company to have a constitution has been simplified in New Zealand to state the principal business, whereas in the UK a separate constitution is proposed for public and private companies23. The majority of jurisdictions permit the adoption, alteration and revocation of constitutive documents by the passing of a special resolution, notice of which may be delivered to the Registrar. These policies may be adopted in Pakistan with the caveat that an aggrieved party may file objections before a specified forum, the SECP, within a prescribed time. The Irani Report also recommends a system of e-filing of documents for speedily processing requests for registration and incorporation, minimizing physical interface and potential abuse of discretionary powers by the registering authorities.24 Both New Zealand and India propose an easy exit mechanism for defunct companies. Given the extent of computerisation in Pakistan, a system of e-filing is desirable, however it may be introduced in addition to rather than in lieu of traditional filing. The CLRC is further of the view that an easy exit mechanism, which had been provided to companies in Pakistan, may be enshrined in the law.

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The Irani Report, the New Zealand Law Commission Report and the UK White Paper respectively. The Ordinance contains model regulations for each type of company, however the company may adopt these regulations to the extent it deems desirable. A system of e-filing is already in place in the UK and most likely in New Zealand.

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4.14

The Ordinance allows for the conversion of public companies into private companies and vice versa [Sections 44-46] and re-registration of unlimited companies as limited companies [Sections 109-110]. The procedure outlined in these sections is narrow in its scope, sketchy and heavily SECP dependent. This is in stark contrast with the very clear guidelines for conversion of companies in the UK Reform Bill which provides for private companies becoming public, public companies becoming private, private limited companies becoming unlimited, unlimited private companies becoming limited and public companies becoming private and unlimited, by a simple process of re-registration, which may be allowed after fulfillment of specified requirements [Sections 90-110 of the UK Reform Bill]. It is recommended that measures comparable to those prescribed in the UK Reform Bill may be adopted. There is a strong case for the requirements of incorporation and registration to be streamlined, made more cost effective and less cumbersome. It is also desirable that companies may be allowed to convert themselves into other forms of companies with ease and facility and upon meeting clearly defined requirements. Certainty and transparency in the procedures and requirements for conversion of companies will contribute to greater economic certainty and facilitate companies in adjusting their form to their business. E. Raising and maintenance of capital

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The Ordinance allows a company to raise capital, within the limit of its authorized capital as specified in its memorandum of association, by the issuance of different kinds and classes of shares and instruments of redeemable capital25. A company may only issue fully paid shares [Section 90] and it may alter its share capital provided that new shares rank pari passu with existing shares of the same class. The Ordinance prescribes specific and lengthy procedures for an increase or reduction in share capital, as well as for the transfer of shares. The UK Reform Bill recommended the abolition of the requirement for a company to have an authorised capital for the reason that it merely adds a layer of regulatory complexity to the company and is not a true indicator of the companys legal capital (which is depicted by the paid up capital). It is recommended that the requirement of authorised capital may be abolished for companies incorporated in Pakistan. A number of jurisdictions prescribe minimum capital requirements for companies (where the minimum capital may be linked to the risk factor in the business that the company is engaged in). Prescribing such requirements is likely to serve as a useful guide to companies and reduce arbitrary and ad hoc decisions. It is observed however that prescribing a minimum capital requirement is an
Reference may be made to the Companies (Issue of Capital) Rules, 1996 and the Companies Share Capital (Variation in Rights and Privileges) Rules, 2000.

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administrative matter and may not be stipulated in the law but rather determined by the SECP. 4.19 The concept of par value of shares, although found in most jurisdictions, is of doubtful utility: the par value does not, in any way, indicate the price at which the share is likely to be issued to investors. The concept of par value also raises concerns about issuance of shares at a premium and the application of moneys received thereby and the issuance of shares at a discount and the perceived losses by the company as a consequence. The concept of par value also adds an artificial complexity to the financial statements of a company. South Africa, New Zealand, Australia and Malaysia have moved away from this concept. Despite arguments to the contrary, the concept of par value may be retained in Pakistan given that the market is accustomed to it. It is recommended however that the procedures for issuance of shares at a premium or at a discount may be simplified to facilitate the corporate sector.26 Nearly all jurisdictions are in agreement on the issuance of shares of different classes and kinds as well as the issuance of instruments such as debentures. It is desirable that companies may be allowed a reasonable extent of autonomy in determining the rights attached to its equity and other instruments and the types of internal and external checks and balances that are desirable to protect the interests of investors and mediate their relationship with management. The related rule of capital maintenance is designed for the protection of creditors and justifies prohibitions on share buy-backs, distributions to shareholders out of capital and on financial assistance for share-buy-backs. This is, however, a matter of contract between the creditors and the company and does not raise any issues for consideration in a review of the company law. F. 4.22 Management and Governance

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The Ordinance contains detailed provisions on the management and administration of a company [Part VIII]. The principal issue in this area is the appropriate balance of power between the stakeholders of a company (i.e. shareholders and creditors) on the one hand and its management (i.e. directors) on the other. Directors though fully accountable to the company and therefore to the shareholders, need sufficient flexibility to efficiently and smoothly run the affairs of the company. The provisions pertaining to management may be drafted to streamline the procedures for the election and removal of directors. The powers and duties of the
International research on this area suggests that although there is no overwhelming logical reason to retain the concept of par value in the company law, the system has not been abolished due to its common acceptance throughout the world. In the UK however recommendations have been made time and again that the concept of par value be restricted to ordinary share capital only [The Gedge Committee Report (1954), which formed a part of the Jenkins Committee Report (1962)].

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Board of Directors (the Board) may also be clarified. The regime for election of directors provided in the Ordinance prescribes a proportional representation system and cumulative voting process. In the UK and India, the manner in which directors may be elected is left to be determined by the company in its Articles. In the Pakistani context however, it is recommended that the proportional representation system be retained. 4.24 The most important aspects to be considered in respect of the Board, are (a) the extent of fiduciary duty of the directors and (b) their individual liability for the decisions of the Board. The present provisions in the Ordinance are inadequate in this regard. The UK law provides a two fold test to assess the extent of a directors duty towards the company: the two fold test operates by stipulating an objective standard as a minimum standard of care required of a director (i.e. of a reasonable person in the position of a director), as well as a higher subjective standard which is applied where the director has a particular skill or expertise.27 Additionally, the recommendations28 contained in the Code of Corporate Governance may be considered for inclusion within the law itself. Particularly the law may provide for independent and non-executive directors to be included in the Board to perform its oversight role impartially and objectively29. The UK Law stipulates that directors must act bona fide in what they consider is in the interest of the company.30 This is known as the business judgment rule and is a case law based concept whereby a court will refuse to review the actions of the Board in managing the company unless there is some allegation of conduct that (1) violates (a) the directors duty of care (b) duty of loyalty, or (c) duty of good faith; or (2) that the decisions of the directors lack a rational basis. In effect, the business judgment rule creates a strong presumption in favour of the Board of a company freeing its members from possible liability for decisions that result in harm to the company.31

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4.27 The Australian reform programme has also recommended that a statutory business judgment rule may be introduced, in terms of which an officer of a company will
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DJan of London [1994] 1 B.C.L.C 162 CA The Code of Corporate Governance is applicable only to listed companies and that too by way of inclusion in the Listing Regulations made by the Stock Exchanges. The World Bank has, in an independent study recommended the strengthening of the rules of corporate governance in Pakistan. For the difference between independent and non-executive directors please see page 2 of the Independent Director: Perceptions, Roles and Responsibilities, published by the Malaysian Institute of Corporate Governance and the Malaysian Securities Commission. Re Smith & Fawcett Ltd. [1942] Ch. 304. 306. This approach has is proposed to be codified in terms of section 158 of the UK Company Law Reform Bill.

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be deemed to have met the general law duty of care and diligence in respect of a business judgment made by him if he has exercised his judgment in good faith and for proper purpose, if he does not have a material personal interest in the subject matter of the business judgment, if he informs himself about the subject matter of the business judgment to the extent the officer reasonably believes to be appropriate and rationally believes that the business judgment is in the best interests of the corporation. 4.28 The Canadian and American courts follow similar principles and it is recommended that such an approach may also be adopted in the Pakistani law, not merely for directors but for all officers of the company. In order to introduce greater flexibility in the exercise of directors powers, it is recommended that the exercise of such powers may not be restricted to meetings. The English law does not contain any strictures in this regard, whereas the Indian law32 is far more flexible and allows for the delegation of powers by the Board to individual directors or to directors committees. It is recommended that similar provisions may be included in the Pakistani law. The relaxation of rules for holding meetings may be considered for private companies. The UK Companies Act, 198533, allows for elective resolutions which means that the members of a private company may unanimously elect, by resolution in a general meeting, to dispense with certain requirements of company law (e.g. the holding of Annual General Meetings, the laying of accounts and reports before general meetings and the requirement as to majorities in order to authorize meetings at a short notice)34. This approach is considered desirable in principle, however only small companies (so designated in accordance with prescribed criteria) may be allowed to exercise this option. For all companies the option of passing a resolution by circulation may be prescribed in the Ordinance. G. 4.31 Audits, Accounts and Corporate Disclosures

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The provisions of the Ordinance pertaining to audit [Sections 252-260] and accounts [Sections 230-247] are rudimentary yet cumbersome. This area of company law may be examined with a view to ensuring maximum disclosure of information and therefore transparency. Such disclosures are critical for facilitating a proper assessment of the financial position of companies and their policies and performance, not only by the shareholders but also other stakeholders.
Section 292 of the Indian Companies Act, 1956. Section 379-A of the UK Companies Act. The UK Company Law Reform Bill 2005 seeks to do away with the requirement of unanimity for passing a written resolution (Norton Rose Briefing on the Company Law Reform Bill, December 2005, Page 10).

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4.32

The power of the SECP to penalize companies for offences in relation to books of accounts required to be maintained by companies may be reassessed. The extent of disclosures required to be made by companies may be also be examined: while it may be desirable to increase disclosures to include matters such as a list of policies and manuals, the staff turnover ratio and average increments in salary, it may also be appropriate to relax the requirements for private companies and small and medium enterprises. It is further recommended that all accounts of public companies may be prepared in accordance with International Accounting Standards, in addition to what the SECP may require from these companies. The opinion expressed in a 1997 Consultancy Report on the Review of the Hong Kong Companies Ordinance: The indiscriminate imposition of audited accounts on all companies is unjustified and burdensome may be considered in the Pakistani context for small and medium sized companies35. Strengthening of the internal audit function of companies and empowering the SECP to conduct special audits (in circumstances to be specified in the law) may also be allowed. The UK Reform Bill allows auditors to contractually limit their liability in respect of any negligence, breach of duty or breach of trust occurring in the course of the audit to such amount as is fair and reasonable in all the circumstances of the case having regard to their responsibilities and obligations to the company and the professional standards expected of them36. Shareholders must approve the liability limitation agreement by an ordinary resolution37 which may be effective for only one financial year. This proposal is not considered desirable in the Pakistani context. H. Prevention of Mismanagement and Oppression

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Section 290 of the Ordinance, purports to address the concerns of members who fear mismanagement of the company or consider themselves to be the oppressed minority. In terms of this section, minority shareholders, i.e. having not less than 20% of the paid up capital of the company, who fear that the affairs of the company are being conducted in: (a) an unlawful or fraudulent manner; (b) a
The majority of countries have simplified the procedures for making corporate disclosures: in Australia, companies no longer lodge an annual return but instead follow the annual company review procedure. The Australian Securities & Investments Commission sends each company an extract of particulars and an invoice within 14 days of the anniversary its registration. Companies verify the information contained in the particulars and return it to the Australian Securities & Investments Commission. If the information is incorrect, a company must notify the changes required to be made, within 28 days of the date of issue of the particulars. Norton Rose Briefing on the Company Law Reform Bill, December 2005, Pages 6 and 7. Moreover, private companies may resolve to waive the need for approving a liability limitation agreement.

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manner not provided for in its memorandum; or (c) a manner oppressive to members, may make an application in court seeking redress for their grievances. 4.37 The Indian Companies Act, 195638 provides for an application by minority shareholders to the Board of Company Law Administration, as opposed to the Court39. Further, the following recommendations to protect the interests of minority shareholders have been made in the Irani Report: (a) section 265 of the Indian Companies Act, 1956, whereby a company has an option to adopt proportional representation for the appointment of directors, may be made mandatory to ensure the representation of minority shareholders on the Board of Directors; and (b) derivative actions may be recognized in the company law. Other jurisdictions have included similar statutory safeguards for the protection of the minority shareholder. In Australia and New Zealand for example, statutory derivative action40 may be brought by a shareholder in the name of and on behalf of the company, in the event that there is wrongdoing at the Board level resulting in decisions which are not in the best interests of the company. The NZCA 1993 further allows minority buy out rights [Section 110]41, personal action by any shareholder against a director or the company [Sections 169 and 171 respectively]42; action by a shareholder requiring a director to act [Section 170]43 and representative action [Section 173]44. The law also retains the
Sections 397 and 398: In terms of Section 399 of the Indian Companies Act, 1956, the following members are entitled to make an application under Sections 397 and 398: in the case of a company having a share capital: not less than 100 members of the company or not less than one-tenth of the total number of its members, whichever is less; or any member(s) holding not less than one-tenth of the paid-up capital of the company; and in the case of a company not having a share capital, not less than one-fifth of the total number of its members. However, the Indian Reform Bill has suggested an amendment whereby this petition may instead be presented before the National Company Tribunal. Policy Paper No. 3 on Directors Duties and Corporate Governance issued by the Corporate Law Economic Reform Programme (CLERP) instituted by the Australian Government; Section 165 of the NZCA 1993 In terms of this section minority shareholders may be bought out where they dissent to: (i) the alteration of the companys constitution where it imposes or removes a restriction on the activities of a company; (ii) the approval of a major transaction; and (iii) the approval of an amalgamation of the company under Section 221 of the NZCA 1993. A shareholder or former shareholder may bring an action against a director or the company for breach of a duty owed to him or her as a shareholder. The Court may, on the application of a shareholder of a company, if it is satisfied it is just and equitable to do so, make an order requiring a director of the company to take any action that is required to be taken by the directors under the constitution of the company or this Act or the Financial Reporting Act 1993.

4.38

4.39

38

39

40

41

42

43

17

traditional rights of minorities whereby a shareholder or former shareholder of a company, or any other entitled person, who considers that the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity, may apply to the Court for an order [Section 174]. 4.40 Malaysia recommends the establishing of Minority Shareholder Watchdog Groups to monitor and combat abuses against the minority shareholder45. The first of such watchdog groups was formed in 2000. The Companies Commission of Malaysia has also supported initiatives such as the introduction of a broad injunctive power and a statutory derivative action46. In order to minimize oppression of the minority shareholders, the members agreed that the jurisdiction to hear complaints filed by members of Company against oppression and mismanagement should be with the SECP rather than the High Court. The members further agreed that requirement of minimum share capital holding for making a complaint should be reduced from 20% to 10%. The members also discussed the concept of derivative action by a shareholder. However the members decided that this issue needs to be considered further before any decision may be made in this regard. I. 4.42 Mergers and Acquisitions

4.41

The process of mergers and acquisitions [Sections 284-289: Compromises, Arrangements and Reconstruction] prescribed in the Ordinance, is entirely court driven and even otherwise complicated. Although stakeholders in an agreement (creditors, shareholders) may initiate a compromise amongst themselves, it is not given legal cover and sanction until such time as it is approved by the Court. The complicated and long drawn out process acts as a deterrent for companies for seeking to merge with or acquire the other, which in turn is antithetical to the demands of a growing economy.

44

Where a shareholder of a company brings proceedings against the company or a director, and other shareholders have the same or substantially the same interest in relation to the subject-matter of the proceedings, the Court may appoint that shareholder to represent all or some of the shareholders having the same or substantially the same interest, and may, for that purpose, make such order as it thinks fit. The Malaysian Finance Committee Report on Corporate Governance, page 198 Key Developments in Corporate Law Reform in Malaysia, Janine Pascoe, Paper presented at the Corporate Law Teachers Association Conference, 2005 at the Faculty of Law, University of Sydney.

45 46

18

4.43

In order to promote competitiveness in the economy and to ensure the survival of the fittest (irrespective of size), the possibility of giving legal sanction and therefore effect to contractual mergers may be considered. The schemes of such mergers may be made subject to subsequent approval of shareholders by a special resolution, where an aggrieved party representing 10% or more of the shareholding of the company, may file objections with the SECP. Such a proposal is likely to have a two fold benefit: it would eliminate the present obstructions in the process of mergers while at the same time allowing for an opportunity of ex post facto rectification and therefore protection.47 Areas of concern while examining the process of mergers, reconstructions and arrangements are: the valuation of shares48 (in this regard, it is recommended that the SECP may be empowered to prescribe the approved methods of valuation; any challenge to the valuation may also lie to the SECP); registration of schemes of merger49; the method and process of obtaining approval of the scheme by shareholders; and protection of minority interests50. Consideration may be further given to any special provisions which may be applicable to the merger of a listed company with an unlisted company and vice versa, the merger of a class of companies and cross border mergers. The provisions of the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 may be examined to ensure their compatibility with these proposals. J. Restructuring and Liquidation

4.44

4.45

Liquidation or winding up is no longer the only option available for insolvent companies. There is a discernable international trend in various jurisdictions towards corporate rescue mechanism as part and parcel of the corporate insolvency regime.51

47

Proposed by the Irani Report, page 93 para 5 The Irani Report recommends that the valuation of shares of a company be made mandatory and be carried out by independent registered valuers, rather than by court appointed valuers. The law should lay out the exceptions, if any, to the mandatory valuation requirements. Valuation standards may also be developed in line with International Valuation Standards issued by the International Valuation Committee. The process and mechanism of valuation should be transparent and an aggrieved party should have the opportunity to challenge the same in court. It should be enough for a scheme of merger to be effective if a company files the scheme with the Registrar of companies. (Irani Report page 95, para 13). While protection of minority interests should be recognized under law, only shareholders/creditors having significant stake at a level prescribed under law should have the right to object to any scheme of merger. This is desirable to limit a obstructionist attitude often displayed by the minority. (Irani Report page 97, para 19). Reforming the Corporate Insolvency Regime, published by the Corporate Law Reform Committee of the Companies Commission of Malaysia. http://www.ssm.com.my/clrc/clrc.html.

48

49

50

51

19

4.46

The process of winding up or liquidation provided under the Ordinance is cumbersome, time consuming, duplicative and archaic. It may therefore be reviewed for simplification and expeditious disposal of cases. Given the breadth of this topic, it may also be examined as a subject matter fit for an independent legislation52. The revival of so-called sick companies has been reviewed in the context of the draft Corporate Rehabilitation Act, prepared by the State Bank of Pakistans Banking Law Review Commission, the provisions of which may be reviewed in this regard. It is recommended that both the revival of sick companies and the liquidation of companies may be included in the company law. Committees on company law reform established in India53 and Malaysia have emphasized the importance of the area of winding up for detailed review. The Companies Commission of Malaysia has identified the general objectives of any good corporate insolvency law which may substantially adopted in the Pakistani context.54 K. Regulation and Supervision

4.47

4.48

Offences under the Ordinance are spread throughout the Ordinance and the penalties prescribed for these offences are often not commensurate with the enormity of the offence. In the NZCA 1993, the offences and penalties are all consolidated in Part 21 (appropriately cross referred to the provisions of law that these pertain to). This arrangement helps in clarity and ease of reference. A similar approach may be considered for the Pakistani law. Penalties may also be rationalised according to the severity of the offence. The Irani Report also recommends a system of self

4.49

52

Both India and Hong Kong deal with corporate insolvency under an independent legislation. As provided in the Irani Report (May 2005). These objectives are stated in the Paper by the Secretariat to the Malaysian Corporate Law Reform Committee titled Reforming the Corporate Insolvency Regime: (a) The facilitation of the rescue of companies which are in financial difficulties; (b) The suspension of legal actions by individual creditors through the creation of a moratorium; (c) The removal of powers of management of the company by its directors, even if directors retain their powers as directors; (d) The avoidance of transfers and transactions which unfairly prejudice creditors; (e) Ensuring that there is an orderly distribution of the companys assets; (f) The provision of a fair system for the ranking of claims against the company; (g) Provisions for the investigation of the companys failures and the imposition of liability in respect of those responsible for the failure; (h) The protection of the public from directors who might engage in improper trading in the future; (i) Maintaining ethical standards and competence of insolvency practitioners; and (j) The dissolution of the company at the end of the liquidation process.

53

54

20

regulation for companies, with penalties to follow if the system fails to deliver.55 A similar approach is recommended for the Pakistani law. 4.50 Investigations may be carried out under the Ordinance primarily in pursuance of sections 263 and 265. The provisions relating to investigation may be examined to be more effective and less cumbersome. The offences in relation to which investigations may be carried out may be specified. Under the Ordinance [Section 7] the High Court of a province where the registered office of a company is situated has jurisdiction in respect of matters arising out of the Ordinance.56 Each High Court is to constitute one or more company benches to exercise its jurisdiction in respect of company matters [Section 8] and to deliver its judgments as expeditiously as possible but not later than 90 days from the date of presentation of the petition [Section 9]. Despite the aforesaid provisions of the Ordinance, company matters remain pending in court long after the prescribed ninety (90) day period, due to the fact that the practise of forming company benches has not been uniformly and consistently followed, there is a lack of technical expertise amongst the judges and the overwhelming backlog of cases endemic in the system. In India, The Companies (Second Amendment) Act 2002 tackles these issues by instituting the National Company Law Tribunals and the National Company Law Appellate Tribunal. The Tribunals consist of a President and a number of judicial and technical members, where the technical members may be persons of ability, integrity and standing having special knowledge and relevant professional experience of not less than twenty years57. The formation of Tribunals similar to the aforementioned Indian Tribunals is not desirable in the Pakistani context as it is only likely to further devolve the decision making in respect of company matters, which are often too complex even for Judges of the High Court. In order to expedite the decision making process, High Courts may be urged to form company benches as prescribed, on the one hand, and the powers of the SECP vis--vis the High Courts, as provided in the Ordinance, be assessed on the other hand. It is recommended that a balance may be struck in the powers of the SECP and the High Court in order to ensure that only more complex matters be referred to the High Court. The Ordinance pays merely lip service to alternative methods of dispute resolution (ADR). In the UK, referral to arbitration is still a voluntary exercise
The Irani Report, Chapter XII, paragraph 2. Reference may be made to s. 476(4) in terms of which a court not inferior to a sessions court has jurisdiction to try criminal offences specified in the Ordinance. Section 10FD (3) (f) of the Indian Companies Act 1956.

4.51

4.52

4.53

4.54

4.55

55

56

57

21

however advisers are required to consider every case for its ADR suitability. Methods of alternative dispute resolution are well developed in countries such as Singapore (which has made considerable progress in developing the use of these methods to resolve disputes in various areas, from commercial to family law58), Australia and South Africa. 4.56 The distinction between these countries and Pakistan lies in the well developed regime for regulating and offering alternative dispute resolution methods to the public. In the Pakistani context, where the regulatory regime is inadequate and centers of professional training have not yet been formed, compulsory reference to ADR is not desirable. However, the option may be given to parties to commercial disputes, whilst at the same time, attention may be paid to developing the necessary ADR infrastructure.

58

Australia has the Courts (Mediation and Arbitration) Act 1991 whereas in addition to the enabling legislation (the International Arbitration Act), Singapore also has the Singapore International Arbitration Centre which was established in 1991. In 1997, the Singapore Mediation Centre was launched to offer parties involved in commercial disputes the alternative of using mediation to reach an amicable and efficient settlement.

22

5. 5.1

Conclusions and Recommendations The aim of the Concept Paper is to formulate a conceptual framework for the development and regulation of the corporate sector in Pakistan in order to provide direction for the review of the Ordinance and to determine whether the Ordinance needs to be amended or whether a new law needs to be drafted in its stead in order to best address the views expressed in the Concept Paper. The members agree that the following conceptual approach may be adopted in reviewing the Ordinance: (a) the law may be clear, concise and comprehensible; (b) the law may be certain yet flexible; (c) the law may be a core company law, regulating all aspects of the entity rather than the activity and only substantive matters may be included in the law, whereas procedural matters may be identified for inclusion in secondary legislation; (d) the law may classify companies on the basis of size, number of members, control, nature of liability and the manner of access to capital; (e) the law may facilitate the formation and conversion of companies; (f) the law may promote a framework of strong corporate governance; (g) the law may streamline the procedure for the liquidation of companies; and (h) the law may allow for self regulation of companies in the future, while providing adequate safeguards for the protection of shareholders and other stakeholders. A comparative examination of the India Reform Bill, the NZCA 1993 and the UK Reform Bill, suggests that the following subjects may be included in a core company law: (a) Objectives of the Law; (b) Classification of Companies; (c) The relationships amongst holding, subsidiary and associated companies; (d) The formation and conversion of companies; (e) The raising and maintenance of capital by companies; (f) Management and governance of a company; (g) The requirement and procedure for the Audit of Accounts and Corporate Disclosures; (h) Provisions for the prevention of oppression and mismanagement; (i) Mergers and Acquisitions; (j) Restructuring and Liquidation; and (k) Regulation and Supervision. Each of the aforementioned areas has been examined in depth and the provisions of the Ordinance have been evaluated in light of international standards and best practices, comments received from the public in writing and through oral representations, and in accordance with the conceptual approach referred to in 5.2 23

5.2

5.3

above. The recommendations made in respect of each of these heads are summarized below. A. 5.4. Objectives of the Law

It is recommended that the objectives of the law may be expressly and concisely stated in the law (for the proposed formulation, see 4.3 supra). B. Classification of Companies

5.5

The Pakistan company law may continue to classify companies as public (whether with limited or unlimited liability) and private. However, the cap of 50 members in respect of private companies may be removed and the category of public unlisted companies may be abolished. The factors distinguishing small, medium and large companies may be provided in the law and the test for determining the category within which a company falls (see 4.6 supra) may also be specified. C. Relationship between Companies

5.6

This area has been given special consideration by the CLRC. It is strongly recommended that the formation of groups of companies may be encouraged and corresponding changes be made in tax laws (by way of providing incentives) and in the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970 to facilitate such groups. It is further recommended that companies may not be considered as associated with each other simply by virtue of a single common director and instead the UK model of dominant influence be adopted (see 4.8 and 4.10 supra). D. Formation and Conversion of Companies

5.7

It is recommended that the administrative procedures for the formation of a company may be streamlined and simplified (see 4.12 supra) and e-filing be allowed in addition to traditional filing. Any party aggrieved in this regard, may file objections with the SECP within a specified period. It is further recommended that companies may be allowed to convert from one form to another with minimum procedural requirements and the method prescribed in the UK Reform Bill may be adopted in this regard (see 4.14 supra). E. Raising and Maintenance of Capital

5.8

In this regard it is recommended that the requirement of authorized capital may be abolished (see 4.17 supra). However, the CLRC has refrained from prescribing minimum capital requirements for different sectors and left the matter to be decided by the SECP. Although the CLRC recognizes the objections to the concept of par value, raised particularly in the Jenkins Committee Report 1964, it 24

recommends that the concept may be retained given its universal acceptance. However, the procedures for issuance of shares at a premium or at a discount may be streamlined in order to facilitate the corporate sector (see 4.19 supra). The CLRC further recommends that companies may be allowed reasonable autonomy in determining the rights attached to their equity and other instruments and putting into place the necessary checks and balances (see 4.20 supra). F. 5.9 Management and Governance

The most significant recommendation in this area is the incorporation of the concept of directors fiduciary duty as well as the business judgment rule, which would allow directors to enjoy immunity from court intervention in respect of decisions which they have taken in the best interests of the company (see 4.23 to 4.27 supra). In order to introduce greater flexibility in the exercise of directors powers, it is further recommended that the application of this rule may be extended to the exercise of directors powers beyond their meetings (i.e. in committees of directors, etc.) (see 4.29 supra). In addition, small companies (selected or identified according to a criteria prescribed in law) may be allowed to determine matters through elective resolutions" (see 4.30 supra). G. Audits, Accounts and Corporate Disclosures

5.10

In this regard the CLRC recommends that the power of the SECP to penalize companies for offences in relation to books of accounts may be reassessed. The requirements of disclosures may be amended to be made more meaningful for public companies (see 4.32 supra), whereas they may be relaxed for private and small companies. It is further recommended that accounts of all listed and unlisted companies may be prepared according to International Accounting Standards, whereas the SECP may have the power to stipulate any additional requirements. The SECP may also be empowered to conduct a special audit of companies in special specified circumstances (see 4.34 supra). H. Prevention of Mismanagement and Oppression

5.11

In order to minimize oppression of the minority shareholders, the CLRC recommends that the jurisdiction to hear complaints filed by members of a Company against oppression and mismanagement should be with the SECP rather than the High Court. The members further recommend that requirement of minimum share capital holding for making a complaint should be reduced from 20% to 10%. The members also discussed the concept of derivative action by a shareholder. However the members decided that this issue needs to be considered further before any decision may be made in this regard. (see 4.37 to 4.41 supra).

25

I. 5.12

Mergers and Acquisitions

The CLRC is of the considered view that the facilitation of mergers and acquisitions is instrumental in enabling groups of companies to form and for business to achieve economics of scale. The CLRC therefore recommends that contractual mergers may be allowed subject to the subsequent approval of shareholders (by special resolution) (see 4.43 supra). Any aggrieved party may file his or her objections before the SECP within a specified time. It is further recommended that acceptable methods of valuation may be identified and aggrieved parties may be given an opportunity to approach the SECP in this regard as well. (see 4.34 supra). J. Restructuring and Liquidation

5.13

The CLRC places equal emphasis on rehabilitation of companies as it does on their speedy winding up and recommends that both subjects may be included in the core company law. The CLRC further recommends that the procedures for winding up may be streamlined, simplified and made more expeditious and may be redrafted in accordance with the general objectives identified by the Companies Commission of Malaysia (see 4.47 and footnote 54 supra) K. Regulation and supervision

5.14 In respect of offences, the CLRC endorses the recommendation of the Irani Report whereby companies may adopt a system of self regulation with penalties to follow if the system fails to deliver (see 4.49 supra). The CLRC further endorses the recommendation that offences in relation to which investigations may be carried out may be specified in the law (see 4.50 supra). The CLRC does not favour the formation of special tribunals to hear company matters. Rather, it recommends that a balance may be struck between the powers of the SECP and the High Court in order to ensure that only the more complex matters are referred to the High Court (see 4.54 supra). The CLRC also recognizes and endorses the usefulness of ADR methods for dispute resolution (see 4.54 supra).

18th May 2006 Corporate Laws Review Commission Islamabad

26

BIBLIOGRAPHY
I. United Kingdom References (a) (b) (c) (d) (e) Company Law Reform Bill 2005; The Gedge Committee Report (1954); The Jenkins Committee Report (1962); DTI White Paper: Company Law Reform (March 2005); DTI White Paper: Modern Company Law for a Competitive Economy (August 1998); Norton Rose: Briefing on the Company Law Reform Bill, 2005 (December 2005); Simmons and Simmons Newsletter: Company Law Reform: Latest Developments (August 2005); Article from The Times: Red Tape Reform Could Lower Standards (18th March, 2005); Faegre & Benson: The Company Law Reform Bill (28th November, 2005); and Deloitte Response to Company Law Reform Bill (7th November, 2005).

(f)

(g)

(h)

(i)

(j)

II.

Indian References (a) (b) Indian Companies Act 1956; Expert Committee on Company Law: The Irani Report on Company Law (May 2005); Ministry of Company Affairs: Concept Paper on Company Law (4th August, 2004); Article from The Hindu: A Strong Conceptual Basis for Company Law Reform (13th June, 2005); and Article from The Hindu Business Line: Is There Need For A New Company Law? (21st June, 2005). 27

(c)

(d)

(e)

III.

Australian References (a) (b) Australian Courts (Mediation and Arbitration) Act 1991; Discussion papers published by the Australian Governments Corporations and Markets Advisory Committee: (i) Corporate Duties Below Board Level (May 2005); (ii) Personal Liability for Corporate Fault (May 2005); and (iii) Corporate Social Responsibility (November 2005); Materials pertaining to the Corporate Law Economic Reform Programme initiated in March 1997: (i) Overview by The Honble Justice I.D.F. Callinan of the High Court of Australia (Speech on 26th October 1998 at the Corporations Law Update Conference); (ii) Extracts on the Corporate Law Economic Reform Programme; and (iii) Paper No 3: Directors Duties and Corporate Governance; Centre for Corporate Law and Securities Regulation, University of Melbourne: A Better Framework Reforming Not-For-Profit Regulation (2004) by Susan Woodward and Shelley Marshall.

(c)

(d)

IV.

New Zealand References (a) (b) (c) Companies Act, 1993; Financial Reporting Act, 1993; and Report No. 16 of the Law Commission: Company Law Reform: Transition and Revision.

V.

Malaysian References (a) Corporate Law Reform Committee, Companies Commission of Malaysia: (i) An Insight into Corporate Law Reform in Malaysia; (ii) Reform Trends in Directors Duties; (iii) Reviewing the Traditional Concepts that Underlie the Workings of Capital Raising; and (iv) Reforming the Corporate Insolvency Regime; The Malaysian Finance Committee Report on Corporate Governance (March 1999);

(b)

28

(c)

Department of Business Law & Taxation, Monash University, Australia: Key Developments in Corporate Law Reform in Malaysia by Janine Pascoe (prepared for the Corporate Law Teachers Association Conference 2005: Regulating Conflicts of Interest in Contemporary Corporate Law 6th- 8th February, 2005); and Article from Star Business: Complete Review of Companies Act (13th December, 2002).

(d)

VI.

Hong Kong References (a) Standing Committee on Company Law Reform, Companies Registry: Review of the Hong Kong Companies Ordinance (March 1997); Standing Committee on Company Law Reform: The Twenty First Annual Report (2004/2005).

(b)

VII.

South African References Department of Trade & Industry: Paper on South African Company Law for the 21st Century: Guidelines for Corporate Law Reform, May 2004.

VIII. Ordinances, Acts, etc. of Pakistan (a) Small and Medium Enterprises Development Authority Ordinance, 2002; and Draft Corporate Rehabilitation Act, 2005.

(b) IX.

Reports of previous Company Law Review Commissions/Committees established within Pakistan (a) (b) Working Paper of the 2001 Committee on Corporate Law Reform; Report of the Commission on Corporate Laws (established on February 1997) headed by Justice (Rtd.) Shafi-ur-Rehman; A Summary of the Recommendations of the Abdullah Committee (established April 1991) submitted to the Finance Division on June 1993; and 1961 Report of the Company Law Commission of Pakistan.

(c)

(d)

29

X.

Discussion Papers and Research undertaken by the CLRC Secretariat (a) A table comparing the provisions of the Companies Ordinance, 1984 with the Indian Companies Act, 1956; A compilation of issues pertaining to the company law arising in legal opinions addressed within the Commission; A compilation of all comments received in the respect of the current review of the company law by the CLRC, from stakeholders and the general public; A table comparing insolvency provisions of the draft Corporate Rehabilitation Act and the Companies Ordinance, 1984; Mapping of sections of the Companies Ordinance, 1984 as categorized under the Concept Paper; Research on Alternative Dispute Resolution in various jurisdictions; Research on the capital structure in various jurisdictions; Research on classification of companies in various jurisdictions; Research on core company law components in various jurisdictions; Research on directors duties in reference to the Canada Business Rule; Research on the formation and conversion of companies in various jurisdictions; Research on holding and subsidiary companies in various jurisdictions; Research on the treatment of accounts for holding and subsidiary companies in various jurisdictions; Research on the protection of, and benefits accorded to, minority shareholders in various jurisdictions; and Research on par-value shares with reference to the U.K. Jenkins Committee Report 1962.

(b)

(c)

(d)

(e)

(f) (g) (h) (i) (j) (k)

(l) (m)

(n)

(o)

30