Third Test Online Class – Dec 19

1:00 Hour – 33 Marks

CORPORATE LAWS

Q.1 M/s Chand Limited is a family owned business and is running very successfully. In order to
capture the future growth, the management of the Company is interested in getting its
shares listed on the Pakistan Stock Exchange.

As per advice of the Company Secretary, the status of the Company has recently been
changed from private Limited Company to Public Limited company and the number of
Directors has been enhanced to seven, however, the management of the Company sought
your advice on the following matters?

A. What is the minimum %age of the issue size which is required to be underwritten if
the company chooses to charge premium and opt for fixed price method, as
described in the Public Offering Regulations, 2017? (05)

B. What is the minimum Size of Capital which can be offered to public assuming that
existing paid up capital of the Company is Rs. 600 million as prescribed in the Rule
Book of Pakistan Stock Exchange? (05)

C. Explain the Dutch auction method used for discovering price of a security? (05)

Answer:

A:

(2) The public offer under the fixed price method shall be fully underwritten.
(3) An issuer shall issue shares to the general public at the price not higher than the price
at which the shares were issued to investor during the period of six months prior to
the date of public subscription.

B:

In case post-issue paid-up-capital of the company is above Rs.500 million, the

allocation of capital to the General Public, excluding premium amount and Pre-IPO
placement, if any, shall be at least
 Rs.125 million or
 12.5% of the post-issue paid-up-capital, whichever is higher.

Such company, will however, be required to subsequently enhance the quantum

of public shareholding to 25% within next four years of its listing through:

i. Issuance of new shares to public through prospectus; or

ii. Offer for sale of shares held by the promoters to public through prospectus;
or
iii. Sale of shares held by the promoters through the secondary market; or
iv. Sale of shares to employees under the Employees Stock Option Schemes; or
v. Any other method as may be allowed by the Exchange with the approval of
 the Commission.

C:

(xxi) “Dutch Auction Method” means the method through which Strike Price is determined
by arranging all the Bids in descending order based on the Bids Prices along with the number
of shares and the cumulative number of shares bid for. The Strike Price is determined by
lowering the Bid Price to the extent that the total number of securities offered under the
Book Building Portion are subscribed;

Q. 2 Mr. Naseem and his wife are shareholders in Naseem (Private) Limited holding 100% shares
of the Company. Keeping in view the current economic situation of the Country they have
decided to move to Canada. However, as part of closing all matters in Pakistan they have
decided to wind up M/s Naseem (Private) Limited on voluntary basis. You are required to
explain the provisions of the Companies Act, 2017 related to Declaration of Solvency
required in case of voluntary winding up. [06]

Answer:

Declaration of solvency in case of proposal to wind up voluntarily.

(1) Where it is proposed to wind up a company voluntarily, its directors, or in case the
company has more than three directors, the majority of the directors, including the
chief executive, may, at a meeting of the board make a declaration verified by an
affidavit to the effect that they have made a full inquiry into the affairs of the
company, and that having done so, they have formed the opinion that the company
has no debts, or that it will be able to pay all its debts in full from the proceeds of
assets within such period not exceeding one year from the commencement of the
winding up, as may be specified in the declaration.

(2) A declaration made as aforesaid shall have no effect for the purposes of this Act,
unless

(a) it is made within the five weeks immediately preceding the date of the passing
of the resolution for winding up the company and is delivered to the registrar
for registration before that date;

(b) it contains a declaration that the company is not being wound up to defraud
any person or persons; and

(c) it is accompanied by a copy of the report of the auditors of the company,

prepared, so far as the circumstances admit, in accordance with the
provisions of this Act, on the statement of financial position and profit and
loss account of the company for the period commencing from the date up to
which the last such accounts were prepared and ending with the latest
practicable date immediately before the making of the declaration.

(3) Where the company is wound up in pursuance of a resolution passed within

the period of five weeks after the making of the declaration, but its debts are
not paid or provided for in full within the period specified in the declaration;
it shall be presumed, until the contrary is shown, that the director did not
 have reasonable grounds for his opinion.

(4) Any director of a company making a declaration under this section without
having reasonable grounds for the opinion that the company will be able to
pay its debts in full from the proceeds of assets within the period specified in
the declaration shall be liable to penalty of level 3 on the standard scale.

Q. 3 M/s Global Limited is holding 29% shares of M/s Local Limited a listed Company. The
management of Global limited in considering to buy 15% more shares in Local Limited. The
Company Secretary informed that the decision of buying more shares of Local Limited will
attract provision of the Securities Act and the Listed Companies (Substantial Acquisition of
Voting Shares and Takeovers) Regulations, 2017.

Being consultant of the M/s Global Limited, you are required to explain the minimum
number of shares which must be acquired if the shareholding is of Global Limited in M/s
Local Limited exceeding 30%. (08)

Answer

14. Number of voting & shares to be acquired

(1) the acquirer may acquire any number of voting shares through an agreement but
where the acquisition attracts the provisions of section 111 of the Act, the
acquirer shall make a public announcement of offer to acquire at least fifty
percent of the remaining voting shares of the target company.

(2) where the public offer is made conditional upon minimum-level or acceptances,
such minimum level shall not be more than thirty-five percent of the remaining
voting shares.

Illustration: Where the acquirer holds -10 percent voting shares of the target company
and enters into an agreement to acquire another 20 percent voting shares, then such
acquirer shall make a public announcement of offer for fifty percent of the remaining 70
percent voting shares of the target company. In such a case the minimum level of
acceptances for the public offer cannot be more than 24.5 percent which is 35 percent of
the 70 percent offered to be acquired through the public offer.

Q.4 Define the term “Connected Person” as given in the Listed Companies (Prohibition of
Insiders Trading) Guidelines. (04)

(e) "Connected person" means any person who-

(i) is a director, as defined in clause (13) of sub-section (1) of section 2 of the

Companies Ordinance, 1984; or

(ii) occupies the position

 as an officer or an employee of the company or
 holds a position involving a professional or business relationship between
himself and the company and
 who may reasonably be expected to have an access to unpublished price
sensitive information in relation to that company;