CORPORATE LAWS AND PRACTICES

Time allowed: 3:30 hours

Total marks: 100

[N. B.: – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will take
account of the quality of language and of the manner in which the answers are presented. Different parts,
if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) Y Ltd is a subsidiary of Y World Ltd, a German based company incorporated in Bangladesh as
a public company but not listed with any stock exchanges. Currently, all the shareholders of Y
Ltd are non-resident and the shareholding ratio are as follows:

Shareholders % of holdings
Y World Ltd 94%
A Ltd 1%
B Ltd 1%
C Ltd 1%
D Ltd 1%
E Ltd 1%
F Ltd 1%
As part of a global restructuring and to simplify the shareholding structure, Y World Ltd is
considering following two options subject to acceptability as per local law:
1. Option-1: Transfer all shares of Y World Ltd to Z World Ltd, another German based
subsidiary of Y World Ltd and transfer all other shares to another non-resident company
ABC Ltd so as to total number of shareholders will be reduced from 7 to 2
2. Option-2: If Option-1 is not feasible as per local law, transfer only the shares of Y World
Ltd to Z World Ltd
Requirements:
i) Advise, which option Y Ltd should consider retaining the status of the company unchanged
by quoting relevant provision of the law 4
ii) Mention the procedures to be followed for executing transfer of shares from a non-resident
to another non-resident 6
(b) A client of your CA firm is in the process of incorporation of a new Private Limited Company
pursuing the Companies Act 1994 which will be engaged in 100% export oriented PVC Bottle
Manufacturing and Distributions business in Bangladesh. You have the following information
/ notes regarding the understanding among the shareholders which should be considered before
signing and submitting the Memorandum and Articles of Associations with the RJSC.
The sponsors have primarily chosen the following names for their proposed Company from
which majority have chosen the name indicated in (iii) of the below mentioned list subject to
clearance from the Registrar of Joint Stock Companies & Firms (RJSC):
1. “PVC Bottle Manufacturing & Distributions Bangladesh”;
2. “ Friends Polymer Limited”; and
3. “Polymer International”
A total 20 persons have joined together to incorporate the proposed Company under the
leadership of Mr. P, and all of them shall be the shareholders and subscribers to the
Memorandum and Articles of Association. They shall equally subscribe i.e. @ 5% shares in
the paid up capital of the Company. Mr. P is an Engineer having vast experiences in the field
of PVC Bottle manufacturing and currently doing job in a private company as General Manager
(Production). Mr. W is also an Engineer and colleague of Mr. P working as General Manager
(Marketing) who shall join in the proposed Company as Managing Director at a monthly
remuneration of BDT 4,00,000/- along with other benefits for tenure of 10 years. The Company
will issue appointment letter immediately after its incorporation. While resolving the Directors
issue, shareholders opined that the number of directors should be 4 including Chairman for
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 smooth running of the Company and such Mr. P, Q, R & S shall be the directors where Mr. P
shall be acting as the Chairman. Mr. Q is a Chartered Accountant, Mr. R is an MBA, and both
of them are doing jobs in two separate organizations while Mr. S is doing nothing. They have
also decided that Q & R shall leave their current jobs and shall join “PVC Limited” along with
S as full time Director on monthly compensation basis @ TBDT 2,50,000/ plus a full time car.
Mr. P had a view that the even number (i.e. 4) of Directors will create problem to resolve a
decision when opinion is equally divided. Rather it should be odd numbers like 3 or 5 which
will be easier to resolve issue in a Board Meeting by taking majority of opinion.
Your principal have gone through the above and noted some points related to laws which are
significant.
Requirements: As an Audit Senior of the firm, you are required by your principal to comment
on the following points referring to the appropriate legal provisions saved by
the Companies Act 1994:
i) Name Registration. 3
ii) Appointment of Mr. W as Managing Director for a period of 10 years. 3
iii) Salary & Allowances for the Directors 3
iv) Views of Mr. P regarding Even number or Odd number of Board Members. 3
(c) Mention the procedures for Execution of deeds and Authentication of documents as per the
latest amendment brought under Companies Act 1994. What are the key changes in the
amendment in relation to Execution of deeds and Authentication of documents? 6
2. (a) X Ltd is a listed company, listed with both Dhaka and Chittagong Stock Exchanges closed its
book on 30th June 2020 for the fiscal period 2019-20. Accordingly, audit has been completed
and auditor submitted its audit report along with audited financial statements for the said fiscal
period 2019-20 starting from 1st July 2019. As per earlier plan, X Ltd was supposed to conduct
the Annual General Meeting (AGM) and prior to that Board of Directors meeting in September
2020. However, due to Covid-19 since no directors or shareholders will be able to come
physically, X Ltd is wondering how to conduct the Board of Directors meeting and AGM.
Requirement: In view of the above, advise X Ltd alternatives if any including procedures so
that X Ltd can conduct the Board of Directors meeting and AGM in compliance
with the laws/regulations. 4
(b) Being a newly qualified Chartered Accountant, recently you joined ABC Bangladesh Ltd in
Finance team. As part of your responsibility, while reviewing the minutes book of the company,
you have noticed that minutes of the directors meeting held on last 15 th April’20 and
shareholders meeting held on 15th May’20 have not been recorded/written in the minutes book
as those are not yet formally written and signed. Upon further query, you identified, unless a
further meeting is conducted, generally, the minutes are not formally written and signed,
accordingly once a meeting is conducted, recording formal minutes with proper signature
always takes 2 to 4 months time, depending on the circumstances.
Requirement: Advise the management the best practices that it can adopt to have a standard
timeline to record minutes of general meeting and directors meeting in view of
different provisions of laws including Companies Act 1994, Insurance Act, etc. 6
(c) New Corporate Governance Code has been issued by the Bangladesh Securities and Exchange
Commission vides its notification no: BSEC/CMRRCD/2006-158/207/Admin/80 dated 3 June
2018 repealing the earlier notification no: SEC/CMRRCD/2006-158/134/Admin/44 dated 07
August 2012. All conditions or Code shall be imposed on “comply’ basis for the companies
listed with stock exchanges in Bangladesh.
The New Corporate Governance Code has introduced Nomination and Remuneration
Committee (NRC) as a sub-committee of the Board.
Requirement: You are the Company Secretary of a publicly traded company, and you are
required to brief your board why NRC is required / what is its role and what is
its constitution. 10

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3. (a) During the course of audit being an enlisted auditor in a Public Interest Entity, you have
identified certain highly significant irregularities, which have been done purposefully to inflate
the share price of the company artificially. You are wondering, if you report this, you may no
longer be an auditor of this company in the future.
Requirement: Explain your responsibility quoting the Independence you have as an auditor
based on the provisions of Financial Reporting Act 2015 8

(b) ABC Limited. is a private limited company engaged in restaurant business. Its turnover for the
year ended on 30 June 2020 was Tk 6 crore. But due to the on-going COVID-19 pandemic its
turnover has fallen down to Tk 50 lac only during the first 4 months from July to October 2020.
And it is estimated that the total turnover for the year 2020-2021 will be Tk 2.50 crore only. Its
gross assets as on 30 June 2020 were Tk 2 crore, equity Tk 1.50 crore and total liabilities Tk 1
crore.

The authorized capital and paid up capital of the Company are Tk 1 crore and Tk 25 lac
respectively. Its equity of Tk 1.50 crore includes inter alia share money deposit of Tk 25 lac
received by the Company on 25 June 2020. It employs 100 people.

Requirements:
i) Will ABC Limited be considered a public interest entity in the year 2020-2021? Why? 2
ii) Advise the management of the Company about refunding of the share money deposit or
issuing of share capital, considering the Rules/Regulations, if any, issued under the FRA
2015 and the provisions of the Companies Act 1994. 2

4. (a) Recently the regulator of the banking sector, Bangladesh Bank reduced banks' CRR by 100
basis points to 4 percent and slashed the policy or repurchase agreement rate (known as the
repo rate) by 50 basis points to 5.25 percent through the ongoing economic fallout stemming
from the coronavirus pandemic. What is repo rate and cash reserve ratio? What are the key
objectives of Central bank to cut these repo rate and cash reserve ratio (CRR)? 4
(b) What is the difference between a continuous loan and a term loan? 2
(c) What are the time limits for rescheduling of a continuous loan? 6

5. You have been approached by one of your close friends to review a Leaflet, whereby a so-called ‘Hope
Financial Institution’ is offering exceptionally high monthly returns i.e., @ 10%/month on deposits but
they didn’t mention as to how they will generate the revenue to pay such high returns in the form of
interest. Your friend mentioned, a numbers of businessmen in the same arena already gave deposits to
that Hope Financial Institution and your friend being aware that you are conversant in this area,
requested your guidance.
Requirements: While you provide your guidance, highlight following areas: 8
i) How will you ensure that Hope Financial Institution is running a legitimate business?
ii) What Bangladesh Bank will require to be satisfied itself before granting any such license?
iii) What are the business rules regarding acknowledging deposits and restriction on credit
facilities?
iv) Do you think, this offer by Hope Financial Institution is feasible considering the ongoing
market scenario?

6. ABC & Co., Chartered Accountants are the statutory auditor of XYZ Insurance Company Limited
for the year 2020-2021.
(a) Can ABC & Co., Chartered Accountants be appointed to conduct a special audit during the
same period? 2
(b) Who can appoint a special auditor and for what purposes? 4
(c) Who prescribes the fee for a special audit and who pays such fee? 2

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7. Unique Ltd is a public limited company, not listed with any stock exchange, established as an
industrial undertaking in 2015 in FMCG sector. The company posted a profit for the first time in
2019. In view of this, there has been discussions going on as to whether the company needs to
establish a Participation Fund and Welfare Fund as per the Labour Law and therefore 5% of the net
profit are required to be paid to the beneficiaries as per the said law. On this, there is also strong
view that since the accumulated profit of the company is still negative, there is no such requirement
of paying 5% of the net profit to the beneficiaries and establishing funds thereof. The profit and
loss amount since 2015 (before tax) are as follows:

Profit/(Loss) Accumulated Profit/(Loss)

Year
in million Tk. in million Tk.
2015 (500) (500)
2016 (400) (900)
2017 (200) (1,100)
2018 (100) (1,200)
2019 1,050 (150)

Additional information:

1. Apart from shareholder directors, Unique Ltd had total 210 employees as of 31 December
2019. Out of this 210 employees, 10 employees joined on 1June 2019. There were 10 other
employees joined on 1st January 2018, out of that 5 employees left the company on 31st
March 2019 and the other 5 left the company on 31st July 2019.
2. There is an active CBA, whose member were 100, are part of this 210 employees all joined
in 2015. CBA Claims, they are the only beneficiary as per the labour law, hence 5% of the
profit for the year 2019 should be allocated to them only

Requirements:
(a) Advise, based on the provisions of labour laws, whether Unique Ltd will require to pay 5% of
its net profit to profit participation and welfare funds for payment to the beneficiaries of the
company and establish funds thereof based on the result of 2019, although its accumulated
profit is negative 4
(b) If the answer is no explain the reason and an case, the answer is yes, indicate the amount to be
disbursed in 2020 showing the allocation to all different funds as per the labour law. 4
(c) Who is a beneficiary under the labour law? How the eligibility of a beneficiary determines? Do
you agree with the position of CBA? If not, what would be the total number of beneficiaries
for the year 2019 if 5% of the profit is to be paid for the year 2019? 4

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