Aclp PP

2023
L ADVANCED
CORPORATE
P LAWS
&
PRACTICES
ICAP ATTEMPTWISE
PAST PAPERS
INCLUDING SUGGESTED ANSWERS,
EXAMINER COMMENTS AND MARKING PLAN
(UPDATED TILL WINTER-2022 ATTEMPT)
By the Grace of Almighty Allah, I am pleased to present the

attemptwise questions of ADVANCED CORPORATE LAWS
AND PRACTIICES (ACLP) also known as CFAP-02.
Shaan Rehman
INTRODUCTION
The Directorate of Education and Training is continually endeavoring to assist the students of
Chartered Accountancy to prepare for their examinations through high quality study material and
suggested answers of past ICAP examinations.
The suggested answers are prepared on the principle of hints to answers, rather than detailed
theory and description and are based on International Standards and laws applicable at that time.
The answers are not updated subsequently for any changes in law.
We hope that the students will make the most of these suggested answers and use it as a study aid.
Users are encouraged to provide their feedback to the Directorate to enhance the quality of the
answers. The Directorate may, however, not be able to respond to individual queries from users.
ICAP
Disclaimer
The suggested answers to examination questions have been developed by the Directorate of Education
and Training of ICAP based on standards, laws, rules, regulations, theories and practice as applicable on
the date of examination, except as stated otherwise. These answers are not meant to provide the
assessment criteria against the particular examination questions. The purpose of these suggested answers
is only to guide the students in their future studies for ICAP’s examinations, without seeking to suggest a
solution for the present incumbents, in any way. However, there are alternative solution(s) to the
questions which are also considered by the Examination Department while marking the answer scripts.
Although reasonable care has been taken to ensure correctness in the preparation of these answers, the
Directorate does not take responsibility for any deviation of views, opinion or answers suggested by any
other person or persons. Similarly, the Council of the Institute of Chartered Accountants of Pakistan
assumes no responsibility for the errors or omissions in the suggested answers. Nevertheless, if any error
or omission is noticed, it should be brought to the notice of the Senior Director Education and Training for
information.
If you are not the intended addressee, you are notified that dissemination, copying, distributing,
commenting or printing of these answers is strictly prohibited.
ICAP
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN
PROFESSIONAL EXAMINATIONS SUMMER 2001
June 09, 2001
CORPORATE LAWS AND SECRETARIAL PRACTICES (M ARKS 100)

PE-1 (PAPER-4) (3 HOURS)
Q.(a) A public listed company A is merging into a private limited company B.

List the key corporate and secretarial steps that would have to be taken in this regard.
Since A is a public listed company, what additional legal issues would need to be
tackled? (10)
(b) List the general nature of penalties, imposed by the Companies Ordinance, 1984 on
late filing of various documents, non-compliance, violations etc.
What are the provisions for acceptance of documents presented after the prescribed
time? (07)
Q.2 Write short note on the following:
a) Transmission of Shares. (02)
b) Doctrine of ‘ultra vires’ in relation to companies. (04)
c) Impact of Central Depository Company on rights of members to receive

notices of meetings and cast votes. (03)
d) Venture Capital Company (02)
Q.3 (a) A local group has entered into a joint venture [JV] agreement with a foreign investor
for manufacturing spare parts for automobiles. The joint venture agreement provided
that the foreign JV partner holding 51% of the equity would appoint the Chief
Executive for the first three years and the local sponsors [holding the remaining 49%]
would appoint its own nominee in the subsequent three years’ period. Discuss the
legal validity of the above clause in context of the provisions of the Companies
Ordinance, 1984. In the event of a dispute state whether the provisions of the JV
agreement would hold.
(07)
(b) In order to prove his/her identity, what documents should the following bring to
attend a meeting of shareholders:
i) Proxy of a normal share holder
ii) Representative of a corporate member
ii) Proxy of a CDC account holder
iv) Member of a professional institute (08)

(2)
Q.4(a) You are a Company Secretary of a public listed company which has just announced a
dividend and the date of its next Annual General Meeting (AGM). Prepare a checklist to
ensure smooth holding of AGM by covering all legal requirements. (06)
(b) What do you understand by the word proxy in the context of general meetings of a
company?
How is a proxy appointed and what role can he play in the general meeting? (04)
Q.5(a) At an annual general meeting of a public unlisted company on the declaration of results of
an important resolution, some minority shareholders objected to the authenticity of the vote
count. What rights the minority shareholders have in this situation? (08)
(b) Under the Securities and Exchange Ordinance 1969, who is an insider? (03)
Q.6(a) Describe requirements for investment in an associated company under Section 208 of the
Companies Ordinance 1984 for a public listed company. (06)
(b) Also prepare a Statement under section 160 (b) of the Companies Ordinance 1984 to be
sent to shareholders of a public listed company with respect to (a) above, assuming
necessary data in this connection. (Drafting of the resolution is not required) (04)
Q.7 A listed multinational company having authorized share capital of Rs.100 million, divided
in 10 million ordinary shares of Rs.10/- each, 75% of which is paid up. The company has
Sales of Rs.1 billion. The company has declared a cash dividend of 40% and stock dividend
10%. The non-resident parent company of USA holds 80% of the share capital. The
company’s EPS is Rs.8.00. The inter bank buying rate is Rs.59.50 and selling is Rs.60.00
against a US dollar. The open market rate is Rs.63 per US dollar. Please answer the
following in the given back ground:
(a) Company has to remit the dividend to its parent company. What legal compliance
company has to ensure before effecting the payment? What is the actual amount of
remittance in Pak rupees? (05)
(b) The parent company has asked its subsidiary to send the Share certificates of stock
dividend. How these certificates can be ‘exported’? (04)
Q.8(a) Explain the provisions of the Companies (Issue of Capital) Rules, 1996, related to the issue
of right shares by a public listed company. (05)
(b) State the provisions of the Banking Companies Ordinance 1962 regarding the
filing/submission of annual accounts. ` (03)
Q.9(a) Write a short note on your understanding of the role and function of the Securities and
Exchange Commission of Pakistan and its key differences from the former Corporate Law
Authority. (03)
(b) An insurance company incorporated in the UK has set up a public unlisted general
insurance company in Pakistan. It has decided to outsource the internal audit function of
this new company to a firm of chartered accountants, which is other than its statutory
auditors. In view of the outsourcing of its internal audit function, the management has
concluded that, apart from statutory auditors, there will not be any other interaction with
auditors. Discuss. (06)
(THE END)
PROFESSIONAL EXAMINATIONS WINTER 2001
December 06, 2001
CORPORATE LAWS & SECRETARIAL PRACTICES (M ARKS 100)

PE-1 (PAPER-4) (3 HOURS)
Q.1 Write short notes on the following to reflect your understanding of the Company law provisions
and principles:
(a) Restriction on investment in associated company. (03)

(b) Eligibility criteria for a Chairman of Board of Directors. (03)
(c) Rights of shareholder holding 10% for carrying out an investigation into a
Company’s affairs. (05)
(d) Rights of members holding 20% voting rights in case of mismanagement and
oppression of minority shareholders (05)
Q.2(a) The following are the items for which a listed company is proposing to seek approval from the
members at its second annual general meeting.
The items on agenda include approval of annual accounts for the year ended 31 December 2001,
final dividend, capital expenditure upto Rs 100,000, appointment of chief financial officer, auditors,
increase in authorized capital, and approval for investment in associated company.
i) Which items the members need not approve? State the requisite approving authority? (05)
ii) State how the above items should be categorized -- ordinary or special business. (03)
iii) State two other important constituents of the notice to be sent to the shareholders. (02)
Q.3 Prepare a checklist of corporate secretarial events that give rise to filing of documents during
the financial year of a public listed company which is also planning to amend its articles
and memorandum. Also state the time frame within which these documents if any have to be
filed. (08)
Q.4 At a company’s Board of Directors meeting the Finance Director presented the financial position of
the company for the half-year ended 30 June 2001. The equity was eroded by 2 times the paid up
capital and the lenders were contemplating filing suit for recovery, as the company was unable to
pay its debts. The Directors are thinking of a members’ voluntary winding up. Discuss the viability
of the option thought of by the Directors. (08)
Q.5 A Board of Directors of a multinational has to meet in February to approve the annual accounts for
the year ended 31 December 2001. The expatriate directors representing 60% of the Board will not
be able to attend due to travel restrictions. Assuming the meeting cannot be postponed, what
alternatives are available? (04)
Q.6(a) For engaging in certain business activities e.g. leasing, credit rating, banking, before incorporation
of the company certain specialized corporate formalities under the underlying respective
statutes/rules for these businesses are required to be complied with.
Briefly explain the general nature of these pre-requisites for incorporation. Under which law would
the Registrar issue the certificate of incorporation of such companies? (04)
(2)
(b) Describe the manner and the business that an investment company can undertake under the
Investment Companies and Investment Advisers Rules 1971?
How would you compare an investment company with an investment bank as regards its business
activities?
Which other institutions are similar in concept to investment companies? (05)
(c) What are the requirements under issue of capital rules for issue of shares for consideration
other than cash? (03)
Q.7(a) In the first meeting of Board of Directors of Messrs. Lee Sugar Ltd., Mr Gee proposed the name of
Mr Dee for appointment as chief executive of the Company. Mr Aey opposed the proposal saying
that Mr Dee is already a Chief Executive in Messrs. Hee Sugar (Private) Limited and, therefore, can
not be appointed here as such. Comment on the statement of Mr Aey in the light of provisions of the
Company Ordinance, 1984. (02)
(b) A company having seven elected and two nominee directors wanted to appoint an employee of the
Company, Mr Kay, as Chief Executive of the Company and is desirous to know the answer to the
following before making the appointment:
i. Status of Mr Kay if appointed as the chief executive, viz a viz other directors.
ii. Minimum number of shares to be acquired by Mr Kay to become Chief Executive.
iii. Tenure of office for which Mr Kay may be appointed as Chief Executive.
iv. How Mr Kay may be removed?
v. Will it be necessary to obtain members approval for the terms and conditions of
Mr Kays’ appointment? (06)
Q.8 List the contents of Directors’ Report. Who should sign the Report? (05)
Q.9 May an employees’ provident fund make investment in shares or other securities of the company. If
so then in what type of company and in what securities and subject to what conditions such
investment is allowed? (08)
Q.10(a) What businesses are prohibited for a leasing company? What should be the minimum lease
period? (03)
(b) What portion of a leasing company’s funds should be invested in leasing business? What portion of
overall lease portfolio may be exposed to a single group? (02)
Q.11 Can a company be voluntarily de-listed from the stock exchange(s). If so what is the procedure to be
followed by the company for de-listing under the listing regulations of stock exchanges? (10)
Q.12(a) Briefly describe the foreign exchange regulations relating to rupee borrowing for capital
expenditure purposes by foreign controlled companies. (03)
(b) “Once a company enlists with the Central Depositary System the individual shareholders will
no longer continue to receive notices for general meetings”. Comment on the above statement (03)
(THE END)
Professional Examinations Summer 2002
June 06, 2002
CORPORATE LAWS & SECRETARIAL PRACTICES (MARKS 100)

PE-1 (PAPER-4) (3 hours)
Q.1 Under section 265 of the Companies Ordinance, 1984 what powers does the SECP have
with respect to investigation of company’s affairs in cases other than where members hold
10% or more shares carrying voting rights? (10)
Q.2 Explain the following concepts:

a) Ultra vires acts. (02)
b) Doctrine of constructive notice. (02)
c) Doctrine of indoor management. (02)
Q.3 Write short notes on the following to reflect your understanding of the relevant provisions
of the Companies Ordinance, 1984:
a) Order in which payments should be made to creditors etc. in case of winding up

of a company. (05)
b) Declaration of solvency. (06)
c) Extent of liability of past members of a company limited by shares in case of
company being wound up. (02)
Q.4 A joint venture company with majority foreign investment on repatriable basis is being set
up in the industrial sector. However, they want to retain their equity in foreign currency in
their own foreign currency account in Pakistan, borrow rupee funds there against and inject
the same as equity. Discuss the implications of the non-resident shareholders plans in the
context of foreign exchange regulations and requirements for repatriation facilities. (07)
Q.5 a. The following corporate changes are required in one of the listed modarabas.
Describe the corporate procedures under the relevant legislation for implementing
these changes:
i. Inclusion of a new business/objects clause not originally envisaged (no

enabling clause exists in the existing objects clause). (04)
ii. Change in the Modaraba’s Chief Operating Officer. (02)
b. Explain how a modaraba can be wound up. (10)
Q.6 a. Following is a list of items that need to be approved in a public limited company.
Against each mention the appropriate approving authority i.e. members, directors, or
managing director:
i. Half yearly accounts
ii. Bonus issue
iii. Investment in wholly owned subsidiary
iv. Change in accounting year
v. Issue shares to other than existing members. (05)
(2)
a. You are the Company Secretary of Beta Ltd., a company which has just received its
certificate of incorporation. List the items that you would include in the agenda for
the first board of directors meeting. (06)
c. What are the duties of the Directors under the Companies Ordinance, 1984? (05)
d. What do you understand by the term “proxy”? (04)
Q.7 a. A group of institutional sponsors want to set up one or more companies/

institutions for engaging in the following activities:
(i) Investment in the listed equity stock market and fixed income securities –
the sponsors want to structure the investment such that it gives the investor a
mechanism to redeem their investment in a manner similar to that offered by
NIT units. (06)
(ii) Investment in equity of new and innovative projects and then offload the
same through the stock market on achieving profitable operations. (06)
(iii) Investment in equity of listed companies. (06)
State which legal structure/corporate structure would best suit each of the above business
objectives. Also explain very briefly the key steps in setting up of these companies.
b. Explain the difference in mutual funds governed by the Asset Management

Company Rules of 1995 and the Investment Companies and Investment Advisors
Rules of 1971. (04)
Q.8 a. The Chief Executive of a Public Limited Company is out of country for some
official assignment. The annual accounts of the company have to be approved
and signed. What must be done to comply with the legal requirements? (03)
b. The chairman of a meeting put a special resolution to the vote on show of hands.
The resolution was lost by 10 to 5. The chairman by counting the 100 proxies
held by him declared the resolution as carried. Was the declaration of the
chairman valid? (03)
(THE END)
Professional / Final Examinations Winter 2002
December 14, 2002
CORPORATE LAWS & SECRETARIAL PRACTICES / CORPORATE LAWS (MARKS 100)

[PE-1 Paper 4] & [Module ‘E’ Paper E-16] (3 hours)
Q.1 (a) Explain circumstances in which Securities and Exchange Commission can
initiate investigation against management of a company. (06)
(b) Substantial funds were expended by a group of sponsors on the feasibility
and other start-up activities of a mega infrastructure project subsequent to
incorporation of the company. Sponsors are considering whether the
company can issue shares to them against this amount. Discuss the viability
of this proposal in light of the relevant company law and related provisions. (10)
Q.2 (a) Describe the corporate law provisions through which a company can confer
voting rights to one or more shareholder that are disproportionate to the paid
up value of the shares. (06)
(b) When a company is deemed unable to pay its debts? (06)
Q.3 (a) State the implications for a public company of entering into contracts or
exercising borrowing powers prior to obtaining commencement of business
certificate? (03)
(b) Describe the salient features of the organization structure of the SECP and
the fundamental manner in which it differs from the CLA. (08)
Q.4 The following are some points noted by company secretary of a listed company.
Based on whichever points you consider relevant in the light of a normal secretarial
situation, prepare a notice for Annual General Meeting of members in respect of
financial year ended 30 September 2002, assuming that the company’s articles are
totally consistent with the requirements of the Companies Ordinance:
(i) Interim dividend 20%
(ii) Final dividend 20%
(iii) Auditors – appoint a firm other than existing firm; existing firm having
declined to continue as auditors
(iv) Acquiring 40% stake in an existing company
(v) Appointment and remuneration of chief financial officer
(vi) Capital expenditure of up to 10% of equity
(vii) Bonus issue [utilizing all available reserves]
(viii) Increase in paid up capital through further issue to existing
shareholders. (12)
Q.5 (a) The Securities and Exchange Ordinance 1969 prohibits multiple applications
in context of public issue. Explain what you understand by this term and
what are the consequences thereof? (04)
(b) List the salient differences between the legal status of modaraba and a
company (03)
(02)
Q.6 Local sponsors of a private limited company engaged in the trading activities want
to induct a non-resident partner as equity holder in consideration for marketing and
advertising expertise and supply of certain products to be sold in the local market.
The investment is expected to be in the region of Rs 1 million. No funds are
intended to be injected. The company seeks your advice regarding State Bank
requirements with respect to issue and export of shares to non-resident investor
with specific reference to the given situation. (09)
Q.7 A company’s majority shareholder [owning more than 60% equity] is planning to
disinvest a part of his shareholding in favour of the general public at premium.
Explain, with reference to the Capital Issues Rules 1996 and any other corporate
law, the key provisions that would be applicable. (04)
Q.8 Write short notes on the following to reflect your understanding thereof especially
with reference to relevant legal provisions:
(a) Difference between open and closed ended mutual funds. (04)
(b) Functions of credit rating companies and eligibility criteria for its formation. (06)
(c) Key difference in procedure for merger of two banking companies and two
public limited companies. (04)
(d) Rights of shareholders vis-à-vis receiving company notices and entitlement
in case of Central Depository Company (CDC). (03)
(e) In the context of insider trading, what is inside information? (03)
Q.9 (a) Mr. Jay, a member of a public limited company deposited proxy form
appointing Mr. A as his proxy. Subsequently he also deposited another proxy
for Mr. B as well. As the company secretary you have to decide whether Mr.
A or Mr. B can attend the meeting. Please comment. (03)
(b) Who can demand a poll in the General Meeting? (02)
(c) What is the time limit for demanding and taking poll? (02)
(d) Can a demand of poll be withdrawn? (02)
(THE END)
Final/Professional Examination Summer 2003
June 04, 2003
CORPORATE LAWS AND

[Module ‘E’ Paper E-16] & [PE-1 Paper 4] (3 hours)
Q.1 (a) A listed company has a 31 December year-end. For a variety of reasons, its
Board meeting for approval of the annual accounts and other related matters
was scheduled to be held on April 30, 2003. Explain the corporate
implications of the timing of the Board meeting.
Assuming that it wants the book closure period to be 2 weeks, prepare a list
of key dates (working back from the latest date of the AGM) for the key
secretarial requirements upto and including the date for the annual general
meeting. (07)
(b) You are the Company Secretary of a listed company. At the forthcoming
Annual General Meeting, a poll is expected in respect of one of the items on
the agenda. Briefly describe the main provisions in respect of the poll and
prepare a checklist of steps you would want to take in this regard prior to
and at the AGM. (12)
Q.2 (a) Explain with reference to the relevant company law provisions, the salient
difference between reduction of capital and purchase of shares by the
company. (02)
(b) (i) A company listed on Karachi Stock Exchange made alterations in

object clause of its memorandum of association by passing special
resolution. Subsequent to the meeting, the company also got those
alterations confirmed by the Securities & Exchange Commission of
Pakistan. Describe other formalities to be completed by the company,
if any, and consequences of not doing so. (07)
(ii) A company having two classes of shareholders namely Ordinary and

Preference (comprising 75 and 25 percent of capital respectively) had
proposed to vary the rights of preference shareholders and given 21 days
notice to all the members for approving the variation in rights as well as
for adoption of annual accounts. On the date of meeting, the attendance of
members (both in person and through proxy) of the two classes was as
under:
Ordinary Shareholders 61%

Preference Shareholders 73%
The resolution proposing the variation was passed by the majority of

76% whereas only 24% in the meeting opposed the variation. Kindly
comment whether the variation in rights were approved or not? (04)
(2)
Q.3 (a) A company’s paid up capital is Rs 10 million. One of the key suppliers is
owed Rs. 3 million on account of supplies and interest on delayed
payments. The supplier seeks your advice on its rights under the Companies
Ordinance 1984 to recover the amounts due to it. Advise the rights of the
supplier under the Companies Ordinance, 1984. (06)
(b) A private limited company has recently been incorporated. Shares are to be
issued to the sponsors in two tranches/phases linked to the requirement of
funds by the company. In the second phase, two new groups of shareholders
would need to be inducted. Explain with reference to the relevant provisions
of the Companies Ordinance, 1984, what legal and corporate secretarial
steps, the company would need to take with regard to the second phase of
share issue. (07)
Q.4 (a) The Companies Ordinance, 1984 prescribes grounds for vacation of office
by director. Can a company provide additional grounds for vacation of
office and if so, how? (02)
(b) What is the quorum for meeting of directors of a listed company? (01)
(c) Can a chief executive be removed before the expiration of his term of office
or period for which appointed under a contract with the company? If yes
how? (02)
(d) Whether an employed chief executive of a listed company (not being an

elected director) can participate and vote and his presence would be counted
for the purpose of quorum in the meeting considering a business in which he
has interest? (05)
Q.5 In the context of the Companies (Buy-Back of Shares) Rules, 1999, answer the
following:
(a) what declaration of solvency is required to be made and who is required to (05)
make it?
(b) give details of the two certificates to be obtained from the auditors of the
company. (06)
Q.6 (a) Define the following under Leasing Companies (Establishment and
Regulation) Rules, 2000:
(i) Certificate of Investment

(ii) Equity
(iii) Lease Key Money
(iv) Major Shareholder
(v) NBFI (05)
(b) Who may not be appointed as legal advisor of a company under the
Companies (Appointment of legal Advisers) Act, 1974? (05)
(3)
Q.7 (a) Describe the provisions relating to closure of register of members under the
Companies Ordinance, 1984 and Listing Regulations of Karachi Stock (05)
Exchange.
(b) All listed companies are required to have an Audit Committee under listing
regulations of stock exchanges in Pakistan. Reply the following in relation
to Audit Committee:
(i) composition
(ii) frequency of meeting
(iii) who should/may attend the meeting (07)
(c) An investor is looking for a financing vehicle through which it can maintain
direct management control over its core business by investing as low as just
30% equity. Which type of corporate structure would support such a
business objective and why? (04)
Q.8 What is the time period both under Companies Ordinance, 1984 and Code of
Corporate Governance for:
(a) filling of casual vacancy in Board of Directors

(b) circulation of minutes of meeting of the Board of Directors
(c) notice for meeting of Board of Directors
(d) circulation of annual audited financial statements (08)
(THE END)
Final and Professional Examinations Winter 2003
December 03, 2003
CORPORATE LAWS AND

Module E & PE-1 (3 hours)
Q.1 Who is considered to be a beneficial owner of shares under the provisions of the
Companies Ordinance, 1984? What obligations do the relevant provisions of law
place on him and the time period in this regard? Obligation of the company and
penalties under law are not required to be replied. (12)
Q.2 Who may make a representation to the SECP for appointment of administrators and
under what situations/conditions such a representation may be made? (10)
Q.3 (a) How a director of a company may make an assignment of office? Is it possible
for a director to appoint his alternate and if so under what conditions? (05)
(b) List any five contents of report of board of directors required under Companies
Ordinance, 1984. (05)
(c) Who can sign the report of directors. (02)
Q.4 (a) Under the provisions of the Companies (Issue of Capital) Rules, 1996 define
“Free Reserves”. (07)
(b) Under the provisions of the Employees’ Provident Fund (Investment in Listed
Securities) Rules, 1996 subject to what conditions an Employees’ Provident
Fund of a company may make investment in securities of a company listed on
any stock exchange in Pakistan. (08)
Q.5 (a) One of your clients wants to float an open-ended mutual fund and engage in
leasing activities under one corporate umbrella. Explain, under the Companies
Ordinance and related Rules what corporate structure must be used. (03)
(b) Explain the pre-requisites for setting up of this entity and any specific
conditions that have to be met with respect to each stage of setting up. (12)
Q.6 (a) Whether it is possible under the provisions of articles of association to provide
for a shorter or larger number of members to be a quorum for a meeting? (01)
(b) Can proceedings of a general meeting may be declared invalid. If so under
what circumstances and who may initiate this. Is there any time limitation for
this? (03)
(c) When dividend is deemed to have been declared? (02)
(d) When no offence is deemed to have been committed inspite of late or non-
payment of dividend? (08)
Q.7 Under the Code of Corporate Governance:
(a) What powers are required to be exercised by the board of directors and
documented by a resolution passed at a meeting? (05)
(b) List any five significant issues to be placed before the board of directors to
strengthen and formalize corporate decision-making process. (05)
(2)
Q.8 (a) Who may undertake leasing operations under the Leasing Companies
(Establishment and Regulation) Rules, 2000. (02)
(b) Define the following under Modaraba Companies and Modaraba (Floatation
and Control) Ordinance, 1980:
i) Modaraba
ii) Modarba Company
iii) Modaraba Fund (03)
Q.9 (a) What is the difference between allotment and physical issue of share
certificate? (03)
(b) How is a book closure of a listed company relevant to a shareholder with
shares in the CDC? (02)
(c) As per corporate practice, shareholders having physical scripts are required to
sign against the folios prior to attendance. What is the equivalent practice for
shareholders with CDC account? (02)
(THE END)
Final Examinations Summer 2004
June 08, 2004
CORPORATE LAWS (MARKS 100)

(3 hours)
Q.1 (a) What restriction the Companies Ordinance places on redeeming the preference
shares? (01)
(b) What are the permissible modes for redeeming the preference shares and what
are the conditions attached to such modes? (06)
Q.2 (a) A company recently published a prospectus. The subscription date has passed
and balloting on account of over subscription has been carried out. List the
subsequent corporate/secretarial action required for obtaining the
commencement of business certificate. (04)
(b) What sorts of businesses require special resolutions? Discuss, in light of the
provisions of the Companies Ordinance, 1984. (06)
Q.3 Answer the following in the context of a listed company:
(a) Under the Companies Ordinance, 1984:

In addition to the directors elected to the Board of Directors, who is entitled to
attend the Board meetings and what would be their voting rights thereat? (05)
(b) Under the Code of Corporate Governance:
(i) How many times is Board of Directors required to meet and what is the
notice period for such meetings? (02)
(ii) What additional pre-requisites exist with regard to placement of financial
statements before the Board of Directors? (03)
Q.4 A group of investors acquired 20% shares of Messrs Easy Limited from the market
and got those transferred the same in the name of one of their company.
Subsequently they acquired additional 26% shares and lodged the same with the
company with the intention of participating the election of directors to be held next
month at the annual general meeting. Before the completion of transfer, the SECP
issued an order prohibiting:
(a) the exercise of voting power in respect of 20% shares already transferred
(b) the transfer of additional 26% shares lodged for transfer
Is SECP empowered to make such an order and for what period? What remedy is
available to the aggrieved against this order? (07)
Q.5 The Companies Ordinance provides for the Securities & Exchange Commission
(SECP) of Pakistan to appoint Inspectors at the behest of members. You are to
elaborate:
(a) which class or type of members are entitled to invoke the above right? (03)
(b) what circumstances would warrant the above action? (05)
(c) what consequential action SECP can take after report of the Inspectors? (04)
(2)
Q.6 A company has resolved to wind up voluntarily. Eight months after the declaration
of solvency, the company has received a notice of legal suit of a material amount,
which would make the company insolvent.
Explain, by reference to the relevant company law provisions, the implications of
the above-mentioned situation on the winding-up process and the directors. (09)
Q.7 (a) What do you understand by the term ‘NBFC’ and the activities it can
undertake? Does the law lay down conditions as regards commencement of
NBFC’s business? (08)
(b) What conditions are required to be complied with under the Companies
(invitation and Acceptance of deposits) Rules, 1987 for accepting deposits? (06)
Q.8 (a) Can a company have more than one class of share capital?, and (01)
(b) What variations are possible with regards to the rights and privileges of
different classes of share holders? and (03)
(c) What conditions apply to such further issue? (06)
Q.9 The Articles of Association of a public listed company provides that in case of an
equality of votes in a Board meeting, the Chairman shall have and exercise a
second or casting vote. The Board of Directors comprises 9 members including the
Chairman. In the last meeting of the Board, the Chairman was not present and the
meeting was presided by Mr. T who is the Chief Executive of Messrs A (Private)
Limited and holds 60% of its shares. In the same meeting Board has to consider the
renewal of contract with Messrs A (Private) Limited for supply of packing material
at revised terms. Four directors opposed the renewal at the revised terms whereas
remaining four including Mr. T were in favour of approving the renewal at the
revised terms. At the first instance Mr. T tried to convince the other directors but on
their refusal due to equal division of Board he exercised the casting vote as a
Chairman of the meeting and declared the renewal as approved. Kindly comment
explaining the relevant provisions of the Companies Ordinance, 1984. (07)
Q.10 What matters are to be included in a rehabilitation plan for an industrial unit which
is owned by a company and is declared as a sick unit by the Federal Government. (10)
Q.11 A company is required to issue shares to a financial institution under the terms of
agreement within the next three day of the happening of certain event. Now the
event has happened and the company has to issue the shares but the authorized
capital is fully subscribed. Advise the company to avoid non compliance with the
terms of the agreement as well as the provisions of the Companies Ordinance,
1984. (04)
(THE END)
Final Examinations Winter 2004
December 08, 2004

(3 hours)
Q.1 (a) A listed schedule bank is planning to raise its paid up capital to comply with
the State Bank of Pakistan’s minimum paid up capital requirements. It has
requested you to identify options available to it for increasing its paid up
capital and the key corporate and secretarial requirements it would need to
comply with. (12)
(b) A company was incorporated in December 2003. Due to an error, regulations

relating to the conduct of meetings of members were not included in the
Articles of Association submitted by the Company to the Registrar for
registration. How can the members’ meeting would be regulated in the absence
of such regulations in company’s articles? Can such regulations be included
now in the Articles of Association and if so, how and what will be the status of
such an addition? (06)
Q.2 (a) The Companies Ordinance, 1984 contains certain safeguarding provisions for
minority shareholders. Two of these provisions provide mechanism for
providing relief and safeguarding their interests provided the shareholders own
certain percentage of voting shares. Briefly describe such provisions. (09)
(b) State the extent of liability of a director having unlimited liability whether past
or present, in case of members’ voluntary winding up of a limited liability
company. (07)
(c) A company incorporated abroad wishes to set up a branch office in Pakistan.

Describe the corporate and secretarial formalities required to be completed
under the Companies Ordinance, 1984. (05)
Q.3 (a) What is the single most distinguishing factor between the business activities
that a banking company can undertake as compared to a non-banking financial
institution? List the broad business activities that an NBFC can undertake and
state the licensing requirements for an existing investment bank which also
intends to do business besides investment banking, leasing and housing
finance services. (09)
(b) The Chief Financial Officer of a public unlisted company plans to sell shares
held as investment on its balance sheet to a financial institution [to raise funds
it needs for short term use] and buy them back at the agreed price on expiry of
the term of agreement. He seeks your advise on the key differences between
the contemplated buy-back and the one permissible under the Companies Buy-
back of Shares Rules 1999. (06)
(2)
Q.4 (a) A diversified financial services group is planning to venture into equity
investment with a strategic focus on companies listed on the stock exchange.
You are required to advise your client about corporate best-fit structure under
the corporate laws. Also state the broad steps for its establishment. (12)
(b) List three key differences between provisions relating to increase and
reduction of share capital of a company limited by guarantee having a share
capital as compared to a company limited by shares. (03)
Q.5 (a) Draft a notice of an annual general meeting of a listed company. Apart from
the usual items that are included in the agenda of such a meeting, the
shareholders approval is also to be obtained for investment in an associated
company. Also list items that would be included in the statement of material
facts about this investment. (08)
(b) Mr. Siddiqui has been selected for appointment as Chief Executive of M/s
Cotton (Private) Limited. The proposed terms of appointment also include
provision of loan of Rs.10 million each for purchase of a house and shares of
M/s Kapas Limited which is listed on all the three stock exchanges of Pakistan.
M/s Kapas Limited and two of its directors hold 67% shares of M/s Cotton
(Private) Limited. You being the secretary of the company are required to give
your comments on the above terms in the light of the provisions of the
Companies Ordinance, 1984. (04)
Q.6 (a) What is the role and responsibility of Audit Committee under the Code of
Corporate Governance notified by the Securities and Exchange Commission of
Pakistan? (07)
(b) The annual general meeting of a company listed on Karachi Stock Exchange is
scheduled to be held on October 31, 2004 in which besides other businesses
election of directors would be held and dividend would be approved by the
members. The secretary is thinking to close register of members either from
October 26 to 31st or alternatively from October 13 to 31st and noted in his
diary that in either case he will inform members, SECP and stock exchanges
on 9th October, 2004 along with the notice of meeting about book closure. The
secretary is seeking your opinion as regards the above. Advise in the light of
provisions of the Companies Ordinance, 1984 and Listing Regulations. (05)
(c) Certain situations have been exempted by the State Bank from the restriction
in the Foreign Exchange Regulations Act 1947 from obtaining the State
Bank’s prior approval for issue / transfer of shares to non-residents. Discuss
and give three examples of such situations. (07)
(THE END)
June 08, 2005

(3 hours)
Q.1 Discuss the requirements of law related to filing of accounts of companies operating
in Pakistan but incorporated outside Pakistan. (07)
Q.2 (a) Briefly describe the contents, signatories and other requirements relating to
members voluntary winding-up. (08)
(b) Discuss powers of the Liquidator of a company in a voluntary winding-up

proceedings to make a compromise with the creditors that they should accept
forty paisas in the rupee i.e. 40% of their total dues as full and final settlement. (04)
Q.3 Majority shareholders/directors of a group of companies in the financial services

sector comprising a closed end mutual fund, leasing, and housing finance company
believe that these activities need to be merged and brought under the umbrella of a
single corporate entity. They feel that in this manner they would be able to achieve
synergies and the combined capital can be utilized in a most efficient manner.
What steps and legal formalities need to be complied with to give effect to the above
concept? (10)
Q.4 (a) A group of sponsors want to incorporate a company into which they will
transfer a business unit they are acquiring from another group of companies.
They intend to induct another group of investors as equity partners. These are
financiers and are not interested in voting rights, rather their principal aim is
the return on investment.
Explain how the objective of the financiers can be achieved in light of the
provisions of the Companies Ordinance and any related rules. (10)
(b) A company with a 5 year profitable track record is planning to go public by

offering shares at a premium. Discuss the requirements contained in the
Companies Issue of Capital Rules, 1996 with respect to the company’s plans. (08)
(c) A shareholder in a listed company has acquired about 8% shares of the

company. He intends to contest for election to the Board of Directors of the
company in the forthcoming elections. What corporate secretarial steps need to
be taken by the member and the company in this regard? (05)
Q.5 (a) An investor purchased some shares from the stock market in good faith and
got them registered in his name. Subsequently, the company received a notice
from the original member reporting these shares as lost.
Discuss the right of such an investor as well as the original owner under the
law. (05)
(2)
(b) The following are some points noted by company secretary of a listed
company immediately after the Board meeting for approval of accounts:
(i) Interim dividend 20% already paid; proposed final dividend 20% in
addition to interim.
(ii) Auditors – existing auditors have consented to their re-appointment.
(iii) Acquiring 40% stake in an existing company.
(iv) Appointment and remuneration of chief financial officer approved.
(v) Capital expenditure of up to 10% of equity.
(vi) Bonus issue utilizing all available reserves
(vii) Increase in paid up capital through further issue to existing shareholders.
Draft a notice for the forthcoming Annual General Meeting (AGM) of the
company and the agenda containing items that are normally included in an
AGM for members’ approval. Also comment on any aspect that is not in
accordance with the provisions of the company law or related rules. (10)
Q.6 (a) State the authority that is empowered to approve the following businesses of a
Modaraba, giving a brief explanation of the rationale for the particular
approving authority:
(i) Annual accounts.

(ii) Interim dividend.
(iii) Further issue of Modaraba Certificates.
(iv) Appointment of auditors. (06)
(b) A branch of a foreign company operating in Pakistan wants to raise working

capital and capital expenditure financing. Briefly explain the law contained in
the foreign exchange regulations in this regard. (06)
Q.7 List preferential payments laid down in the law at the winding-up stage of the
company. (08)
Q.8 State the authorized persons who can sign the annual accounts of the following
companies under the respective provisions of the laws applicable to such companies:
(a) an insurance company

(b) a banking company (04)
Q.9 State the provisions contained in the Companies Ordinance 1984 relating to
extension in the date of holding the Annual General Meeting. (03)
Q.10 Identify any six points, which can be included in the company’s plan for
rehabilitation purposes upon having been declared a sick industry. (06)
(THE END)
December 07, 2005

(3 hours)
Q.1 (a) You are Company Secretary of a public limited company. In the following
month the company’s annual general meeting has to be held, for which
purpose the Board of Directors meeting needs to be convened. Following
items are included on the agenda:
• investment in an associated company;
• approval of the annual financial statements;
• issuance of shares to new foreign shareholders;
• approval of new company logo;
• remuneration of the recently appointed Chief Financial Officer &
Chief Executive Officer; and
• recommendation of final dividend.
Some of the directors representing the foreign shareholders with 30%
shareholding/representation on the Board, might be traveling and therefore
may not be able to attend the meeting. You have been asked by these non-
resident directors to get their approval on the decisions through circular
resolution or any other means. Discuss this suggestion in the light of the
provisions of the Companies Ordinance, 1984 and corporate practices,
including any other alternatives. (12)
(b) The Code of Corporate Governance is a set of recommendations for
monitoring and supervision of companies incorporated under the Companies
Ordinance, 1984 by the Securities and Exchange Commission of Pakistan. Is
this statement true? Discuss in the light of the underlying legislation / Code. (05)
(c) The Code of Corporate Governance also contains some eligibility criteria for
the directors. Describe these criteria. (05)
Q.2 (a) Two companies have a common set of shareholders. The controlling
shareholders have decided to merge the two companies to achieve synergies
and have applied to the court for sanctioning a compromise or arrangement.
What are the typical matters which should be included in the Court’s order,
for facilitating the amalgamation of the companies under the provision of the
Companies Ordinance, 1984? (10)
(b) What is the effect of appointment of liquidator, on the powers of directors and
chief executive? (03)
Q.3 (a) A company’s share capital comprises ordinary shares and 8% cumulative
preference shares with no voting rights. It now proposes to increase the
preference shares by another 25% to fund acquisition of long-term strategic
assets. Describe the key legal requirements that will have to be complied with
to give effect to the above proposal. (06)
(2)
(b) What do you understand by the term Central Depository System? Explain the
rights of the shareholders registered as account holders in the system, to
attend and vote at the general meetings of the company. (05)
(c) What do you understand by the term pre-emptive right of a shareholder? (02)
Q.4 Certain transactions have been carried out through a stock exchange, in securities
not listed on the exchange at the time the transactions took place. Under what
circumstances are such transactions valid? (03)
Q.5 A director of a profitable public company wishes to offload his 15% shareholding
by means of an offer for sale to the general public at a premium. Briefly discuss the
requirements for such an offer under the Company (Issue of Capital Rules), 1996. (07)
Q.6 Discuss the provisions of Non Banking Finance Company Rules 2003, in respect of
the following:
(a) Difference between the securities issued by an asset management company
and an investment company. (04)
(b) Exposure limits on an NBFC undertaking investment finance services to a
single issuer and the exposure limit if the NBFC is engaged in housing
finance services? (03)
Q.7 You are the legal advisor of Target Limited, a listed company with large number of
shareholders, spread though out the country. The company is finding it difficult to
circulate its quarterly accounts to the shareholders. Discuss the other options
available to the company and the legal requirements in respect of those options, to
be compliant with the law. (08)
Q.8 Briefly discuss the following with reference to the registration of mortgages and
charges under the Companies Ordinance, 1984:
(a) The consequences if the charge is not registered on time? (03)
(b) Steps to be undertaken on acquiring a property that is already charged? (05)
Q.9 The Board of Directors of a public company is desirous to establish an association

for promotion of charity and other useful objects on a non profit basis. Describe the
conditions for grant of licence under the Companies Ordinance, 1984. (07)
Q.10 What information is required to be included in the tender notice for purchase of
own shares under the Companies (Buy-back of shares) Rules, 1999? (05)
Q.11 What constitutes unpublished price sensitive information under the Listed
Companies (Prohibition of Insiders Trading) Guidelines issued by SECP? (07)
(THE END)
June 07, 2006

(3 hours)
Q.1 (a) On the request of a group of shareholders holding 12% voting shares in a
company, SECP appointed inspectors to investigate into the affairs of that
company and the inspectors have submitted a report to the SECP.
Advise the group of shareholders on the following:
(i) Whether they have a right to receive a copy of inspector’s report from
SECP. (02)
(ii) What action SECP could take on receipt of the inspector’s report and
what are the powers of the Court in such situation? (08)
(b) CMD Limited (CMD) incorporated in UK earned a contract for construction of

major infrastructure project in Pakistan under an international tender. The
contract was assigned by WAPDA on behalf of Government of Pakistan.
CMD commenced operation in Pakistan on January 1, 2006 however it failed

to submit the required documents to the Registrar as required under section
451 of the Companies Ordinance, 1984. Soon after commencement of work,
differences developed between CMD and WAPDA and both sued each other.
Explain the effect of non-filing of the above documents on the following:

(i) Validity of the contract.
(ii) Right of each party to sue each other. (05)
(c) What is the status of a company, its chief executive and its directors which has
commenced winding up proceedings? (03)
Q.2 (a) Mr. Inzamam holds 60% shares of a listed company ‘Cal Ltd.’ and Mr. Haq
holds 65% shares of another listed company ‘CD Ltd.’ Both the shareholders
have signed a memorandum of understanding under which Mr. Inzamam will
acquire the entire holding of Mr. Haq in CD Ltd. at a price to be determined
through an independent valuation expert. Mr. Inzamam will thus become the
majority shareholder in CD Ltd.
He is now planning to advertise in newspapers a public announcement of offer

to acquire shares in CD Ltd.
Advise Mr. Inzamam about the Corporate Law provisions that are required to
be followed regarding issuance of public announcement for the acquisition of
the majority shareholding in CD Ltd. (10)
(2)
(b) A strategic investor has acquired management control of a company through

the privatization program. The directors of the company were elected only a
year ago and still have an unexpired term of 2 years.
Outline the process under which the strategic investors will induct their own
directors on the Board of the company. (03)
Q.3 (a) What do you understand by the term “Green-shoe Option”? (02)
(b) An unlisted company wants to issue shares to a machinery supplier as

consideration for supply of the plant for its expansion program.
What are the key requirements under the Companies Ordinance 1984 and
Companies (Issue of Capital) Rules 1996 that the company must fulfill in this
regard? (08)
Q.4 (a) A general meeting of a listed company was adjourned by the chairman for
want of quorum. Fresh notice was not served for the adjourned meeting.
You are required to explain the following:

− Whether a notice is required to be served for the adjourned meeting.
− The minimum number of members required to be present in a general
meeting.
− What shall be the requirement in case of an adjourned meeting? (06)
(b) Describe the requirements of Companies (Appointment of Legal Advisers)

Act, 1974, regarding eligibility for the appointment as legal adviser? (04)
Q.5 A large group of companies is planning a buy back of shares in some of its
companies. The Group Management Committee (GMC) has various alternatives and
options for buying back of shares by considering the group’s future strategies. After
a detail review the GMC has informed the Group Company Secretary as under:
(a) NA Soft (Private) Limited is a very well known software house and has a paid
up share capital of Rs. 100 million. The company would like to buy back 25%
of its paid up capital. The debt equity ratio of the company is 75:25 and the
current ratio is 1:1.
(b) ASL Ltd., a pharmaceutical company, is listed on Karachi Stock Exchange. It

has a share capital of Rs. 500 million and retained earnings of Rs. 100 million.
The board of directors of the company has decided in their meeting to buy
back shares of Rs. 200 million. The company has sufficient cash resources for
purchase of shares.
(c) CLS Textile Mills Ltd., is a listed company having a registered office in the
province of Punjab. Mr. Ali, a holder of 20% shares, has shown his interest in
selling his holding directly to the company. The management of the company
is willing to accept his proposal.
As a Group Company Secretary, you are required to advise the GMC on the
legality of transactions which the group is planning to undertake. (10)
(3)
Q.6 (a) Annual General Meeting of a Public Company was scheduled to be held on
March 15, 2006. Mr. A, a shareholder, issued two Proxies in respect of the
shares held by him in favor of Mr. ‘X’ and Mr. ‘Y’. The proxy in favor of ‘X’
was lodged on March 12, 2006 and the one in favor of Mr. ‘Y’ was lodged on
March 15, 2006. The company rejected the proxy in favor of Mr. ‘Y’ and
accepted the one in favor of Mr. ‘X’.
Explain whether the rejection by the company is in order? (07)
(b) A group of investors want to incorporate a company which will be engaged in

leasing and venture capital business. You are required to explain the minimum
capital requirement of running these businesses under NBFC Rules 2003. (03)
(c) What restrictions have been placed on the scope of business activities of a
leasing company under the NBFC Rules 2003? (06)
Q.7 DOS Limited is a listed company engaged in providing LDI services to its
customers. As a Chief Financial Officer you informed the board of directors that
during the 2nd and 3rd quarter of year 2006-2007, the company will require short
term financing in order to meet the liquidity shortfall. One of the directors has
proposed that the company should raise finance through Commercial Paper.
You as a CFO are required to explain:

− the eligibility condition that have been specified by the SECP for a company
that wishes to raise finance by issuing 3-6 months Commercial Paper.
− the prospective investors in Commercial Paper? (10)
Q.8 (a) Del Ltd., having a 75% foreign shareholding, is under negotiation with its
parent company to obtain a foreign currency unsecured loan to meet its
working capital requirements. The proposed tenure of the loan is 7 years and
the rate of interest is LIBOR plus 2%. Principal amount of the loan will be
paid in 14 equal semi-annual installments and interest will be paid annually.
You, being the Corporate Consultant, have been asked to prepare a checklist
containing the requirements of Foreign Exchange Regulations. Also fill the
checklist to ascertain that the company complies with regulations. (10)
(b) Directors of a public unlisted company had fixed the number of directors for
election at eight. The present directors being eligible had offered themselves
for re-election at the same board meeting. Considering the fact that there has
been no change in the structure of shareholding, the Board of Directors passed
a resolution appointing them as directors.
Comment on the above corporate action with reference to the provisions of the
(THE END)
December 6, 2006

Module E (3 hours)
Q.1 (a) A prospective individual sponsor has requested your advice whether company
law permits an individual to incorporate a wholly owned company. Briefly
describe the relevant legal provisions. (05)
(b) Explain whether a non-member can become the director of a company. (02)
Q.2 A member of a company seeks your guidance regarding the procedure for inspection of
the minutes book of the general meetings. Discuss the requirements relating to the
maintenance of minutes and its inspection by the members. (06)
Q.3 As used in the context of winding up of companies, discuss when a company is deemed
unable to pay its debts? (05)
Q.4 The Directors of Genetics (Pvt.) Ltd. had started voluntary winding up proceedings by
filing a declaration of solvency about 15 months ago. The company still owes
substantial amount to the financial institutions. The Directors have assured the financial
institutions that their debts would be settled within the next 6 months and have filed
another declaration of solvency with the Registrar and copied it to the financial
institutions. What are the legal implications if any, on the company or its directors for:
(i) default in payment.

(ii) issue of second declaration of solvency.
Also explain what remedy is available to the financial institutions in case of default by
the directors. (07)
Q.5 Miller and Company Limited, a foreign company incorporated in New Zealand, wishes
to open a branch / liaison office in Pakistan. You are required to advise them on the
following:
(a) Obtaining permission for opening and maintaining its branch / liaison office in
Pakistan. (04)
(b) Statutory obligations under the Companies Ordinance, 1984 other than those
relating to the filing of forms and accounts. (05)
Q.6 Jehangir Limited a public listed company have incurred losses during the past two
years, as a result of which, 17% of their equity has been wiped out. The board of
directors wants to issue shares worth Rs. 100 million, being 25% of the present share
capital at a discount of 20%. You are required to advise them on the matters which the
SECP may consider before granting approval for issue of shares. (06)
(2)
Q.7 The management of a listed company wants to implement an employee share option
scheme. The Directors representing majority shareholding of 51% however have
concerns that their majority holding might get diluted to below 50% in the long run. In
terms of the prevalent corporate laws, suggest an alternative solution that could address
the concern of the majority shareholders. Also explain the conditions required to be
complied with and the various options available to the directors. (09)
Q.8 (a) PQR Limited, an NBFC, has a license to undertake Investment Financial
Services. List some of the services that it may perform while carrying out:
- Project financing.
- Corporate finance services. (10)
(b) State the conditions which PQR Limited shall have to comply with, if it desires to
issue Certificates of Deposits worth Rs. 100 million. (04)
Q.9 (a) Write short notes on the provisions of the Code of Corporate Governance in
respect of the following:
(i) Frequency of board meetings, notice of meetings and the chairman of a

meeting.
(ii) Dissenting vote of a director.
(iii) Persons allowed to attend Board meetings other than the directors of the
company and the type of voting rights such persons can exercise? (09)
(b) Members of XYZ limited holding 20% of the voting power submitted a
requisition to hold an extraordinary general meeting of the company to remove
the auditor of the company. The company did not call the extra ordinary general
meeting and also did not allow the holding of the meeting at the registered office
of the company. The said meeting was held at some other place and resolution for
the removal of the auditor was passed. Examine the requirements and discuss the
validity of the said meeting and resolution passed. (10)
Q.10 Your friend, a non-resident, intends to trade in shares of companies listed in Pakistan.
Briefly discuss the requirements / restrictions, if any, under the applicable laws. (08)
Q.11 “Once a company’s shares are declared eligible securities with the Central Depositary
System and a shareholder registers his or her physical scripts with the CDS, the
shareholder will stop receiving notices for company meetings as the CDC will be the
registered holder of shares in the company’s register of members.”
Comment on the above statement. (03)
Q.12 The Cosmopolitan Modaraba was floated with a modaraba fund of Rs. 300 million.
A spate of development projects have placed a severe liquidity crunch on the
modaraba’s finances and the management company’s Board of Directors has sought
your opinion on whether a modaraba can raise further capital through rights issue.
Briefly describe the significant corporate requirements that must be complied with,
prior to raising the capital. (07)
(THE END)
June 6, 2007

(3 hours)
Q.1 RBC Limited and KBC Limited are associated companies having share capital of Rs
60.0 million and Rs 15.0 million respectively. The companies’ reserves equal 10% of
their share capital. RBC Limited produces and supplies a component ‘X’ to KBC
Limited. KBC Limited has been facing liquidity problems as a result of which its
production and sales had been suffering. Consequently, there has been a significant
decline in the sale of component ‘X’ by RBC Limited. The directors of RBC Limited
wish to support KBC Limited by way of the following:
- Advancing loan of Rs 5.0 million at an annual interest of 8%.

- Increasing the limit of trade credit from Rs 1.0 million to Rs 3.0 million.
(a) Briefly state the conditions required to be fulfilled by the two companies while
carrying out the above transactions. (08)
(b) What consequences may be faced by the directors of RBC Limited in case they
fail to comply with the above requirements? (03)
Q.2 XYZ Limited, a listed company, has issued ten million shares of classes ‘A’ and ‘B’
each. The company passed a special resolution to alter some of the rights associated
with class ‘B’ shares, which has aggrieved some of the shareholders.
Explain to the shareholders, aggrieved with the above changes, on the following:
(a) What remedy is available to the aggrieved shareholders? (03)

(b) Under what conditions can the decision of the company be cancelled? (04)
Q.3 On a petition filed by affected minority shareholders, the court has directed a company
to be wound up and has also appointed a liquidator. The existing management
comprising the chief executive and other board members, is resisting the move and is
expected to create hurdles in the winding up proceedings including refusal to hand over
custody of books and records and properties to the liquidator. Narrate the powers
conferred on the liquidator and the court, in the above situation and what actions can be
taken to proceed with the winding up. (06)
Q.4 (a) Mr. Luqman, a Senior Director of STQ Limited, a non-banking financial
institution (NBFC), wishes to retire and wants his son to be appointed in his
place. As the company secretary of STQ Limited, advise him about the conditions
specified in NBFC Rules 2003, which his son must satisfy to be eligible for
appointment as the Director of STQ Limited. (07)
(b) Briefly describe the terms and conditions of operation of a venture capital fund as
laid down under the NBFC Rules, 2003. (06)
(2)
Q.5 (a) Mr. Pang and his wife jointly acquired 23% shares in Sunshine Limited. The
company is listed on the Lahore Stock Exchange. The transfer deeds lodged by
Mr. Pang did not mention his address and this was also not noted by the corporate
affairs department while dealing with the registration of transfer. At the time of
giving notice to members for annual general meeting where election of directors
are also scheduled to be held, the fact came to light and now the Chief Executive
is worried as to how the notice may be served, to avoid any litigation which may
be initiated by Mr. Pang, due to non service of notice.
As the secretary of the company, advise the chief executive as to how the
company should deal with the above situation. (03)
(b) A company has revised its marketing strategy and instead of having its wholesale
delivery points, it has appointed 20 dealers throughout Pakistan. The management
intends to take deposits for security purposes from each dealer. The aggregate
amount of such deposits will be around Rs 200 million. Being the head of finance,
advise the management about the relevant provisions contained in the Companies
Ordinance, 1984, dealing with the issue of deposits and any restrictions or
conditions imposed therein. (05)
(c) Mr. Ibrahim is the Chief Executive of LMN Limited, a listed company. He has
requested the company for a loan of Rs 30.0 million. His annual remuneration is
Rs 28 million. State the conditions mentioned in the Companies Ordinance, 1984,
under which such a loan may be advanced by the company. (06)
Q.6 The third Annual General Meeting (AGM) of ABC Limited, an unlisted public
company, is to be held on 31 July 2007. However, in the third week of May, a
considerable portion of the accounting record of the company was destroyed by fire. As
a result, the CFO concluded that the audited financial statements pertaining to the year
ended March 31, 2007 would not be ready to be laid before the AGM.
Describe the suitable course available to the company and the relevant provisions of the
law applicable thereto.
Also, briefly discuss the consequences if the accounts are not adopted by the members
of the company due to any reason, at a duly convened annual general meeting. (09)
Q.7 (a) ABC Limited, a listed company, is entering into a contract to purchase machinery
worth Rs. 50 million from XYZ (Private) Limited, where the spouse of the chief
executive of ABC limited is also a director. The contract for purchase of said
machinery is to be placed before the board of directors of the company for
approval.
State the relevant rules as given in the Companies Ordinance, 1984 and describe
the procedure which ABC Limited should follow while entering into the contract. (08)
(b) Explain whether XYZ (Private) Limited will have to follow and comply with the
same rules as are applicable to ABC Limited. (02)
Q.8 A resolution was put before the members in an Annual General Meeting, for voting on a
show of hands. Before the announcement of the result, Mr. Shahab Khan, a share
holder, demanded a poll, which was refused by the Chairman.
Discuss the legality of the chairman’s decision in the light of the Companies Ordinance,
1984. (05)
(3)
Q.9 (a) “An executive director cannot become the Chairman of the audit committee”. Do
you agree with the statement? Explain. (03)
(b) Explain the provisions of the Code of Corporate Governance relating to audit
committee in respect of following:
− Holding of meetings
− Attendance at meetings (07)
Q.10 Mr. Abbasi is a director of Bright Limited, a listed company. His nephew wants to
purchase shares of Bright Limited. Part of the funds required to make the investment
shall be provided by Mr. Abbasi at a profit of 3% per annum.
Describe the actions which Mr. Abbasi should take to ensure that he complies with the
relevant provisions contained in the Companies Ordinance, 1984 and the Code of
Corporate Governance. (06)
Q.11 In respect of each of the following transactions, explain whether the same will result in
creation of unreasonable monopoly power under the Monopolies and Restrictive Trade
Practices (Control And Preventions) Ordinance, 1970.
(a) Red Limited purchased 17% shares of Blue Limited. Both the companies are
operating cement plants and have a combined market share of about 48%.
(b) DX Limited entered into a contract to purchase 47% of the total production of DY
Limited. The combined production of both the companies is approximately 40%
of the total production of the whole industry.
(c) XYZ Bank Limited, a non-listed commercial bank has extended a loan of Rs 1.0
billion to ABC Limited, a leasing company, at a profit of 7% per annum. The
average rate of profit charged by the bank in similar types of loans is 12%. The
bank holds 24% of the total ordinary shares of ABC Limited. (09)
(THE END)
EXAMINERS’ COMMENTS – FINAL EXAMINATIONS
SUBJECT SESSION
Corporate Laws Summer 2007
General:
Overall, the performance in the paper was poor. In a number of cases, the examinees
wrote lengthy but irrelevant answers. Many tried to quote the full sections without
considering as to what was required or relevant. The question-wise comments are given
below:
Q.1 Lending to/from associated undertakings
The response to this question was better but majority of the students did not cover
the following points in their answers:
(i) The limit of trade credit can be enhanced by management of RBC Ltd.
based on their own assessment and without any further approval or legal
requirement.
(ii) No company can grant or take loan if the same was not authorized under
their respective articles of association.
(iii) Copy of resolution passed should be filed with the registrar and also with
the SECP if RBC was a listed company. Some students mentioned the
provisions contained in sub-sections (2) and (4) of section 208 of the
Companies Ordinance 1984, which were not relevant.
Q.2 Alteration of rights of class B shareholders
Section 108 (2) and its proviso provided a complete answer to this question. The
students were generally aware of the requirement. However, many students
mentioned that aggrieved shareholders should apply to SECT whereas, in such a
situation, they will be required to approach the court.
Q.3 Custody of company’s property
This question together with Question 11 was the worst attempted. Most of the
students narrated to general powers of liquidator and the court rather than those
relating to the circumstances cited in the question (management creating hurdles
etc.). As stated in Section 330 of the Companies Ordinance, 1984 the liquidator
can seek the help of the court and the district magistrate to remove hurdles and to
obtain custody of books, records, property etc.
Examiners’ Comments on
Corporate Laws – Summer 2007
Q.4 (a) Eligibility conditions for an NBFC director
This part was well-attempted although many gave incomplete answers.

Some conditions applied not only to directors but also to the companies
they managed. Many students failed to point this out.
(b) Operation of venture capital fund
Conditions related to operation of venture capital fund were required to be

given as have been explained in rule 27 of NBFC Rules 2003. Large
number of students somehow went on to quote the eligibility conditions for
grant of licence to the venture capital fund as are given in rule 25, which
were irrelevant.
Q.5 (a) Missing address of shareholder for notice purposes
This part was well-answered by the majority.
(b) Deposit from dealers for security purposes
Students quoted the provisions of Section 88 relating to invitation of

deposits which was not relevant in the given case. The answer should have
been based on Section 226.
(c) Loan of Chief Executive
Students tried to quote all the provisions contained in Section 195 of the
Companies Ordinance 1984. They should have limited their answer to the
relevant proviso only. One of the important condition i.e. getting approval
of loan from SECP was not mentioned by the majority.
Q.6 Extension in period for holding AGM
This was another badly attempted question as only 9% secured passing marks.
Various conditions are mentioned in rules 14 of the Companies Rules, 1985. Most
students could mention only two of them i.e. (i) application for extension can be
made to the registrar and (ii) registrar can extend the time upto 60 days. A number
of students incorrectly mentioned that the application for extension is required to
be made to SECP.
Non-adoption of accounts
Very few students could provide the correct answer based on Section 242
(2) of the Companies Ordinance, 1984.
Page 2 of 4
Q.7 (a) Disclosure of interest by director
The answer to this part of the question was based on Section 214 and 216 of
the Companies Ordinance, 1984. The deficiencies generally noticed in the
answer scripts were as under:`
- The question was based on a particular situation. Many examinees did

not mold their answers according to the situation and also quoted
various irrelevant matters contained in the above sections.
- Many students restricted their answers to Section 214 regarding

disclosure of interest only but did not specify the requirements of
Section 216 such as non-participation of interest director in the
meeting, restrictions on voting and his non-inclusion for quorum
purposes.
(b) Application of section 214 and 216 to XYZ (Private) Ltd.
The requirement to disclose the interest as given in Section 214 applied in

case of all companies and therefore applied to XYZ (Pvt) Limited also.
However, the restrictions relating to participation and voting etc. applied to

XYZ (Pvt) Limited only if XYZ was either a subsidiary or the holding
company of a public company. Very few of the students could provide a
satisfactory answer to this part of the question.
Q.8 Demand of poll
This question based on Section 167 of the Companies Ordinance, 1984, required
the candidates to describe as to when and under what conditions, a poll can be
demanded by the shareholder(s). The common errors were as follows:
The question was silent as to whether the company was a private or a public
company. The students were expected to incorporate both the situations in their
answers. Many students covered the question from the point of view of a public
company only.
Many students mentioned the minimum number of participants on whose request a

poll may be demanded but did not mention the fact that even a single share holder
can demand a poll if he has 10% or more of the total voting power as 10% or more
of the total paid-up capital.
Q.9 Code of Corporate Governance
This question was fairly attempted. However, many students wrongly opined that
Chief Executive cannot become the chairman of the audit committee. The code of
Corporate Governance rule (xxx) recommends that chairman should preferably be
a non-executive director but the same is not mandatory.
Page 3 of 4
Q.10 Indirect ownership of listed shares.
According to the scenario given in the question Mr. Abbasi the director of a
company had given loan to his nephew on soft terms. His nephew had then used
the funds to purchase the shares of the company in which Mr. Abbasi was a
director.
The above situation was an indication of the fact that Mr. Abbasi had acquired the
shares of the company in an indirect manner. It was therefore advisable for him to
comply with the requirements of Section 222 (2) (c) of the Companies Ordinance
1984 and (rule xxvi) of the Code of Corporate Governance. The students were
expected to discuss the situation in the light of the above. Very few students could
understand the situation. Majority was of the opinion that Mr. Abbasi will not be
required to do anything as he had no interest in the transaction whatsoever. Some
of the students who did conclude that it was an indirect purchase, were not aware
of the legal requirements which were required to be followed in such situation.
In this question, the reasoning behind the conclusions arrived at were more
important than the conclusion itself. Many students gave their conclusions either
without or with very little reasoning.
Q.11 Circumstance creating unreasonable monopoly power.
This was a practical question on Monopolies and Restrictive Trade Practices

(Control and Prevention) Ordinance, 1970. According to Section 5 (1) of the
above Ordinance, unreasonable monopoly power shall be deemed to exist under
three different situations which have been explained in para (a), (b) and (c) of the
above section.
The question also contained three situations and the students were required to
discuss each of them to ascertain whether unreasonable monopoly power existed
or not. The examiner expected them to briefly describe the conditions mentioned
in the above section and briefly evaluate each situation as given in the question
accordingly.
Here again the reasoning and the logic behind the decision were important. The
observations of the examiners on the students responses are as follows:
- There was serious lacking as regards the knowledge of the relevant law.
- Many students omitted the question altogether whereas many others just gave
their opinion, mostly in a single line without any reasoning.
- Those who did try to give reasons, emphasized more on the relationship as
associates rather than the relationships creating unreasonable monopoly
power.
(THE END)
Page 4 of 4
December 5, 2007

(3 hours)
Q.1 Blossom Textiles Limited, a listed company, is in urgent need of increasing its paid up
capital to improve balance sheet ratio and satisfy their bankers. The response from the
existing shareholders and the underwriters is quite discouraging.
(a) Mr. Majeed, an existing shareholder has shown his intention to purchase the whole
issue at par. Describe the steps that the company will need to take if it wants to
accept the offer by Mr. Majeed.
(b) Assuming that Mr. Majeed’s holding after the above purchase would exceed 10%
of the company’s total shareholding, what additional formalities would have to be
completed by him? (07)
Q.2 The CFO of ABC Limited realized on 23rd October that particulars of charge created on
13th October in favour of a bank were not filed with the Registrar of Companies for
registration. Describe the procedure the company should follow to get the charge
registered with the Registrar of Companies. Would the procedure be different if the
charge was created on 29th September? (06)
Q.3 A director of a listed company has proposed to nominate another person to act in his
place as he would be going to Japan to undertake a technical training course. You are
required to state the requirements to be complied with under the Companies Ordinance,
1984. (06)
Q.4 A group of shareholders holding 24% shares in RST Limited, a listed company, wishes
to file a petition with the Court against the management of the company and the
majority shareholders, on the following grounds:
(i) Loss of confidence in management.

(ii) Continuous losses being made by the company.
(iii) Failure to pay dividend.
(iv) Insider trading.
Quote the relevant provisions of the Companies Ordinance, 1984 and comment on the
advisability of the petition in each of the above case. (09)
Q.5 Synthetic Holdings Limited wishes to close down one of its subsidiary companies listed
on the Lahore Stock Exchange, as it is no more a viable unit. Their legal counsel has
advised the preparation of a Declaration of Solvency as a starting point to wind up the
subsidiary. In this context, you are required to explain:
(a) What is a declaration of solvency and what must it contain? (03)

(b) When is it made and what is its purpose? (02)
(c) What consequences may follow if the declaration is subsequently found to be
incorrect? (02)
(2)
Q.6 The members of XYZ (Private) Limited have resolved to make certain amendments in
the object clause of its memorandum of association to enable it to expand its scope of
activities.
(a) Explain the procedure that the company will have to follow. (03)
(b) List the information which will be required to be submitted in the application to
the concerned authority. (07)
Q.7 FGH is a listed company and has not declared any dividend or bonus shares during the
past few years. The board of directors is now considering distribution of bonus shares.
The Balance Sheet of the company prior to the issuance of bonus shares depicts the
following position:
Rs. in million
Share Capital ( 6.0 million shares of Rs. 10 each) 60
General Reserves 40
Share Premium 30
Revaluation Reserves 20
Intangible Assets 10
Tangible Assets 200
(a) Advise the company whether it can issue 25% bonus shares out of the General
Reserves, a part of which was accumulated in prior years. (04)
(b) Can the bonus issue be made out of Share Premium account? (04)
Q.8 A large group based in Dubai wishes to set up a company for carrying out a vast
spectrum of investment-related activities in Pakistan.
(a) You are required to advise them on the various forms of investment related
businesses referred to in section 282A of the Companies Ordinance, 1984.
(b) List the activities that may be carried out under each of the above forms of
businesses as specified in NBFC Rules 2003. (12)
Q.9 The board of directors of a listed textile weaving unit (KW Weaving Mills Limited) has
approved a scheme of amalgamation with its fully owned subsidiary, KD Dyeing Mills
Limited. The merger will result in economies of scale which would eventually increase
the profitability of the company in the coming years. You are required to draft the
relevant resolutions necessary to carry out the merger. (06)
Q.10 First Cosmopolitan Modaraba, having multipurpose objectives, is incurring losses for
the past three years. Its accumulated losses as at June 30, 2007 were Rs. 4.5 million as
compared to the present paid up capital of Rs. 6.0 million. You are required to explain:
The basis on which a winding up application may be filed against the Modaraba in
the above situation.
Who can file such an application and the relevant authority with whom the (06)
application may be filed?
(3)
Q.11 You have been appointed as the Chief Financial Officer of Shahbaz Insurance Limited,
an unquoted company, which was incorporated on 10th November 2007. You are
required to prepare a note for the forthcoming meeting of the Board of Directors,
containing the following information:
(a) The Committees which are to be established to meet the requirements of Code of
Corporate Governance and the scope of activities of each Committee. (10)
(b) Requirements as regards their composition and the frequency of the meetings. (03)
Q.12 Company A is in the process of being wound up. The following is a list of amounts
payable by it:
(Rs.000s)
Salaries and wages (staff strength 97; payable for last six months) 3,000
Utility bills 200
Property taxes (payable to City Government) 150
Fuel expenses payable to employees 150
Legal and professional fees 250
Sales tax payable 500
Penalty payable under the Income Tax Act 2001 100
Contributions to employees provident fund 200
Leave encashment 200
Disability insurance received from insurance company and payable to staff 100
Secured loan payable to National Bank of Pakistan - Principal 1,200
- Interest 250
Secured trade creditors 400
Unsecured trade creditors 1000
In the light of winding up provisions contained in the Companies Ordinance, 1984, how
would the above amounts be ranked for payment? Assuming that the funds available
with the company are Rs. 1.75 million only, how would the distribution take place? (10)
(THE END)
EXAMINERS’ COMMENTS
SUBJECT SESSION
Corporate Law Final Examination - Winter 2007
General :
The overall performance in this Paper was rather unsatisfactory as only 21per cent of the
students were able to obtain passing grades. Once again, the inability of the students to
comprehend the precise requirements of the questions and inadequate preparations were
observed in a large number of the replies.
Q.1 (a) Issuance of shares to an individual shareholder.
The candidates were required to mention the procedure for issue of further
capital in a situation when the present shareholders were not interested in
obtaining further shares. Many candidates ignored this fact and narrated the
normal procedure for issuance of right shares which was not required. In the
given situation two steps were required to be mentioned i.e. (i) a general
resolution has to be passed by the Board of Directors and (ii) approval of
SECP/Registrar should be obtained for issuance of unsubscribed share
capital to an existing shareholder.
(b) Shareholdings of Mr. Majeed are in excess of 10% of the Company’s

paid up capital.
In this Question reference was required to be made to section 4(1) and (2)
of the Listed Companies (Substantial Acquisition of Voting Shares and
Takeovers) Ordinance 2002, according to which Mr. Majeed is obligated to
inform the company and also the relevant stock exchange(s) of the status of
his holdings within two days of receipt of intimation of allotment of shares.
Furthermore, Mr. Majeed is required to submit particulars of his

shareholdings on Form 31 to SECP/Registrar in compliance with section
222 of the Companies Ordinance 1984 within a period of 30 days.
Q.2 Registration of Charge with the Registrar of Companies.
A considerable number of students stated that a charge is void if it is not

registered within 21 days of its creation. This premise is not absolutely correct
because there is an exception. It is stated in section 131, that SECP may grant
extension, if it is convinced that the grounds for omission were incidental or due
to inadvertence or for any other justifiable reason and would not prejudice the
interests of the creditors or the shareholders of the company. The extension may
be granted on such terms and conditions as may be considered appropriate by
SECP and would be valid for registration of the documents within the next 21
days. Many of the candidates failed to mention the exception or to mention the
conditions associated with it.
Page 1 of 5
Examiners’ Comments on Corporate Law Winter 2007 examinations
Q.3 Appointment of Alternate Director (sections 192 and 184).
Most of the students mentioned only one condition for the appointment of an
alternate director, viz the absence of incumbent director for a period of at least 3
months. The other pre-requisites and formalities to be complied with are:
• Necessary provision in the Articles of Association or an agreement between

the company and the concerned director proceeding on leave;
• Grant of leave of absence to the director proceeding on leave and approval of
appointment of alternate director by the Board of Directors, and
• Filing of completed Form 29 with the Registrar along with the consent of
incoming director.
Q.4 Filing of petition against the management in a Court
Only few students were able to state the various conditions mentioned in section
290 at least one of which is required to be met if a petition has to be filed against
the management. The conditions are:
Conduct of the company’s business in an unlawful or in a fraudulent manner.

Conduct of business of the company in a manner which is in contravention of
its memorandum of association.
Conduct of the business in a manner which is oppressive to the interests of
any creditor(s).
Conduct of the business in a manner which is prejudicial to public interest.
According to the decisions in a number of adjudicated cases, petitions cannot be
filed in a court on the grounds of loss of confidence in the management, or
continuous losses incurred by the company, or the management’s failure to pay
dividends.
In case the management indulges in insider trading, members may approach
SECP under section 224 for remedy, instead of filing a petition in the Court.
Most of the answers were not specific and to the point. Instead, they were based
on the general understanding of the examinees.
Q.5 Declaration of solvency (section 362(2)(b).
In most of the replies, the following shortcomings were noted:
Many students failed to mention that a declaration of solvency should also

include a statement of the company's assets and liabilities made up to the
latest practicable date before declaration.
A number of students failed to mention that if the declaration is subsequently

found to be incorrect the directors would be liable to a fine and/or
imprisonment, if the declaration was made without obtaining reasonable
grounds for belief.
Page 2 of 5
Q.6 Amendment in the Object Clause of Memorandum of Association.
The question was based on Section 21 and Rule 3 of the Companies (General
Provisions and Forms) Rules 1985
(a) Most of the students did not mention that an application for confirmation of
amendment in the Object Clause of Memorandum of Association must be
filed with the Registrar/SECP within 60 days of the passing of the special
resolution seeking the amendment in the Memorandum of Association.
(b) The information required to be submitted in the application for amendment

in the Memorandum of Association must include, name and address of the
company, date of incorporation, particulars of paid-up and redeemable
capital, actual business of the company in the context of its memorandum of
association and reasons for the proposed amendment. Besides, a copy each
of the Memorandum and Articles of Association, special resolution, minutes
of the meeting in which the special resolution was passed and dissenting
votes, if any along with the copy of the latest audited financial statements
must be submitted along with the application for amendment in the
Memorandum of Association.
Generally, the students were able to mention only a few of the aforesaid
requirements and therefore, could not score high marks in this rather simple
question.
Q.7 Issuance of bonus shares out of general reserves and share premium
account.
(a) Rules 5 and 6 of the Companies (Issue of Capital) Rules 1996.
Share premium was often treated as a part of free reserves. Intangible assets
were not deducted while calculating free reserves. Both these errors resulted
in loss of valuable marks.
(b) Sections 83 and 96 and rules as in part (a) above.
Although several students mentioned that bonus shares can be issued out of
share premium account, they failed to state the important point that such an
appropriation should be specifically authorized in the Articles of
Association. Moreover, bonus issue can only be made if the free reserves
after issuance of bonus shares exceed 25% of the paid up capital and that
too, after the issuance of bonus shares. Many students did not know that the
condition of 25% has to be applied on the balances, after issuance of bonus
shares.
Page 3 of 5
Q.8 Business activities carried out by NBFCs (section 282A and NBFC Rules
2003).
(a) This part of the Question was answered reasonably well by most students as
they were able to identify the investment-related businesses i.e. investment
financing, housing finance, discounting, investment advisory and asset
management services, as well as lease financing as referred to in section
282A.
(b) This part of the question required identification of various types of business
activities which can be pursued within the ambit of each of the above broad
investment-related businesses.
Under investment finance services, money and capital market operations,

project and corporate finance services may be provided. Leasing includes
both finance and operating leases, whereas investment advisory services
encompass management of closed-end funds and rendering advice on
valuation of securities and purchase and sale of securities. The activities
under asset management services include management of open-end mutual
funds, offering of investment schemes under trust deeds and issuance of
redeemable securities.
Some of the students went a step further and started describing the
operational issues involved in these investment-related services, which was
not required.
Q.9 Drafting of a Resolution of the Board of Directors to give effect to a

corporate merger
A large number of the students were not aware of the specific narrative
requirements of drafting of special resolutions and consequently offered vague
summaries of the merger transaction. The students are advised to carefully study
the examples of board resolutions which appear in the annual reports of leading
listed companies and also in the standard corporate law text books to develop an
insight in the precise terminology, format and presentation of the various types of
resolutions passed in the meetings of the Board of Directors.
Q.10 Winding up a Modaraba (Rule 23(1) of Modaraba Companies and

Modaraba Ordinance 1980.
Generally, the replies to this question were satisfactory. However, several

students did not clarify that a modaraba can be wound-up, if it is unable to
discharge its liabilities and/or if its accumulated losses exceed 50 per cent of the
total amount subscribed by the holders of the modaraba certificates.
The application for winding-up of a modaraba can be filed by the Registrar

Modaraba to a Tribunal constituted by the Federal Government under the
Modaraba Companies and Modaraba Ordinance 1980.
Page 4 of 5
Q.11 Committees formed under Code of Corporate Governance of an unquoted

insurance company
(a) Only a few students were able to list the four committees formed under the
Code of Corporate Governance viz. (i) Underwriting Committee, (ii) Claims
Settlement Committee, (iii) Reinsurance and Co-insurance Committee and
(iv) Audit Committee. A number of students were able to identify only the
audit committee and its functions. It was evident that most students had
resorted to selective studies and were not aware of the Code of Corporate
Governance applicable to insurance companies.
(b) Each of the above Committees comprises of a minimum of three members,

including one director and meets at least once in every quarter. The
Secretary of each committee is responsible for recording the proceedings of
the meetings and their circulations among the recipients within a period of
15 days of the convening of the meeting. The Secretary also ensures that the
records of the affairs of the Committee are retained at the Head Office. Here
again, very few of the students were able to perform well.
Q.12 Preferential Payments to be made by a company in the process of

winding –up.
Although many students mentioned that in the event of shortfall of funds in the
event of winding-up of a company, proportionate payments were to be made to
the creditors, they were not aware of the priority of the creditors listed in the
question. The students were expected to list the preferential payments in the
following order:
• Salaries and wages of 97 employees at Rs 2000 per employee.

• Fuel expenses to employees, property taxes, sales tax, income tax penalty,
contribution to employees provident fund, leave encashment and disability
insurance to be paid in full, as these payments including the salary would
amount to Rs 1.594 million.
• The outstanding amounts of utility bills, legal and professional fees, NBP
loans including interest, and both secured and unsecured creditors would be
paid on a pro rata basis from the balance amount of Rs 156,000.
Some students incorrectly declared that priority of payments shall be according to

clauses (a), (b), (c) and so on of Section 405 of the Companies Ordinance.
Many students did not know that priority payments against salary were to be
restricted to Rs. 2000 per employee.
(THE END)
Page 5 of 5
June 4, 2008

(3 hours)
Q.1 During the past 12 months Mr. Sohail’s holding in shares of ABC Ltd (a listed company)
has increased to 13%. Recently, he has written a letter to the company seeking appointment
on its Board of Directors. The company secretary had advised that since the election of
directors was held in the preceding annual general meeting, he cannot be admitted on the
board till the next elections become due. Mr. Sohail is not satisfied with the response and
has sought your advice on the matter. You are required to briefly discuss what course of
action is available to him. (07)
Q.2 (a) Arif & Co., Chartered Accountants were to be re-appointed as auditors at the Annual
General Meeting of Rose Limited, an unlisted company. The meeting was held on
October 31, 2007 but stood adjourned without discussing the appointment of
auditors. Explain the legal position of the auditors in such a situation. (02)
(b) An equity investment of Rs. 275 million has been offered by KA group of companies
to Rose Limited. In order to expand the business activities of the company, the
management is inclined to accept the proposal. However, the shares to be issued
would not rank pari passu with the current shares and shall be termed as Class “B”
shares.
The current position of the company’s capital and reserves is as under:
Rupees
(in million)
Share Capital:
Authorized 500
Issued, subscribed & paid up 330
Capital Reserves:
Share premium account 45
Revenue Reserves:
Un-appropriated profit 20
Identify the relevant provisions which Rose Limited will have to comply with and describe
briefly the steps it would need to take, for issuance of shares. (10)
Q.3 (a) Pioneer Services Inc., a branch office of a US company engaged in software business
has decided to wind-up its operations in Pakistan. You are requested to guide the
management about the necessary formalities to be carried out under the Companies
(b) What requirements would have to be complied with, by a foreign company having a
branch office in Pakistan, if the company goes into liquidation in the country of its
incorporation? (06)
(2)
Q.4 In its meeting held on October 10, 2007 the Board of Directors of Snow White Limited, a
listed company, decided to offer a 60% right issue at par value. You are required to explain:
(a) The conditions that the Board will have to comply with in this regard. (07)
(b) The additional conditions which the Board will have to comply under each of the
following situations:
(i) If the company’s shares have been traded below par value during the past one
year.
(ii) If the shares are to be issued at a premium of Rs. 5 per share. (03)
Q.5 (a) Certain persons have been restricted from being appointed as legal adviser of a
public limited company. Specify the restrictions imposed in this regard under
Appointment of Legal Advisor’s Rules 1975. (02)
(b) State the particulars which are required to be specified in the Register of Legal
Advisers. (03)
Q.6 Explain ther term “Foreign Controlled Company” as referred to in the Foreign Exchange
Regulations. (06)
Q.7 The Board of Directos of Iqra Industries Limited, a newly incorporated listed company, is
in the process of formulating significant policies to govern the operations of the company.
As a member of the Board, identify the significant policies which should be formulated, as
advised under the Code of Corporate Governance. (06)
Q.8 Mr. Overtaker has issued a public offer for the acquisition of M/s Undertaker Limited, a
company listed on the Karachi and Lahore Stock Exchanges, at a price of Rs. 55 per share.
The offer has not fetched results and Mr. Overtaker is worried that the offer will lapse
without much success.
Narrate the conditions he will have to comply with if he wishes to revise the offer upwards. (05)
Q.9 (a) Express Limited, a company listed on the Karachi Stock Exchange has a paid-up
capital of Rs. 100 million divided into 10 million shares of Rs. 10 each. The Board of
Directors have approved the purchase of 100,000 treasury stocks at Rs. 15 each
within 30 days, by a tender. As the Company Secretary, what procedure would you
follow in this regard? (11)
(b) The Board of Directors of Ghareeb Limited has decided to contribute a fixed amount
every year to a charitable organization. The company secretary notified that a clause
needs to be inserted in the object clause of the Memorandum of Association for the
same.
Draft a clause to be included in the Memorandum covering the permissibility of the
proposed activity. (02)
Q.10 A group of shareholders of Sky Blue Limited believes that certain business activities
carried on by the company are prima facie against the interest of the company and its
members. They have approached your firm and seek your guidance for applying to the
SECP to carry out the investigation against the directors of the company.
You are required to identify the conditions under which such an application may be filed
and the procedure that will have to be followed in this regard. (05)
(3)
Q.11 (a) Explain the term “Participant” as defined under Central Depository Act, 1997. (02)
(b) The Securities of Shalimar Investment Company Limited (SICL) are registered in the
name of Central Depository Company (CDC). List the steps which the CDC will have
to take where a bonus issue is declared by SICL? (05)
Q.12 (a) See-green Limited, a public limited company, had convened a general meeting at 9:00
a.m. on March 25, 2008 to consider and if deemed fit, pass a special resoulution
approving the disposal of a part of the company’s undertaking.
The meeting commenced at 9:16 a.m. as the quorum was not present at the scheduled
time and was attended by 100 members (including 10 members represented through
proxies) holding 1,000,000 shares in aggregate.
After a heated debate, voting was held through show of hands and the chairman
declared the resolution successful as 78 votes were casted in favour of the resolution.
On March 31, 2008, the shareholders who gave a dissenting vote in the meeting,
lodged a protest with the company claiming that the resolution was invalid on account
of the following reasons:
(i) Mr. A who voted for the resolution was represented through a proxy which was
deposited at 5:01 p.m. i.e. after office hours on March 22, 2008. Moreover,
since March 23rd was a public holiday, the condition of depositing the proxy
atleast 48 hours before the meeting, could not be met.
(ii) Mr. B a shareholder with a holding of 50,000 shares was represented by two
proxies i.e. Mr. C (30,000 shares) & Mr. D (20,000 shares). Both proxies were
counted for the purpose of voting.
(iii) JK (Pvt) Limited holding 20,000 shares of the company , were represented by
Mr Sameer, who is neither the director nor the employee of the company. He
also voted in favour of the resolution.
(iv) The shareholders who lodged the protest hold 300,000 shares and therefore the
resolution was approved by shareholders holding 70% voting rights only.
(v) Since the meeting could not be held on time, it became invalid and should be
called again.
Discuss the validity of the resolution under the Companies Ordinance 1984, in view
of the complaint lodged by the dissenting shareholders. (10)
(b) In the first meeting of Board of Directors of Alif Cement Ltd a public listed company,
Mr. Raoof proposed the name of Mr. Haseeb for appointment as chief executive of the
Company. Mr. Zahid opposed the proposal on the following grounds:
(i) Mr. Haseeb is also the Chief Executive of Bay Cement (Pvt) Limited which
holds 15% shares in Alif Limited.
(ii) he is involved in the business of stock brokerage.
Comment on the statement of Mr Zahid in the light of the provisions of the
(THE END)
CORPORATE LAWS
Suggested Answer
Final Examinations – Summer 2008
Ans. 1 Under the Companies Ordinance, 1984 the tenure of the BOD is 3 years.
Before expiry of the term a person can only be admitted to fill in the casual vacancy.
However, according to the Companies’ Ordinance, 1984 if a person acquires 12.5% or more voting
shares in a listed company in his own name, he may apply to the Commission to direct the company
to hold fresh election of directors in the forthcoming annual general meeting of the company.
The Commission may, if it deems appropriate in the interest of the company, its minority
shareholders or the capital markets generally, direct the company to hold the election of directors as
above and the company shall comply with such direction.
However, in case the election is held as above, Mr. Sohail shall be restricted from selling or
disposing of the shares for at least one year from the date of election of Directors of the company.
Ans. 2 (a) The appointment of auditor is made at every annual general meeting of the company to hold
office from the conclusion of that meeting until the conclusion of the next AGM. Since the
AGM was adjourned without discussing the re-appointment of Arif & Co., they will continue
to hold office till the conclusion of the adjourned AGM.
(b) Rose Ltd. Should have to comply with the following provisons:
1. Alter the Memorandum of Associations and Articles of Association in order to:
 Increase the authorized capital and
 provide for (if not already provided for) issuance of different kinds of shares permitted
under the Companies Share Capital (Variation in Rights and Privileges) Rules, 2000.
The main steps which the company needs to take for issuance of shares, are as follows:
1. A special Resolution will have to be passed by the shareholders at the General Meeting
of the Company.
2. On the basis of the special Resolution, an application will have to be made to the
Federal Government, to allow the company to raise its capital further, without issuance
of right shares.
Ans. 3 (a) Following necessary formalities need to be carried out by the foreign company.
Notice of closure of business
Give a notice of closing the business and ceasing to have any place of business in Pakistan to
the Registrar at least thirty days before closing of the business along with the prescribed fee.
Publication of Notice in Newspaper

Publish a notice of such intention at least in two daily newspapers circulating in the Province
in which such place of business is situated at least thirty days before the closing of the
business.
(b) The branch of the foreign company is required to:
 give notice to the Registrar concerned within 30 days;

 simultaneously publish a notice at least in two daily newspapers circulating in the
province(s) in which its place(s) of business is situated;
 furnish to the Registrar concerned all returns and account relating to the liquidation in
respect of its business in Pakistan, within 30 days of the conclusion of the liquidation
proceedings; and
 Publish a statement on every invoice, order, letter paper, bill head, notice or other
publications in Pakistan that the company is being wound up in the country of its
incorporation.
Page 1
CORPORATE LAWS
Suggested Answer
Ans.4 (a) The Board of Directors of Snow White Limited will have to comply with the following
conditions:
(i) The company may only make a right issue if at least one year has passed since the last
issue of capital to the public.
(ii) While announcing right issue, the company shall clearly state:
- The purpose of the right issue.
- Benefits to the company.
- Use of funds.
- Financial projections for the next three years.
(iii) The financial projections shall be signed by all the directors who were present in the
meeting in which the right issue was approved.
(iv) The decision to issue right shares will have to be communicated to the
Commission and the stock exchanges(s) on the day of decision.
(v) The book closure will have to be made within forty-five days of the announcement of
the right issue.
(b) (i) If market share price during the past one year (preceding six months as per Rule 5) has
remained below par value, the right issue will have to be fully and firmly underwritten.
(ii) The company may charge premium on right shares up to the free reserves per shares as
certified by the company’s auditors. The auditors’ certificate has to be furnished to the
Commission and the stock exchange(s) along with an intimation of the proposed right
issue.
In case a company proposes to charge premium on right shares above the free reserves
per share, it shall be required to fulfill to following requirements as well:
(a) at least 40% of all the share holders undertake to subscribe their portion of right
issue; and
(b) the remaining amount shall be underwritten by at least two financial institutions
not being the associated company and the underwriters shall give full justification
of the amount of premium in their independent due diligence report.
Ans.5 (a) An advocate or a registered firm cannot be appointed as legal adviser of a company, if upon
appointment, the number of companies of which such advocate or firm is a legal adviser
exceeds:
(i) Three, in case of an advocate.
(ii) The product of three and total number of partners of the firm, in case of a firm.
(b) Following particulars are required to be specified in the register of legal advisers.
(i) Name of the legal adviser or name of the firm
(ii) Number of partners, in case of a firm.
(iii) Remuneration
(iv) Address
(v) Date of appointment
(vi) Date of termination of appointment
Page 2
CORPORATE LAWS
Suggested Answer
Ans.6 “Foreign Controlled Company” is any company, not being a banking company, which is controlled,
whether directly or indirectly, by person’s resident outside Pakistan.
A company/firm / branch or office of a company or firm, is deemed to be controlled directly or
indirectly by persons resident outside Pakistan, if:
(i) it is a branch office of a company incorporated outside Pakistan , or
(ii) in the case of partnership, if:
(a) 50% or more of the capital of the partnership is owned by foreign nationals, or
(b) The majority of the partners are foreign nationals, and
(iii) in the case of companies incorporated in Pakistan, if:
(a) 50% of the shares or more are subscribed by foreign nationals, or
(b) 50% of the Directors or more are foreign nationals.
In the case of equal share-holding, a company is deemed to be a Pakistan controlled
company, if it’s Chief Executive is a Pakistani National.
Ans.7 Under the Code of Corporate Governance, The Board of Direcots of Iqra Industries Limited should
formulate the following significant policies:
(i) Risk management.
(ii) Human Resource Management including preparation of the succession plan.
(iii) Procurement of goods and services.
(iv) Marketing.
(v) Determination of terms of credit and discounts to customers.
(vi) Write-off of bad/doubtful debts, advances and receivables.
(vii) Acquisition / disposal of fixed assets.
(viii) Investments.
(ix) Borrowing of money and the amount in excess of which borrowings shall be sanctioned /
ratified by a general meetings of shareholders.
(x) Donations and charities.
(xi) Determination and delegation of financial powers.
(xii) Transactions or contracts with associated companies and related parties.
(xiii) Health, safety and environment.
Ans.8 Mr. Overtaker can make an upward revision in his offer price at any time up to seven working days
prior to the date on which the offer is to lapse.
However, when making such upward revision, the following conditions shall apply:
(a) A public announcement shall be made in all the newspapers in which the earlier public
announcement was made.
(b) SECP, Karachi Stock Exchange, Lahore Stock Exchange and M/s Undertaker Limited (at its
registered office) shall be informed of such upward revision.
(c) Furnish any additional security as may be required, in order to meet his obligations.
Ans.9 (a) Express Limited will have to carry out the following procedures for the purpose of buy back
of shares.
(i) The decision of the directors for the purchase shall be communicated to the
Commission and the respective stock exchanges on the day of the decision.
(ii) Convene a general meeting for passing the special resolutions by giving notice to all
members at least 21 days before the meeting.
(iii) Statement of material facts shall be sent along with the above notice, which shall
Page 3
CORPORATE LAWS
Suggested Answer
contain:
 Justification for the purchase.
 Source of funding.
 Effects on the financial position of the company.
 Nature and extent of interest of every director.
(iv) Notice shall be published in at least two newspapers circulating in the provinces in
which the stock exchange on which the company is listed exists.
(v) Copies of the resolution shall be filed with the Registrar within 15 days of the
passing of the resolution.
(vi) A tender shall be given in the newspaper for purchase of the shares.
(vii) The purchase of the shares shall be recorded in the register maintained for such
purchase.
(viii) Register of members and other registers shall be amended accordingly.
(ix) A return with the declaration of solvency shall be filed with the Registrar and
Commission within 30 days of the date of purchase.
(b) Suggested draft of the Clause to be included in the Memorandum is as follows:
“To grant relief donation for and during calamities, undertake charitable activities which in
the opinion of the company would assist and benefit mankind and to establish, maintain, run,
manage and administer charity programs, providing relief and to help the needy and poor” .
OR
“To subscribe, donate money for any national, charitable, benevolent, public, general or
useful object including any educational institution, hospital, flood or famine relief fund and
other institution or fund established for religious or charitable purpose”.
Ans.10 An application for investigation against the directors may only be filed by members having not less
than one tenth of the total voting power.
The significant steps need to be taken in this regard are as follows:

(i) An application shall be filed with the SECP which among other information, shall also include
the following:
 Names and addresses of the applicants.
 Precise and specific reasons for requesting the investigation with particulars of alleged
irregularities.
 Documentary evidence to support the claim of alleged irregularities.
(ii) The statements made by the applicants should be duly supported by an affidavit.
(iii) The Commission may, before passing any order on the application, require the applicants or
any one or more of them to produce such further documentary or other evidence as the
Commission may consider necessary
Ans.11 (a) “Participant” means

(i) an account-holder who is a member of a stock exhange; and
(ii) any other account-holder who meets the qualifications of a participant prescribed in the
CDC Regulations.
(b) CDC will have to take the followign steps when a bonus is declared by SICL:
(i) Such bonus securities entitlement shall be allotted to the Central Depository.
(ii) On the day beofre book closure, CDC shall determine the entitlement of each account
holder and sub-account holder.
(iii) CDC shall enter the book-entry securities in the relevant accounts and sub-accounts in
Page 4
CORPORATE LAWS
Suggested Answer
accordance with the determined entitlements.

(iv) Fractional entitlements to book entry securities, relating to the bonus securities, shall
not be credited by cental depository to the relevant accounts and sub-accounts but shall
be consolidated and dealth with in accordance with the regualtion.
Ans.12 (a) The various situations given in the question are discussed hereunder:
(i) Since the proxy was lodged after office hours on 22nd March. It would be deemed to
have been lodged on 23rd March 2008. Hence, the condition of depositing the proxy 48
hours before the meeting could be met and the vote caste on the basis of such proxy
should be considered as valid.
(ii) As per the Ordinance a member shall not be entitled to appoint more than one proxy to
attend any one meeting. If any member appoints more than one proxy for any one
meeting and more than one instrument of proxy are deposited with the company, all such
instruments of proxy shall be rendered invalid.
Accordingly, votes caste by Mr. C and D as proxies would be invalid.
(iii) As per the Ordinance, a company which is a member of another company may, by
resolution of the directors, authorize any of its officials or any other person to act as its
representative at any meeting of that other company.
Therefore Mr. Sameer’s vote is valid.
(iv) As per the ordinance, at any general meeting, a resolution put to the vote of the meeting
shall be decided on show of hands, unless a poll is demanded.
The concerned shareholders should have demanded a poll before or on the declaration of
the result of the voting by show of hands and not after the meeting is concluded.
Therefore the shareholder’s protest is not valid.
(v) As per the Ordinance, if within half an hour from the time appointed for the meeting, a
quorum is not present, the meeting, may either be dissolved or adjourned. since the
quorum was present with in 30 minutes, the meeting is valid.
Conclusion:
In view of the above the resolution would be deemed to have been duly passed even
after if the proxies lodged by the members who were represented by Mr. B and C are
considered invalid as 75% valid votes were caste.
(b) (i) As per the Ordinance, a chief executive of a public company shall not directly or
indirectly engage in any business which is of the same nature as and directly competes
with, the business carried on by the company of which he is the chief executive.
(ii) Moreover, no person shall be appointed as chief executive of a company if he is a
member of a stock exchange engaged in the business of brokerage.
Therefore Mr. Zahid’s contention is correct.
(THE END)
Page 5
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKSITAN
SUBJECT SESSION
General:
The examination revealed that a large number of candidates were inadequately prepared
for the examination. A significant number of candidates produced solutions, which were
out of context. The need for candidates to give more thought to the precise requirements
of the questions is of paramount importance as the poor performance of many candidates
was exacerbated by a clear failure to carefully read the content and requirements of the
questions. The poor performance witnessed in questions # 5, 6 and 11 was most probably
on account of selective study.
Rather surprisingly, a number of candidates ignored the advice that there should be clear
labeling to indicate which questions are being attempted. Use of ambiguous English and
incorrect spelling at this stage was unexpected.
Question-wise comments:
Q.1 This case study was framed in the light of section 178A of the Companies
Ordinance, 1984. Whilst many candidates could refer to the provisions
describing three years of Director’s tenure and casual vacancy and some could
cite that the case will be referred to Commission, their knowledge of the
amended law regarding fresh election of director, on request of substantial
acquirer left much to be desired. A surprising number knew very little and
indeed many got confused and wrote the complete procedure of holding election
of directors, which was not required.
Q.2 (a) In this simple question, only few candidates managed to state that the
appointment of auditor is made at every annual general meeting (AGM) of
the company to hold office from the conclusion of that meeting until the
conclusion of the next AGM and since the AGM was adjourned without
discussing the re-appointment of auditor, the present auditor shall continue
to hold office till the conclusion of the adjourned AGM.
(b) This question relating to issuance of different classes of shares was framed
keeping in view the provisions of Companies Ordinance 1984, and
Companies’ Share Capital (Variation in Rights and Privileges) Rules 2000.
The performance of the students was average. Vast majority of the students
were unable to give a complete answer; however, almost every student was
able to mention at least some of the following important steps:
1. Alter the Memorandum of Association and Articles of Association in

order to:
• Increase the authorized capital and
• Provide for (if not already provided for) issuance of different kinds
of shares permitted under the Companies Share Capital (Variation
in Rights and Privileges) Rules, 2000.
Page 1 of 5
Examiners’ Comments on Corporate Laws – Summer 2008 Examination
2. Pass Special Resolution authorizing the issue of shares.
3. On the basis of the Special Resolution, file an application with the

Federal Government, to allow the company to raise its capital further,
without issuance of right shares.
Q.3 The performance in this question was average. The candidates were able to
specify many of the formalities required to be carried out when a company is
winding up its operation in Pakistan and when the company having a branch
office is being wound up, in the country of its incorporation. However, very few
of the students could give a complete answer.
Q.4 (a) This question was based on Rule 5 of the Companies (Issue of Capital)
Rules, 1996. Most of the students were able to perform well; however an
important point i.e. that the company may only make a right issue if at
least one year has passed since the last issue of capital to the public, was
missed by the majority.
(b) (i) Most candidates recognized that since the market share price during
the past one year (preceding six months as per Rule 5) has remained
below par value, the right issue will have to be fully and firmly
underwritten.
(ii) Most candidates were able to mention that the company may charge
premium on right shares up to the free reserves per share. However,
only a small percentage of candidates were able to cover the other
conditions i.e. (i) the free reserves per share need to be certified by
the company’s auditors and (ii) the auditor’s certificate has to be
furnished to the Commission and the stock exchange(s).
Very few candidates knew about the conditions which are required to
be fulfilled when a company proposes to charge premium on right
shares exceeding the free reserves per share. The requirements are as
follows:
(a) at least 40% of all the shareholders should undertake to

subscribe their portion of right issue; and
(b) the remaining amount shall be underwritten by at least two
financial institutions not being an associated company and the
underwriters shall give full justification of the amount of
premium in their independent due diligence report.
Many candidates narrated all the requirements of Rule 5 of the Companies (Issue
of Capital) Rules, 1996 while answering part (a) of the question, instead of
mentioning the appropriate provisions in each part of the question.
Q.5 (a) It was a simple question based on Companies (Appointment of Legal

Advisers) Act 1974 and the related rules issued in 1975. However, very
few students could perform well because it seemed that they had ignored
this topic on account of selective studies.
Page 2 of 5
(b) Even where candidates were not totally aware of all the particulars that are
required to be specified in the register of legal advisers, the majority listed
at least the following through presumption:
Name of the legal adviser or name of the firm

Remuneration
Address
Date of appointment
However, only few of them could mention about number of partners in
case of a firm and date of termination of appointment. It has to be said that
it was in the substance of the question that candidates scored good marks.
Q.6 This straight forward question was based on Rule 2, Part A, Chapter XIX of
Foreign exchange regulations. Disappointingly very few students could secure
passing marks as it was evident that a large majority had not studied the Foreign
Exchange Regulations. Many of the better performing students restricted their
answer to the following statement:
“Foreign Controlled Company is any company, not being a

banking company which is controlled directly or indirectly
by persons resident outside Pakistan”.
They failed to explain the conditions under which a company, firm or branch
will be deemed to be controlled by a person resident outside Pakistan.
Q.7 This question was based on code viii (b) of the Code of Corporate Governance.
Many candidates referred to accounting policies and responsibilities of audit
committee which were not required. Such irrelevant material gained no credit;
indeed it showed that they did not recognize the key requirements of the
question.
Vast majority produced answers which were based on their general

understanding of the powers and responsibilities of the Board of Directors.
Consequently, they were able to secure a few marks but very few could produce
really good answers.
Q.8 This question was based on Section 17 of the Listed Companies (Substantial
Acquisition of Voting Shares and Take-over) Ordinance, 2002. Many candidates
were able to mention that upward revision in offer price can be made at any
time up to seven working days prior to the date on which the previous offer is to
lapse but most of them were not able to list all the other conditions which have
to be met before an upward revision of public offer can be made.
Q.9 (a) This question was based on the requirements of section 95A of the
Companies Ordinance, 1984 and Rule 5 of the Companies (Buy-Back of
Shares) Rules, 1999.
The information given in answer scripts was often reasonably accurate

showing that the candidates had properly learnt and revised the topics they
chose to cover in their answers. However, many candidates choose to write
everything they knew about buy back of shares instead of selecting and
applying relevant knowledge and provisions to the given situation.
Page 3 of 5
(b) A large number of the students were not aware of the specific narrative
requirements of drafting the clause to be included in the memorandum of
association and consequently produced incomplete and improperly worded
answers.
Q.10 This question was framed in the light of requirements of Section 263 of the
Companies Ordinance, 1984 and Rule 18 of the Companies (General Provisions
and Forms) Rules, 1985. Few candidates managed to attempt the question
correctly. Some candidates confused the requirements with investigation
procedures. As for those who at least tried to focus on the issue, many
candidates wrote the requirements stated in Sections 263 of the Companies
Ordinance, 1984 but did not correlate it with the requirements of Rule 18.
Q.11 As already mentioned in the General Comments, most students seemed to have
ignored the Central Depositories Act, 1997 in their studies and could not answer
the question correctly. Part (a) of the question was based on Section 2 (17) of the
Act whereas part (b) was based on Section 10 thereof.
Q.12 While the majority of candidates grasped the essence of this question, a fairly
substantial minority failed to see what was required and based their answers on
matters which were not central to the question.
In most of the replies, the following shortcomings were noted:
(i) Students were confused about the inclusion of public holiday for
depositing of proxy form at least 48 hours before the meeting.
(ii) Few students mentioned that proxy form of both proxies were correct
whereas, as per the Companies Ordinance 1984, a member shall not be
entitled to appoint more than one proxy to attend any one meeting. Since
B had appointed more than one proxy for the meeting and more than one
instrument of proxy had been deposited with the company, both
instruments of proxy became invalid.
(iii) Most candidates managed to state that company may, by resolution of the
directors, authorize any of its officials or any other person to act as its
representative at a general meeting of any other company.
Disappointingly, many candidates who explained the above provision then
went on to contradict themselves by stating that since Mr. Sameer is not
an employee of the company, his vote is not valid.
(iv) Only few students mentioned that concerned shareholders should have
demanded a poll before or on the declaration of the result of the voting by
show of hands and not after the meeting was concluded and therefore the
shareholder’s protest regarding approval of resolution was not valid.
(v) Some students were confused as to the timings of quorum and failed to
mention that since the quorum was present within 30 minutes, the meeting
was valid.
(vi) Many of the candidates who approached the question in a more structured
and relevant way by explaining the above issues in the light of the
Companies Ordinance 1984, failed to give a final conclusion regarding the
validity of the meeting and the resolution.
Page 4 of 5
(b) (i) Most candidates recognized that a chief executive of a public

company shall not directly or indirectly engage in any business which
is of the same nature as and directly competes with the business
carried on by the company of which he is the chief executive.
However, some were confused with inter company holding.
(ii) Majority of the candidates knew that a person shall not be appointed
as chief executive of a company if he is the member of a stock
exchange.
(THE END)
Page 5 of 5
December 3, 2008

(3 hours)
Q.1 Friends Textiles Limited has suffered heavy losses and has almost ceased its operations due
to global recession. The directors foresee no improvement in the company’s financial health
and are of the opinion that the company should be liquidated now, as otherwise, in view of
the deepening economic crises, it would be difficult for the company to fetch a good value
for its assets.
Required:
(a) Narrate the circumstances in which a company may be wound up voluntarily? (03)
(b) Advise the directors of the company about the steps that need to be taken to wind up
the company voluntarily. (10)
(c) State the requirements and the procedure to be followed for making a Declaration of
Solvency under members’ voluntary winding up. (05)
Q.2 The Board of Directors of ABC Limited, a company listed on Karachi and Lahore Stock
Exchanges, has resolved to transmit its quarterly financial statements to the members of the
company through its corporate website. You are required to discuss the requirements of
Companies Ordinance, 1984 regarding placement of the quarterly accounts on the web. (07)
Q.3 (a) List the types of businesses that NBFCs are permitted to carry out under the relevant
provisions of Companies Ordinance 1984. (03)
(b) In order to reap benefits of large scale operations, the Board of Directors of Moonlight
Leasing Limited and Dream Leasing Limited intend to amalgamate the operations of
the two companies.
State the procedure which should be followed for the merger of the two companies and
the approvals required to be obtained for this purpose, under the provisions relating to
establishment and regulation of NBFCs. (08)
Q.4 Mr. Khan, chief executive of Prosperous Engineering Limited, is assessing the possibility of
setting up a new project in Gwadar in collaboration with a prospective foreign investor. He is
confident that the proposed project will reap significant benefits to the company. Since he
does not wish to dilute his holding and voting rights, he is planning to issue class B shares to
the investor along with 16% TFCs with a floating charge on the book debts of the company
and a fixed charge on its machinery in the manufacturing department. He wants to have your
advice on the issue.
Required:
(a) Explain to Mr. Khan various rights and privileges which shareholders may have in case
of more than one class of share capital, under the Companies Share Capital (Variation
in Rights and Privileges) Rules, 2000. (06)
(b) Explain the important characteristics of a fixed charge and floating charge and their
registration requirements. (05)
(2)
Q.5 GP Pharma Limited, a family owned company with zero debt, has witnessed rapid growth
during the past 5 years. In order to carry on the successful growth pattern and fulfill the ever
increasing customers demand, the board of directors of the company is planning to establish
another manufacturing facility at a cost of Rs. 200 million. To meet the cost of the project,
the company needs to raise capital and therefore has decided to go public.
Required:
Advise the Board about the conditions to be complied with for the issuance of capital under
the Companies (Issue of Capital) Rules, 1996. (09)
Q.6 Fiber Leasing Limited has recently lost one of its Directors and the Chief Executive in a
tragic car accident. The company wants to appoint Mr. Big and Mr. Smart in place of its late
director and chief executive respectively. With reference to NBFC and Notified Entities
Regulations, 2007, state the considerations which SECP would take into account while
assessing their competence and capability as Director and Chief Executive. (09)
Q.7 Mega Projects Limited is presently facing financial crunch. In order to overcome this crisis
and to improve profitability, the Board of Directors is considering to raise funds through
capital injection. The existing shareholders and the potential investors may not be willing to
invest at par value which is Rs.10 per share. However, it is estimated that the company could
get just about Rs. 7 per share. The directors have therefore decided to issue shares at
discount.
Being a Company Secretary, you are required to advise the directors about the procedure to
be followed in this regard, under the Companies Ordinance, 1984. (10)
Q.8 (a) In view of large decline in the value of shares in Asian markets, a group of US
investors believe that now is the opportune time to invest in such markets as they have
almost reached their lowest limits. One such investor, Mr. NR is interested in buying
securities listed on Karachi Stock Exchange.
With reference to relevant provisions of Foreign Exchange Manual, you are required to
advise Mr. NR on the following:
(i) The procedure to be followed in order to trade in listed shares in Pakistan.
(ii) Whether Mr. NR would be entitled to receive dividends on such securities and
are there any restrictions on repatriation of funds outside Pakistan? (09)
(b) Explain the meaning of “a person resident outside Pakistan” as referred to in the
Foreign Exchange Regulations. (03)
Q.9 Sigma Industries Limited is a company listed on Karachi Stock Exchange. Its financial year
ends on December 31. The final dividend for the year 2007 was approved in the AGM held
on March 31, 2008. To maintain its good payout ratio, the company declared two interim
dividends of 10% and 12% in January and February 2008 respectively. The books were
closed for a period of 12 days and 18 days respectively. The directors of Sigma Industries
Limited have now proposed a final dividend of 20% which is to be approved in the
forthcoming AGM of the company. The directors intend to close the share transfer register
from March 25, 2009 for determining shareholders entitlement for the purpose of dividend,
meeting, etc.
In the light of Companies Ordinance, 1984 you are required to advise the directors as regards
the following :
(a) The maximum period for which the books of Sigma Industries Limited can be closed
and the procedure that should be followed in this regard. (05)
(b) The last date up to which Sigma Industries Limited can hold its AGM. (03)
(c) The procedure relating to sending of notices, annual report and audited accounts to the
members and concerned authorities. (05)
(THE END)
CORPORATE LAWS
Final Examinations – Winter 2008
Suggested Answers
Ans.1 (a) Circumstances in which a company may be wound up voluntarily

A company may be wound up voluntarily, under the following circumstances:
(i) On expiration of the period fixed for its duration or on occurrence of the event on the occurrence
of which the company is to be dissolved under the articles of association and the company has
passed a resolution in the general meeting for it to be wound up voluntarily;
(ii) If a special resolution is passed that the company be wound up voluntarily;
(b) The management is required to take the following steps for Members’ voluntary winding up under the
Provisions of the Companies Ordinance, 1984.
(i) Directors may make a declaration of solvency duly supported by an auditors report to be filed
with the registrar within five weeks immediately preceding the date of passing of winding up
resolution. They, then, call a general meeting of the members.
(ii) The company, on the recommendations of directors, passes a Special Resolution for winding up
in the general meeting of the members.
(iii) Notice of resolution shall be given by the company in the Official Gazette within 10 days and
also published in the newspapers, with a copy of it is to be filed with Registrar.
(iv) The company shall appoint a liquidator in the general meeting of the company. On appointment
of the liquidator, all the powers (with certain exceptions) of the Directors, chief executive and
other officers shall ceases to exist.
(v) Consent of the Liquidator and notice of his appointment is filed with the Registrar.
(vi) Liquidator shall realize the assets of the company and pay the claims of the creditors. After
adjustment of all claims and rights, surplus shall be distributed to the contributories on pro rata
basis.
(vii) Liquidator prepares the accounts and final report, get the accounts audited, and presents the same
in the general meeting of the contributories (members).
(viii) A notice of such meeting of contributories shall be published in the Gazette and newspapers at
least10 days before the date of meeting.
(ix) Liquidator shall file the accounts, final report and a return of holding the meeting along with
minutes thereof, with the registrar, within one week after the meeting.
(x) On the expiration of three months from registration of the above, the company shall be deemed to
be dissolved.
(c) Requirements and the procedure to be followed for making a Declaration of Solvency under
members’ voluntary winding
In case of Members voluntary winding-up:
(a) All directors, including the chief executive and if the number of directors is more than three,
majority of these directors are required to make a declaration of solvency.
(b) A declaration of solvency is a declaration by the directors that in their opinion the company shall
be able to pay all its debts in full within the period specified in the declaration but not exceeding
twelve months from the commencement of the winding-up.
(e) The declaration of solvency is required to be filed with the registrar within 5 weeks immediately
preceding the date of passing winding up resolution.
(f) Following are enclosed with the declaration of solvency:
(i) A copy of the report of the auditors.

(ii) The profit and loss account of the company, prepared for the period commencing from the
date of last such accounts to the date as close as possible to the date of making such
declaration.
(iii) The balance-sheet of the company as on the above date.
(iv) A statement of the company’s assets and liabilities as at that date.
Page 1 of 5
CORPORATE LAWS
Suggested Answers
Ans.2 A listed company may place its quarterly accounts on its website, subject to fulfillment of the following
conditions:
(i) Seek the consent of its shareholders in a General Meeting.

(ii) Consult the respective stock exchanges.
(iii) Seek prior permission of the Commission.
(iv) The application for this purpose shall indicate its website address.
(v) The company, after obtaining the requisite permission, shall inform its shareholders through an
advertisement in the Press that the subsequent quarterly accounts would be transmitted to them through
the company website.
(vi) The respective Stock Exchanges and the Commission shall be informed in writing, by post.
(vii) The requirement of filing the prescribed number of copies of periodical accounts with the Commission
and the Stock Exchange(s) by post shall be fulfilled, in addition to the transmission of the same through
the website of the Commission and the Stock Exchange(s).
(viii) The company will also provide a copy of quarterly accounts, free of cost, to any shareholder, on
demand.
(ix) Transmit periodical accounts electronically to the concerned stock exchange(s) so as to place the same
on their website.
(x) A group of companies under the same management may maintain a single website instead of having an
independent website for each company.
(xi) The listed companies shall also be required to intimate to the Commission through e-mail that quarterly
accounts have been placed on their websites, on the due date.
Ans.3 (a) Following are the businesses which may be carried out by NBFCs:
(i) Investment Finance Services;
(ii) Leasing;
(iii) Housing Finance Services;
(iv) Venture Capital Investment;
(v) Discounting Services;
(vi) Investment Advisory Services;
(vii) Asset Management Services; and
(viii) Any other form of business which the Federal Government may specify, by notification in the
Official Gazette, from time to time.
(b) (i) A scheme shall be prepared in draft containing the terms of the amalgamation.
(ii) Notice of meetings to sanction the scheme shall be given to the shareholders of both companies.
(iii) These notices shall also be published at least once a week for three consecutive weeks in at least
two newspapers which circulate in the locality where the registered offices of both the NBFCs
are situated.
(iv) One such newspaper should be in the language commonly understood in the locality(ies).
(v) In these meetings, the shareholders, either present in person or by proxy, of both the companies
shall give approval to the scheme by a resolution passed by two-third majority.
(vi) Upon approval by the requisite majority of shareholders, the scheme shall be submitted to the
Commission for its sanction.
(vii) The Commission’s written approval of the scheme shall be binding on both the NBFCs and also
on all its shareholders.
(viii) Upon its sanction by the Commission any dissenting shareholder(s) shall be entitled to claim,
from Moonlight Leasing Limited and Dream Leasing Limited, the value of their share as
determined by the Commission while sanctioning the scheme.
(ix) The determination of the value of shares by SECP shall be final for all purposes.
Page 2 of 5
CORPORATE LAWS
Suggested Answers
Ans.4 (a) If allowed by its Memorandum and Articles a company may have more than one class of shares. Each
class of shares may have different rights and privileges, which shall also be as provided in the articles.
The rights and privileges of the shareholders may differ in respect of the following:
(i) different voting rights; voting rights disproportionate to the paid up value of shares held; voting
rights for specific purposes only; or no voting rights at all;
(ii) different rights for entitlement of dividend, right shares or bonus shares or entitlement to receive
the notices and to attend the general meetings; and
(iii) rights and privileges for indefinite period, for a limited specified period or for such periods as
may from time to time be determined by the members through special resolution.
(b) A fixed or specific charge attaches to the specific, clearly identifiable and defined asset of the company
as soon as it is created. From then on the company cannot transfer or dispose of such property.
A floating charge does not attach to any specific property of the company until the company commits
some act or default (i.e. charge crystallizes). It is free to dispose of the property unencumbered.
A fixed charge takes priority over a floating charge.
All charges, both fixed and floating have to be registered with the Registrar within 21 days of their
creation.
If such registration is not affected, the charge created by the company becomes void against any
liquidator or other creditor.
Ans.5 A company which owns an equity-based project and proposes to raise capital through public offer for the first
time shall comply with the following conditions, namely:
(i) The fixed capital expenditure shall be entirely financed by equity.
(ii) The project shall be appraised by a financial institution or a commercial bank or an investment bank.
(iii) The appraisal report shall be accompanied by Auditor’s certificate confirming that:-
(a) The capital allocated to sponsors, foreign and local investors, if any, has been fully paid; and
(b) The land for the project has been acquired, letters of credit have been established and shipment
schedule of plant and machinery has been finalized by the suppliers.
(iv) The issue shall be fully underwritten and the underwriters, not being the associated companies,shall
include at least two financial institutions, including commercial banks and investments banks and the
underwriters shall evaluate the project in their independent due diligence report.
(v) The sponsors shall retain at least twenty-five per cent of the capital of the company for a period of five
years from the date of public subscription.
Ans.6 Competence and Capability

Director:
While assessing the competence and capability of the proposed Directors on the Board of an NBFC, the
Commission shall take into account all the relevant considerations including, but not limited to:
(i) should be individuals having management/business experience of at least five years at a senior level in
an active capacity;
Page 3 of 5
CORPORATE LAWS
Suggested Answers
(ii) should be professionally qualified and have demonstrated knowledge in the field of banking, mutual
funds, accounting, internal audit, law and Information Technology, etc;
(iii) should not be minors or of unsound mind; and
(iv) should have their names borne on the register of national tax payers except where such person is a non-
resident.
Chief Executive
The CE must demonstrate his competence and ability to understand the technical requirements of the business,
inherent risks and management processes required to conduct its operations effectively, with due regard to the
interests of all stakeholders.
In determining competence, and capability of the CE, the Commission shall take into account all relevant
considerations, including but not limited to:
(i) should have a minimum experience of seven to ten years in a senior management position, preferably in
the regulated financial services sector;
(ii) should have demonstrated, through his qualifications and experience, the capacity to successfully
undertake the cognate responsibilities of the position;
(iii) should have never been diagnosed as being mentally ill or unstable;
(iv) should have a sound knowledge of the business and responsibilities he/she will be called upon to
shoulder.
Ans.7 (i) Mega Projects Limited can issue shares at discount after one year of commencement of business.
(ii) The directors should pass a resolution to issue shares at discount, specifically mentioning the discount
rate and price, reason for the discount and possible effects of the discount on the company and its
existing shareholders.
(iii) Notice should be issued to members with statement of material facts along with copy of the proposed
resolution at least 21 days before the date of the general meeting.
(iv) The shareholders should pass a special resolution to that effect with atleast 3/4th majority.
(v) A copy of the special resolution should be filed with the Registrar concerned within 15 days of the date
of the resolution.
(vi) An application should be furnished to the SECP for sanctioning the issue with a copy to the Registrar.
(vii) The shares should be issued within 60 days of the approval from Commission.
(viii) Return of allotment of shares should be filed with the Registrar within 30 days of the date of allotment.
(ix) Every prospectus and Balance Sheet issued thereafter should contain particulars of discount allowed
and amount not amortized, if any, at the balance sheet date.
Ans.8 (a) (i) Mr. NR will be required to open a “Special Convertible Rupee Account” with any authorized
dealer.
Such account can be fed by:
- remittances from abroad
- transfer from a foreign currency account maintained in Pakistan by Mr. NR.
Mr. NR shall be allowed to trade freely in any shares quoted on any Stock Exchange in Pakistan
from this account.
Payment from such purchases may be debited to the account on production of stock broker’s
memo.
Disinvestment proceeds may be credited to the account on provision of stock broker’s memo.
Transfers from one such account to another may also be made in case of transfer of shares
between the two account holders.
(ii) Yes, Mr. NR is entitled to receive dividends which shall also be credited into special convertible
rupee account.
Page 4 of 5
CORPORATE LAWS
Suggested Answers
There are no restrictions on repatriation of funds outside Pakistan and the funds available in such
special accounts can be transferred outside Pakistan or credited to a Foreign Currency Account
maintained in Pakistan at any time without prior approval of the State Bank of Pakistan.
(b) “A person resident outside Pakistan” covers a foreign national including a foreign national of Indo-
Pakistan origin as also a Pakistani holding dual nationality for the time being resident in Pakistan and a
company registered in Pakistan which is controlled directly or indirectly by a person resident outside
Pakistan.
Ans.9 (a) Sigma Industries can close its books for a maximum of 15 days i.e. from March 25, 2009 to April 8,
2009. This is also in line with the listing regulations of onetime closure of 7-15 days.
Following procedure is to be followed for closing the register of members and the share transfer register.
(i) The company shall give 21 days notice of book closure to Karachi Stock Exchange.
(ii) At least seven days before the book closure a notice of book closure shall also be published in a
newspaper having circulation in the province(s) in which the stock exchange on which the
company is listed is situated and also in the province in which the registered office of the company
exists.
(iii) The total period of book closure should not to exceed 45 days in a year and the period of one time
closure shall not exceed 30 days.
(b) The law requires that all subsequent Annual General Meetings (AGMs) should be held once in each
calendar year; within 4 months of the close of the financial year but not exceeding 15 months from the
conclusion of last AGM. So, Sigma Industries Limited can hold the AGM up to April 30th, 2009.
(c) (i) The notice of AGM along with the copy of annual report and audited accounts would be send
to all the members at their registered address at least 21 days before the meeting.
(ii) Simultaneously with the dispatch of notice, five copies each of the annual report and audited
accounts, one duly signed by the auditors and CEO/Director would be send to the Commission,
Stock Exchange and the Registrar.
(iii) The notice of meeting shall be published at least 21 days before the meeting in two daily
newspapers one English and one Urdu circulating in the province in which the stock
Exchange(s) on which the company is listed exist.
(iv) The copy of the notice of AGM shall be faxed to the Commission on the day of its publication.
(v) A copy of the newspaper shall also be sent to the Commission on the day of its publication.
(THE END)
Page 5 of 5
June 3, 2009

(3 hours)
Q.1 Marhaba Engineering (Pvt.) Limited (MEPL), holds 15% voting shares in Pasban
Engineering Limited (PEL), a company listed on Karachi Stock Exchange. MEPL
intends to increase its holding to 29.5% by acquiring additional voting shares in PEL
through public offer and has made a public announcement of its intentions. However, the
financial due diligence of PEL revealed that the company is facing financial difficulties
and it is anticipated that the directors may sell a sizeable business segment of the
company.
In the light of the provisions of the Listed Companies (Substantial Acquisition of Voting
Shares and Takeovers) Regulations, 2008 you are required to advise the board of
directors of MEPL as regards the following:
(a) The circumstances under which a public announcement of intention can be

withdrawn and the procedure to be followed in this regard. (05)
(b) The restrictions which will apply on PEL after making the public announcement of
its intentions. (03)
Q.2 Cannon Industries Limited, a listed company, wishes to change its name to Reliance
Foods Limited because the management feels that the change in name would help in re-
branding and rebuilding the image of the company and in attracting more customers.
You are required to explain the requirements of the Companies Ordinance, 1984 which
the company is required to comply with, in this regard. Also describe the effect of such
change on the rights and obligations of the company. (09)
Q.3 Tasty Foods (Pvt.) Limited (TFPL) has been incorporated with the objective of taking
over entire business assets and liabilities of Tasty Biscuits, a partnership firm, at an
agreed cut off date i.e. December 31, 2008. The partners in the firm are also the directors
in the newly incorporated company. Pursuant to an agreement executed between the
company and the partnership firm all the assets and liabilities were transferred to the
company on the agreed date. 7.8 million shares of the company were allotted to the
partners in consideration of the transfer of firm’s property. This allotment however, was
made by the directors without considering the requirements of the Companies (Issue of
Capital) Rules, 1996 on the contention that these Rules are applicable to the listed
companies only.
Comment on the decision of the directors and state the conditions specified (if any),
under the Companies Ordinance, 1984 and Companies (Issue of Capital) Rules, 1996,
related to the issuance of shares as mentioned in the above situation. (10)
(2)
Q.4 (a) The Securities and Exchange Commission of Pakistan (SECP), on its own motion,
is contemplating appointment of an Inspector to investigate the affairs of Crown
Properties Limited and has issued a notice for the same narrating the reasons
thereof. The directors of the company are contending that the said action is without
any justified cause. You are required to narrate the circumstances specified in the
Companies Ordinance, 1984 wherein the SECP may appoint an Inspector. (07)
(b) Assuming that after necessary opportunity afforded by the SECP, Crown Properties
Limited is subjected to the Investigation, describe the powers that the Inspector can
exercise under the Companies Ordinance 1984, while investigating affairs of the
company. (05)
Q.5 In order to protect general public, depositors and other stakeholders, Khyber Steel Mills
Limited has been declared as a sick unit by the Federal Government which has appointed
Mr. Sohail Hamdani to prepare a rehabilitation plan for the re-organization of the
company.
You are required to discuss the following:

(a) The measures which Mr. Sohail is empowered to propose as part of the
rehabilitation plan.
(b) If the rehabilitation plan is approved by the Federal Government, what impact
would it have on the rights and liabilities of various stake-holders? (12)
Q.6 Pills Limited is an unlisted public company. It intends to appoint MM Associates, a

registered firm of lawyers with two partners, as its legal advisers. MM Associates are
already the legal advisors of the following 6 companies:
(i) ABC Limited and XYZ Limited having share capital of less than Rs. 500,000.
(ii) Rose Limited and Bee Limited having share capital of more than Rs. 500,000 but
less than Rs. 1 million.
(iii) Crown (Pvt.) Limited with share capital of Rs 1.2 million; and,
(iv) Dice (Guarantee) Limited with a share capital of Rs. 1.5 million.
Based on the requirements of the Companies (Appointment of Legal Advisers) Act,

1974, explain whether MM Associates can be appointed as the legal advisors of Pills
Limited. (05)
Q.7 The balance sheet of Montana Textile Mills Limited for the year ended June 30, 2008
shows the non-current liabilities as under :
Non-current liabilities Rupees

Long term finance from Sponsors / Directors 61,000,000
Long term finance from related party 150,000,000
Long term finance from Banks 572,000,000
783,000,000
To improve the debt equity ratio, the company wants to convert all non-current liabilities
into equity by the issuance of ordinary shares.
Required:
(a) Discuss the provisions contained in the Companies Ordinance, 1984 under which
the company may proceed to issue shares against the above non-current liabilities.
(b) With reference to the above provisions, advise the extent to which the above
liabilities may be converted into equity. (07)
(3)
Q.8 The association of leading fertilizer manufacturing companies in their 21st annual general
meeting reached an understanding to control the prices of fertilizers and their respective
market shares by territories, in order to save the local industry from growing dominance
of foreign suppliers. This understanding however, is not intended to be enforced by legal
proceedings and has not been put into writing.
You are required to state whether such verbal understanding can be regarded as an
agreement under the relevant provisions of the Competition Ordinance, 2007 and whether
such an agreement is in violation of the provisions of the Ordinance. Also list down some
of the agreements which are prohibited under the said Ordinance. (07)
Q.9 PQR holds more than ten percent of the shares of Rahat Technologies Limited (RTL), a
company listed on Lahore Stock Exchange. The company intends to dilute its investment
in RTL by offering such shares for sale to the public. In the light of the provisions of the
Companies (Issue of Capital) Rules, 1996, describe the conditions which must be
fulfilled by PQR before such a sale may be made. (05)
Q.10 National Travels Limited (NTA), is a listed company, and operates throughout Pakistan.
In order to finalize a running finance arrangement with a bank, it requires a copy of the
board resolution approving the terms of financing. Since five out of eight directors are
currently out of the city, it is not possible for the secretary to convene the meeting of the
board of directors.
In light of the provisions of Companies Ordinance, 1984 you are required to state,
whether the above resolution can be passed by circulation and the steps required to be
taken to pass such a resolution. (08)
Q.11 (a) Under the Companies Ordinance, 1984 describe the circumstances in which
proceedings of a general meeting may be declared invalid by the court. Who is
eligible to make petition in this regard. (03)
(b) Explain the provisions of the Companies Ordinance, 1984 with regard to the
quorum of a general meeting of a company listed on stock exchange. (03)
Q.12 (a) MZE Limited, an NBFC engaged in leasing business, is currently facing serious
financial crisis. SECP is not satisfied with the financial management of the
company and has ordered a special audit of the company. In the light of the relevant
provisions of the Companies Ordinance, 1984 relating to NBFCs you are required
to explain whether the Commission is empowered to make such an order. Also
describe the rights of the Commission in this regard? (06)
(b) Describe the conditions applicable to a NBFC relating to the appointment of

internal auditor, under the NBFCs (Establishment And Regulation) Rules, 2003. (05)
(THE END)
CORPORATE LAWS
Suggested Answer
Ans.1 (a) Withdrawal of public announcement of intention

A public announcement of intention to acquire additional voting shares may be withdrawn:
(i) where the sole acquirer is a natural person and has died or has been declared bankrupt or of
unsound mind;
(ii) if negotiations to acquire voting shares of the target company have failed;
(iii) where the due diligence conducted for the acquisition of shares of the target company by the
acquirer is unfavourable;
(iv) where the acquirer is a company,-
has gone into liquidation;
its board of directors passes a resolution not to acquire the voting shares of the target
company; or
(v) the time period for making the public announcement of offer and extension thereof, if granted, has
lapsed.
Procedure
In the event of withdrawal of the public announcement of intention under any of the circumstances
specified above, MEPL or the manager to the offer, shall immediately, -
(i) make a public announcement of withdrawal in all the newspapers in which the public
announcement of intention was made and disclose reasons for withdrawal; and
(ii) along with reasons, inform the Commission, the stock exchange on which the voting shares of the
target company are listed and the target company at its registered office simultaneously, with the
issue of such public announcement of withdrawal.
(b) Restrictions on the target company (i.e. PEL) after the public announcement of intentions is made
After the public announcement of intention is made by MEPL, the Board of Directors of PEL shall not
till MEPL withdraws the public announcement of intention or the commencement of the offer period, -
(i) sell, transfer, or otherwise dispose of or enter into an agreement for sale, transfer, or for disposal of
the undertaking or a sizeable part thereof, not being sale or disposal of assets in the ordinary
course of business of PEL or its subsidiaries;
(ii) encumber any asset of the company or its subsidiary unless otherwise in the ordinary course of
business;
(iii) issue any right or bonus voting shares;
(iv) enter into any material contract; and
(v) appoint an additional director or fill in any casual vacancy on its board of directors occurring
during the period.
Ans.2 If Cannon Industries Limited wishes to change its name, it shall have to comply with the following
requirements:
(a) Ascertain from the SECP/registrar, the availability of the name “Reliance Foods Limited”.
(b) Obtain members approval in the general meeting, by way of a Special Resolution.
(c) A copy of the resolution shall be filed with the Registrar within 15 days of passing thereof.
(d) An application for approval of change of name is filed with the Registrar.
(e) After approval, the registrar shall issue a certificate for change of name of the company and thereafter,
the change of name must be noted in the Memorandum and Articles of Association and in all documents,
invoices, letter-heads, bills, sign boards seal etc.
(f) For a period of one year from the date of issue of the certificate by the registrar, the company shall
continue to mention its former name along with its new name, outside every office or place in which its
business is carried on and in every document and notice issued by the company.
Rights and obligations
The change of name shall not affect any rights or obligations of the company, or render defective any legal
proceedings by or against the company, and any legal proceedings that might have been continued or
commenced against the company by its former name may be continued by or commenced against the company
by its new name.
Page 1 of 6
CORPORATE LAWS
Suggested Answer
Ans.3 Comments on the decision of the directors

The directors of Tasty Foods (Pvt.) Limited (FFPL) are not justified in their contention, as the Companies
(Issue of Capital) Rules, 1996 clearly states that these Rules are applicable to all companies proposing to issue
shares for consideration otherwise than in cash.
Issue of shares for consideration otherwise than in cash

Following conditions needs to be complied with while issuing shares for consideration otherwise than in cash:
Under the Companies (Issue of Capital) Rules, 1996

(i) a consulting engineer registered with Pakistan Engineering Council and borne on the panel of at least
two financial institutions as a valuer must determine the value of assets;
(ii) the value of assets taken over shall be reduced by depreciation charged on consistent basis;
(iii) the goodwill and other intangible assets shall be excluded from the consideration; and
(iv) a practicing Chartered Accountant shall give a certificate confirming that all the above conditions have
been complied with by the company.
Under the Companies Ordinance, 1984

(i) Produce for the inspection and examination of the registrar a contract in writing constituting the title
of the allottee to the allotment together with any contract of sale in respect of which that allotment was
made.
(ii) A copy of such contract, duly stamped and verified in the prescribed manner along with the return of
the allotment stating the number and nominal amount of shares so allotted, the amount to be treated as
paid-up, and the consideration for which these shares have been allotted should be filed with the
registrar within thirty days of the allotment.
Ans.4 (a) Circumstances under which SECP may appoint inspector:

SECP may appoint an Inspector if in its opinion there are circumstances suggesting:
(i) Fraudulent Business:

The business of the company is being or has been conducted with an intent to defraud its creditors,
members or any other person or for fraudulent or unlawful purpose, or in a manner oppressive of
any of its members or that the company was formed for any fraudulent or unlawful purpose.
(ii) Breach of Trust:

The sponsors or management have been guilty of fraud, misfeasance, breach of trust or other
misconduct towards the company or its members or have been carrying on unauthorized business.
(iii) Shareholders Deprived of a Reasonable Return:

The affairs of the company have been conducted so as to deprive the shareholders of a reasonable
return.
(iv) Improper Provision of Information to Shareholders:

The shareholders have not been given all the information with respect to its affairs which they
might reasonably expect.
(v) Allotment of shares for Inadequate Consideration:

Any shares of the company have been allotted for inadequate consideration.
(vi) Mismanagement:
The affairs of the company have not been managed in accordance with sound business principles
or prudent commercial practices.
Page 2 of 6
CORPORATE LAWS
Suggested Answer
(vii) Threats to solvency:

The financial position of the company is such as to endanger its solvency.
Provided that before making such an order, the SECP shall give the company an opportunity to show
cause against the action proposed to be taken.
(b) The Inspector Appointed by the SECP, shall have the same powers as are vested in a court under Code of
Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:
(i) Enforcing the attendance of persons and examining them on oath and affirmation.
(ii) Compelling the discovery and production of books and papers and any material object
(iii) Issuing commission for examinations of witnesses
In addition, the inspector shall have power to investigate and report on the affairs of the other body
corporate, chief executive, managing agent or their associates so far as he thinks that the results of such
investigation are relevant to the investigation of Crown Properties Limited
Ans.5 (a) Mr. Sohail Hamdani is empowered to propose all or any of the following measures in the rehabilitation
plan:
(i) reduction of capital so as to provide the following:

Extinguish or reduce the liability on any of its shares in respect of shares capital not paid up;
or
Either with or without extinguishing or reducing liability on any of its shares, cancel any
paid-up shares capital which is lost or unrepresented by available assets; or
Either with or without extinguishing or reducing liability on any of its shares, pay off any
paid-up share capital which is in excess of the needs of the company; or
reconstruction, compromise, amalgamation and other arrangements.
(ii) alteration of share capital and variation in the rights and obligations of shareholders or any class of
shareholders;
(iii) alteration of loan structure, debt rescheduling or conversion into shares carrying special rights or
other relief and modification in the terms and conditions in respect of outstanding debts and
liabilities of the company or any part of such loan, debts or liabilities or variation in the rights of
the creditor or any class of them including any security pertaining thereto;
(iv) acquisition or transfer of shares of persons who are or have been sponsors or otherwise managing
the affairs of the company on the specified terms and conditions;
(v) issue of further capital including shares carrying special rights and obligations.
(vi) removal and appointment of directors (including the chief executive) or other officers of the
company;
(vii) amendment, modification or cancellation of any existing contract; or
(viii) Alteration of the memorandum or articles or changes in the accounting policy and procedure.
(b) If the rehabilitation plan is approved by the Federal Government, it shall become final and shall be
binding on all stakeholders. Therefore, all rights and obligation of stakeholders will be determined in
accordance with the rehabilitation plan irrespective of anything contained in the Ordinance or agreements
or memorandum and articles of association.
Moreover, none of the stake-holders would be entitled to any compensation or damages for any matter or
arrangement provided for in, or action taken in pursuance of the rehabilitation plan.
Ans.6 The number of companies, of which a registered firm can be appointed as the legal advisor, is the product of
three and the total number of partners of the firm.
Accordingly, MM Associates can be appointed as legal advisors of 6 companies (i.e. 2x3)
However, the definition of a company given under the Companies (Appointment of Legal Advisers) Act, 1974
Page 3 of 6
CORPORATE LAWS
Suggested Answer
specifically excludes a company which has a share capital of less than Rs. 500,000 or a company limited by
guarantee.
In view of the above definition of companies, MM Associates are currently the legal advisors of three
companies as two companies having share capital of less than Rs. 500,000 and one company which is limited
by guarantee would be excluded from the list of eligible companies.
Hence, MM Associates can be appointed as the legal advisors of Pills Limited.
Ans.7 (a) The company may proceed to convert the above liabilities into equity without issuance of right shares
provided it obtains permission from the Federal Government.
In order to apply to the Federal Government, the company shall have to:
(i) Pass special resolution at a general meeting; and
(ii) Make an application to Securities and Exchange Commission.
(b) The company can issue shares against the full amount of long term finance due from Sponsors / Directors
and the related party i.e. shares of Rs. 61 million and Rs. 150 million.
As far as long term loan from the Banks is concerned, the company can convert up to twenty percent of
the outstanding balance of such loan into ordinary shares, i.e. up to Rs. 114,400,000 if the term of
finance is not less than three years and return has fallen below the minimum rate laid down by SBP in any
two of the preceding three years after expiry of two years from the date of commercial production.
Ans.8 Yes, such verbal understanding can be regarded as an agreement as the term ‘agreement’ as referred in the
Competition Ordinance, 2007 includes any arrangement, understanding or practice, whether or not it is in
writing or intended to be legally enforceable.
Compliance
An undertaking or an association of undertakings shall not enter into any agreement in respect of the
production, supply, distribution, acquisition or control of goods or the provision of services which have the
object of preventing, restricting or reducing competition within the relevant market except when granted
exemption under this Ordinance. Therefore, the understanding between the leading fertilizer manufacturers is
in violation of the provisions of the Competition Ordinance.
Prohibited agreements
Such agreements include, but are not limited to-
(a) fixing the purchase or selling price or imposing any other restrictive trading conditions for the sale or
distribution of any goods or the provision of any service;
(b) dividing or sharing of markets for goods or services, whether by territories, by volume of sales or
purchases, by type of goods or services sold or by any other means;
(c) fixing or setting the quantity of production, distribution or sale with regard to any goods or the manner
or means of providing any services;
(d) limiting technical development or investment with regard to the production, distribution or sale of any
goods or the provision of any service; or
(e) collusive tendering or bidding for sale, purchase or procurement of any goods or service;
(f) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing
them at a disadvantage; and
(g) make the conclusion of contracts subject to acceptance by the other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection with the
subject of such contracts.
Page 4 of 6
CORPORATE LAWS
Suggested Answer
Ans.9 Offer for sale of shares by certain persons

PQR who holds more than ten per cent of the shares of RTL, may offer such shares for sale to the public
subject to the following conditions, namely:
(i) the size of the capital to be offered to public through offer for sale shall not be less than one hundred
million rupees or twenty-five per cent of the capital, whichever is less;
(ii) no premium shall be charged unless the company has profitable operational record for at least one year;
(iii) in case a premium is to be charged on the sale of shares, the offer shall be fully underwritten and the
underwriters, not being the associated companies, shall include at least two financial institutions
including commercial banks and investment banks and the underwriters shall give full justification of
the amount of premium in their independent due diligence reports;
(iv) due diligence reports of the underwriters shall form part of the material contracts; and
(v) full justification for the premium shall be disclosed in the offer for sale.
Ans.10 Circular resolution

A resolution in writing signed by all the directors for the time being entitled to receive notice of a meeting of
the directors shall be as valid and effectual as if it had been passed at a meeting of the directors duly convened
and held.
Therefore, where it is not feasible to hold the board meeting, it is possible that the required resolution can be
passed by way of a circular resolution, subject to the provisions of the articles of association of the company.
Steps:
The proposed resolution has to be circulated in draft along with the other necessary documents, if any, to all
the directors.
The resolution will become valid if the same is approved by all the directors entitled to vote on the resolution
or such number of directors as may be specified in the Articles of Association.
There after the resolution as passed by way of circulation will be entered in the minutes book of the Board of
Directors.
Ans.11 (a) Declaration of general meeting as invalid
The Court may, on a petition by members having not less than ten percent of the voting power in the
company, that the proceedings of a general meeting be declared invalid by reason of any material defect
or omission in the notice or irregularity in the proceedings of the meeting which prevented members
from using effectively their rights, declare such proceedings or part thereof invalid and direct holding of
a fresh general meeting.
(b) Quorum of a general meeting

In the case of a public listed company, the quorum of a general meeting shall be, unless the articles
provide for a larger number not less than ten members present personally who represent not less than
twenty five per cent of the total voting power, either of their own account or as proxies.
Ans. 12 (a) Special Audit

The commission is required to monitor the general financial condition of a NBFC and at its discretion
may order an special audit and appoint an auditor to carry out detailed scrutiny of the affairs of NBFC,
provided that the Commission may, during the pendency of the scrutiny, pass such interim orders and
directions as may be deemed appropriate by the Commission.
On receipt of the special audit report, the Commission may direct a NBFC to do or to abstain from doing
certain acts and issue directives for immediate compliance which shall forthwith be compiled with, or
Page 5 of 6
CORPORATE LAWS
Suggested Answer
take such other action as it deems fit.
(b) Conditions applicable to a NBFC- Appointment of an Internal Auditor
A NBFC shall, appoint;

(i) a person having minimum three years experience as internal auditor who is-
(a) a chartered accountant; or
(b) a cost and management accountant; or a certified internal auditor; or
(c) a certified information system auditor; or
(d) a member of a recognized foreign accountancy organization; or
(e) an individual having master’s degree in commerce or business administration with
specialization in finance; or
(ii) a chartered accountancy firm having satisfactory Quality Control Review (QCR) and not being the
statutory auditors to whom this function is outsourced.
(The End)
Page 6 of 6
December 9, 2009

(3 hours)
Q.1 The prospectus of FC Textiles Limited included a statement which was misleading in its
form and content. On the faith of the prospectus and believing it to be true, Asif subscribed
for shares and sustained losses. Can Asif file a suit for compensation of the loss incurred
by him? If so, who may be sued for such a loss? (06)
Q.2 There are allegations in the press and serious charges have been levelled against STR
Petroleum Limited about misuse of public funds by the management. Zafar, a director of
the company wants to inspect the books of account, in order to ascertain whether the
allegations are true. As Zafar does not have adequate knowledge of accounting, he intends
to examine the books of account in the presence of his friend Arif, who is a chartered
accountant.
You are required to advise the company in respect of the above matter under the provisions
of the Companies Ordinance, 1984. (05)
Q.3 (a) After incurring continuous losses Shaheen Private Limited had decided to go into
members’ voluntary winding up. Mr. Sajjad was appointed as a liquidator on a
remuneration of Rs. 200,000 of which 25% was paid at the time of his appointment.
However, in June 2009, Mr. Sajjad tendered his resignation as a liquidator.
In the light of the provisions contained in the Companies Ordinance, 1984 explain
the rights and liabilities of Mr. Sajjad, in the above situation. (05)
(b) Identify the persons who are eligible to file a petition for winding up of a limited
company in the Court. (04)
Q.4 Mr. Waleed has acquired 3 million ordinary shares of Acquired Limited whose paid up
share capital consists of 22 million ordinary shares of Rs. 10 each. The election of the
directors of the company has recently been concluded. Mr. Waleed, being confident of
holding a sufficient number of shares to be elected as a director, has requested the
management to arrange a fresh election.
Based on the provisions contained in the Companies Ordinance, 1984 explain whether and
under what conditions a fresh election of the directors may be held. (08)
Q.5 ABZ Limited, a company incorporated in a foreign country, has established an office in
Pakistan by the name of Search International. You are required to explain the requirements
of the Companies Ordinance, 1984 as regards filing of the annual balance sheet and profit
and loss account of ABZ Limited and Search International. (10)
Q.6 The annual general meeting (AGM) of Nizam Industries Limited was held on November
16, 2009. Some of the shareholders are not satisfied with the decisions taken at the meeting
and are of the opinion that the directors have manipulated the situation in order to obtain
certain approvals in the annual general meeting.
You are required to explain how and under what conditions can the proceedings of the
AGM be declared as invalid. (05)
(2)
Q.7 Explain the provisions contained in the Code of Corporate Governance as regards the
appointment of external auditors. (05)
Q.8 MP Pakistan is a branch of MPGH (a company registered in Germany) and is engaged in

the software export business. It requires working capital finance to support its operations
and intends to borrow funds from its head office i.e. MPGH on a repatriable basis.
You are required to briefly explain the conditions which MP Pakistan would have to
comply with under the Foreign Exchange Regulations of the State Bank of Pakistan. (09)
Q.9 (a) The following statements may contain certain discrepancies with respect to issuance
of right shares by a listed company. You are required to identify the discrepancies, if
any, and specify the correct position.
(i) A listed company cannot issue right shares within two years of its
incorporation.
(ii) Where a company wishes to charge premium on a right issue in excess of 50%
of the face value of shares, it shall require an approval from the Commission
and the stock exchange on which the company is listed.
(iii) A company which incurred a loss during its last financial year or a company
whose market price is below its par value cannot issue right shares.
(iv) If a company announces a right issue as well as a bonus issue at the same time,
the right shares shall also be entitled to the bonus. (12)
(b) The board of directors of Munawwar Industries Limited, a listed entity, is
considering the issuance of bonus shares. You are required to explain (i) the term
‘Free Reserves’; and (ii) the conditions related to maintenance of free reserves for
issuance of bonus shares; as contained in the Companies (Issue of Capital) Rules,
1996. (08)
Q.10 (a) Explain the terms ‘asset management services’ and ‘investment finance services’ as
included in the NBFC Rules, 2003. (04)
(b) Briefly explain the restrictions that have been placed on the NBFCs under the NBFC
Rules, 2003 in respect of the following:
(i) appointment of directors from the same family;
(ii) transfer of ownership of controlling shares; and
(iii) employing a person as a broker. (07)
Q.11 In the annual general meeting of Sabzazar Limited held on September 29, 2009 some of
the shareholders have raised the following objections:
(a) Notice of the annual general meeting was not received by them although they are
resident in Pakistan and their registered addresses have also been provided to the
company.
(b) The company has issued shares to a scheduled bank against a part of the outstanding
balance of a loan without offering them to the shareholders by way of a right issue.
(c) Shareholders were not allowed to make extracts from the register of members on the
day on which the election of directors was held.
(d) 10,000 shares of a subsidiary, which are the property of the company, are held in the
name of a director of the company.
(e) The surplus on revaluation of fixed assets was credited to the reserves of the company
and later used to pay dividend.
(f) One of the directors is not a member of the company.
You are required to satisfy the shareholders by explaining the relevant provisions, if any,
as contained in the Companies Ordinance, 1984.
(You may make appropriate assumptions in your answer to clarify the company’s position.) (12)
(THE END)
CORPORATE LAWS
Suggested Answers
A.1 Civil liability for mis-statements in prospectus
Yes, Asif can sue for compensation of loss. Section 59 of the Companies Ordinance provides that an
allottee is entitled to claim compensation for damages sustained by reason of any untrue statement
contained in this prospectus from the following persons:
(i) Every person who is a director of the Company at the time of issue of prospectus.
(ii) Every person who has authorized himself to be named and is named in the prospectus either as a
director, or as having agreed to become a director, either immediately or after an interval of time;
(iii) Every person who is a promoter of the Company; and
(iv) Every person who is an expert and has given his written consent to include a statement issued by
him.
(v) Auditor, legal advisor, attorney, solicitor, banker or broker, being the member of a stock exchange
of the company and the prospectus is accompanied by their written consent to act in that capacity.
A.2 Books of Accounts

As a director, Zafar is entitled to inspect the books of account during office hours.
However, there is no law that would allow Mr. Zafar to allow his friend to inspect the books of accounts
of the company.
A.3 (a) Remuneration of Official Liquidator

If Mr. Sajjad resigns before conclusion of the winding up of the company, he shall not be entitled to
any remuneration and the remuneration already received by him, shall be refunded to the company.
Resignation of Official Liquidator

He cannot resign or quit his office as liquidator before conclusion of the winding up proceedings
except for reasons of personal disability to the satisfaction of the Court. In any case, Mr. Sajjad
cannot quit his responsibilities before his replacement is appointed by the court.
(b) Petition for Winding up

An application/petition for winding up of a company can be presented in the Court by the following:
(i) The company itself.

(ii) Any creditor(s) (including any contingent or prospective creditor).
(iii) Contributory(ies).
(iv) Registrar of Companies.
(v) The Commission or by a person authorized by the Commission.
A.4 Fresh election of directors

Mr. Waleed has acquired more than 12.5% (Rs. 3/Rs. 22 = 13.64%) shares in the company. Assuming that
the company is listed, he may apply to the Commission for requiring the company to hold fresh election
of directors in the forthcoming annual general meeting of the company.
The Commission may, if it deems appropriate in the interest of the company, its minority shareholders or
the capital markets generally, direct the company to hold the election of directors in the manner provided
under section 178, and the company shall comply with such directions.
If fresh elections are held on the directions of the Commission, Mr. Waleed shall not sell or dispose of his
shares for at least one year from the date of election of directors.
However, if the company is not listed, then no such option would be available to Mr. Waleed.
CORPORATE LAWS
Suggested Answers
A.5 Accounts of foreign companies
ABZ Limited, being a foreign company and having a place of business in Pakistan, is required to comply
with the following requirements as regards filing of balance sheet and profit and loss account.
(i) Not less than three copies of balance sheet and profit and loss account as may be prescribed, in
respect of its operations in Pakistan (i.e. of Search International) prepared as near as possible in the
same manner as it would have done, if it were a public company incorporated under the Companies
Ordinance, 1984 shall be filed with the registrar.
(ii) In case ABZ Limited is required to file its Balance Sheet and Profit and Loss Account in the country
of its incorporation, not less than three copies of such Balance Sheet and Profit and Loss Account,
shall also be filed with the registrar.
(iii) In case ABZ Limited is not required to file the Balance Sheet and Profit and Loss Account to
authorities in the country of its incorporation, it would have to file its Balance Sheet and Profit and
Loss Account alongwith auditors report and the Balance Sheet and Profit and Loss Account, not less
than three copies, shall be in the same form as it would have been required to be under the
Companies Ordinance, 1984 as if it were a public company.
(iv) The period during which the above are required to be filed shall be as under:
 within 45 days of submission of the accounts in the country of incorporation; or
 within six months of the date upto which the accounts are made up.
 whichever is earlier.
A.6 Circumstances in which proceedings of a general meeting may be declared invalid

The Court may, on a petition by members having not less than ten percent of the voting power in the
company, that the proceedings of a general meeting be declared invalid by reason of any material defect
or omission in the notice or irregularity in the proceedings of the meeting which prevented the members
from using effectively their rights, declare such proceedings or part thereof invalid and direct holding of a
fresh general meeting. Provided that the petition shall be made within thirty days of the impugned
meeting.
A.7 Appointment of external auditor - Code of Corporate Governance

(i) The Board of Directors of a listed company shall recommend appointment of external auditors for a
year, as suggested by the Audit Committee. The recommendations of the Audit Committee for
appointment of retiring auditors or otherwise shall be included in the directors’ Report.
(ii) No listed company shall appoint as external auditors a firm of auditors which has not been given a
satisfactory rating under the Quality Control Review programme of the Institute of Chartered
Accountants of Pakistan.
(iii) No listed company shall appoint as external auditors a firm of auditors which firm or a partner of
which firm is non-compliant with the International Federation of Accountants’ (IFAC) Guidelines
on Code of Ethics, as adopted by the Institute of Chartered Accountants of Pakistan.
(iv) All listed companies in the financial sector are required to change their external auditors every five
years. All listed companies other than those in the financial sector shall, at a minimum, rotate the
engagement partner after every five years.
A.8 Repatriable Foreign Currency Loans by Foreign Controlled Companies
Foreign controlled companies are permitted to contract foreign currency loans from their Head Offices
for meeting their working capital requirements on the following conditions:
• The repayment period should not exceed twelve months

• The rate of interest should not exceed 1% over LIBOR. Such loans can however be rolled over for
further periods not exceeding twelve months each.
• They may approach their bankers (Authorized Dealers), who will satisfy themselves that the
applicant is a foreign controlled company. Once such a confirmation is obtained, the concerned
company may contract the loan and repatriate the amount for credit to their Rupee account with the
Authorized Dealer.
CORPORATE LAWS
Suggested Answers
• The concerned Authorized Dealer will issue a proceeds realization certificate, and record the
particulars of the loan. On maturity, the Authorized Dealer having received the inward remittance,
will allow payment of interest minus taxes and repayment of principal. While reporting remittance
of interest, a certificate confirming the applicable LIBOR and a certificate confirming payment of
income tax will be attached with the Form ‘M’. If tax is not payable, a copy of the exemption
certificate issued by the Revenue authorities will be submitted. While reporting repayment of the
principal, a copy of the proceeds realization certificate will be attached with the Form ‘M’.
• Branches in Pakistan of foreign companies are not allowed to pay interest on such loans.
A.9 (a) Issue of Right Shares by a listed company

(i) The listed company shall not make a right issue within one year of the first issue of capital to
the public or within one year of any further issue of capital through right issue.
(ii) The approval from the commission and the stock exchange is not required for the issuance of
right shares at premium. However, the decision of the company to issue right shares shall be
communicated to the Commission and the respective stock exchange on the day of the
decision.
The maximum amount of premium that a company can charge shall be limited to the extent of
the free reserves.
If the company wishes to charge premium above the free reserves at least 40% of all the
shareholders should undertake to subscribe their portion of right issue and the remaining right
issue shall be fully underwritten. The underwriters, not being associated companies, shall
include at least two financial institutions. In addition, the underwriters shall also give full
justification of the amount of premium in their independent due diligence report.
(iii) A loss making company or a company whose market share price during the preceding six
months has remained below par can issue right shares provided the issue is fully and firmly
underwritten.
(iv) If the announcement of bonus and right issue is made simultaneously, resolution of the board
of directors shall specify whether the bonus shares covered by the announcement qualify for
right entitlement.
(b) Free reserves” includes any amount which, having been set aside out of revenue or other
surpluses after adjustment of all intangible or fictitious assets, is free in that it is not retained to
meet any diminution in value of assets, specific liability, contingency or commitment known to
exist at the date of the balance sheet, but does not include:
(i) reserves created as a result of re-evaluation of fixed assets;

(ii) goodwill reserve;
(iii) depreciation reserve to the extent of ordinary depreciation including allowance for extra shifts
admissible under the Income Tax Ordinance, 1979;
(iv) development allowance reserve created under the provisions of the Income Tax Law.
(v) workers welfare fund;
(vi) Provisions for taxation to the extent of the deferred or current liability of the company; and
(vii) Capital redemption reserve.
The free reserves of the company, shall be sufficient to issue the bonus shares after retaining
reserves of twenty-five percent of the capital as increased by the proposed bonus shares;
A certificate from the auditors shall be obtained to the effect that the free reserves and
surpluses retained after the issue of the bonus shares will not be less than twenty-five percent
of the increased capital.
CORPORATE LAWS
Suggested Answers
A.10 (a) Asset management services means the services provided for management of collective investment
schemes.
Investment finance services include money market activities, capital market activities, project
finance activities, corporate finance services and general services as specified by the Commission by
notification in the official Gazette.
(b) (i) No restriction

(ii) A NBFC shall not sell or transfer ownership of shares in subsidiary or associated company,
merge with, acquire or takeover any other company unless it has obtained prior approval of the
Commission in writing to such sale or transfer or scheme of merger, acquisition or takeover.
(iii) A NBFC shall not enter into transactions with any broker which exceed ten percent of the total
brokerage expense of the NBFC in any one accounting year.
Provided that the NBFC shall not have a common director or officer or employee with the broker.
A.11 (a) Service of notice on members

The notices of the Annual General Meeting were sent to all the shareholders by post at their
registered addresses.
According to law when a notice is sent by post, service of the notice shall be deemed to be effected
by properly addressing, prepaying and posting a letter containing the notice and, unless the contrary
is proved, to have been effected at the time at which the letter would be delivered in the ordinary
course of post.
(b) Issue of shares in lieu of outstanding balance of any loans, etc.

The company issued shares without making a right issue because Companies Ordinance, 1984
allows the issuance of such shares to the extent of 20% of the outstanding balance of a loan from a
schedule bank if the rate of return, in any two of the preceding three years after expiry of two years
from the date of commencement of commercial production, has fallen below the minimum rate of
return laid down by the State Bank of Pakistan.
(c) Inspection of registers

The company is required to keep open the register, except when closed under the provisions of the
Companies Ordinance, 1984, subject to reasonable restriction as imposed by the company in its
general meeting so that not less than 2 hours in each day will be allowed for inspection.
(d) Investments of company to be held in its own name

The shares of subsidiary are rightly held in the name of the director because they are the
qualification shares which are required to be held to become the director of that company.
(e) Treatment of surplus arising out of revaluation of fixed assets

The amount in the surplus revaluation account can be transferred to the reserve account provided the
amount is the actual amount that has been realized on disposal of the asset which were in accordance
with the law and hence the proceeds can be utilized for payment of dividend.
(f) A non-member is allowed to become the director of the company in the following situations:
(i) Persons representing the Government or an institution or Commission which is a member;
(ii) Whole-time director who is an employee of the company;
(iii) Chief executive;
(iv) Person representing a creditor.
(THE END)
June 9, 2010

(3 hours)
Q.1 An equitable mortgage was created on the factory building of Asif Textile Mills Limited, a
listed company, to secure a long term loan obtained from Mrs. Wasif, who is the spouse of
a director of the company. All the eight directors of the company were informally aware
about Mr. Wasif’s interest in the transaction. The board of directors approved the
transaction in their meeting which was attended by five directors.
Upon inspection of the register of contracts in which directors are interested, a member of
the company filed an appeal with the SECP, claiming that the mortgage is invalid because
Mr. Wasif, who is an interested director, had also voted on the matter and therefore the
contract is void.
In the light of the provisions of Companies Ordinance, 1984 you are required to:
(a) Evaluate the above situation and comment thereon in the light of the provisions of
the Companies Ordinance, 1984. (07)
(b) Explain the manner in which a general notice, regarding disclosure of interest in a
contract, may be given by directors of a company. (05)
Q.2 A foreign investor had acquired majority shares in Marine Steel Services Limited (MSSL)
in the year 2006. Due to global recession, MSSL has incurred heavy losses and a major
portion of its equity has been wiped out. Consequently, the investor intends to wind up the
operations of the company voluntarily.
(a) In the light of the Companies Ordinance, 1984, advise the management as regards the
following:
(i) When would the voluntary winding up process be deemed to commence and
what would be its effect on the operations of MSSL. (03)
(ii) How could the directors ensure that the requirements of making a declaration of
solvency have been complied with? (06)
(b) In order to minimize the winding up expenses, the Board wants to appoint one of the
directors as the liquidator, on a monthly remuneration of Rs. 50,000. Advise the
Board as regards the requirements of Companies Ordinance, 1984 with respect to the
appointment and remuneration of liquidator, in the above situation. (04)
Q.3 List the circumstances, as referred to in the Listing Regulations of the Karachi Stock
Exchange (Guarantee) Limited, under which a listed company may be placed in:
(a) Defaulter’s segment. (07)

(b) Non-Compliant segment. (03)
(2)
Q.4 An Extraordinary General Meeting of Mastermind Technologies Limited (MTL), a listed

company, was scheduled to be held on October 31, 2009. The directors adjourned the
meeting for the next week as the quorum was not present within fifteen minutes of the
scheduled time.
Based on the provisions of the Companies Ordinance, 1984, you are required to comment
on the following:
(a) The decision of the directors to adjourn the meeting, assuming:
(i) the meeting was called upon the requisition of the members.
(ii) the meeting was called by the directors. (03)
(b) The impact of the adjournment on the validity and rights of proxies which were
deposited with the company before adjournment. (02)
(c) The validity of the resolution passed at the adjourned meeting. (02)
Q.5 Karachi Telecommunication (Private) Limited (KTL) was incorporated on 1st March, 2009
under the Companies Ordinance, 1984. Its directors have decided to hold the first Annual
General Meeting (AGM) of the company on August 10, 2010, for placing the first audited
financial statements for the period ended March 31, 2010, for approval.
Comment on the decision of the directors, in the light of provisions contained in the
Q.6 (a) The Board of Directors of Pioneer Leasing Limited is in the process of appointing a
new Head of Investment. List down the criteria specified in the Non-Banking
Finance Companies and Notified Entities Regulations, 2008 for assessing the person
being appointed with respect to:
(i) Integrity and track record (06)
(ii) Financial soundness (06)
(b) Explain the term “Independent Director” and narrate the provisions related to
appointment of such directors, as specified under NBFC (Establishment and
Regulation) Rules, 2003. (06)
Q.7 Explain the provisions of the Code of Corporate Governance in respect of the following:
(a) Appointment of the chairman of the company. (02)
(b) Meeting of the board of directors and minutes thereof. (06)
Q.8 The company secretary of Nayar Textiles Limited, a listed company, has resigned. The
directors are in the process of appointing a new secretary and few candidates with varied
backgrounds have been short listed for the position.
Advise the directors as regards their responsibility while appointing the Company
Secretary, in the light of the provisions of the Companies (General Provisions and Forms)
Rules 1985. (04)
(3)
Q.9 FM Textiles Limited is a company listed on the Karachi Stock Exchange. Its directors
have decided that the company would buy back 20% of its shares.
List down the steps to be taken for the buy-back of shares as specified in the Companies
(Buy-back of shares) Rules, 1999. (10)
Q.10 ABC Limited is a major supplier of furnace oil to SUB Power Limited which is facing
financial crunch and has been unable to make timely payments to ABC Limited.
The directors of ABC Limited intend to request the SECP for appointment of an
Administrator to manage the affairs of SUB Power Limited.
In the light of provisions of the Companies Ordinance, 1984 describe the conditions under
which ABC Limited may request the SECP to appoint the Administrator. (08)
Q.11 Mr. Yaqoob is a nominee of Foundation Bank Limited on the Board of Saad Textile Mills
Limited (STML). In a meeting of the board of directors of STML, the company secretary
was not able to offer satisfactory clarifications in respect of the following matters:
(a) STML had received a loan of Rs. 1.5 billion from Trust Bank Limited which was
secured by a first mortgage on the company’s fixed assets. The company had repaid
the loan to the extent of Rs. 250 million but did not send any intimation to the
registrar as regards the partial re-payment of the loan. (02)
(b) A foreign currency loan of US $ 75 million was obtained from Apex Bank Limited
which was secured by a first mortgage on company’s fixed assets ranking pari passu
with the charge created in favour of Trust Bank Limited. The foreign currency loan
has been paid in full but the company has not approached the registrar for vacating
the charge because confirmation of repayment has not been received from Apex
Bank Limited. (03)
On behalf of Mr.Yaqoob advise the company in the context of Companies Ordinance

1984.
(THE END)
CORPORATE LAWS
Suggested Answers
A.1 (a) Mr. Wasif should have disclosed the nature of his interest in the contract in the meeting of the board of
directors at which the question of entering into the contract was first taken up for consideration.
Mr. Wasif should not have participated in the discussions of approving the contract and his presence
would not have been considered for the purpose of forming a quorum or vote and if he had voted, his
vote should have been void.
However, the contract may not become void merely on the ground of non-disclosure of interest by Mr.
Wasif unless with the absence of his vote, there would be no quorum.
(b) A director shall give a general notice to the effect that he is a director or a member of a specified body
corporate or a member of a specified firm and is to be regarded as concerned or interested in any
contract which may after the date of the notice be entered into with body corporate or firm.
Any such general notice shall expire at the end of the financial year in which it is given but may be
renewed for further period of one financial year at a time by a fresh notice given in the last month of
the financial year in which it would otherwise expire.
No such general notice and no renewal thereof shall be of effect unless either it is given at a meeting of
the directors or the directors concerned take reasonable steps to ensure that it is brought up and read at
the first meeting of the directors after it is given.
A.2 (a) (i) The voluntary winding up is deemed to commence at the time of the passing of the special
resolution in this regard by the company.
As soon as the special resolution is passed, Marine Steels Services Limited(MSSL) will cease to
carry on its business, except so far as may be required for the beneficial winding up thereof.
However, the corporate state and powers of the company shall continue until it is dissolved,
notwithstanding anything to the contrary in its articles of association.
(ii) The directors of MSSL must ensure that the declaration of solvency made by them is :
 Made in their meeting which is attended by a majority of the directors of the company
including the chief executive.
 Verified by an affidavit to the effect that they have made a full inquiry into the affairs of the
company.
 Based on their opinion that the company has no debts; or
 The company will be able to pay its debts in full with in such period not exceeding twelve
months from the commencement of the winding up.
 Made within five weeks preceding the date of the passing of the special resolution for
winding up of the company.
 Delivered to the registrar for registration.
 Accompanied by a copy of the auditors’ report on the profit & loss account for the period
commencing from the date up to which the last such account was made and ending on a date
immediately before the making of the declaration and Balance Sheet of the company as on the
last mentioned date
 Accompanied a statement of the company's assets and liabilities.
(b) The liquidator cannot be appointed by the directors as he/she is required to be appointed by the
company in its general meeting.
Page 1 of 5
CORPORATE LAWS
Suggested Answers
The liquidator‘s remuneration shall also be fixed in the general meeting by way of percentage of
the amount realized by him by disposal of assets or otherwise having regard to the amount and
nature of the work to be done and subject to prescribed limits. The remuneration of liquidator when fixed
shall not be enhanced subsequently but may be reduced by the court at any time.
In addition to the remuneration, a liquidator may be paid a monthly allowance for meeting the
expenses of the winding up a period not exceeding twelve months from the date of the commencement
of winding up.
If the liquidator resigns, is removed from office or otherwise ceases to hold office before conclusion
of winding up, he shall not be entitled to any remuneration and remuneration already received by
him, if any, shall be refunded by him to the company.
No remuneration shall be payable to a liquidator who fails to complete the winding up proceedings
within the prescribed period.
A.3 (a) A listed company may be placed on the Defaulters’ Segment, for any of the following reasons:-
(i) if its securities are quoted below 50 per cent of face value for a continuous period of three years.
Provided that if the shares of the company quoted at 50 percent or above of their face value then
such a rate is maintained for a continuous period of thirty working days.
(ii) if from three years of the date of formal listing, it has not started commercial production in the
case of a manufacturing company or has not commenced business in the case of any other
company.
(iii) if it has failed to hold its annual general meeting for a continuous period of three years.
(iv) if it has gone into liquidation either voluntarily or under court order.
(v) if it has failed to pay the annual listing fees as prescribed in listing regulations for a period of 2
years.
(vi) if it has failed to comply with the requirements of any of the listing regulations.
(vii) if for any reasons whatsoever it refuses to join the Central Depository System (CDS) after its
securities has been declared eligible securities by the Central Depository Company (CDC).
(b) A listed company may be placed in the non-complaint segment if it has failed to declare dividend or
bonus:
(i) for five years from the date of declaration of last dividend or bonus; or
(ii) in the case of manufacturing companies, for five years from the date of commencement of
production; and
(iii) for five years from the date of commencement of business in all other cases.
A.4 (a) The directors of the company should have waited for half an hour. The directors of the company may
adjourn the general meeting of the company if within half an hour from the time appointed for the meeting
the quorum is not present and shall
(i) Direct to dissolve the meeting, if the meeting is called upon the requisition of the member.
(ii) Adjourn the meeting to the same day in the next week at the same time and place, if meeting is
called by the directors.
(b) The proxies deposited before adjournment of the meeting shall stand valid for the adjourned meeting
A proxy shall be entitled to attend and vote instead of member appointing him and have such rights
in respect of speaking and voting at the adjourned meeting as are available to a member.
(c) A resolution passed at an adjourned meeting shall for all purpose, be treated as having been passed
on the date on which it was in fact passed and shall not be deemed to have been passed on any earlier
date.
Page 2 of 5
CORPORATE LAWS
Suggested Answers
A.5 The decision of the directors of KTL contravenes various provisions of the Companies Ordinance, 1984
as discussed below:
(a) The accounts are being prepared for a 13 month period. For preparation of accounts for a period
exceeding twelve months, prior permission of the Registrar shall be required.
(b) The accounts are made up to a date earlier than the date of the meeting by more than four months (or
hold its first AGM on or before July 31, 2010). As per the Companies Ordinance 1984 the accounts
shall be made up to a date not earlier than the date of the meeting by more than four months.
A.6 (a) (i) In assessing the Integrity of the person, it should be considered whether or not he/she:
 has been convicted of an offence involving moral turpitude;

 has been involved in the mismanagement of investments, financial or business misconduct,
fraud, etc.;
 has been the subject to adverse findings, in an inquiry conducted by the Commission or any
other regulatory or professional body or government agency;
 has been actively involved in the management of a company or firm whose registration or
license has been revoked or cancelled or which has gone into liquidation or other similar
proceedings due to mismanagement of affairs, financial misconduct or malpractices;
 is ineligible, under the Companies Ordinance, 1984 or any other legislation or regulation, from
acting as a director or serving in a managerial capacity of an NBFC or a company;
 has entered into a plea bargain arrangement with the National Accountability Bureau;
(ii) Financial Soundness

In assessing the financial soundness of the person, it should be considered whether or not:
 such person’s financial statements or record including wealth statements or income tax returns
or assessment orders are available;
 such person has been declared by a court of competent jurisdiction as defaulter in repayment
of loan to a financial institution exceeding Rupees one million;
 the latest Credit Information Bureau report of the person shows overdue payments or default
to a financial institution;
 the person has applied to be adjudicated as an insolvent.
 the person is an un-discharged insolvent.
 the person has been declared a defaulter by a stock exchange.
(b) The expression "Independent director" means a director who is not connected with the company or its
promoters or directors on the basis of family relationship and who does not have any other
relationship, whether pecuniary or otherwise, with the company, its associated companies, directors,
executives or related parties.
The test of independence principally emanates from the fact whether such person can be reasonably
perceived as being able to exercise independent business judgment without being subservient to any
apparent form of interference.
At least one third of an NBFC’s directors shall be independent directors.
At least two of its directors, excluding the chief executive officer, shall have relevant experience of at
least five years at a senior management level in the financial sector.
The Commission shall be the final authority to determine the status of a director as independent or
otherwise.
Page 3 of 5
CORPORATE LAWS
Suggested Answers
A.7 (a) The chairman of a listed company shall preferably be elected from among the non executive directors.
The board of directors shall clearly define the respective roles and responsibilities of the chairman, and
also decide whether the Chairman and Chief Executive shall be separate individuals or the same
individual.
(b) The board of directors of a listed company shall meet at least once in every quarter. Written notices
(including agenda) of meetings shall be circulate not less than seven days before the meetings except
in the case of emergency meetings, where the notice period may be reduced or waived.
The chairman of a listed company shall ensure that minutes of meetings of the board of directors are
appropriately recorded. The minutes of meetings shall be circulated to directors and officers entitled to
attend board meetings within 14 or 30 days of the date of the meeting.
If the director of a listed company is of the view that his dissenting note has not been satisfactorily
recorded in the minutes, he may refer the matter to the company secretary. The director may require
the note to be appended to the minutes, failing which he may file an objection with the Securities and
Exchange Commission of Pakistan in the form of a statement to that effect.
A.8 The directors of Nayar Textiles Limited shall take reasonable steps to ensure that the company secretary is
a person who appears to them to have the requisite knowledge and experience to discharge his functions as
company secretary and who is -
(a) A member of -
 a recognized body of professional accountants; or
 a recognized body of corporate or chartered secretaries; or
(b) A person holding a master degree in business administration or commerce or being a law graduate
from a university recognized by the Higher Education Commission and having at least two years’
relevant experience.
A.9 (a) the number of shares to be purchased and price thereof shall be approved in the Board Meeting.
(b) the above decision shall then be confirmed by passing special resolution.
(c) the decision of the directors for the purchase shall be communicated to the SECP and the respective
stock exchange on the day of the decision.
(d) the tender notice for the purchase shall contain:
(i) The maximum number of shares to be purchased by the company;

(ii) The manner in which the offer shall be communicated;
(iii) The last day by which the offer to sell the shares shall be made; and
(iv) The name and the address of the designated branches of the authorized bank.
(e) A share holder, interested to sell his shares to the company shall make the offer in writing through the
designated branches of an authorized bank, providing the following information, namely:
(i) Name of the shareholder;

(ii) His father’s name and in the case of a married woman or a widow, her husband’s name;
(iii) National Identity Card No.;
(iv) Address of the shareholder registered with the company;
(v) Number of shares offered for repurchase by the company;
(vi) Distinctive numbers of share certificates (if not in the Central Depository);
(vii) Folio No. (if not in the Central Depository); and
(viii) Sub-account number with the Central Depository, if any.
(f) The company shall take a decision on the offers received within ten days of the closing date of the
receipt of offers.
Page 4 of 5
CORPORATE LAWS
Suggested Answers
(g) In case, offers received in response to tender notice exceed the requisite purchase, the acceptance
thereof shall be on pro-rata basis in lots of five hundreds shares.
(h) The acceptance of the offer shall be communicated within seven days of the decision.
(i) The shareholder, whose offer has been accepted, shall submit the share certificates along with the
transfer deed duly signed, verified and witnessed to the company through designated branches of the
bank within seven days for the receipt of acceptance of the offer.
(j) Where the shares are on the Central Depository System a confirmation from the Central Depository,
about the availability of the shares along with authorization to transfer shall be sent to the designated
branches of the bank within seven days of the receipt of acceptance of the offer.
(k) In case of non-compliance with sub-rules (i) and (j), the acceptance of the offer shall be deemed to
have been revoked.
(l) The company shall pay the price of the purchased shares through ‘bank draft’/’pay order’ immediately
on receipt of the share certificates and transfer deed or the authority to transfer the shares from the
Central Depository as the case may be, but not later than seven days.
A.10 The directors of ABC Limited, if the amount of their debt is equal to 60% of the paid up capital of the SUB
Power Limited either individually or in combination with other creditors may request the SECP to appoint
an Administrator to manage the affairs of the company, on the following grounds:
(a) the affairs or business of the company are or is being or have or has been conducted or managed:
(i) in a manner likely to be prejudicial to the interest of the company, its members or creditors, or
any director of the company or person concerned with the management of the company is or
has been guilty of breach of trust, misfeasance or other misconduct towards any of its members
or creditors or directors.
(ii) with intent to defraud its members or creditors or any other person or for a fraudulent or
unlawful purpose or
(iii) in a manner oppressive of any of such persons or for purposes as aforesaid or
(iv) as to deprive the members thereof of a reasonable return or
(b) any industrial project or unit to be set up or belonging to the company has not been completed or has
not commenced operations or has not been operating smoothly or its production or performance has so
deteriorated that:
(i) the market value of its shares as quoted on the stock exchange or the net worth of its shares has
fallen by more than seventy-five per cent of its par value or
(ii) debt equity ratio has deteriorated beyond 9:1 or
(iii) current ratio has deteriorated beyond 0.5:1 or
(c) any industrial unit owned by the company is not in operation for over a period of two years or has been
in operation intermittently or partially during the preceding two years. or
(d) the accumulated losses of the company exceed sixty percent of its paid-up capital.
A.11 (a) Saad Textile Mills Limited (STML) should have intimated, about the partial re-payment of Rs. 250
million, to the registrar, who would enter, in the register of mortgages and charges, a memorandum of
satisfaction that a part of the fixed assets of the company has been released from the charge.
(b) Despite the fact that confirmation has not been received from Apex Bank Limited, Saad Textile Mills
Limited (STML) should have intimated to the registrar within 21 days of the date of the re-payment of
the loan. The Registrar shall issue a notice to Apex Bank Limited to show cause within a time limit not
exceeding 14 days to be fixed in such notice why the re-payment or satisfaction of the charge or
mortgage should not be recorded. If no cause is shown by Apex Bank Ltd, the Registrar shall order
that a Memorandum of Satisfaction be entered in the register.
(THE END)
Page 5 of 5
The Institute of Chartered Accountants of Pakistan
Corporate Laws
Final Examinations – Winter 2010 December 8, 2010
Module E 100 marks - 3 hours
Q.1 (a) Belfast Pakistan Limited (BPL), engaged in real estate business, is a wholly owned subsidiary
of Belfast International (BI). The company was incorporated in April 2007 with a paid-up
capital of Rs. 100 million. After first three years of unsuccessful operations, BPL has
accumulated losses to the tune of Rs. 34 million.
In order to revive the company, management intends to venture into a new business and
wants to cancel its existing paid-up share capital which has been lost or unrepresented by
available assets.
Under the provisions of the Companies Ordinance, 1984 state the steps that need to be taken
for reducing the share capital of the company. (12 marks)
(b) On submission of the report by the inspector appointed by SECP to investigate the affairs of
XYZ Limited, SECP is of the opinion that the financial position of the company is such that it
endangers its solvency and as such has filed a petition in the Court for taking necessary action
against the management of the company.
Under the provisions of Companies Ordinance, 1984 describe various actions which the Court
may order against the management of XYZ Limited. (04 marks)
Q.2 Mr. Hameed, who is a director in ABC Limited, a listed company, is planning to move to Europe
for one year to set up his own business. In the light of Companies Ordinance, 1984 you are
required to:
(a) Respond to his request for advice, as regards his responsibilities, under the Companies
Ordinance 1984, in respect of:
(i) attending the annual general meeting of the company. (02 marks)
(ii) attending the board meetings of the company. (04 marks)
(b) Discuss the conditions under which he may be allowed to assign his office to another person.
(04 marks)
(c) State the procedure and the conditions to be complied with if the company wants to remove
Mr. Hameed from the directorship of the company, under each of the following assumptions:
(i) He was elected as a director of the company.
(ii) He became the director of the company by subscribing to the memorandum of
association of the company. (06 marks)
Q.3 (a) Western Cement Limited (WCL) has recently formed a provident fund for the benefit of its
employees.
In view of the provisions contained in the Companies Ordinance, 1984 you are required to
advise (i) the directors of WCL and (ii) the trustees of Provident Fund about their
responsibilities with respect to the amount to be contributed to the fund and investment
thereof. (09 marks)
(b) State the provisions contained in the appointment of Legal Advisers Act, 1974 relating to the
eligibility for appointment as legal advisers. (03 marks)
Corporate Laws Page 2 of 2
Q.4 The paid-up capital of Jupiter Technologies Limited consists of 100 million ordinary shares of
Rs. 10 each. The directors are now planning to issue two classes of preference shares to the existing
shareholders, for Rs. 100 million.
In the light of the provisions of the Companies Share Capital (Variation in Rights and Privileges)
Rules, 2000 you are required to advise the directors, as regards the following:
(a) The conditions which must be complied with, for issuing different classes of preference shares.
(b) The nature of variation in rights and privileges that can be associated with different classes of
shares. (11 marks)
Q.5 EFL has recently been incorporated as a non-banking financial institution and plans to carry out
more than one form of business. You are required to advise it in respect of the following:
(a) Any eight conditions specified under the NBFC rules 2003 for the grant of licence. (08 marks)
(b) The provisions as regards validity and renewal of licence granted to the NBFC. (04 marks)
Q.6 Narrate the provisions contained in the Code of Corporate Governance relating to:
(a) Orientation Courses / Directors Educational Program. (03 marks)
(b) The responsibility of CEO and CFO of a listed company as regards endorsement and approval
of financial statements prior to their circulation. (03 marks)
(c) Secretarial Compliance Certificate. (03 marks)
Q.7 Yasir (Private) Limited is part of a large group of companies including listed as well as unlisted
entities. It is considering to get itself listed on the Karachi Stock Exchange. As the CFO of the
Company, you are cognizant of the fact that the responsibilities of the company would increase
significantly after it gets itself listed. Consequently, you are required to make a report for
presentation to the directors as regards the following:
(a) Conditions required to be complied with by Yasir (Private) Limited under the listing
regulations of the Karachi Stock Exchange, to be eligible for listing. (08 marks)
(b) Additional information to be disclosed in the Directors’ report of a listed company. (08 marks)
(c) Circulation of quarterly accounts. (04 marks)
Q.8 The Board of Directors of Modern Textile Mills Limited (MTML) recommended the issue of 20%
bonus shares for the year ended September 30, 2010. The register of members for determining the
entitlements was closed from October 22, 2010 to October 29, 2010 (both days inclusive). The
company is listed on Karachi and Lahore Stock Exchanges and its securities are entered in the
Central Depository System.
State the responsibility of MTML and the Central Depository upon issuance of bonus shares under
the Central Depositories Act, 1997. (04 marks)
(THE END)
CORPORATE LAWS
Suggested Answers
A.1 (a) Procedure for Reduction in Paid Up Capital

If allowed under the Articles of Association of the company, Belfast Pakistan Limited
may reduce its share capital as follows:
(i) Pass a resolution for reduction in share capital in the meeting of the directors.
(ii) Send notice with statement of material facts under provision of the Companies
Ordinance 1984 and copy of the proposed special resolution for reduction in
capital to the shareholders convening the extra ordinary general meeting at least
21 days before the date of general meeting and pass the special resolution in the
meeting.
(iii) File copy of the Special Resolution with the Registrar within 15 days from the
date of passing of special resolution.
(iv) Obtain NOC from creditors, if any.
(v) File Petition before the Court for confirmation of the reduction in share capital.
(vi) Submit a copy of court’s confirmation order for reduction of the capital, with the
Registrar.
(vii) Comply with the Court order for publication of reason for reduction of share
capital in the newspapers.
(b) Power of Commission to initiate action against management

Various actions, which the Court may order against the management of XYZ Limited, are
as follows:
(i) Remove from office any director including the chief executive, managing agent or
other officer of the company;
Any director including a chief executive, managing agent or other officer who is
removed from office shall not be a director, chief executive, managing agent or
officer of any company for a period of five years from the date of his removal
unless the court specifies a lesser period.
(ii) Direct that the directors of the company should carry out such changes in the
management or in the accounting policies of the company as may be specified in
the order; or
(iii) Direct the company to call a meeting of its members to consider such matters as
may be specified in the order and to take appropriate remedial action; or
(iv) Direct that any existing contract which is to the detriment of the company or its
members or is intended to or does benefit any officer or director shall be annulled
or modified to the extent specified in the order.
Provided that no such order shall be made so as to have effect from any date preceding
the date of the order.
A.2 (a) (i) Director’s attendance at Annual general Meeting.

It is not mandatory for a director to attend the annual general meeting of the
company and there are no consequences of not attending it under the Company’s
Ordinance, 1984.
(ii) Director’s attendance at Board Meeting.
If Mr. Hameed does not attend, without leave of absence from directors, three
consecutive board meetings or all the board meetings for a continuous period of
three months whichever is longer he shall ipso facto cease to hold office.
(b) Restriction on assignment of office of directors
Mr. Hameed can assign his office to another person, if he is allowed by the articles or by
any agreement, between him and the company empowering him to assign his office to
another person, duly approved by a special resolution of the company.
Page 1 of 6
CORPORATE LAWS
Suggested Answers
(c) Removal of directors

In either case, the company may remove Mr. Hameed from the directorship by passing a
resolution in general meeting.
(i) If Mr.Hameed was appointed by the election of directors of the company.

Mr. Hameed shall be removed if votes cast against the resolution for removal are
less than the minimum number of votes that were cast for the election of director
at the immediately preceding election of directors.
(ii) If Mr.Hameed was appointed by the subscribers to the memorandum of association

of the company.
Mr. Hameed shall be removed if votes cast against the resolution for removal are
less than the total number of votes for the time being computed as a product of
number of shares held by voter and number of director elected at the time of his
appointment divided by the number of directors for the time being.
A.3 (a) The Directors of the company are responsible to collect the contribution of the
employees and pay such contributions as well as the company’s contributions, to the
trustees of the provident fund within fifteen days from the date of collection and
thereupon the obligations laid on the company shall devolve on the trustees and
shall be discharged by them instead of the company.
The directors shall make sure that no portion of the contribution is utilized by the
company except for the breach of the contract of service by the employee, subject to
giving prior notice to the employee concerned.
It is the responsibility of the trustees to ensure that all the money deposited with a
company by its employees, contribution by the company or received or accruing by
way of interest, profit or otherwise from the date of the contribution, receipt or
accrual, shall either be deposited:
(i) in the National Saving Scheme;

(ii) in a special account opened by the company for the purpose in a scheduled bank or
(iii) where the company itself is a scheduled bank, in a special account to be
opened by the company for the purpose either in itself or in any other scheduled
bank or
(iv) be invested in Government securities; or
(v) in bonds, redeemable capital, debt securities or instruments issued by the Pakistan
Water and Power Development Authority; or
(vi) in listed securities subject to the conditions as prescribed by the SECP.
(b) The Legal Advisor shall be an advocate or a registered firm of advocates.
The number of companies of which such advocate or firm is a Legal Advisor (including
the current appointment) shall not exceed:
(i) in the case of an advocate, three; or
(ii) in the case of a firm, the product of three and the total number of partners of the
firm.
A.4 (a) The following pre-requisites must be complied with before issuance of various classes
of shares by a company limited by shares :
(i) The issuance of such shares shall be in accordance with the memorandum and
articles of association of the company.
Page 2 of 6
CORPORATE LAWS
Suggested Answers
(ii) No company shall issue further share capital of any kind or class carrying different
rights and privileges except with prior approval of the Commission to be obtained
on the basis of special resolution.
(iii) Offer of further share capital of any kind or class carrying different rights and
privileges shall be made to each existing shareholder proportionately without any
discrimination.
(iv) If any of the existing shareholder declines to accept the offer, the shares so
declined shall be disposed of by the directors in such manner as may be provided
in the articles or in accordance with the special resolution passed by the
shareholders.
(v) The fact that the company has different classes of shares with different rights and
privileges, shall be distinctly mentioned in the offering document and the
difference in the rights and privileges of any class of share capital shall be
conspicuously mentioned in the offering document or prospectus etc.
(b) The directors of Jupiter Technologies Limited may offer the following types of variation
in rights and privileges with the different kinds of preference shares provided such
variation is allowed under the articles of association of the company :
(i) different voting rights, voting rights disproportionate to the paid up value of
shares held, voting rights for specific purposes only or no voting rights.
(ii) different rights for entitlements of dividend, right shares or bonus shares or
entitlement to receive the notices and to attend general meetings.
(iii) rights and privileges for indefinite period, for a limited specified period or for such
period as may be determined by the members through special resolution.
A.5 (a) Under the NBFC rules 2003, the Commission has specified the following conditions to
be complied prior to grant of license for carrying out more than one form of business:
(i) EFL must be a public limited company incorporated under the Ordinance or any
other form of company as may be specified by the Commission through official
Gazette.
(ii) EFL must not be a part of a group of companies already holding a licence for the
same form of business under NBFC Rules.
(iii) EFL’s equity should be equal to or in excess of the minimum equity as may be
specified by the Commission by notification in the official gazette in respect of
each form of business.
(iv) EFL must have allotted at least twenty five percent of the paid up share capital to
the promoters.
(v) EFL’s promoters or majority shareholders and directors should have deposited
their shares with Central Depository Company of Pakistan Limited in an account
marked as “Blocked” and such shares shall not be sold or transferred without
prior approval of the Commission.
(vi) The promoters or majority shareholders and directors shall undertake that they
would not enter into any agreement for sale or transfer of their shares in any
manner without prior approval of the Commission.
(vii) EFL shall appoint a chief executive who shall not hold such office in any other
company except for an investment company being managed by the said company,
provided that prior approval of the commission has been obtained in this regard.
(viii) EFL shall give an undertaking that no change in the Memorandum of Association,
other than increase in the authorized capital, shall be made without prior
approval of the Commission.
(ix) EFL shall give an undertaking to comply with the rules, regulations or directions
given by the Commission.
Page 3 of 6
CORPORATE LAWS
Suggested Answers
(x) EFL shall give an undertaking that within ninety days of the Certificate of
Registration, it shall provide evidence to the Commission that the personnel
employed by it for executive positions, research or other related functions,
possess sufficient educational qualifications and professional experience to
undertake the asset management business.
(b) An NBFC should commence business within one year of the issuance of license and if it
fails, the license shall be deemed to be cancelled or otherwise as specified by the
commission by notification in the official gazette.
The license granted to the NBFC shall be valid for three years from the date of its
issuance and shall be renewable upon expiry of the three years as by making an
application at least one month prior to expiry.
The Commission may after making such inquiry and after obtaining such further
information as it may consider necessary renew the license of NBFC for three years on
such conditions as it may deem necessary.
Provided that till such time the license is renewed the existing license shall be deemed
valid for the purposes of these rules and the regulations unless the company fails to
apply and fulfills all the requirements to the satisfaction of the commission for the grant
of the license.
A.6 (a) Orientation Courses / Directors Educational Programme

All listed companies shall make appropriate arrangements to carry out orientation
courses for their directors to acquaint them with their duties and responsibilities and
enable them to manage the business affairs of the company on behalf of shareholders.
It will be mandatory for all directors of listed companies to have certification under
“The Board Development Series” program offered by the Pakistan Institute of Corporate
Governance.
Provided that at least one director shall be required to have such certification up to June
30, 2011 and thereafter, every following year minimum one director on the Board shall
acquire the said certification under this program.
(b) Responsibility of CEO & CFO as regards financial statements

No listed company shall circulate its financial statements unless the CEO and the CFO
present the financial statements, duly endorsed under their respective signatures, for
consideration and approval of the Board of Directors and the Board, after consideration
and approval, authorize the signing of financial statements for issuance and circulation.
(c) Secretarial Compliance Certificate

The Company Secretary of a listed company shall furnish a Secretarial Compliance
Certificate, in the prescribed form, as part of the annual return filed with the Registrar
of Companies to certify that the secretarial and corporate requirements of the
Companies Ordinance, 1984 have been duly complied with.
Page 4 of 6
CORPORATE LAWS
Suggested Answers
A.7 (a) Yasir (Private) Limited must meet the following criteria for being eligible for listing on
the Karachi stock exchange(KSE):
(i) The company must first be converted from private limited company to public
limited company.
(ii) The paid up capital (including public offer) shall not be less than Rs 200 million.
(iii) A running company for one full year or more, reflecting losses in their last
audited accounts shall not qualify for listing if its equity is eroded by 40% or
more.
(iv) Public issue should at least be subscribed by 500 applicants.
(v) The promoters/ sponsors / controlling directors who are also promoters
/sponsors /controlling directors in other listed companies should not be in
default of any Listing Regulation.
(vi) The company should not be a wholly owned subsidiary of any other listed
company which has violated Listing Regulations and which is still in default of
any Listing Regulation.
(vii) The company should not be an associated company of any other listed company
which has violated Listing Regulations and which is still in default.
(viii) The Chief Executive should not previously been a chief executive of any other
listed company which had violated the Listing Regulations.
(ix) Promoters / sponsors / controlling directors should not be in the defaulter’s list
of the State Bank of Pakistan either in their individual capacity or in the capacity
of directors of other companies. However, this will not apply to nominee
directors of the Government and Financial Institutions.
(x) The company should provide an undertaking to abide by all the Listing
Regulations.
(b) Additional information to be disclosed in the Director’s Report.
The following additional information is required to be disclosed in the directors report

of a listed company under the provisions of the Companies Ordinance, 1984:
(i) Material changes that have occurred during the financial year concerning the
nature of the business of the company or of its subsidiaries in the classes of
business in which the company has interest whether as a member of another
company or otherwise unless the commission exempts any company from
making such disclosure on the ground that such disclosures would be
prejudicial to the business of the company.
(ii) Material changes and commitments affecting the financial position of the
company occurred after close of the financial year and before preparation of the
report.
(iii) Information and explanation in regard to any reservation, observation,
qualification or adverse remarks, contained in the auditor’s report.
(iv) Pattern of shares holdings.
(v) In case of subsidiary company, the name of its holding company, and country of
incorporation, if it is established outside Pakistan.
(vi) Earnings per share.
(vii) Reasons for incurring loss and a reasonable indication of future prospects of
profit, if any.
(viii) Information about defaults in payment of debts, if any, and reasons thereof.
Page 5 of 6
CORPORATE LAWS
Suggested Answers
(c) Circulation of quarterly accounts of Listed Companies.
Every listed company shall:

(i) Within one month of the close of the first, second and third quarter of its year of
account, prepare and transmit to the members and the stock exchange in which
the shares of the company are listed a profit and loss account for, and balance
sheet as at the end of, that quarter, whether audited or otherwise; and
(ii) Simultaneously with the transmission of the quarterly profit and loss account and
balance-sheet to the members and the stock exchange, file with the registrar and
the commission such number of copies thereof, not being less than three, as may
be prescribed.
(iii) The balance sheet and profit and loss account or income and expenditure account
shall be approved by the directors and shall be signed by the chief executive and
at least one director
(iv) A listed company may place its quarterly accounts on its website which will be
treated compliance of the provisions of the Companies Ordinance, 1984.
If a company fails to comply with any of the requirements of this section, every director
including chief executive and chief accountant of the company who has knowingly by
his act or omission been the cause of such default shall be liable to a fine of not
exceeding one hundred thousand rupees and a further fine of one thousand rupees for
every day during which the default continues.
A.8 Issuance of Bonus Shares

Upon announcement of bonus issue, the securities to be issued on the number of securities
of the company registered in the name of Central Depository shall be allotted by Modern
Textile Mills Limited (MTML) to the central depository.
The Central Depository upon allotment will determine the entitlements of the respective
account holders and sub account holders of the company in proportion to the securities
standing in their accounts and sub accounts as of the close of business hours of the central
depository on the day before the first day of the period of closure of the register of members
and credit these in the relevant accounts and sub accounts.
(THE END)
Page 6 of 6
SUBJECT SESSION
Corporate Law Winter 2010
It has been very prominent to note that even the students who knew the correct reply have
added unnecessary material and filled pages for the question, the answer of which could be
covered in few lines. It is very important to note the marks allocated to the respective
question, which they simply fail to understand. In spite of continuous emphasise on the
need of developing the skill of analysing the requirement of the question, the students seem
to have ignored the comment and have criminally wasted their precious time. What is the
idea or concept behind their writing irrelevant answer is beyond the examiners’
understanding.
Further, at this final stage also the situation based questions seem to confuse the students.
Direct questions are more easily replied than practical questions. Overall the paper, though
easy, has been badly attempted by large percentage, resulting in failure of most of the
students in this paper. At this final level, it is felt that there is dire need for understanding
the precise requirement before attempting the question by the students.
Q.1 (a) This part of the question required the steps involved in the reduction of paid
up capital of a company. Though many students identified most of the steps
but the majority failed to mention the following important points:
• Articles of Association must allow the reduction of paid up capital.

• Copy of the Special Resolution shall be filed with the Registrar within 15
days from the date of passing of special resolution along with the
prescribed fee.
(b) In this part, the students were required to specify power of Commission to
initiate action against the management of XYZ Limited, which has been
fairly attempted by the students. However, one mistake which most of the
students committed is instead of writing as per law that “the Court directs the
directors to carry out changes in the management and accounting policies”,
they wrote that “the Court orders the management to change the Board of
Directors and financial policies of the company”. Many students who tried to
reproduce the law in their own words, totally changed the meaning thereof. It
must be emphasised that although it is not necessary to reproduce the exact
law, but while interpreting, the meaning should not change.
Q.2 (a) Though quite an easy question yet many students got confused in replying to
it. Many students wrote that “the director should appoint proxy to attend
AGM in his absence”. Whereas, there is no section under the Companies
Ordinance which binds the director to attend the AGM and there are no
consequences for not attending.
Students covered all points while replying to Part (a)(ii) and gained full
marks.
Page 1 of 3
Examiners’ Comments on Corporate Law – Winter 2010 Examination
(b) In this part pertaining to assignment of office of directors, many students

were not clear between assignment of office and appointment of alternate
director.
(c) Although majority of the candidates correctly stated that the director can be
removed by passing a resolution in the members meeting but most of them
could not correctly state the number of votes required for such removal,
especially in case of removal if a person has become the director of the
company by subscribing to the memorandum of association of the company.
Q.3 (a) The question required the candidates to advise directors and trustees
regarding their responsibilities in respect of contribution to provident fund
and investment thereof but almost all of them mixed up the responsibilities of
directors and trustees. Generally trustees’ responsibilities with respect to
investment were included in the directors’ responsibilities and the trustees’
responsibilities were wrongly restricted to overseeing the directors for
fulfilling their responsibilities. Baring few, all the candidates got low marks
on this part of the question.
(b) This was a very simple question regarding the provisions relating to
eligibility for appointment of legal advisor which was well attempted by most
of the candidates.
Q.4 (a) Majority of the candidates got average marks on this part of the question as
they failed to mention many conditions contained in Companies’ Share
Capital (Variation in Rights and Privileges) Rules 2000. Generally the
candidates failed to state the following points:
(i) The issuance of such shares shall be in accordance with the

memorandum and articles of association of the company.
(ii) No company shall issue further share capital of any kind or class
carrying different rights and privileges except with prior approval of
the Commission to be obtained on the basis of special resolution.
(iii) The fact that the company has different classes of shares with different
rights and privileges and the difference in the rights and privileges,
shall be conspicuously mentioned in the offering document or
prospectus etc.
(b) Most of the candidates correctly stated the nature of variation in rights and
privileges associated with the different classes of shares and thus got good
marks. Some of them narrated the different kinds of preference shares i.e.,
cumulative, non-cumulative, redeemable, non redeemable which was not
required.
Q.5 (a) This simple question regarding conditions specified under the NBFC rules
2003 for grant of licence was well attempted by most of the students as they
were well versed with these conditions. Some students narrated the
qualifications of sponsors, directors etc., which was not required.
Page 2 of 3
Examiners’ Comments on Corporate Law – Winter 2010 Examination
(b) Majority of the candidates got low marks on this part of the question. The
licence is valid for three years but baring few, all the candidates mentioned
that the licence is valid for one year. Most of the candidates also failed to
mention the conditions on which the licence shall be renewed and validity of
licence during the period from the date of application of renewal to the date
of renewal.
Q.6 (a) Majority of the student correctly described the purpose of Orientation
Courses/Directors Educational Program but they failed to mention the
provisions regarding mandatory certification under “The Board Development
Series” program offered by the Pakistan Institute of Corporate Governance.
(b) This part of the question was well attempted by most of the students as they
correctly described the provisions contained in the code of Corporate
Governance relating to responsibilities of CEO and CFO as regards financial
statements.
(c) Instead of narrating provisions related to Secretarial Compliance Certificate

which is required to be filed with the Registrar by the Secretary of the listed
company, most of the candidates discussed the Statement of Compliance with
the best practices of Code of Corporate Governance and auditors review
thereon. Many students mentioned that the Certificate would either be issued
by external auditors or in some cases they mentioned that this would be
obtained from SECP.
Q.7 (a) Baring few all the candidates got low marks on this part of the question as
instead of describing the conditions mentioned in Appendix 2 of the listing
regulations of Karachi Stock Exchange almost all candidates narrated the
procedure in respect of prospectus, procedure for making applications for
shares and balloting etc.
(b) The students generally secured good marks in this part of the question.
(c) Very few candidates could provide a complete answer as the following points
were generally missed:
(i) Option to place quarterly accounts on website.

(ii) Filing of accounts with Registrar and Commission.
Q.8 Almost all the candidates failed to secure good marks on this question as they were
unaware about the relevant provisions of Central Depository Act 1997, Sec. 10(1)
& (2). It was a clear case of selective studies which unfortunately most candidates
seem to have resorted to.
(THE END)
Page 3 of 3
Corporate Laws
Final Examination June 8, 2011
Reading time – 15 minutes
Module E – Summer 2011 100 marks – 3 hours
Q.1 As on April 1, 2010 Mr. Faisal owned one million shares in Delton Chemicals Limited (DCL), a listed
company. He has made the following transactions in the shares of DCL during the year ended
March 31, 2011:
Addition/(Deletion)
S. No. Date Remarks
No. of shares (in million)
1. 31.05.2010 45 Purchased from the market
2. 15.07.2010 15 Purchased from the market
3. 30.08.2010 (5) Sold in the market at a profit
4. 15.09.2010 (1)* Sold in the market at a profit
5. 20.11.2010 5 Bonus shares
*These shares were acquired on March 15, 2010 in good faith from Mr. Yaseen in satisfaction of a debt.
The paid-up capital of DCL is 500 million shares.
Required:
(a) Discuss Mr. Faisal’s responsibilities under the Companies Ordinance, 1984 in respect of the above
transactions. (08 marks)
(b) Briefly discuss the powers of the SECP in case Mr. Faisal fails to carry out his responsibilities as
referred to in (a) above. (04 marks)
Q.2 Substantial operating losses sustained by Legend Ceramics Limited (LCL) have forced its directors to
proceed for company’s voluntary winding up. Accordingly, a general meeting of LCL was held on
July 1, 2010 and Mr. Ateeq was appointed as the Liquidator.
In the context of the provisions contained in the Companies Ordinance, 1984 you are required to
explain the following:
(a) The steps that Mr. Ateeq should take if the winding up is not completed till June 30, 2011.(05 marks)
(b) Mr. Ateeq’s responsibilities as regards final meeting and dissolution of the company. (05 marks)
Q.3 On January 1, 2011 Landmark Limited (LML), a company incorporated in Mauritius, established a
branch office in Pakistan and commenced its business with the permission of the Board of Investment,
Pakistan.
On February 10, 2011 LML received a notice from the registrar’s office for non-filing of certain
documents.
In the light of the provisions contained in the Companies Ordinance 1984, you are required to:
(a) give a list of the documents that LML was required to submit to the Registrar before completion of
30 days from the date of establishment of the branch. (05 marks)
(b) explain the effect of non-filing of these documents on the validity of the agreements or contracts
entered into by LML during the above period and on the rights of the respective parties to initiate
legal proceedings against each other. (04 marks)
Q.4 Briefly explain the term ‘dominant position’ and list the practices which constitute an abuse of
dominant position, under the provisions of the Competition Act, 2010. (09 marks)
Q.5 RK Limited (RKL), a listed company, holds 6.3 million ordinary shares of TK (Private) Limited
(TKPL) whose paid-up capital consists of 10 million ordinary shares of Rs. 10 each. The remaining
shares are held by Mr. Adnan and his family. The Board of TKPL consists of eight directors of which
five directors represent RKL while the remaining three directors, including the chief executive, are
representatives of Mr. Adnan and his family.
RKL is presently considering the following proposals:
(a) to appoint one of the directors representing RKL, as the chief executive of TKPL, in place of the
existing chief executive. (05 marks)
(b) to appoint BL & Co., Chartered Accountants, as auditors of TKPL in the forthcoming annual
general meeting. The spouse of one of the partners of BL Associates holds one hundred thousand
shares in TKPL. (03 marks)
(c) to pledge TKPL’s inventories as security against a loan to be obtained by an associated company of
TKPL. (03 marks)
Comment on the above proposals in the light of provisions contained in the Companies Ordinance,
1984.
Q.6 The board of directors of EFI Textile Mills Limited, a listed company, plans to buy-back 10% shares of
the company. In the light of the provisions contained in the Companies (Buy-back of Shares) Rules,
1999, specify the conditions that the company should be in compliance with, before it proceeds to
buy-back the shares. (04 marks)
Q.7 The Directors of SQL Limited, a listed company, has decided to issue 50% right shares.
You are required to explain the conditions that SQL will have to comply with, in each of the following
situations if:
(a) the shares are to be issued at a premium of Rs. 6 per share. (08 marks)
(b) the employees of SQL Limited are also holding shares on account of preferential allocation.
(04 marks)
Q.8 (a) XYZ Limited, an NBFC, is in the process of classification and provisioning of its non-performing
assets. You are required to advise the company about the criteria for determining the realizable
value of mortgaged, pledged, leased or collaterally held assets in the light of provisions contained in
Non-Banking Finance Companies and Notified Entities Regulations, 2008. (07 marks)
(b) Explain the terms Open-end Scheme and Close-end Scheme as included in the NBFC Rules, 2003.
(05 marks)
Q.9 On May 21, 2011, Mr. Salman made a public announcement of his offer to acquire 45% voting shares
of Imtiaz Industries Limited (IIL) from Mr. Kalam. On May 31, 2011 Mr. Sadiq also made a public
announcement of his offer to Mr. Kalam for the acquisition of the same number of shares at a higher
price. Both, Mr. Salman as well as Mr. Sadiq already own more than 10% shares in IIL.
In the light of the provisions of the Listed Companies (Substantial Acquisition of Voting Shares and
Takeovers) Regulations, 2008 you are required to advise Mr. Salman about the course of action which
he would have to follow if he still wants to acquire the shares owned by Mr. Kalam. (05 marks)
Q.10 State the conditions specified under the listing regulations in respect of each of the following:
(a) Declaration of financial results and announcement of dividend. (06 marks)
(b) Issuance and despatch of dividend warrants and payment of dividend. (06 marks)
Q.11 Under the Code of Corporate Governance, what are the conditions under which a person becomes
ineligible to be appointed as the director of a listed company? (04 marks)
(THE END)
CORPORATE LAWS
Suggested Answers
A.1 (a) (i) May 31, 2010

Mr. Faisal was not required to file any return with the registrar as his holding
was less than 10% of the shares of the company even after taking opening
balance of one million shares.
(ii) July 15, 2010

Since the shareholding of Mr. Faisal had crossed the level of 10% shares of the
company, he had to inform the company and file a return, within 30 days from
the date of the transaction, containing particulars of his shareholdings in Delton
Chemicals Limited (DCL) with the Registrar and the Commission.
(iii) August 30, 2010

Since Mr. Faisal had made a gain by purchase and sale within a period of less
than six months, he was required to make a report and tender the amount of
such gain to the company and simultaneously send intimation to this effect to the
Registrar and the Commission within 15 days from the date of the transaction.
(iv) September 15, 2010

Mr. Faisal was not required to make a report and tender the gain and send
intimation to this effect to the Registrar and the Commission as the concerned
rule discussed in (iii) above, is not applicable to such transactions i.e. when
shares have been acquired in good faith, in satisfaction of a debt.
(v) November 20, 2010

On receipt of bonus shares, there is a change in his beneficial ownership of DCL,
he would therefore be required to inform the company and file a return with the
Registrar and the Commission within 15 days from the date of the receipt of
bonus shares.
(b) If Mr. Faisal knowingly and willfully contravenes or otherwise fails to comply with
any provision of Company Law related to above, he shall be liable to pay a fine.
If Mr. Faisal fails or neglects to tender the amount of the gain or the company fails to
recover any gain such gain shall vest in the Commission and unless such gain is
deposited in the prescribed account, the Commission may direct recovery of the same
as an arrear of land revenue.
A.2 (a) If the affairs of the LCL are not wound up till June 30, 2011, Mr. Ateeq shall be
responsible to take the following steps:
(i) Summon a general meeting of the company at the end of the first year from the
date of commencement of the winding up and, if extension is granted by court,
within thirty days of such extended period;
(ii) Present in the meeting an audited account of receipts and payments and acts
and dealings and of the conduct of the winding up during the preceding year
together with a statement in a prescribed form containing the prescribed
particulars with respect to the proceedings in and position of the liquidation,
including:
 Reasons for the delay in finalization of the winding up proceedings.

 steps taken to expedite the winding up proceedings.
 further time required for the purpose.
Page 1 of 7
CORPORATE LAWS
Suggested Answers
(iii) Forward by post to every contributory, a copy of the account and statement
together with the auditor's report and notice of the meeting at least ten days
before the meeting.
(iv) File with the registrar, a return of convening of each general meeting, together
with a copy of the notice, account, statement and minutes of the meeting,
within ten days of the date of the meeting.
(b) (i) As soon as the affairs of the company are fully wound up, Mr.Ateeq would be
responsible to
 make a report and account of the winding up, showing how the winding up
has been conducted and the property of the company has been disposed of
and such other particulars as may be prescribed; and
 call a general meeting of the company for the purpose of laying the report and
account before it and giving any explanation thereof.
(ii) The account shall be audited and a copy thereof together with a copy of the
auditor’s report and notice of meeting shall be sent by post to each contributory
of the company at least ten days before the meeting required to be held under
this section.
(iii) The notice of the meeting specifying the time, place and object of the meeting
shall also be published at least ten days before the date of the meeting.
(iv) Within one week after the meeting, the Liquidator shall send to the registrar a
copy of his report and account, and shall file a return with him of the holding of
the meeting along with the minutes of the meeting in the prescribed manner.
(v) If a quorum is not present at the meeting, the Liquidator shall, in lieu of the
return referred to in sub-section (4), file a return that the meeting was duly
summoned and that no quorum was present there at, and upon such return
being made within one week after the date fixed for the meeting along with a
copy of his report and account in the prescribed manner, the provisions of sub-
section (4) as to the making of the return shall be deemed to have been complied
with.
A.3 (a) Landmark Limited was required to file the following documents with the registrar
within thirty days of the establishment of the place of business in Pakistan.
(i) A certified copy of the charter, statute or memorandum and articles of the
company, or other instrument constituting or defining the constitution of the
company, and if the instrument is not written in English or Urdu language, a
certified translation thereof in English or Urdu language.
(ii) The full address of the registered or principal office of the company.
(iii) A list of the directors, chief executives and secretaries (if any) of the company.
(iv) A return showing the full present and former names and surnames, father’s
name or , in the case of a married woman or widow, the name of her husband or
deceased husband, present and former nationality, designation and full address
in Pakistan of the principal officer of the company in Pakistan by whatever
name called.
(v) The full present and former names and surnames, father’s name or, in case of
married woman or widow, the name of her husband or deceased husband,
present and former nationality, occupation and full addresses of one or more
persons resident in Pakistan authorized to accept on behalf of the company
Page 2 of 7
CORPORATE LAWS
Suggested Answers
service of process and any notice or other document required to be served on

the company together with his consent to do so; and
(vi) The full address of that office of the company in Pakistan which is to be deemed
as the principal place of business in Pakistan of the company.
(b) (i) Any failure by a foreign company in submitting the prescribed documents with
the Registrar shall not affect the validity of any contract, dealing or transaction
entered into by the company or its liability to be sued in respect thereof.
(ii) The Foreign company shall not be entitled to bring any suit, claim any set off, or
make any counter- claim in respect of any such contract, dealing or transaction,
until it has submitted the required documents with the registrar of companies.
A.4 “Dominant position” of one undertaking or several undertakings in a relevant market shall
be deemed to exist if such undertaking or undertakings have the ability to behave to an
appreciable extent independently of competitors, customers, consumers and suppliers and
the position of an undertaking shall be presumed to be dominant if its share of the relevant
market exceeds forty per cent.
The expression “practices” shall include, but is not limited to:

(i) limiting production, sales and unreasonable increases in price or other unfair
trading conditions;
(ii) price discrimination by charging different prices for the same goods or services from
different customers in the absence of objective justifications that may justify
different prices;
(iii) tie-ins, where the sale of goods or services is made conditional on the purchase of
other goods or services;
(iv) making the conclusion of contracts subject to acceptance by the other parties of
supplementary obligations which by their nature or according to commercial usage,
have no connection with the subject of the contracts;
(v) applying dissimilar conditions to equivalent transactions on other parties, placing
them at a competitive disadvantage;
(vi) predatory pricing, driving competitors out of a market, preventing new entry and
monopolizing the market;
(vii) boycotting or excluding any other undertaking from the production, distribution or
sale of any goods or the provision of any service; or
(viii) refusing to deal.
A.5 (a) The directors of a company by resolution passed by not less than three-fourths of the
total number of directors for the time being, or the company by a special resolution,
may remove a chief executive before the expiration of his term of office.
Therefore, the Chief Executive of TKPL can be removed only if the proposal is
supported by either of the following:
(i) at least 6 directors of the TKPL or
(ii) by 3/4th majority of the members present in person or proxy.
RKL cannot therefore remove the current Chief Executive of TKPL until the expiry of
his term, unless the move is supported by at least one director from the Adnan family
or RKL can get support of 3/4th of shareholders present in the person or by proxy in
the general meeting.
Page 3 of 7
CORPORATE LAWS
Suggested Answers
(b) BL & Co., Chartered Accountants, cannot be appointed as auditors of TKPL because
the spouse of one of the partners of BL & Co. holds shares in TKPL.
However, the appointment of BL & Co. may be valid if the concerned partner
discloses the fact on his appointment as auditor and gives an undertaking that these
shares would be disinvested, within 90 days of his appointment.
(c) TKPL would not be authorized to provide any security in connection with a loan
obtained by its associated company as it is a subsidiary of public company, if:
(i) The associated company is a private company of which any such director is a
director or a member.
(ii) The associated company is a public company and 25% or more of its voting
power is controlled by the director(s) of TKPL; or
(iii) Both the companies (TKPL as well as the associated company) are under
common control or management.
A.6 The company should comply with following conditions before it proceeds to buy-back the
shares:
(a) The company shall have debt-equity and current ratios as under, namely:
(i) Debt-equity ratio 75:25
(ii) Current ratio 1:1
Provided that the Commission on application of a company may allow it to purchase

its own shares even if the company has a higher debt-equity ratio if in the opinion of
the Commission it is in the interest of the company and the capital market.
(b) Debt-equity and current ratios shall be indicated in the explanatory statement to be
circulated to the members along with the notice of the meeting in which the proposed
purchase is to be considered.
(c) The company shall have sufficient cash (resources) available with it for the buy back.
A.7 (a) SQL Battery Ltd. will have to comply with the following conditions if it issues right
shares at a premium of Rs. 6 per share:
(i) The company shall not make a right issue within one year of the first issue of
capital to the public or further issue of capital through right issue;
(ii) The company, while announcing right issue, shall clearly state the purpose of the
right issue, benefits to the company, use of funds and financial projections for
three years.
(iii) The financial plan and projections shall be signed by all the directors who were
present in the meeting in which the right issue was approved;
(iv) The decision of the company to issue right shares shall be communicated to the
Commission and the respective stock exchange on the day of the decision;
(v) The company may charge premium on right shares up to the free reserves per
share as certified by the company’s auditors and the certificate of the auditors
shall be furnished to the Commission and the respective stock exchange
alongwith intimation of the proposed right issue:
Page 4 of 7
CORPORATE LAWS
Suggested Answers
Provided that where a company proposes to charge premium on right issue

above the free reserves per share it shall be required to fulfill the following
requirements, namely:-
 At least forty per cent of all the shareholders undertake to subscribe their
portion of right issue; and
 The remaining right issue shall be fully underwritten and the underwriters,
not being associated companies, shall include at least two financial
institutions including commercial banks and investment banks and the
underwriters shall give full justification of the amount of premium in their
independent due diligence reports;
(vi) Right issue of a loss making company or a company whose market share price
during the preceding six months has remained below par value shall be fully and
firmly underwritten;
(vii) Book closure shall be made within forty-five days of the announcement of the
right issue and the payment and renunciation date once announced for the letter
of right shall not be extended except with the permission of the respective stock
exchange under special circumstances;
(b) (i) The employees of the company getting preferential allocation if any, shall be
charged premium at the same rate as the public.
(ii) No other restriction would be applicable on the right shares issued to employee.
A.8 (a) XYZ Limited shall observe the following criteria for determining the realizable value
of mortgaged, pledged, leased or collaterally held assets:
(i) Only assets having registered mortgage, equitable mortgage (where NOC for
creating further charge has not been issued by NBFC) and pledged or collaterally
held assets shall be considered;
(ii) Assets having pari-passu charge shall be considered on proportionate basis;
(iii) Hypothecated assets and assets with second charge or floating charge shall not
be considered;
(iv) Valuations shall be carried out by an independent professional valuer listed on
the panel of valuers maintained by the Pakistan Banks Association or the Leasing
Association of Pakistan;
(v) The valuers while assigning any values to the mortgaged, pledged, leased or
collaterally held assets, shall take into account all relevant factors affecting the
salability of such assets including any difficulty in obtaining their possession,
their location; their condition; and the prevailing economic conditions in the
relevant sector, business or industry.
(vi) In determining the realizable value of mortgaged, pledged, leased or collaterally
held assets, the valuers must take into account the amount that can be realized
from the asset if sold in a forced or distressed sale condition;
(vii) The valuers shall in their report explain the assumptions, calculations, formula
and method adopted in determination of the realizable values;
(b) Close-end Scheme means a scheme constituted by way of trust to raise funds through
issue of certificates to the public for investing in securities including money market
instruments for a definite or indefinite period but which does not continuously offer
certificates, neither does it entitle the holder of such certificates, to receive, on
demand, their proportionate share of the net assets of the closed-end scheme;
Page 5 of 7
CORPORATE LAWS
Suggested Answers
Open-end Scheme means a scheme constituted by way of a trust deed that

continuously offers for sale its units as specified in the constitutive document that
entitle the holder of such units on demand to receive his proportionate share of the
net assets for the scheme less any applicable charges.
A.9 If Mr. Salman still wishes to acquire Mr. Kalam’s shares he shall have to announce an
upward revision of his public offer in respect of the price and the number of voting shares
to be obtained, at least seven days prior to the date of closure of the public offer made by
Mr. Sadiq.
In addition to the above Mr. Salman will also have to comply with the following conditions:
(i) The public announcement of the upward revision and all respective amendments
shall be announced in all the newspapers in which the earlier public announcement
was made;
(ii) The information regarding the announcement shall be provided to SECP, the stock
exchanges on which the voting shares of the target company are listed and the target
company at its registered office, simultaneously with the issue of public
announcement; and
(iii) He shall have to make an appropriate increase in the value of the security that he had
provided at the time of making the original offer.
A.10 (a) (i) Every listed company shall send to the Exchange its quarterly and annual
financial results.
(ii) The company shall send to the Exchange such number of copies of annual report
and audited accounts as prescribed by the Exchange not later than 21 days
before a meeting of the shareholders is held to consider the same.
(iii) The company shall send to the Exchange copies of all notices as well as
resolutions prior to their publication and dispatch to the shareholders and also
file with the Exchange certified copies of all such resolutions as soon as these
have been adopted and become effective.
(iv) The company shall send to the Exchange such number of copies of its quarterly
accounts as prescribed by the Exchange.
(v) Every listed company and issuer of a listed security shall advise and keep
advised to the Exchange all decisions of its Board of Directors relating to cash
dividend, bonus issue, right issue or any other entitlement or corporate action
and any other price sensitive information. The said information is required to be
communicated to the Exchange prior to its release to any other person or
print/electronic media.
(vi) Intimation of dividend and of all other entitlements shall be sent to the
Exchange not later than 14 days prior to commencement of the book closure.
(b) Every listed company shall:

(i) dispatch interim dividend warrants to the shareholders concerned within 30
days from the date of commencement of closing of share transfer register for
purpose of determination of entitlement of dividend.
(ii) dispatch the final dividend warrants to the shareholders concerned within 30
days from the date of General Meeting in which the same has been approved;
(iii) intimate the Exchange immediately as soon as all the dividend warrants are
posted to the shareholders;
(iv) dispatch interim and final dividend warrants to the shareholders by registered
post unless those entitled to receive the dividend require otherwise in writing.
Page 6 of 7
CORPORATE LAWS
Suggested Answers
(v) All dividend warrants, in addition to the place of the Registered Office of the
issuing companies, shall be encashable at Karachi, Hyderabad, Sukkur, Quettta,
Multan, Lahore, Faisalabad, Islamabad, Rawalpindi and Peshawar* for a period
of three months from the date of issue.
A.11 Under the Code Of Corporate Governance a person becomes ineligible to be appointed as
the director of a listed company, if:
(a) he is serving as a director of ten other listed companies; or

(b) his name is not borne on the register of National Tax Payers except where such
person is a non-resident; or
(c) he has been convicted by a court of competent jurisdiction as a defaulter in payment
of any loan to a banking company, a Development Financial Institution or a Non-
Banking Financial Institution or
(d) he, being a member of a stock exchange, has been declared as a defaulter by such
stock exchange; or
(e) he or his spouse is engaged in the business of stock brokerage (unless specifically
exempted by the Securities and Exchange Commission of Pakistan).
(THE END)
Page 7 of 7
SUBJECT SESSION
General:
The examination of the copies revealed that a large number of students were not
adequately prepared for the examination. The answers of a significant number of students
were out of context. The students are advised to read the questions carefully and figure
out their requirements, before attempting to answer them.
It has again been observed that students are simply unable to attempt practical / situation
based questions, as compared to direct questions. They must realize that at this level, the
expectations are much higher than the intermediate level. They are expected to be in a
position to apply their knowledge of law to various practical situations.
It has also been observed that the same mistakes are repeated in every attempt. It seems
that the students do not give due importance to the examiners comments. If they focus on
the comments, they would be able to prepare themselves in a better way.
Q.1 (a) This part of the question was based on a practical situation related to the
responsibilities of a person holding beneficial ownership in a company and
as usual, most of the students could not assess the situation properly. They
simply quoted Section 222 and 224 of the Companies Ordinance, 1984
without discussing the transactions separately.
The individual transactions were important. For example, it should have

been quoted that after the first transaction, the shareholder was not required
to file any return because at that moment his shareholding in the company
was less than 10%. Similarly, specific comments were required in respect
of other transactions also.
(b) This part was quite simple as it simply needed quoting the relevant
provisions from the Companies Ordinance, 1984. As has been discussed
in the general comments, such types of questions are usually answered
well, as was the case here also but still, about 25% of the students could
not produce appropriate replies.
Q.2 The question was based on the topic of voluntary winding up. The student were
required to specify the actions that needed to be taken by the liquidator if the
winding up is not completed in one year, and the liquidator’s responsibility
regarding final meeting and dissolution of the company. Most of the students
were able to secure good marks; however the performance could have been
better, had the students been able to write the procedures in proper sequence. The
command on the English language, particularly the legal terms, was found to be
weak. Some students missed out certain important steps such as sending of notice
for the meetings of the contributories and the time period during which such
notice should be issued.
Page 1 of 4
Q.3 (a) This part was attempted fairly well by a large number of students as most
of them were able to list down the documents that are required to be
submitted by a foreign company within 30 days of establishment of a
branch. However, some candidates filled pages by quoting all sorts of
documents, both relevant as well as irrelevant. This approach lead to loss
of precious time which could have been better utilized elsewhere. Some of
the students were rather careless in the use of appropriate terms. For
example, they used the terms branch office instead of head office and CEO
in place of principal officer.
(b) This part was generally attempted well although a significant number of
students were not clear about the fact that only the foreign company that
had defaulted in filing the documents would not be entitled to file a suit or
lodge a claim. The other party’s right to file a suit would not be affected.
Q.4 This was a direct question from the Competition Act, 2010 but was attempted by
25% students only. It strengthens the view that a vast majority of students resort
to selective studies which is a major cause of failure of many students. Majority
of those who attempted the question, performed really well and were able to list
all the eight practices which constitute an abuse of dominant position, according
to Competition Act, 2010.
It was however observed that some students who replied in their own words did
not succeed in getting good marks because at times, the sentences formed by
them did not make any sense. This was probably due to lack of English writing
skills. Some students were rather careless in forming the answers. For example,
while explaining the term ‘dominant position’ they used the term “40%” instead
of “in excess of 40”. Such types of discrepancies do matter a lot, specially in
papers of law.
Q.5 This question was based on a practical scenario. The students were required to
give their recommendations on three different matters as discussed below:
(a) Majority of the candidates correctly narrated the provisions of Companies

Ordinance, 1984 regarding removal of Chief Executive before the end of
his three year term. However, they could not comment on the ability of the
holding company to remove and appoint their representative as the Chief
Executive.
(b) This part of the question was well attempted by most of the candidates as
they correctly pointed out that auditor holding shares in a company on his
appointment should disclose the fact and undertake to disinvest the shares
within 90 days of appointment.
(c) This part of the question was based on Section 195 of the Companies
Ordinance, 1984. However, many candidates got confused. They
considered the transaction as investment in associated company and tried to
explain the provisions contained in Section 208 of the Companies
Ordinance, 1984.
Page 2 of 4
Q.6 This was a very straight forward question from the Companies (Buy-back of
Shares) Rules, 1999. It required listing of conditions to be complied with before a
company proceeds to buy-back its shares. Instead of restricting themselves to the
exact requirement of the question, a significant number of candidates wrote
detailed procedure of buy back of shares. They filled pages without realizing that
it was just a 4 marks question.
An important point that was missed by some of the good students also was that
the Commission may allow the company to purchase shares in case of higher debt
equity ratio, if it is of the opinion that it is in the best interest of the company and
the capital market.
Q.7 This very simple question was well attempted by most of the candidates as they
correctly described the conditions which are required to be complied with for
issuance of shares at a premium. However, the students generally failed to cover
the following issues:
(a) Statement by the company regarding the purpose of the right issue,
benefits to the company, use of funds and financial projections for three
years.
(b) Provisions relating to book closure and payment/renunciation dates.
(c) Conditions required to be fulfilled if the amount of premium exceeded the

free reserves.
Q.8 (a) Generally the candidates failed to understand the question and therefore,
instead of enumerating the criteria for determining the realizable value of
mortgage, pledged, leased or collaterally held assets, they described the
procedure for determining the amount of provision required to be made
against loans and advances.
(b) Majority of the candidates tried to explain the close-end and open-end
schemes on the basis of their general knowledge. Most of them mentioned
that in case of close-end schemes, the certificate issued are traded on stock
exchanges while units issued by open-end scheme are purchased and
redeemed through the Assets Management Company. Very few candidates
were able to mention the important distinguishing features as have been
enumerated in the NBFC Rules, 2003.
Q.9 Most of the candidates secured average marks on this question which required
them to enumerate the conditions which a person has to comply with if he intends
to revise his bid in response to a competitive bid made by another person, under
Listed Companies (Substantial Acquisition of Voting Shares and Takeover)
Regulations, 2008. Generally the candidates lost marks due to their failure to
mention the following requirements:
` (a) If Mr. Salman wished to acquire Mr. Kalam’s shares he was required to
announce upward revision of his original public offer, at least 7 days
before the date of close of public offer by Mr. Sadiq.
Page 3 of 4
(b) Public announcement in all newspapers in which earlier public

announcement was made.
(c) Reporting of information to the Commission, stock exchange on which

shares of target company are listed and the target company,
simultaneously with the issue of public announcement.
Q.10 Majority of the students failed to perform well in this question as they seemed to
suffer on account of inadequate preparation, selective studies and the tendency to
start answering the question without understanding its requirements. Most of
them seemed to lack the knowledge of listing regulations and knowingly or
unknowingly, they preferred to narrate the provisions contained in the Companies
Ordinance, 1984.
Q.11 An average performance was witnessed in this question. As in question 10, a

sizeable number of candidates tried to list down some of the provisions contained
in the Companies Ordinance, 1984 instead of the Code of Corporate Governance.
Some of the candidates who seemed to possess the related knowledge, lost marks
mainly because they failed to appreciate some of the finer points as have been
enumerated below:
(i) Instead of mentioning that a person is not eligible to serve as a director of

more than ten listed companies, many used the words ten other companies.
(ii) If a member of stock exchange is declared as a defaulter by the stock

exchange, he becomes ineligible to be appointed as director of listed
companies. Instead, many students simply wrote that members of stock
exchange are not eligible for being appointed as directors of listed
companies.
(THE END)
Page 4 of 4
Corporate Laws
Final Examination 7 December 2011
Winter 2011 100 marks – 3 hours
Module E Additional reading time – 15 minutes
Q.1 As a result of an application filed by the members of MMB Limited, its affairs are under
investigation by the Securities and Exchange Commission of Pakistan (SECP). The members claim
that the company had allotted shares to an investor against inadequate consideration and that they
had not received the notice of meeting in which the decision was approved. They have requested
SECP to restrict the transfer of these shares till such time that the investigation is in process.
In the light of the provisions of the Companies Ordinance, 1984 you are required to state:
(a) Whether and under what conditions the SECP may impose restrictions on the transfer of
shares? (04 marks)
(b) What would be the effects of such restrictions on the company and the concerned investors?
(06 marks)
Q.2 Mr. Asif is a director of Arif Textiles Limited (ATL), a listed company. He has entered into the
following transactions in the shares of ATL:
Purchase/Sale
Purchases/(Sales)
S.# Date price Remarks
No. of shares
per share(Rs.)
1. 15.01.2011 5000 18 Purchased from the market
4. 27.02.2011 1000 - Bonus shares received
5. 30.04.2011 (2000) 22 Sold in the market
In the light of the provisions of the Companies (General Provisions and Forms) Rules 1985, you are
required to:
(a) Compute the amount of gain or loss to be tendered to the company by Mr. Asif. (06 marks)
(b) The treatment of the amount paid by Mr. Asif on account of brokerage, stamp duty etc.
(02 marks)
Q.3 ABC Limited has appointed Mr. Saleem as a trustee, under a trust deed, for securing an issue of
debentures. Subsequent to his appointment, Mr. Saleem is of the opinion that ABC Limited has
failed to meet its obligations under the trust deed, whereas the management denies any wrong
doings. Consequently, Mr. Saleem intends to take appropriate action against the company.
Narrate the circumstances specified under the Companies Ordinance, 1984 on account of which
Mr. Saleem may initiate legal action against the company. (06 marks)
Q.4 Based on the provisions of the Central Depositories Act, 1997:

(a) Briefly explain the term “Participant”. (03 marks)
(b) Identify the purposes for which issuer of a security may request the Central Depository
Company to provide a list of the names and other relevant details of the account holders and
sub-account holders of its securities. (06 marks)
Q.5 Nihal Associates is an association of persons and is involved in charitable and other social activities
for the welfare of the general public. It intends to register itself as a limited company but does not
want to include the word “Limited” in its name.
In view of the provisions of the Companies (General Provisions and Forms) Rules 1985, you are
required to identify the conditions that Nihal Associates would need to fulfill in order to get the
required permission from the Securities and Exchange Commission of Pakistan. (06 marks)
Q.6 A number of shareholders of Nazeer Industries Limited want to hold an extraordinary general
meeting to discuss an important matter relating to the company.
In view of the provisions contained in the Companies Ordinance, 1984 explain:

(a) The conditions under which it would become mandatory for the company to convene the
meeting. (03 marks)
(b) The rights of the concerned shareholders in case the company fails to convene the meeting.
(05 marks)
Q.7 Ryan Industries Limited (RIL) has been incurring losses for the last few years and has therefore not
declared any dividends. Consequently, the market price of its shares has declined and this has also
adversely affected the prices of shares of other group companies. The directors of RIL have
therefore decided to opt for voluntary de-listing of the shares of RIL and to offer the purchase of
shares from the market.
Who will determine the offer price and what would be the basis for determination of the offer price
under the listing regulations? (05 marks)
Q.8 (a) Al-Faizan Investment Limited (AFIL), is a non banking financial institution (NBFC) listed on
the Lahore Stock Exchange. It intends to make investment in unquoted shares of Folks Resorts
(Pvt) Limited.
Narrate the conditions that AFIL would need to comply with under the NBFC Rules, 2003
while making the above investment. (05 marks)
(b) With reference to Non- Banking Finance Companies and Notified Entities Regulations, 2008:
(i) List the persons who are included in the definition of Key Executive. (06 marks)
(ii) Identify the circumstances under which a Director is considered to have a Conflict of
Interest. (06 marks)
Q.9 The Board of Directors of Ujala Industries Limited, a recently incorporated listed company, intends
to hold a meeting of the Directors for approval of the annual accounts, declaration of dividend and
to make other important decisions relating to the company.
At the request of the directors, you being the company secretary, are required to explain the
provisions of the Securities and Exchange Ordinance, 1969 as to what constitutes:
(a) Inside information (04 marks)
(b) Insider trading (05 marks)
Q.10 Bilal Garments Limited (BGL) has recently been incorporated in Pakistan. However, prior to
obtaining the certificate of commencement of business, BGL has entered into an agreement with
Taqi Engineering Limited (TEL) for the supply and installation of machinery at its factory. BGL has
also signed an agreement with a commercial bank for a short term finance facility for payment of
advance to TEL.
In the light of the provisions of the Companies Ordinance, 1984 comment on the legality and the
implication of entering into the above agreements. (05 marks)
Q.11 A group of creditors of XYZ Limited has lodged a complaint with the Registrar of Companies on
the ground that the management is indulging in destruction and falsification of the accounting
records of the company. The complainants have requested the Registrar to take immediate steps in
this regard.
In the light of the provisions of the Companies Ordinance, 1984 explain the powers and
responsibilities of the Registrar in the above circumstances. (08 marks)
Q.12 (a) Mr. Babar is currently working as a Marketing Manager in ST Limited (STL). The
management intends to appoint him as the Chief Executive of the company. He is willing to
accept the offer and has requested for a loan of Rs. 10 million. Moreover, he had also taken a
loan in 2009, of which Rs.1 million is still outstanding.
State the conditions as specified in the Companies Ordinance, 1984 which STL would need to
comply with, in respect of the above loans. (05 marks)
(b) “All investment made by a company on its own behalf shall be made and held by it in its own
name.” Explain the exceptions to this general rule, under the Companies Ordinance, 1984.
(04 marks)
(THE END)
CORPORATE LAWS
Suggested Answers
Final Examination –Winter 2011
A.1 (a) Where it appears to the Commission while investigating the affairs of MMB Limited
that there is good reason to find out the relevant facts about any shares, and the
Commission is of the opinion that such facts cannot be found out unless the restrictions
on that transfer are imposed, the Commission may direct that the shares shall be
subject to the restriction for a specified period but not exceeding one year.
Before making an order, the Commission shall provide an opportunity of showing

cause against the proposed action to the company and the persons likely to be affected
by the restriction.
(b) The effects of restrictions imposed by the Commission may be:
(i) any transfer of those shares shall be void;

(ii) no voting right shall be exercisable in respect of those shares;
(iii) no further shares shall be issued in right of those shares or in pursuance of any
offer made to the holder thereof; and any issue of such shares shall be void;
(iv) except in a liquidation, no payment shall be made of any sums due from the
company on those shares, whether in respect of dividend, capital or otherwise;
and
(v) no change other than a change by operation of law shall be made in the
directors, chief executive or the managing agent.
A.2 (a) Computation of the gain to be tendered to the company by Mr. Asif
Sale/Purchase price
Date Quantity Total
per share
Shares sold
30.04.2011 2000 22 44,000
21.05.2011 5000 24 120,000
30.06.2011 1000 23 23,000
01.09.2011 2000 25 -
(Note below)
187,000
Less: purchases (lowest price comes first)

15.01.2011 5000 18 90,000
26.02.2011 3,000 20 60,000
150,000
Amount of gain to be tendered to the company by Mr. Asif 37,000
Note: No gain or loss as shares sold after six months.
The distribution of bonus shares by a listed company to an existing shareholder on the

basis of his entitlement shall not constitute a purchase.
(b) The amount of brokerage, stamp duty etc. actually paid in making the gain may be
deducted by the person by whom it is to be reported or tendered subject to production
of such documentary evidence in support of the payment having been made as may be
acceptable to the company.
Page 1 of 6
CORPORATE LAWS
Suggested Answers
A.3 Mr. Saleem, if empowered by the trust deed under which he is appointed, can file a suit
against the company for all redemption monies and interest thereon on the following
grounds.
(a) where the issuer of the debentures as mortgagor binds himself to repay the debenture
loan or pay the accrued interest thereon, or both to repay the loan and pay the interest
thereon, in the manner provided on the due date;
(b) where by any cause other than the wrongful act or default of the issuer the mortgaged
property is wholly or partially destroyed or the security is rendered insufficient and
the trustee has given the issuer a reasonable opportunity of providing further security
adequate to render the whole security sufficient and the issuer has failed to do so;
(c) where the trustee is deprived of the whole or part of the security by or in consequence
of any wrongful act or default on the part of the issuer; and
(d) where the trustee is entitled to take possession of the mortgaged property and the
issuer fails to deliver the same to him or to secure the possession thereof without
disturbance by the issuer or any person claiming under a title superior to that of the
issuer.
A.4 (a) Participant means

(i) an account-holder who is a member of a stock exchange; and
(ii) any other account-holder who meets the qualifications of a participant
prescribed in the regulations
Provided that such account holders

(i) perform services for sub-account holders in accordance with the terms of an
agreement entered into between the Central Depository Company and each of
the participants;
(ii) transfer any securities to the Central Depository Company to the credit of any
sub-accounts under their respective accounts; and
(iii) handle, on behalf of sub-account holders, the book-entry securities in the sub-
accounts under their respective accounts;
(b) The issuer of a security may request the CDC for a list of names and other relevant
details of shareholders on account of the following:
(i) For sending notices to any account holders and sub-account holders of general
meetings of the holders of any securities of the issuer;
(ii) For sending any other notices or documents to any account holders and sub-
account holders which are required to be sent by the issuer to holders of any
securities of the issuer;
(iii) For the purpose of allowing any account holders and sub-account holders to
attend general meetings of any holders of securities of the issuer or to appoint
proxies for this purpose;
(iv) For dispatching dividend or other warrants to any account holders and sub-
account holders;
(v) For dispatching to any account holders and sub-account holders any other
payments or benefits paid by the issuer; or
(vi) For dispatching to any account holders and sub-account holders formal offers
for subscription of securities of the issuer
Page 2 of 6
CORPORATE LAWS
Suggested Answers
A.5 Nihal Associates would have to fulfill the following conditions:
(a) The association shall be formed as a public company.

(b) Payment of remuneration for services or otherwise to its members, whether holding an
office in the company or not, shall be prohibited.
(c) No change in the memorandum and the articles shall be made except with the prior
(d) The limit of liability of its members shall not be less than a reasonable amount having
regard to all the circumstances of the case.
(e) Patronage of any government or authority, express or implied, shall not be claimed
unless such government or authority has signified its consent thereto in writing.
The Commission may also direct to include the above conditions in the memorandum of
association of the company.
A.6 (a) It would be mandatory for Nazeer Industries Limited to convene the meeting if the
concerned shareholders representing not less than one-tenth of the voting power,
deposit a requisition, duly signed by them, at the registered office of the company.
(b) If the directors of Nazeer Industries Limited do not proceed within twenty-one days
from the date of the requisitionists being so deposited to cause a meeting to be called
the requisitionists or a majority of them in value, may themselves call the meeting, but
in either case any meeting so called shall be held within three months from the date of
the deposit of the requisition.
Any meeting called by the requisitionists shall be called in the same manner, as nearly
as possible, as that in which meetings are to be called by directors.
The meeting called in the manner stated above is valid and the resolutions passed are
binding on the company.
Any reasonable expenses incurred by the requisitionist by reason of the failure of the
directors duly to convene a meeting shall be repaid to the requisitionist by the
company.
A.7 Since Ryan Industries Limited (RIL) intending to seek voluntary de-listing from the
Exchange, they shall intimate to the stock exchange the proposed minimum price at which
the securities are to be purchased.
The final minimum purchase price of the securities to be de-listed shall be fixed with the
approval of the Stock Exchange.
The minimum purchase price proposed by RIL will be the highest of the benchmark price
based on the following:
(a) Current Market Price as of the date the exchange receives the sponsors/majority
security holder’s intimation.
(b) Average Market Price (Annualized).
(c) Intrinsic value per share (estimated net realizable value of assets of the company).
(d) Earnings Multiplier approach (for profitable companies).
(e) The maximum price at which the sponsors had purchased these shares from the open
market in the preceding one year.
Page 3 of 6
CORPORATE LAWS
Suggested Answers
A.8 (a) Al- Faizan Investment Limited(AFIL) shall:
(i) not make an investment in unquoted shares of any company in excess of twenty
percent of its equity.
(ii) ensure that the investment is approved in a board meeting after carefully
analyzing the merits and financial impact of the investment and recording the
decision in detail in minutes of the meeting and such decisions shall be
communicated to the Commission within fourteen days of the board meeting
along with copy of the minutes.
Provided that an investment by AFIL out of its surplus equity (i.e. over and above the
minimum specified regulatory requirement for the licenses held by the NBFC) in its
wholly owned subsidiaries, for undertaking a form of business, shall not be taken into
account for calculating the limit for unquoted shares.
(b) (i) "Key Executive” includes, inter alia, the persons discharging the following
functional responsibilities, -
 Any executive, including the chief executive or any officer acting as second to
chief executive officer including chief operating officer or by whatever name
called;
 chief financial officer, head of accounts or head of finance;
 head of internal audit;
 head of information technology;
 head of credit or risk management;
 head of human resource;
 head of operations;
 head of marketing;
 head of research;
 head of treasury or chief investment officer;
 head of law, company secretary or compliance officer
 investment analyst;
 fund manager; and
 any other functional responsibility which the Commission may include.
(ii) The director is considered to have Conflict of Interest if he is:
 a director in any other NBFC engaged in a similar business in Pakistan.

Provided that this condition shall not apply to nominees of the Federal or
Provincial Governments on the board of any NBFC;
 a director, chief executive, chief financial officer, chief internal auditor, research
analyst or a trader by whatever name or designation called in a stock
brokerage house or in any company or entity owned and controlled by a
member of a stock exchange; and
 a member of a stock exchange engaged in the business of brokerage or is a
spouse of such member or in control of more than 20% shareholding, directly
or indirectly through his close relatives.
A.9 (a) Inside information
(i) Information which has not been made public relating directly or indirectly, to
listed securities or one or more issuers and which, if it were made public, would
Page 4 of 6
CORPORATE LAWS
Suggested Answers
be likely to have an effect on the prices of those listed securities or on the price
of related securities;
(ii) In relation to derivatives on commodities or information which has not been
made public, relating, directly or indirectly, to one or more such derivatives and
which are traded in accordance with accepted market practices on those
markets; or
(iii) In relation to persons responsible for the execution of orders concerning listed
securities, information which is conveyed by a client to such person and related
to the client’s pending orders.
(b) Insider trading shall include
(i) An insider person transacting any deal, directly or indirectly, using inside
information involving listed securities to which the inside information pertains,
or using others to transact such deals;
(ii) Any other person to whom inside information has been passed or disclosed by
an insider person transacting any deal, directly or indirectly, using inside
information involving listed securities to which the inside information pertains,
or using others to transact such deals;
(iii) Transaction by any person as specified in clauses (i) and (ii), or any other
person who knows, or ought to have known under normal and reasonable
circumstances, that the information possessed and used for transacting any deal
is inside information;
(iv) An insider person suggesting or recommending to another person to engage in
dealing in any listed securities to which the inside information possessed by the
insider person pertains, without the inside information being disclosed to the
person who has dealt in such securities.
A.10 The agreement signed between Bilal Garments Limited and the TEL Engineering Limited
shall be provisional only till BGL is entitled to commence business and will not be binding
on the company. The agreement will become binding on that date when the BGL obtains the
Certificate for Commencement of Business from the registrar.
The short term finance (exercising of borrowing powers) prior to the issue of
commencement of certificate of business obtained by the company is in contravention of
the Companies Ordinance, 1984 and every officer and other person, who is responsible for
arranging the credit facility, will be liable to fine.
A.11 (a) Where the registrar has reasonable ground to believe that books and papers of, or
relating to, any company may be destroyed, mutilated, altered, falsified or secreted, the
registrar may, after obtaining permission of the Magistrate of the first class or the
Court, search and seize such books and papers.
(b) The registrar may, after he has obtained the permission of the Magistrate or Court
under that sub-section, also authorize any officer subordinate to him, not inferior in
rank to an assistant registrar.
(i) to enter, with such assistance as may be required, the place where such books
and papers are kept;
(ii) to search that place in the manner specified in the order; and
(iii) to seize such books and papers as he considers necessary.
(c) The registrar shall return the books and papers seized under this section as soon as
Page 5 of 6
CORPORATE LAWS
Suggested Answers
may be and in any case not later than the thirtieth day after such seizure, to the
company or, as the case may be, to the chief executive or any other person from whose
custody or power they were seized:
Provided that the Commission may, after providing to the company an opportunity to
show cause against the order proposed to be made by it, allow the registrar to retain
any books and papers for a further period not exceeding thirty days:
Provided further that the registrar may, before returning books and papers as
aforesaid, take copies of, or extracts from them or put such marks of identification
thereon as he considers necessary.
(d) Save as otherwise provided in this section, every search or seizure made under this
section shall be carried out in accordance with the provisions of the Code of Criminal
procedure, 1898 (Act V of 1898), relating to searches or seizures made under that
code.
A.12 (a) The STL must comply with the following conditions before granting loan to Mr. Babar
(i) Approval from SECP will be required for the loan.
(ii) The loan has been taken for any of the following purposes:
 Acquisition or construction of a dwelling house or land there for

 Defraying the cost of any conveyance of personal use or household effects
 For defraying any expense on his medical treatment or the medical treatment of
any relative as are ordinarily made or provided by the company to its
employees
(iii) Mr. Babar within fourteen days of his appointment as chief executive must file
with the registrar the particulars of any loan taken, prior to his becoming chief
executive of the STL which could not have been obtained without the prior
approval of the Commission had he at the time of taking the loan been the chief
executive of the company.
(b) The following are the exceptions to the general rule:
(i) Where the company has a right to appoint or get elected any person as a director
of any other company and a nominee of the company in the exercise of such
right has been so appointed or elected, the shares in such other company of an
amount not exceeding the nominal value of the qualification shares which are
required to be held by a director thereof, may be registered or held by such
company jointly in its own name and in the name of such person or nominee, or
in the name of such person or nominee alone.
(ii) A holding company may hold any shares in its subsidiary company in the name
of its nominee or nominees if and in so far as it is necessary so to do for ensuring
that the number of members of the subsidiary company is not reduced below
seven in case it is a public company, or below two in case it is a private company.
(iii) An investment made by an investment company, that is to say, a company whose

principal business is the purchase and sale of securities.
(THE END)
Page 6 of 6
SUBJECT SESSION
Corporate Laws Final Examination Winter 2011
Although it was an easy paper but the overall performance of the students was very poor,
which in our opinion was mainly due to selective study. The examination of the copies
revealed that a large number of students were not adequately prepared for the
examination. The answers of a significant number of students were out of context. The
students are advised to read the questions carefully and figure out its requirements,
before attempting to answer. They are also advised to refrain from writing unnecessary
details. Another major problem which was noted generally during the examination of the
copies was lack of expression power and language skills.
Q.1 (a) This part of the question was related to Section 279 (1) of the Companies
Ordinance, 1984 and the students were required to state the conditions
under which the SECP may impose restriction on transfer of shares. A
significant majority scored well. However, many students, mentioned the
provisions relating to investigation which was totally irrelevant.
(b) This part of the question was based on Section 279 (2) of the Companies
Ordinance, 1984 and was well attempted by most of the students.
Q.2 (a) This was a practical question and barring a few, the students failed to get
good marks in this part as they failed to correctly calculate the amount of
gain to be tendered to the company. The general mistakes were as follows;
• Gain was also calculated on shares which were sold six months after
the date of purchase.
• Value of bonus shares was calculated at the highest selling price and
was considered as gain.
• Gain was calculated by multiplying the total number of shares sold

with the difference of lowest purchase price and highest selling price.
(b) In this part, majority of the students correctly explained that amount of
brokerage and commission can be deducted from the gain to be tendered.
However, very few candidates mentioned the condition related to
production of documentary evidence in support of such payments. Some
students incorrectly mentioned that brokerage @ 1% shall be allowed.
Q.3 Majority of the students got good marks in this question which was based on
Section 119 of the Companies Ordinance, 1984. However, some of the students
enumerated the provisions of Section 290 of the Companies Ordinance which
was entirely irrelevant.
Page 1 of 3
Examiners’ Comments on Corporate Laws – Final Examination Winter 2011
Q.4 (a) Generally the students failed to explain the term “Participant”. Many of
them were of the opinion that any person who has an account with CDC is
a Participant. Some of them were of the opinion that the companies whose
shares are dealt with by CDC are called Participants.
(b) Only few students got high marks in this part of the question which was
based on Section 9 of the Central Depositories Act, 1997. Lack of
preparation was obvious and it seemed that the students had ignored this
area on account of selective study.
Q.5 The question required the students to identify the conditions required to be
fulfilled as per Companies (General Provisions and Forms) Rules 1985 for
registering as an association not for profit. Only two conditions as mentioned
below, were narrated by majority of the students:
• It must be incorporated as a public limited company.

• No change in the Memorandum and Articles be made without prior approval
of the Commission.
Besides the above, most candidates gave irrelevant details which mainly included
long list of documents that are required to be submitted to the SECP for the
incorporation of a company.
Q.6 Generally the students got average marks in this question in which they were
required to state as to how the shareholders can convene an extra-ordinary
general meeting in case the company fails to meet its obligation in this regard.
The question was based on Section 159 of the Companies Ordinance, 1984. Most
candidates failed to mention the following points:
• The requisition is required to be submitted at the registered office of the

company.
• The requisitionists can convene the meeting within three months.
• The meeting shall be called in the same manner or as nearly as possible, as

that called by the directors.
Many students also explained the provisions regarding quorum and voting in
respect of such meeting, which were not relevant.
Q.7 Most of the students were not aware that in case of voluntary delisting, the offer
price is proposed by the company and final price is fixed with the approval of
Stock Exchange. However, most of them correctly mentioned the basis for
determination of price. The overall performance was average.
Q.8 (a) Instead of narrating the conditions which should be complied with under
the NBFC Rules, 2003 for making investment in unquoted shares, many
candidates explained the provisions of Companies Ordinance, 1984
regarding making of investment in associated company. Some of the
students were of the opinion that an NBFC cannot make investment in
unquoted shares.
Page 2 of 3
(b) This was a very simple question in which the students were required to
identify the persons who are included in the definition of Key Executives,
under Non-Banking Finance Companies and Notified Entities Regulation,
2008. However, only few students could secure full marks. Most of the
students seemed to rely on guesswork. Some of them were of the opinion
that directors, sponsors and shareholder holding more than 10% equity are
classified as Key Executives. Some students were of the opinion that those
persons who receive a salary of more than Rs. 500,000 are termed as Key
Executives.
(c) Majority of the students got high marks in this part of the question as they
were well aware about the circumstances in which a director is considered
to have a conflict of interest.
Q.9 This question relating to Inside Information and Insider Trading was based on
Section 15 A and B of the Securities and Exchange Ordinance, 1969. It was quite
evident that most of the students had not even read this Ordinance. Most of them
relied on guesswork and only secured 1 or 2 marks.
Q.10 This simple question required the students to comment on the legality and
implication of two contracts which were signed by a public company after
incorporation but before obtaining the certificate of commencement of business.
Most students were of the opinion that both the agreements are provisional and
shall become binding on the company after obtaining certificate of
commencement of business. Only few students correctly identified that the
agreement for short term borrowings was in contravention of the Companies
Ordinance, 1984.
Q.11 The question required the students to explain the powers and responsibilities of
registrar when a complaint is lodged against the management of a company for
destroying and falsifying the accounting records. Most of the students failed to
understand the question and instead of explaining the power of registrar regarding
seizure of documents, they explained the powers of registrar to call for
information or explanation under Section 261 or provisions regarding
investigation of affairs of the company.
Q.12 (a) Generally the students correctly enumerated the purpose for which loan can
be granted to Chief Executive but failed to mention the condition regarding
approval of SECP. Most of the students failed to correctly mention the
conditions to be complied with regarding the loan that had already been
taken by the Chief Executive as has been mentioned in Section 195 (4) of
the Companies Ordinance, 1984. Majority of the student were of the
opinion that such loan shall have to be repaid. Surprisingly, many students
declared that the Chief Executive should inform the company/directors
about the loan without realizing that the company itself has granted the
loan.
(b) Instead of mentioning the exception to the rule that all investments made by
the company shall be made and held in its own name, as has been specified
in Section 209 (2 to 4), of the Companies Ordinance, 1984, most students
narrated the provisions related to deposit and transfer of shares and
securities by the company in the name of its bankers, CDC etc.
(THE END)
Page 3 of 3
Corporate Laws
Final Examination 6 June 2012
Summer 2012 100 marks - 3 hours
Module E Additional reading time - 15 minutes
Q.1 On 29 April 2012, a memorandum of association of AB Limited was filed for registration in the
office of Registrar. However, on 25 May 2012, a letter from the registrar office was received by
the subscribers to the memorandum in which the registration was refused on the ground that the
objects stated in the memorandum were inappropriate.
Describe what course of action is available to AB Limited in the above situation, according to
the Companies Ordinance, 1984. (05 marks)
Q.2 The Company Secretary of AQ Limited realized on 29 May 2012 that particulars of charge
created on the Company’s properties in favour of AK Bank Limited on 2 May 2012 have not
been filed for registration with the Registrar of Companies.
Explain the procedure that would be required to be followed by AQ Limited in the above
situation, for registration of charge with the Registrar of Companies. (06 marks)
Q.3 List the conditions specified under the Companies Ordinance, 1984 which a listed company is
required to comply with before placement of its quarterly accounts on its website. (07 marks)
Q.4 The Board of Directors of KG Limited have decided to buy-back one million of its ordinary
shares.
You are required to describe the procedure to be followed by KG Limited to buy-back its shares
in view of the provisions of the Companies Ordinance, 1984 and the Companies (Buy-back of
Shares) Rules, 1999. (07 marks)
Q.5 The Directors of BD Limited intend to wind up the company’s business voluntarily. In the
context of the Companies Ordinance, 1984 you are required to explain the following:
(a) The requirement to file a declaration of solvency. (08 marks)

(b) The contents of declaration of solvency. (02 marks)
Q.6 Based on the Listing Regulations of the Karachi Stock Exchange, state the following:
(a) Whether an audit firm may be appointed as the auditor of a listed company, if one of its
partners is found guilty of professional misconduct? (04 marks)
(b) Regulations relating to transfer of shares and closure of share transfer books. (05 marks)
Q.7 Kevin Jason is a UK national but is residing in Australia. He intends to invest in securities listed
at Karachi Stock Exchange. In the context of the provisions of Foreign Exchange Regulations,
advise him in respect of the procedure to be followed for purchase and sale of shares of
companies listed in Pakistan. (06 marks)
Q.8 According to the Competition Ordinance, 2010:
(a) No undertaking shall enter into deceptive marketing practices.
List the practices which are deemed to fall under the purview of deceptive marketing
practices. (03 marks)
(b) No undertaking or association of undertakings shall enter into any agreement which have
the object or effect of preventing, restricting or reducing competition within the relevant
market.
Explain how and under what circumstances an undertaking may claim exemption from
the application of the above provision. (07 marks)
Q.9 Apprehensions are widespread in the stock market that the affairs of JK Limited are being
conducted in a manner which is prejudicial to the interest of the stakeholders. In the context of
the provisions of the Companies Ordinance, 1984 you are required to explain the following :
(a) Identify the persons who may file a suit in the Court with a request to intervene in the
business of the company. (05 marks)
(b) Decisions that the court may take in the above circumstances. (04 marks)
Q.10 (a) An open-end fund is being managed by LM Limited which is an NBFC.
List the persons who would be termed as “connected person” in relation to the above
open-end fund. (08 marks)
(b) Describe the provisions contained in the NBFC Rules, 2003 in respect of the following:
(i) Credit rating. (03 marks)
(ii) Appointment of internal auditor. (04 marks)
(iii) Sale or purchase transaction between an NBFC and any of its directors. (03 marks)
Q.11 The Board of Directors of YZ Limited, a listed company, intends to issue 50% right shares.
Advise the directors about the conditions required to be complied with, for the issuance of right
shares under the Companies (Issue of Capital) Rules, 1996. (07 marks)
Q.12 The general meeting of VX Limited, a listed company, was convened on 30 May 2012.
However, only four shareholders turned up to attend the meeting.
Explain how VX Limited should deal with the above situation in the light of Companies
Ordinance, 1984. (06 marks)
(THE END)
CORPORATE LAWS
Suggested Answers
Final Examination - Summer 2012
A.1 The subscribers of the memorandum of association of AB Limited or any one of them,
authorised by them in writing, may either supply the deficiency and remove the defect
pointed out, or within thirty days of the order of refusal prefer an appeal
(i) where the order of refusal has been passed by an additional registrar, a joint registrar,
a deputy registrar or an assistant registrar, to the registrar; and
(ii) where the order of refusal has been passed, or up-held in appeal, by the registrar, to
the Commission.
An order of the Commission shall be final and shall not be called in question before any
Court or other authority.
A.2 The time limit of 21 days has expired therefore AQ Limited will have to apply to the
Commission for extension of time for the registration of the charge in accordance with the
provisions of the Companies Ordinance, 1984.
The company must satisfy the Commission that:
(i) The omission was accidental or due to inadvertence or due to some other sufficient
cause.
(ii) It would not be of a nature to prejudice the position of creditors or shareholders of the
company.
(iii) On any other grounds it is just and equitable to grant relief.
On satisfaction the Commission may extend the time for registration of charge on such terms
and conditions as seem to the Commission just and expedient, and order that the time for
registration be extended, or, as the case may be, that the omission or mis-statement be
rectified, and may make such order as to the costs of the application as it thinks fit.
A certified copy of the order of the Commission, passed on the basis of the application, shall
be filed with the registrar within twenty-one days of the date of such order by the company.
A.3 A listed company may place its quarterly accounts on its website, subject to fulfillment of the
following conditions:
(i) Seek the consent of its shareholders in a General Meeting.

(ii) Consult the respective stock exchanges.
(iii) Seek prior permission of the Commission.
(iv) The application for this purpose shall indicate the company’s website address.
(v) The Enforcement department would grant permission after visiting the
website and finding it in order.
(vi) The website address shall not be changed except with the approval of the
Commission.
(vii) The company, after obtaining the requisite permission, shall inform its
shareholders through an advertisement in the Press that the subsequent
quarterly accounts would be transmitted to them through the company
website.
(viii) The respective Stock Exchanges and the Commission shall be informed in
writing, by post.
(ix) Transmit periodical accounts electronically to the concerned stock
exchange(s) so as to place the same on their website.
Page 1 of 6
CORPORATE LAWS
Suggested Answers
A.4 The purchase procedure to be followed by KG limited is as follows:
(i) The number of shares to be purchased and price thereof shall be approved in the Board
Meeting.
(ii) The purchase shall also be authorised by a special resolution which shall indicate the
maximum number of shares to be purchased; the maximum price at which the shares
may be purchased; and the period within which the purchase is to be made.
(iii) The notice of the meeting in which the special resolution authorizing the purchase of
shares is proposed to be moved shall be accompanied by an explanatory statement
containing all material facts including the following:-
 Justification for the purchase;

 Source of funding;
 Effect on the financial position of the company; and
 Nature and extent of the interest, if any, of every director, whether directly or
indirectly
(iv) The purchase shall always be in cash and shall be out of the distributable profits.
(v) The purchase shall be made through a tender system and the mode of tender shall be
decided by the company in general meeting through a special resolution.
(vi) The tender notice for the purchase shall contain
 The maximum number of shares to be purchased by the company.

 The manner in which the offer shall be communicated.
 The last day by which the offer to sell the shares shall be made; and
 The name and the address of the designated branches of the authorized bank.
(vii) The decision of the directors for the purchase shall be communicated to the SECP and
the respective stock exchange on the day of the decision.
(viii) The company shall take a decision on the offers received, within ten days of the
closing date of the receipt of offers.
(ix) In case the offers received in response to the tender notice exceed the requisite
purchase the acceptance thereof shall be on pro-rata basis in lots of five hundreds
shares.
(x) The acceptance of the offer shall be communicated within seven days of the decision.
(xi) The shareholder, whose offer has been accepted, shall submit the share certificate
along with the transfer deed duly signed, verified and witnessed, to the company
through designated branches of the bank within seven days of the receipt of
acceptance of the offer.
(xii) Where the shares are on the Central Depository System a confirmation from the
Central Depository, about the availability of the shares along with authorization to
transfer, shall be sent to the designated branches of the bank within seven days of the
receipt of acceptance of the offer.
A.5 (a) Since it is proposed by the directors of BD Limited to wind up the company
voluntarily all its directors and 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
of directors make a declaration verified by an affidavit
A declaration made as aforesaid shall have no effect for the purposes of this
Ordinance, unless-
(i) It is made within the five weeks immediately preceding the date of the passing
of the resolution for winding up and is delivered to the registrar for registration
before that date; and
Page 2 of 6
CORPORATE LAWS
Suggested Answers
(ii) 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 Ordinance, on the profit and loss account of the company for the period
commencing from the date up to which the last such account was prepared
and ending with the latest practicable date immediately before the making of
the declaration and the balance sheet of the company made out as on the last
mentioned date and also embodies a statement of the company’s assets and
liabilities as at that date.
(b) In a declaration of solvency the directors declare 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
within such period not exceeding twelve months from the commencement of the
winding up, as may be specified in the declaration.
A.6 (a) The firm shall only be eligible for appointment as an auditor provided a written
confirmation is given by the firm to all the stock exchanges of the country and the
Commission with a copy to ICAP to the effect that such a partner shall not be
engaged in the audit of any listed company for the specified period.
(b) (i) The company shall complete shares transfer and have ready for delivery the
share certificates lodged for registration of transfer within 45 days of the
application for such transfer and its registration.
(ii) The companies quoted on the Future Counter shall intimate to the Exchange
the dates of book closure and corporate actions, if any, on or before 20th day of
the month with a notice period of at least 21 days after the said 20th day for
commencement of book closure.
(iii) The company shall give a minimum of 14 days notice to the Exchange prior to
closure of share transfer books for any purpose.
(iv) The company shall treat the date of posting as the date of lodgments of shares
for the purpose for which shares transfer register is closed, provided that the
posted documents are received by the company before relevant action has
been taken by the company.
(v) The company shall issue transfer receipts immediately on receiving the shares
for transfer.
(vi) The company shall not charge any transfer fee for transfer of shares.
(vii) The company shall provide a minimum period of 7 days but not exceeding 15
days at a time for closure of share transfer register, for any purpose, not
exceeding 45 days in a year in the whole.
(viii) No listed company shall exercise any lien whatsoever on fully paid shares and
nor shall there be any restriction on transfer of fully paid shares.
A.7 Trading of Quoted Shares by Non-Residents.
(i) Mr. Kevin Jason would be required to open “Special Convertible Rupee Account”
with any Authorised Dealer in Pakistan.
(ii) He may remit funds from abroad into the special account or by transfer from a foreign
currency account maintained by him in Pakistan.
(iii) Payment for such purchase of shares may be debited to the account on production of
stock broker’s memo showing sale of shares to the account holder.
(iv) Disinvestment proceeds may be credited provided evidence of the sale price in the
shape of stock broker’s memo is produced.
Page 3 of 6
CORPORATE LAWS
Suggested Answers
(v) The fund available in such special account can be transferred outside Pakistan or
credited to a foreign currency account maintained in Pakistan at any time without
prior approval of the State Bank.
(vi) Dividend income can also be credited to the above accounts.
A.8 (a) The deceptive marketing practices shall be deemed to have been resorted to or
continued if an Undertaking resort to-
(i) The distribution of false or misleading information that is capable of harming

the business interests of another undertaking;
(ii) The distribution of false or misleading information to consumers, including
the distribution of information lacking a reasonable basis, related to the price,
character, method or place of production, properties, suitability for use, or
quality of goods;
(iii) False or misleading comparison of goods in the process of advertising; or
(iv) Fraudulent use of another’s trademark, firm name, or product labeling or
packaging.
(b) (i) The Commission may grant an exemption from the application of the
provisions of Competition Act, 2010 with respect to a particular practice or
agreement from being considered as preventing, restricting or reducing
competition, if a request for individual or block exemption has been made to it
by a party to the agreement or practice and the agreement is one which
substantially contributes to the following:
 Improving production or distribution;

 Promoting technical or economic progress, while allowing consumers a
fair share of the resulting benefit; or
 The benefits thereof clearly outweigh the adverse effects of absence or
lessening of competition.
(ii) The exemption may be granted subject to such conditions as the Commission
considers appropriate to impose and is effective for such period as the
Commission considers appropriate.
(iii) That period must be specified in the grant of the exemption.
(iv) An individual exemption may be granted so as to have effect from a date
earlier than that on which it is granted.
A.9 (a) The court may intervene in the affairs of JK Limited on the complaint by:
(i) a member or members holding not less than twenty percent of the issued share
capital of a company, or
(ii) a creditor or creditors having interest equivalent in amount to not less than
twenty percent of the paid up capital of the company,
(iii) the registrar, if he is of the opinion, that the affairs of the company are being
conducted or are likely to be conducted, in an unlawful or fraudulent manner,
or in a manner not provided for in the company’s memorandum, or in a
manner oppressive to the member or any of the members or the creditors or
any of the creditors or are being conducted in a manner prejudicial to the
public interest, such member or members or, the creditor or creditors, as the
case may be, the registrar may make an application to the Court by petition.
Page 4 of 6
CORPORATE LAWS
Suggested Answers
(b) If, on any such petition, the Court is of the opinion-
(i) That the company’s affairs are being conducted, or are likely to be conducted,
as mentioned in the application and
(ii) That to wind-up the company would unfairly prejudice the members or
creditors;
The Court may, with a view to bringing to an end the matters complained of, make
such order as it thinks fit, whether for regulating the conduct of the company’s affairs
in future, or for the purchase of the shares of any members of the company by the
other members of the company or by the company and, in the case of purchase by the
company, for the reduction accordingly of the company’s capital, or otherwise.
A.10 (a) “connected person" in relation to an NBFC or a collective investment scheme,

means,-
(i) any person or trust beneficially owning, directly or indirectly, ten percent or
more of capital of the NBFC or the collective investment scheme;
(ii) any person able to exercise, directly or indirectly, ten percent or more of the
total voting power in that NBFC or the collective investment scheme;
(iii) a collective investment scheme being managed by an NBFC;
(iv) the NBFC managing a collective investment scheme;
(v) a trustee or custodian of the collective investment scheme;
(vi) any person or trust controlled by a person who or which meets the
descriptions given in sub-clause (i) to (v);
(vii) any member of the group of which that person, or trust forms part; and
(viii) any director or officer of that NBFC or the investment company being
managed by that NBFC or of any of their connected persons as specified
above
(b) (i) Credit rating
An NBFC shall obtain credit rating wherever applicable as and when it becomes
eligible for rating as per the rating criteria of a rating agency registered with the
Commission, and such rating shall be updated at least once every financial year:
Provided that the NBFC shall within one year of the decrease in its rating from the
grade specified by the Commission by notification in the official Gazette, obtain a
fresh rating and during the period that its rating is below the grade so specified, the
NBFC may be allowed by the Commission continue its operation on such conditions
as are deemed to appropriate by the Commission;
(i) (ii) Appointment of internal auditor.

An NBFC may appoint the following, as its internal auditor:
a) A person having minimum three years experience as internal auditor who is -
(i) A chartered accountant; or

(ii) A cost and management accountant; or a certified internal auditor; or
(iii) A certified information system auditor; or
(iv) A member of a recognized foreign accountancy organization; or
(v) An individual having master’s degree in commerce or business
administration with specialization in finance; or
Page 5 of 6
CORPORATE LAWS
Suggested Answers
b) A chartered accountant firm having satisfactory Quality Control Review (QCR)

and not being the statutory auditors to whom this function is outsourced;
(iii) Sale or purchase transaction between an NBFC and any of its director.
An NBFC shall not purchase anything from or sell anything to any director of the
NBFC.
This restriction is not applicable to such NBFCs that have a policy to this effect duly
approved by their board of directors.
In case of any sale and purchase to the directors, prior approval in writing of the
board, excluding the participation of the beneficiary directors is required.
A.11 YZ Limited may issue rights shares subject to following conditions, namely:-
(i) The company shall not make a right issue within one year of the first issue of capital
to the public or further issue of capital through right issue.
(ii) The company, while announcing right issue, shall clearly state the purpose of the right
issue, benefits to the company, use of funds and financial projections for three years.
The financial plan and projections shall be signed by all the directors who were
present in the meeting in which the right issue was approved.
(iii) The decision of the company to issue right shares shall be communicated to the
Authority and the respective stock exchange on the day of the decision.
(iv) The company may charge premium on right shares up to the free reserves per share as
certified by the company’s auditors and the certificate of the auditors shall be
furnished to the Authority and the respective stock exchange alongwith intimation of
the proposed right issue.
(v) Right issue of a loss making company or a company whose market share price during
the preceding six months has remained below par value shall be fully and firmly
underwritten;
(vi) Book closure shall be made within forty-five days of the announcement of the right
issue and the payment and renunciation date once announced for the letter of right
shall not be extended except with the permission of the respective stock exchange
under special circumstances; and
(vii) If the announcement of bonus and right issue is made simultaneously, resolution of
the board of directors shall specify whether the bonus shares covered by the
announcement quality for right entitlement.
A.12 Since VX Limited is a listed company, unless the articles provide for a larger number the
quorum of a general meeting shall not be less than ten members present personally, who
represent not less than twenty-five percent of the total voting power, either of their own
account or as proxies.
In VX limited only four shareholders turned up to attend the meeting and therefore the
quorum were not formed. If the quorum is not present within half an hour from the time
appointed for the meeting, the Chairman shall adjourn the meeting and the meeting shall
stand adjourned to the same day in the next week at the same time and place.
At the adjourned meeting if a quorum is not present within half an hour from the time
appointed for the meeting, the members present, being not less than two, shall be a quorum,
unless the articles provide otherwise.
(THE END)
Page 6 of 6
SUBJECT SESSION
Corporate Laws Final Examination Summer 2012
General:
were out of context. The students are advised to read each question carefully and figure
out its requirements, before attempting to answer it. For this purpose, the students have
also been provided 15 minutes extra reading time. They are also advised to refrain from
writing unnecessary details. Some of the students are under the impression that they will
get more and more marks, if they write more details, which is not correct. The details
should be provided only to the extent that these have been asked for; anything extra is just
a waste of time. Moreover, some students believe that if they do not know the specific
answers, they narrate lengthy details of everything they know about the topic. They must
understand that this approach would not allow them any additional mark.
Another important point is that the students must improve their vocabulary and spellings.
It is not necessary to reproduce exact language of the law but appropriate words must be
used to present the correct meaning.
Question-wise comments are as under:
Q.1 The requirement was to describe the course of action available to a company if
registration of the memorandum of association is refused. The overall
performance in the question was just average.
Many students filled pages by writing detailed procedure for alteration of object
clauses of the memorandum of association by passing a special resolution and
filing of petition under section 21 of the Companies Ordinance, 1984, which was
totally irrelevant because alteration can only be carried out after a memorandum
has been registered. The options available were to remove the deficiency in the
draft memorandum, which was rarely mentioned, or to file an appeal with the
Securities and Exchange Commission of Pakistan. While discussing the option to
appeal, most of the candidates did not specify that the decision of the Commission
shall be final and cannot be challenged in any court or authority.
Q.2 In this question a situation was given whereby a company had failed to register the
charge on the company’s properties. Very few students knew that in such situation
the company will have to apply to the Commission for extension of time for the
registration of the charge. Many students did not realize that the prescribed time
period of 21 days for filing particular of charges has elapsed and they simply
mentioned the standard procedures for registration of charges. Most of the
candidates wrote entirely incorrect or incomplete answers such as the following:
• The company should apply for registration of charge to registrar along with
the late submission fee.
• The company should apply to registrar for extension of time.
• The company should check with the bank in whose favour the charge was
required to be registered as to whether they have registered the charge.
Page 1 of 4
Examiners’ Comments on Corporate Laws – Final Examination Summer 2012
Q.3 In this question the students were required to quote the conditions for placement
of quarterly accounts on the website of a company. Most of the students did well
in this question.
Q.4 This was a simple question regarding procedure to be followed by a company to

buy-back its own shares in the light of provisions of Companies Ordinance, 1984
and Companies (Buy-back of Shares) Rules, 1999 which was well attempted by
most of the students. A large number of students could secure full marks.
However, the following mistakes were also observed in many scripts:
• Approval of shareholders by special resolution was not mentioned.

• Requirement to communicate the decision to various authorities such as
stock exchanges and commission was not mentioned.
Q.5 (a) The candidates were asked to explain the requirement to file a declaration
of solvency when a company decides to wind up the business voluntarily.
The overall performance in the question was average as most of the
students could not mention all the related provisions. The common mistakes
were as follows:
• The correct number of directors who should make the declaration

was not mentioned.
• The period when such declaration should be made was not correct.
• The audited accounts to be accompanied with the declaration were
not mentioned or the period covered by such accounts was incorrect.
• Some students assumed the situation as creditors winding up
although the question clearly mentioned that the Board of Directors
intended to wind up the company voluntarily.
(b) The performance in this part was good as most of the students managed to
describe the contents of declaration of solvency as mentioned in section 362
of the Companies Ordinance, 1984.
Q.6 (a) Very few students gave correct answer to this question which was based on
listing regulations. Most of the students were under the impression that a
firm would not be eligible for appointment as auditor of a listed company if
any of its partners has been found guilty of professional misconduct, as
such firm would not be given satisfactory Quality Control rating by the
Institute of Chartered Accountants of Pakistan.
In fact, the listing regulations allows such firm to be appointed as auditor on

provision of a confirmation to the Stock Exchange and SECP with a copy to
ICAP by such firm, that such partner shall not be involved in the audit of
any listed company.
(b) The requirement was to quote provisions of listed regulations related to

transfer of shares and closure of share transfer books. The performance of
most of the students in this simple question was below par as they only
quoted provisions regarding the number of days in which a transfer shall be
made by the company and number of days for which the company can close
it share transfer register. In most cases, other related provisions could not be
mentioned.
Page 2 of 4
Q.7 This question was from Regulation 9(a)(ii) of Chapter XX of the Foreign
Exchange Regulations and was not attempted by the majority, probably because
they have not gone through the Foreign Exchange Regulations. However, those
who were well versed with the relevant provisions of Foreign Exchange
Regulation found the question easy and secured high marks. The overall
performance of many students could have been much better had they studied this
part of the syllabus also.
Q.8 (a) Most of the students failed to understand the question and therefore, instead
of listing deceptive marketing practices, they narrated the prohibited
agreements described in section 4 of the Competition Ordinance, 2010.
Effect of selective studies was quite visible on the performance in this
question also as many students tried to give the answer based on their
general perception about the meaning of the word “deceptive”.
(b) Generally the students had no clue as to how and under what circumstances
an undertaking may claim exemption for entering into any agreement which
have the object or effect of preventing, restricting or reducing competition
within the relevant market. Many students tried to explain the terms
“individual exemption” and “block exemption”, which was not required.
Q.9 (a) This part of the question was based on the provisions of section 290 of the
Companies Ordinance, 1984. Many candidates got mixed up and quoted
other provisions which apply to different situations. Many students
correctly mentioned that the court may intervene into the affairs of the
company on application from members, auditor and registrar but did not
mention the condition related to 20% holding by the concerned member (s)
or equivalent interest in the case of creditors. Overall, the question was easy
and a large number of students secured full marks also.
(b) Here again, a significant number of students did not know exactly as to
what actions can the court take in such circumstances and quoted the
provisions related to appointment of administrator.
Q.10 (a) Very few students could describe the term “connected persons” as
mentioned in Rule 2(xv) of the Non-Banking Finance Companies
(Establishment and Regulation) Rules, 2003. Those who did attempt, gave a
general reply, by listing all sorts of officers like directors, chief executives,
auditors, key executives, audit committee members, legal ascendants and
descendants etc. A significant number of candidates could not secure any
marks. Since the answer was quite straightforward, the performance again
showed that the majority of students had not studied this topic altogether.
(b) Generally this part of the question regarding credit rating, appointment of
internal auditor and sale and purchase transactions between NBFC and any
of its directors was attempted in a much better way as compared to part (a).
Some of the common mistakes are mentioned below:
(i) Credit rating is required to be obtained from rating agencies

registered with the Commission but many students mentioned that the
rating agency should be registered with State Bank of Pakistan.
Page 3 of 4
(ii) Some of the students explained the benefits of credit rating which was
not required while others were of the opinion that credit rating is
required to be obtained by the customers of NBFC, in order to
become eligible for taking loan from NBFC.
(iii) Many students narrated the provisions regarding restriction on selling

of director’s holding in NBFCs whereas the requirement was to
narrate the provisions regarding sale and purchase transactions
between NBFC and its directors.
Q.11 The requirement was to specify conditions required to be complied with, for the
issuance of right shares. The answer was based on Rule 5 of the Capital (Buy-
back of Shares) Rules 1996. This proved to be an easy question as it has been
repeated quite a few times in the past.
Q.12 This was again a very simple question based on Section 160 of the Companies
Ordinance, relating to the requirement of quorum in case of a general meeting.
Most of the students secured high marks. However, many students quoted the
entire provisions without clarifying as to how would they apply to the given
situation. At least at this level, full marks can only be achieved if the answer is
phrased in such a manner as to address the issues that have been referred to in the
given situation.
(THE END)
Page 4 of 4
Corporate Laws
Winter 2012 100 marks - 3 hours
Q.1 The Secretary of ABC Limited is in the process of preparing the prospectus for public issue. The
company has obtained loans from two financial institutions and has granted option to these
institutions to convert up to 20% of the outstanding balance of the loans into ordinary shares.
State the information required to be disclosed in the prospectus under the Companies Ordinance,
1984 regarding the option given to the financial institutions. (05)
Q.2 (a) In the first meeting of Board of Directors of Hamid Textile Mills Limited (HTML), a listed
company, the name of Mr. Imran was proposed for appointment as chief executive of the
Company. Mr. Jamal opposed the proposal on the following grounds:
(i) Mrs. Imran is the Chief Executive Officer of Fahad Textile Mills (Private) Limited.
(ii) Mr. Imran is involved in the business of stock brokerage.
(iii) Mr. Imran is not a member of HTML.
Comment on the objections raised by Mr. Jamal in the light of the provisions of the
(b) XY Limited (XYL) has recently commenced business. The company has appointed various
distributors for the supply of its products. The distributors have placed amounts ranging
between Rs. 2 - 5 million with XYL as security deposits.
Briefly describe the relevant provisions of the Companies Ordinance 1984, which XYL
would have to comply with. (03)
Q.3 Mr. Bilal is the chief executive of Power Shipping Limited (PSL), a listed company. He has agreed
to provide a personal loan of Rs. 5 million to his cousin for purchase of PSL’s shares. The loan
will be repaid after two years and would carry a mark-up of 5% per annum.
Suggest the actions which Mr. Bilal should take to ensure that the provisions of the Companies
Ordinance, 1984 and the Code of Corporate Governance, 2012 are complied with. (07)
Q.4 The members of Tajamul Private Limited (TPL) have decided to go into voluntary winding-up.
Advise TPL about the provisions of the Companies Ordinance, 1984 pertaining to:
(a) Fixation of the remuneration to be paid to the liquidator. (04)
(b) Filling of vacancy in the event of resignation of the liquidator. (04)
Q.5 (a) Nihal Limited (NL) is a listed company. Narrate the conditions which a director of NL
would be required to comply with under the Companies Ordinance, 1984 in case he/she
makes a gain on the sale of company’s shares. (03)
(b) Identify the persons other than the directors, to whom the above provisions are also
applicable. (03)
Q.6 New Chemicals Limited (NCL) is a listed company. The company is in the process of finalization
of a financing facility with a bank. The bank requires a copy of the board resolution for approval of
the terms of the financing. Since five out of seven directors of the company are currently out of the
country, it is not possible for the secretary to convene the meeting of the board of directors.
(a) In the light of the provisions of the Companies Ordinance, 1984 explain what alternative
course of action is available to the company. (03)
(b) List the steps that NCL would be required to take, if nothing in this regard is stated in the
Articles of Association of the Company. (03)
Q.7 The Annual General Meeting of Trade Limited was held at 9:15 a.m on 31 October 2012. Certain
shareholders of the company have lodged following complaints with the company’s secretary.
(i) Since the meeting could not commence at the scheduled time i.e. 9:00 a.m; it became
invalid and should be called again.
(ii) A resolution passed in the meeting was approved by a show of hands. However, a poll
should have been carried out.
(iii) Mr. A who voted for a resolution was represented through a proxy which was
deposited at 5:01 p.m. i.e. after office hours on 29 October 2012. Further, since
30 October 2012 was a public holiday, the condition of depositing the proxy at least 48
hours before the commencement of the meeting, was not met.
(iv) Mr. G who holds 50,000 shares was represented by two proxies i.e. Mr. C (30,000
shares) & Mr. D (20,000 shares). Only proxy with 30,000 shares was counted for the
purpose of voting.
(v) JKM Limited holding 20,000 shares of the company was represented by Mr Waheed,
who is neither a director nor an employee of JKM Limited.
(a) Comment on the validity of each of the above complaints in the light of Companies
(b) Describe the circumstances under which a court may declare the resolution passed in the
above meeting or the entire proceedings of the meeting as invalid under the Companies
Q.8 (a) Describe the requirements to be fulfilled by a company under the Companies (Appointment
of Legal Advisers) Act, 1974 as regards the appointment of legal advisers. (03)
(b) On 01 December 2012, Delta Cotton Mills Limited (DCML) appointed Mehtab & Co. as
legal adviser of the company in place of Dilawer & Co. Explain the legal formalities which
DCML would be required to comply with under the Companies (Appointment of Legal
Advisers) Rules, 1975. (04)
Q.9 Global Industries Limited (GIL) is a listed company which has a paid-up share capital consisting
of 100 million shares of Rs. 10 each.
GIL is planning to purchase heavy equipment costing Rs. 250 million from World Machineries
Limited (WML) for its new project. In a meeting of GIL’s Board of Directors, it was proposed to
finance the cost of the equipment by issuing 20 million shares to WML at a premium of Rs. 2.50
per share. However, since a number of directors were of the opinion that the issuance of shares
would enable WML to exercise significant influence on GIL’s policies, the Board advised the
CEO to look into the possibility of issuing non-voting ordinary shares.
Required:
In your capacity as Corporate Consultant of the company, advise the Board of Directors of GIL as
regards the requirements of the Companies’ Share Capital (Variation in Rights and Privileges)
Rules, 2000 and Companies (Issue of Capital) Rules, 1996 which GIL needs to comply with, in
relation to the issuance of non-voting ordinary shares to WML. (10)
Q.10 Al-Rehman group comprises of the following companies:

(i) Al-Rehman Leasing Company Limited
(ii) Al-Rehman Investment Finance Services Limited
(iii) Al-Rehman Housing Finance Services Limited
The majority shareholders/directors of the group have decided to merge all the above companies
and bring them under the umbrella of a single corporate entity. It is envisaged that the decision to
merge the individual companies into a single entity would help to achieve synergies, cost
efficiencies and better utilization of the resources.
You are required to list the steps that would be required to merge all the companies into a single
entity. (09)
Q.11 Under the provisions of the Central Depository Act, 1997 no director or officer of a central
depository shall disclose any information or document relating to the affairs of any of the account-
holders to any other person.
List the exceptions to the above provision of the Central Depository Act, 1997. (09)
Q.12 The meeting of the Board of Directors of AMZ Limited would be held on 25 January 2013 to
consider declaration of final cash dividend. The Annual General Meeting in which the cash
dividend is to be approved would be held on 04 March 2013.
List the information which AMZ would be required to provide to the concerned stock exchange(s)
in Pakistan as regards the above meetings, and the timings thereof, according to the Listing
Regulations. (06)
Q.13 Discuss the provisions of the Code of Corporate Governance, 2012 in respect of:
• Frequency of meetings of the audit committee (04)
• Attendance in the above meetings (04)
(THE END)
CORPORATE LAWS
Suggested Answers
Final Examination - Winter 2012
A.1 ABC Limited shall disclose the substance of the contract or arrangement whereby option has
been given to the financial institutions to convert up to 20% of the outstanding balance of
loan into ordinary shares., giving the number, description and amount of such shares
including the following particulars of the option:
(a) the period during which the option is exercisable;

(b) the price to be paid for shares subscribed for under the option;
(c) the consideration, if any, given or to be given for the option;
(d) the names, addresses, descriptions and occupations of the persons (in this case the
financial institutions) to whom the option has been given.
(e) any other material fact or circumstances relevant to the grant of the option.
A.2 (a) (i) As per the Ordinance, a chief executive of a public company shall not directly or
indirectly engage in any business which is of the same nature as and directly
competes with, the business carried on by the company of which he is the chief
executive. Since Mr. Imran’s wife is the Chief Executive of FTMPL, he cannot
be appointed as CEO of HTML.
(ii) Moreover, no person shall be appointed as director of a listed company if

engaged in the business of stock brokerage and any person who cannot be a
director cannot become chief executive. Therefore, Mr. Imran is not eligible for
becoming the CEO of HTML.
(iii) A person can be appointed as chief executive even if he is not the member of the
company.
(b) XY Limited shall receive security deposits from distributors in accordance with a
contract in writing and all moneys so received shall be kept or deposited by the
company in a special account with a schedule bank.
A.3 Purchase of shares by Mr. Bilal’s cousin may be construed as an indirect purchase of shares
by Mr. Bilal, because part of the funds was provided by Mr. Bilal on fairly soft terms.
He shall take the following steps to comply with the relevant provisions of Companies
Ordinance, 1984 and the Code of Corporate Governance:
(i) Submit to the registrar and SECP a return in the prescribed form containing prescribed
particulars within 15 days of his cousin buying the shares.
(ii) Immediately notify in writing to the company secretary about the intended purchase as
soon as his cousin decides to purchase the shares.
(iii) Notify and deliver to the Secretary a written record of the price, number of shares, form
of share certificates and nature of transactions within four days of affecting the
transaction.
A.4 (a) (i) The liquidator shall be entitled to such remuneration by way of percentage of the
amount realized by him or by disposal of assets or otherwise, as TPL in general
meeting may fix having regard to the amount and nature of the work to be done and
subject to the prescribed limits. However, different percentage rates may be fixed for
different types of assets and items.
Page 1 of 6
CORPORATE LAWS
Suggested Answers
(ii) In addition to the remuneration, the TPL in general meeting may authorize payment
of a monthly allowance to the liquidator for meeting the expenses of the winding up
for a period not exceeding twelve months from the date of the commencement of
winding up.
(iii) The remuneration fixed as aforesaid shall not be enhanced subsequently but may be
reduced by the Court at any time.
(iv) If the liquidator resigns, or is removed from office or otherwise ceases to hold office
before conclusion of winding up, he shall not be entitled to any remuneration and
remuneration received by him, if any, shall be refunded by him to the company.
(b) (i) If a vacancy occurs, by reason of resignation, in the office of liquidator appointed by
the company, the company in general meeting may, subject to any arrangement with
its creditors, fill the vacancy by appointing a person who has given his written
consent to act as liquidator.
(ii) For that purpose a general meeting shall be convened by the outgoing liquidator
before he ceases to act as liquidator, failing that may be convened by any
contributory or by the Court on the application of the registrar or any person
interested in the winding up of the company.
(iii) The meeting shall be held in the manner provided by the Companies Ordinance,
1984 or by the articles or in such manner as may, on application by any contributory
or by the continuing liquidators, be determined by the Court.
A.5 (a) Since Nihal Limited is a listed company, if its director makes any gain by the purchase and
sale, or the sale and purchase, of its shares within a period of less than six months, such
director shall make a report and tender the amount of such gain to the company and
simultaneously send a intimation to this effect to the registrar and the Commission.
(b) Following persons other than the director’s are required to comply with the above
provisions
(i) Chief executive
(ii) Managing agent
(iii) Chief accountant/CFO/Director Finance
(iv) Secretary
(v) Auditor
(vi) Any other person, who is directly or indirectly, the beneficial owner of more than
10% securities.
A.6 (a) A resolution in writing signed by all the directors for the time being entitled to receive notice
of a meeting of the directors shall be as valid and effectual as if it had been passed at a
meeting of the directors duly convened and held. It shall not be necessary to give notice of a
meeting of directors to any director for the time being absent from Pakistan.
Therefore, since the matter is of urgent nature (or even otherwise) the required resolution
may be passed by way of a circular resolution, subject to the provisions of the articles of
(b) Since nothing is given in the Articles of Association, the matters described in Table A shall
become applicable. The steps required for passing the circulation resolution would be as
follows:
(i) The proposed resolution shall be circulated in draft along with all the other necessary
documents, if any, to all the directors entitled to receive the notice of the meeting.
Page 2 of 6
CORPORATE LAWS
Suggested Answers
(ii) The resolution will become valid if the same is approved by all the directors entitled
to vote on the resolution or such numbers of directors as may be specified in the
Articles of Association.
A.7 (a) (i) As per the Ordinance, if within half an hour from the time appointed for the
meeting, a quorum is not present, the meeting may either be dissolved or
adjourned. Since the quorum was present within 30 minutes, the meeting is
valid.
(ii) As per the ordinance, at any general meeting, a resolution put to the vote of the
meeting shall be decided on show of hands, unless a poll is demanded. The
concerned shareholders should have demanded a poll on or before the
declaration of the result of the voting by show of hands and not after the meeting
is concluded. Therefore the shareholder’s protest is not valid.
(iii) Sine 48 hours has not been completed, therefore proxy is not valid.
(iv) A member shall not be entitled to appoint more than one proxy to attend any one
meeting. In this case, Mr. G had appointed more than one proxy for the meeting
and more than one instrument of proxy was deposited with the company, all
such instruments of proxy would therefore be rendered invalid.
(v) As per the Ordinance, a company which is a member of another company may,
by resolution of the directors, authorize any of its officials or any other person to
act as its representative at any meeting of that other company.
Therefore, Mr. Waheed’s vote is valid.
(b) The court may, on a petition by members having not less than ten per cent of the voting
power in the company, that the proceedings of a general meeting be declared invalid by
reason of any material defect or omission in the notice or irregularity in the proceedings
of the meeting which prevented members from using effectively their rights, declare
such proceedings or part thereof invalid and direct holding of fresh general meeting:
However, the petition shall be made within thirty days of the impugned meeting.
A.8 (a) The condition required to be fulfilled under Companies (Appointment of Legal
Advisers) Act, 1974 as regards the appointment of legal advisers.
(i) Every company shall appoint at least one legal adviser on retainership.
(ii) No person other than an advocate or a registered firm shall be appointed as the
legal adviser.
(iii) The number of companies of which such advocate or firm is a Legal Adviser
(including the current appointment) shall not exceed:
 in the case of an advocate, three; or

 in the case of a firm, the product of three and the total number of partners of
the firm.
(b) Delta Cotton Mills Limited should comply with the following requirements of the Legal
Adviser Rules:
(i) Enter the particulars of the new legal adviser in the register of legal adviser
Page 3 of 6
CORPORATE LAWS
Suggested Answers
maintained at its registered office, in the form set out in Schedule I.

(ii) Obtain a certificate in the form set out in Schedule II from its newly appointed
legal adviser.
(iii) Submit full particulars of the previous and newly appointed legal adviser with the
Registrar on the prescribed form including their name (names of the partners in
case of a firm), address and remuneration, within 15 days of the appointment of
new legal adviser.
A.9 Since GIL is a company which is limited by shares, it can issue shares which do not contain
any voting rights. However, it has to comply with following other conditions:
(i) Such provision should be specified in the memorandum and articles of association.
(ii) Approval of the shareholders should be obtained by way of a Special Resolution.
(iii) Obtain approval of the SECP on the basis of the Special Resolution.
(iv) The fact that shares are issued with no voting rights should be specified in the offering
document.
GIL can issue shares for consideration otherwise than cash, subject to the following
conditions:
(i) Since the shares are not being offered to the existing shareholders, GIL should obtain
approval of the Federal Government to raise further share capital without issue of right
shares.
(ii) The value of the assets shall be determined by a consulting engineer registered with
Pakistan Engineering Council and borne on the panel of at least two financial
institutions as a valuers.
(iii) The value of assets taken over shall be reduced by depreciation charged on consistent
basis.
(iv) The goodwill and other intangible assets shall be excluded from the consideration.
(v) Certificate from practicing Chartered Accountant shall be obtained to the effect that
the above mentioned conditions have been complied with.
A.10 All companies mentioned in the question are non-banking finance companies [NBFCs], The
steps involved in the merger of these companies are as follows:
(i) A scheme of amalgamation shall be approved by a majority number representing two

thirds in value of the shareholders of each NBFC, by way of resolution, present either
in person or by proxy, at a meeting called for the purpose.
(ii) Notice of every such meeting shall be given to all shareholders of each NBFC
indicating the time, place and object of the meeting.
(iii) The notice shall be published at least once a week for three consecutive weeks in not
less than two newspapers which circulate in the localities where the registered offices of
the NBFCs are situated, one of such newspapers being in a language commonly
understood in the locality.
(iv) If the scheme is approved by the shareholders, it shall be submitted to the Securities
and Exchange Commission of Pakistan for sanction.
(v) When the scheme of amalgamation is sanctioned by the Commission, the merged
entity shall transmit a copy of such order to the registrar and registrar shall strike off the
names of amalgamated NBFCs.
(vi) The property and liabilities of the amalgamated NBFCs shall, by virtue of sanction
order, be transferred to the merged NBFC.
(vii) The Commission while sanctioning the scheme shall determine the value to be paid to
Page 4 of 6
CORPORATE LAWS
Suggested Answers
shareholders dissenting from the scheme.

A.11 The exception to the provision are as follows:
(a) where an account-holder has authorised the disclosures in writing to disclose;

(b) where an account-holder is declared bankrupt;
(c) where the account-holder is a body corporate and has been wound-up within or outside
Pakistan;
(d) In the case of any litigation or other legal proceedings;
(e) Any person duly authorized by a competent court, the Authority or the State Bank of
Pakistan to investigate into any offence under any law for the time being in force;
(f) The purpose of enabling or assisting the Authority to exercise any power conferred on it
by this Act or by any other law for the time being in force;
(g) The purpose of enabling or assisting the State Bank of Pakistan to exercise any power
conferred on it by any other law for the time being in force;
(h) The purpose of enabling or assisting a stock exchange or clearing house of a stock
exchange to discharge its functions;
(i) The purpose of enabling or assisting auditors of a central depository or participant to
discharge their functions; or
(j) The Authority if the disclosure is required in the interest of investors or in the public
interest.
A.12 Following are the provisions of the Listing Regulations with regard to convening the meeting
of the Board of Directors and Annual General Meeting for approval of Final Cash Dividend:
(a) AMZ shall notify to the Exchange at least one week in advance the date, time and place
of its board meeting.
(b) AMZ would advise to the Exchange, decision of the Board relating to the cash dividend
and approval of the audited accounts immediately after the meeting. The information is
required to be communicated to the Exchange prior to its release to any other person or
print/ electronic media.
(c) Intimation of dividend shall be sent to the Exchange not later than 14 days prior to the
commencement of the book closure.
(d) AMZ shall send to the Exchange such number of copies of its annual report and audited
accounts as may be prescribed by the Exchange not later than 21 days before a meeting
of shareholders is held to consider the same.
(e) AMZ shall obtain prior approval of the exchange in respect of the date and time of
holding of its annual general meeting.
(f) AMZ shall furnish certified true copies of minutes of its annual general meeting within
60 days of such meeting.
A.13 (i) The Audit Committee shall meet at least once in each quarter.
(ii) A meeting must be held prior to the approval of interim results of the listed company
by its Board of Directors and before and after completion of external audit.
(iii) A meeting of the Audit Committee shall also be held, if requested by the external
auditors or the head of internal audit.
(iv) CFO, the head of internal audit and the external auditors represented by the
engagement partner shall attend meetings of the Audit Committee at which issues
relating to accounts and audit are discussed.
(v) At least once a year, the Audit Committee shall meet the external auditors without the
CFO and the head of internal audit being present.
(vi) At least once a year, the Audit Committee shall meet the head of internal audit and
other members of the internal audit function without the CFO and the external
auditors being present.
Page 5 of 6
CORPORATE LAWS
Suggested Answers
(THE END)
Page 6 of 6
SUBJECT SESSION
General:
adequately prepared for the examination. They also got confused while responding to
situation-based questions. The answers in a number of cases were out of context.
It was also observed that the performance was poor where a new area was tested or when
a topic was being tested after a long time. It was a clear indication of selective studies.
The students are advised to carry out a thorough study of all the topics as in every session,
2 to 3 new areas are usually tested. Those who resort to selective studies perform poorly
in these areas and are mostly unable to cover up this deficiency in the remaining
questions.
The students are also advised to read a question carefully and figure out its requirements,
before attempting to answer it. For this purpose, 15 extra minutes, are now provided.
They are also advised to refrain from writing irrelevant material. No matter how well they
write about something which has not been asked for, they would not get any additional
marks. The past question papers and suggested answers are available on ICAP’s website.
It is strongly suggested that the students should carefully go through these suggested
answers in order to know, how to answer the questions and secure maximum marks.
Question 1
The question was based on Second Schedule of the Companies Ordinance, 1984 and was
very poorly attempted by most of the students. The requirement was to mention the
information that is to be disclosed in the prospectus of a company about a contract
whereby two financial institutions have been provided the option to convert 20% of the
loans granted by them into equity. Most of the students relied on guesswork as they
mentioned all sorts of information that they could think of. Consequently, they could
secure 1 or 2 marks here and there after consuming a lot of their precious time. Only
about 5% of the students produced precise and to the point answers.
Question 2 (a)
In this part of the question the candidates were required to comment on three different
situations as regards the appointment of Chief Executive of a company, in the light of
Companies Ordinance, 1984. Although the performance remained better in this question;
however, many students made simple mistakes which could have been avoided. These are
enumerated below:
• Many students did not read this portion carefully and presumed that Mr. Imran was
being proposed for appointment as Chief Executive of both the companies whereas
according to the question, Mr. Imran was proposed to be appointed as the CEO of a
textile mill whereas Mrs Imran was the CEO of the other textile mill.
Page 1 of 6
Examiners’ Comments on Corporate Law – Final Examination Winter 2012
• Some of the students were of the view that only members of the stock exchange are
restrained from becoming the Chief Executive Officer of a listed company. In fact, the
restriction applies to all persons who are engaged in the business of brokerage.
• A significant number of students held the incorrect view that only a member of the
company can become its CEO.
Many students gave the final decisions but did not support them with logical reasoning.
Question 2 (b)
In this part the candidates were required to specify the conditions that a company is
required to comply with, if it accepts security deposits. Majority of the students covered
the point relating to depositing such money in a Scheduled Bank. However, the condition
that security deposit can not be received except under a contract in writing, was rarely
mentioned.
Question 3
A very simple and short scenario was given in the question whereby the CEO of a
company had provided loan to his first cousin for purchase of the Company’s shares.
Probably in a hurry or because they did not know the answer to the actual question, many
students presumed that the company was providing loan to the CEO and thereby narrated
the provisions contained in Section 195 of the Companies Ordinance, 1984.
Many students presumed that the loan was being provided by the company to the CEO’s
cousin and therefore enumerated the provisions of Companies Ordinance, 1984 regarding
disclosure of nature of interest by the Chief Executive/Director in contract or arrangement
in which they are interested.
Many of those who otherwise understood the question, completely ignored the
information that the loan was given on soft terms (5% interest only) and therefore, it may
be construed as an indirect purchase of shares.
Question 4
Part (a) of the question pertained to a liquidator’s remuneration whereas part (b) related to
casual vacancy on resignation of a liquidator.
The question began with the word ‘members’ clearly indicating that the question
pertained to members voluntary winding up. However, many students filled pages writing
about the provisions related to creditors’ voluntary winding up and winding up through
Court.
Other common mistakes were as follows:
• In the given situation the remuneration was to be fixed by the members in general
meeting. Many candidates mentioned that it shall be fixed by SECP or by the
Registrar.
Page 2 of 6
• Many students mentioned that the remuneration may be reduced but failed to mention
that it can be reduced by the court only.
• Provisions regarding monthly allowance to liquidator were mostly ignored.
• Many students did not mention as to who shall convene a meeting for filling the
casual vacancy.
Question 5 (a)
This part of the question required the conditions which the director of a company is
required to comply with if he makes a gain on sale of the company’s shares. The overall
performance in this question was good. However, many students listed the various
conditions correctly but did not specify that these conditions would apply where the sale
has been made within a period of six months. Such students could not secure any marks
because none of these conditions apply if the sale is made after six months. Moreover,
besides giving the relevant answer, many students also wrote provisions of Section 224
(a) related to consequences of failure to tender the gain. This was not relevant as it was
beyond the requirements of the question.
Question 5 (b)
In this part of the question, the candidates were required to identify the persons, other than
directors, to whom the above provisions i.e. those related to making a gain by selling
company’s shares, shall also apply. Most of the students were able to secure full marks.
But even in this easy question, some candidates used guesswork and incorrectly
mentioned persons such as the directors’ spouse and their lineal ascendants and
descendants, the company’s legal advisors and stock brokers.
Question 6
This question was about alternative course of action available in case all the directors of
the company are out of country and it is not possible to convene a board meeting for an
urgent resolution to be passed. In part (a) the candidates were required to explain the
alternative course of action whereas in part (b) they were required to list the steps that
would be needed, to carry out the alternative course of action.
A large number of students probably did not notice that the question clearly indicated that
“it is not possible for the secretary to convene the meeting of the board of directors” and
they kept on mentioning the option of holding a meeting through video conferencing and
mentioning its requirements etc. which obviously did not give them any marks. The
available option was to obtain the approval through circular resolution.
Question 7 (a)
The question required the students to comment on five different complaints lodged by the
shareholders of a company. Majority of the students provided appropriate comments. The
errors noted were as follows:
• The proxy was deposited less then 48 hours before the meeting and therefore was
invalid. Many students were of the opinion that it is required to be filed within 48
hours of the meeting and therefore considered it as valid.
• Some of the students were of the opinion that both the proxies should be counted for
Page 3 of 6
voting. In fact, if a member appoints more than one proxy then all such proxies
become invalid.
• About 50% of the students did not know that the Board of Directors can appoint any
person to represent the company in another company’s meetings, irrespective of
whether he is a member or not.
Question 7 (b)
This was a simple question based on Section 160 of the Companies Ordinance, relating to
the circumstances under which a Court may declare the resolution or entire proceedings of
an AGM as invalid. Most of the students produced correct answers and many of them
secured full marks.
Question 8
This was a simple question regarding appointment of legal advisors and was based on the
Companies (Appointment of Legal Advisors) Act, 1974 and the related Rules. The
question was performed well by those who had gone through this small but important law.
However, due to selective studies, many students were totally ignorant of this law.
Consequently, many students got zero marks. Many students gave almost the same
answers in respect of both the parts without realizing that part (a) was based on the Act
whereas part (b) was based on the relevant rules.
Question 9
In this question a scenario was given which revolved around the following three issues:
• Issue of shares carrying no voting right.

• Issue of capital without right issue.
• Issue of shares for consideration other than cash.
The question was based on the requirements of the Companies Share Capital (Variation in
Rights and Privileges) Rules, 2000 and the Companies (Issue of Capital) Rules, 1996
related to issuance of non-voting shares at premium.
However, majority of the students wasted their time by quoting the provisions of
Companies (Issue of Capital Rules) 1996 regarding issue of shares at premium without
realizing the fact that the rule pertains to issue of capital at premium to general public.
Some of the students also quoted the provisions applicable for raising capital through
public offer for the first time which was totally irrelevant. Further, many students filled
pages in elaborating various kinds of shares that are permitted to be issued under the
Rules.
Question 10
The question required listing of steps to merge three NBFCs into a single entity. Very few
students managed to give a complete reply in accordance with Section 282 L of the
Companies Ordinance, 1984.
The common mistakes were as follows:

Page 4 of 6
• It was stated that the scheme of amalgamation shall be approved by special

resolution whereas the same is required to be approved by two third in value of
shareholders.
• Students mentioned that the notice shall be published in two newspapers but did not
mention that one of the newspapers should be in a language which is commonly
understood in the locality in which the registered office of the NBFC is situated and
that the advertisement shall be published once a week for three consecutive weeks.
• Some students mentioned that merger would require approval of the Competition
Commission of Pakistan (CCP).
Question 11
A poorly attempted question, which was the result of selective studies by the students as it
appears that the students had overlooked the Central Depository Act. Majority of the
students did not or rather did not understand the requirement of the question. Whereas the
requirement was in respect of disclosure of information related to a particular account
holder, the students mentioned the various situations in which information is be disclosed
to the companies whose shares are lodged with the Central Depository Company.
Moreover, most of the students who adopted the correct approach, could only mention 3
or 4 points on the average. The exceptions are mentioned in Section 21 of the Central
Depository Act, 1997.
Question 12
The students were required to list down the information and timing thereof, which a
company is required to provide to the stock exchange, in respect of its Annual General
Meeting and the meeting of its Board of Directors. Majority of the students secured
passing marks in this question but could have scored even better. The points that were
generally missed were as follows:
• At least one week in advance the company shall notify to the Exchange the date,
time and place of its board meeting.
• The information relating to cash dividend and approval of audited accounts shall be
provided to the Stock Exchange immediately after the meeting. The information
must be communicated to the Exchange prior to its release to any print/electronic
media.
Besides the above, some of the students listed entirely irrelevant information like dispatch
of dividend warrants, publication of notice of meeting in newspaper etc. Many students
focused on requirements of the Companies Ordinance regarding timely payment of cash
dividend and procedure of payment or highlighted the procedure of approval of the
dividend in the Annual General Meeting.
Question 13
Page 5 of 6
This was a simple question in which the students succeeded in gaining high marks by
specifying relevant Regulations (xxvii) and (xxviii) of the Code of Corporate Governance,
2012 related to the frequency of meetings of the audit committee and its attendance.
(THE END)
Page 6 of 6
Corporate Laws
Q.1 (a) AVZ Limited has recently been converted into a listed company. Mr. Haq,
representing minority shareholders, has submitted his papers to contest the election of
the directors to be held after 30 days.
Based on the regulations of the Code of Corporate Governance, 2012 you are required
to advise the company in respect of:
(i) Composition of the Board. (05)
(ii) Steps that the company should take with regard to the request submitted by
Mr. Haq. (03)
(b) State the circumstances specified under the Code of Corporate Governance, 2012 in
which a director is not considered as an independent director. (04)
Q.2 Al-Saad Investment Limited (ASIL) is a non-banking financial company (NBFC) listed on
all the stock exchanges in Pakistan. ASIL has been incurring substantial losses and its
shareholders, not being satisfied with the performance of the Chief Executive, have referred
the matter to the Commission for removal of the Chief Executive. Moreover, the
shareholders have also expressed the apprehension that the time required to comply with
the necessary procedures would delay the matter which would be detrimental to their
interests.
In the light of Companies Ordinance, 1984 you are required to state:

(a) The grounds on which the Commission may order removal of the Chief Executive. (04)
(b) The course of action available to the Commission if it wants to address the
shareholders’ apprehension regarding procedural delays. (04)
Q.3 (a) Explain the terms “Book building process” and “Free float” as defined in the Listing
Regulations of the Karachi Stock Exchange (Guarantee) Limited. (04)
(b) Explain the following under the Listing Regulations of the Karachi Stock Exchange:
(i) Issue of bonus shares (05)
(ii) Sale or purchase of the company’s shares by its chief executive. (03)
Q.4 On 11 April 2013, Naveed had made a public announcement of his offer to acquire 10%
voting shares of Seldom Industries Limited, a listed company, from Maqbool. Arshad is
also desirous of making a competitive bid for purchase of shares to Maqbool.
Shares and Takeovers ) Ordinance, 2002:
(a) State the conditions which Arshad would need to comply with while making a
competitive bid. (03)
(b) What would be the status of the offer made earlier by Naveed and the rights available
to Naveed, if Arshad makes a valid competitive bid? (05)
Q.5 Briefly explain the restrictions imposed under NBFC Rules, 2003 as regards:
(a) Purchase or sale transaction with a director.

(b) Sale or transfer of ownership of shares in subsidiary or associated company.
(c) Investment in subsidiary.
(d) Transactions with a broker. (08)
Q.6 Planet International (PI), a listed company, has planned to buy-back 10% of PI’s
outstanding shares from its minority shareholders. The board of directors has approved the
buy-back of shares at a premium of 10 per cent above the current market price of Rs. 40 per
share.
The summarized statement of financial position as on 31 March 2013 is as follows:
2013 2012 2013 2012

Rs. in million Rs. in million
Share capital (Rs. 10 each) 11,500 11,500 Non-current assets 35,195 34,486
Accumulated profit 10,960 4,899 Current assets 40,990 28,124
22,460 16,399
Long term liabilities 20,428 19,292
Current liabilities 33,297 26,919
76,185 62,610 76,185 62,610
Required:
In the context of Companies (Buy-back of shares) Rules, 1999 and Companies Ordinance,
1984:
(a) Evaluate and explain whether Planet International is eligible to buy-back the shares
held by the minority shareholders. (05)
(b) State the requirements with regard to auditor’s certification in the above situation. (03)
Q.7 For the last three months, ANF Limited (ANFL) has been experiencing liquidity crisis and
is unable to meet its financial obligations within the due date.
In the light of Companies Ordinance, 1984 narrate the circumstances under which ANFL
would be deemed to be unable to pay its debts. (05)
Q.8 (a) SECP has the powers to appoint one or more persons as inspector(s) to investigate the
affairs of a company. Such investigation may be initiated on receiving a request from
any concerned person(s) or by the SECP on its own motion.
In the light of Companies Ordinance, 1984 you are required to:

(i) List the parties on whose request SECP may appoint a person as inspector to
investigate the affairs. (03)
(ii) Narrate the circumstances in which SECP may appoint an inspector on its own
motion. (07)
(b) Mr. Jameel was appointed as an inspector to carry out the investigation into the affairs
of AM Limited. After preliminary investigations, Mr. Jameel is of the view that in
order to verify certain related matters, it is necessary to extend the scope of
investigation into the affairs of certain other related entities/persons.
In the light of Companies Ordinance, 1984 identify the entities or the individuals
whom the inspector may include in his investigations and what measures would be
required to be taken prior to issuance of notices in this regard. (05)
Q.9 On declaration of the result of voting in the Annual General Meeting (AGM) by the
chairman of AS Limited, a public company, few shareholders demanded a poll. The
chairman refused to hold the poll and declared the result of voting on show of hands.
In the light of Companies Ordinance, 1984,

(a) How would you assess whether or not the Chairman’s decision of not holding a poll
was valid? (04)
(b) Explain whether the Chairman can delay the holding of poll to a date subsequent to
the date of AGM. (03)
Q.10 The election of directors of Nihal Motors Limited (NML), a listed company, was held at the
Extraordinary General Meeting where seven out of nine candidates were to be elected as
directors. After the meeting was over, an email was received at NML that Mr. Nihal had
expired in a hospital in England. However, the time of Mr. Nihal’s death was not
mentioned. The result of the meeting shows that Mr. Nihal had received the sixth highest
number of votes in the election.
In the light of Companies Ordinance, 1984 state how the directors should deal with the
above situation (06)
Q.11 State the criteria which the Key Executives of Non-Banking Finance Companies are
required to fulfill under the Notified Entities Regulations, 2008 with regard to:
(a) Competence and capability. (05)
(b) Conflict of interest. (06)
(THE END)
CORPORATE LAWS
Suggested Answers
Final Examination ‐ Summer 2013
A.1 (a) (i) Under the Code of Corporate Governance, 2012, the board of directors is
encouraged to have a balance of executive and non-executive directors, including
independent directors and those representing minority interests with the requisite
skills, competence, knowledge and experience so that the board as a group
includes core competencies and diversity, including gender, considered relevant
in the context of the company’s operations.
Being a listed company AVZL should have:
 at least one and preferably one third of the total members of the board as
independent directors.
 Executive directors, i.e., paid executives of the company from among senior
management, which shall not be more than one third of the elected directors,
including the Chief Executive
 Representation of minority shareholders is encouraged
(ii) The minority shareholders as a class are required to be facilitated to contest the
election of directors by proxy solicitation. Therefore, with regard to the request
submitted by Mr. Haq representing minority shareholders, AVZ Limited shall:
 Annex with the notice issued in respect of election of directors, a statement by

Mr. Haq including his profile.
 Provide information regarding members and shareholding structure to Mr.
Haq ; and
 On a request by Mr. Haq, annex to the notice issued in respect of election of
directors, an additional copy of proxy form duly filled by Mr. Haq, at the
company’s cost.
(b) A director shall not be considered as independent, if one or more of the following
circumstances exist:
(i) He/she has been an employee of the company, any of its subsidiaries or holding
company within the last three years;
(ii) He/she is or has been the CEO of subsidiaries, associated company, associated
undertaking or holding company in the last three years;
(iii) He/she has, or has had within the last three years, a material business
relationship with the company either directly or indirectly as a partner, major
shareholder or director of a body that has such a relationship with the company.
The major shareholder means a person who, individually or in connection with
his family or as part of a group, holds 10% or more shares having voting rights
in the paid up capital of the company.
(iv) He/she has received remuneration in the three years preceding his/her
appointment as a director or receives additional remuneration, excluding
retirement benefits from the company apart from a director’s fee or has
participated in the company’s share option or a performance-related pay
scheme;
(v) He/she is a close relative of the company’s promoters, directors or major
shareholders:
Close relative means spouse(s) , lineal ascendants and descendants and siblings;
(vi) He/she holds cross-directorships or has significant links with other directors
through involvement in other companies or bodies;
(vii) He/she has served on the board for more than three consecutive terms from the
date of his first appointment provided that such person shall be deemed
“independent director” after a lapse of one term.
(viii) He/she is nominated as director by the company’s creditors or other special
Page 1 of 7
CORPORATE LAWS
Suggested Answers
interest by virtue of contractual agreements.

(ix) He/she is nominated as a director by the corporation/company who has made
investment or otherwise extended facilities.
(x) He/she is nominated as a director by Federal Government, Provincial
Government, Commission, foreign equity holders on the board of PICIC or any
other company set up under a regional co-operation.
A.2 (a) The Commission may remove the chief executive of ASIL on any one of the following
grounds:
(i) continued association of the chief executive is or is likely to be detrimental to the

interests of NBFC or its shareholders or persons whose interest is likely to be
affected; or
(ii) the public interest so demands; or
(iii) to prevent the affairs of NBFC being conducted in a manner detrimental to the
interest of its shareholders or in a manner prejudicial to the interests of NBFC;
or
(iv) If it is necessary to secure a proper management of the NBFC.
(b) If in the opinion of the Commission, any delay in the removal of CEO would be
detrimental to the public interest or the interest of its shareholders, the Commission
may, at the time of giving the opportunity aforesaid or as any time thereafter and
pending the consideration of the representation aforesaid , if any, by order direct that:
(i) the chief executive shall not, with effect from the date of the order:
 act as chief executive of the NBFC; or

 in any way, whether directly, or indirectly, be concerned with, or take part in
the management of the NBFC;
(ii) any person authorized by the Commission in this behalf shall act as such chief
executive of the NBFC till another person is elected in a general meeting or a
board meeting, as may be directed by the Commission, to fill in the vacancy.
Any person appointed as chief executive shall
(i) hold office during the pleasure of the Commission subject to such conditions as
may be specified in the order of his appointment and, subject thereto, for such
period, not exceeding three years as the Commission may specify; and
(ii) not incur any obligation or liability for anything which is done or intended to be
done in his capacity as chief executive.
A.3 (a) "Book Building Process", means a mechanism of price determination through which
indication of interest for investment in the shares offered by an issuer/offeror is
collected from Institutional Investors and High Net Worth Individual Investor
(HNWI) and a book is built which gives a picture of demand for the shares at different
price levels. The strike price is determined based on the price at which demand for the
share at the end of book building period is sufficient to raise the minimum capital
required;
Page 2 of 7
CORPORATE LAWS
Suggested Answers
“Free-float” means the proportion of total shares issued by a company that are readily
available for trading at the Stock Exchange. It generally excludes the shares held by
controlling directors / sponsors / promoters, government and other locked-in shares
not available for trading in the normal course.
(b) (i) A listed company shall immediately advice the stock exchanges regarding the
issuance of bonus shares.
A listed company shall issue bonus shares certificates within a period of 30 days
from the date of re-opening of the share transfer register closed for the purpose.
The bonus shares shall be credited into the respective CDS Accounts of
shareholders maintained with the CDC or dispatched to the shareholders
concerned by registered post unless those entitled to receive the bonus share
certificates require otherwise in writing;
The exchange shall be immediately intimated as soon as the bonus shares are
credited / dispatched to the shareholders;
A company which makes a default in complying with the requirements of this

Regulation shall be liable to pay penalty @Rs.5000 per day until the default
continues and the Exchange may also take action of suspension of trading or de-
listing of the company;
Provided that in case of eligible securities deposited into the CDS, in
addition to the above, procedure as prescribed by the CDC shall also be
complied with.
(ii) Where any chief executive officer sells, buys or takes any beneficial position,
whether directly or indirectly, in shares of the listed company of which he is the
chief executive officer, he
 shall immediately notify in writing to the company secretary;

 shall also deliver a written record of the price, number of shares, form of
share certificate, (i.e., whether physical or electronic within the Central
Depository System) and nature of transaction to the company secretary
within four days of effecting the transaction ;
 The company secretary shall immediately forward the same to the exchange
for its dissemination to all concerned.
A.4 (a) Mr. Arshad has to comply with the following conditions while making a competitive
bid:
(i) He shall make a public announcement of his offer (competitive bid) for
acquisition of the same voting shares of SIL within twenty-one days of the public
announcement of the offer made by Mr. Naveed.
(ii) He must offer a higher purchase price in order to make a valid competitive bid.
(iii) A competitive bid shall not be for less than the number of voting shares for which
the earlier public offer has been made.
(iv) All other provisions of the Ordinance related to a public announcement apply to
the competitive bid.
(b) The status of the offer earlier made by Mr. Naveed and the rights available to him are
as follows:
Page 3 of 7
CORPORATE LAWS
Suggested Answers
(i) Upon the public announcement of a competitive bid, Mr. Naveed would have
the option to make another announcement:
 Revising his earlier public offer; or

 Withdrawing the public offer with the prior approval of the Commission:
Provided that if no such announcement is made within ten days of the public
announcement of the competitive bid, the earlier offer on the original terms shall
continue to be valid and binding on Mr. Naveed except as regards the date of
closing of such public offer.
(ii) Having made a public announcement and provided he has not withdrawn his
public offer as above, Mr. Naveed shall have the option to make an upward
revision of his offer in respect of the price and the number of voting shares to be
acquired at any time within seven working days prior to the date of closure of the
last subsisting public offer without changing any other terms and conditions of
the said public offer.
A.5 (a) Purchase or sale transaction with a director.
A NBFC shall not purchase anything from, or sell anything to any director of the
NBFC.
This restriction shall not apply to such NBFCs that have a policy to this effect duly
approved by their board of directors:
In case of any sale and purchase to the directors the prior approval in writing of the
board, excluding the participation of the beneficiary directors, is required;
(b) Sell or transfer of ownership of shares in subsidiary or associated company.

A NBFC shall not sell or transfer ownership of shares in subsidiary or associated
company, unless it has obtained prior approval of the Commission in writing to such
sale or takeover.
(c) Investment in subsidiary

A NBFC shall not make investment in its subsidiary except out of its surplus equity
(i.e. over and above the specified minimum equity requirement for the licences held by
such NBFC;)
(d) Transaction with a broker

A NBFC shall not enter into transactions with any broker which exceed ten percent of
the total brokerage expense of the NBFC in any one accounting year.
NBFC shall not have a common director or officer or employee with the broker.
A.6 (a) Planet International is eligible to buy back its shares as it complies with the relevant
conditions as discussed below:
(i) PI is a listed company.
(ii) The company shall have sufficient cash available with it for the purchase.
PI has excess liquidity and it is confirmed from its current ratio which has
improved from 1.04:1 in 2012 to 1.23:1 in 2013.
Page 4 of 7
CORPORATE LAWS
Suggested Answers
(iii) The buy-back of shares shall be out of distributable profits.
PI is planning to buy-back 10% of its shares i.e. 115 million shares which would
require an expected outflow of Rs. 5,060 million. PI’s distributable profit is
sufficient to meet this outflow.
(iv) The company which is buying back its shares, shall have debt equity ratio of
75:25 and current ratio of 1:1 or better.
PI meets this requirement as its debt equity ratio is 48:52 and current ratio is
1.23:1.
(b) PI shall require auditor’s certificate relating to the following matter on a date not
earlier than thirty days immediately preceding the date of passing the special
resolution for the buy-back:
 debt equity ratio is (within the limit) of 75:25.

 The current ratio is 1:1 (or better)
 The company has sufficient cash for buying back of its shares.
A.7 Under the following circumstances, ANF Limited would be deemed unable to pay its debts:
(i) if a creditor, by assignment or otherwise, to whom the company is to pay a sum

exceeding one per cent of its paid-up capital or fifty thousand rupees, whichever is
less, has served a demand under his hand, delivered by registered post or otherwise, at
ANFL’s registered office, requiring ANFL to pay the sum and the company has for
thirty days thereafter neglected to pay the sum, or to secure or compound for it to the
reasonable satisfaction of the creditor.
(ii) if a decree or order of any court or any other competent authority in favour of a
creditor of the company is returned unsatisfied in whole or in part.
(iii) if it is proved to the satisfaction of the Court that the company is unable to pay its
debts, and while determining this fact, the Court shall take into account the contingent
and prospective liabilities of the company.
A.8 (a) (i) SECP may appoint one or more competent person as inspectors to investigate the
affairs of a company, in the following cases:
 In the case of company having a share capital, on the application of members
holding not less than one-tenth of the total voting powers therein;
 In the case of any company not having a share capital, on the application of
not less than one-tenth in number of the persons entered on the company’s
register of members;
 In the case of any company, on receipt of a report from:

− An inspector who has carried out an inspection of the books of account of
the company on the instruction from SECP.
− A Registrar as regards that any information, explanation or document
required by the registrar has not been furnished within the specified time.
 Where a resolution is passed in the general meeting of the company., or
 By order of the Court.
(ii) SECP may appoint an Inspector if in its opinion there are circumstances
suggesting that:
Page 5 of 7
CORPORATE LAWS
Suggested Answers
 The business of the company is being or has been conducted with an intent to
defraud its creditors, members or any other person or for a fraudulent or
unlawful purpose, or in a manner oppressive of any of its members or that the
company was formed for any fraudulent or unlawful purpose.
 The sponsors or management have been guilty of fraud, misfeasance, breach
of trust or other misconduct towards the company or its members or have
been carrying on unauthorized business.
 The affairs of the company have been conducted so as to deprive the
shareholders of a reasonable return.
 The shareholders have not been given all the information with respect to its
affairs which they might reasonably expect.
 Any shares of the company have been allotted for inadequate consideration.
 The affairs of the company have not been managed in accordance with sound
business principles or prudent commercial practices.
 The financial position of the company is such as to endanger its solvency.
(b) Mr. Jameel can bring the following entities or the persons into his investigation:
 Any other body corporate which is, or has at any relevant time been, the
company’s associated company or its subsidiary or holding company, or a
subsidiary of its holding company, or a holding company of its subsidiary;
 Any other body corporate which is, or has at any relevant time been,
managed as chief executive by any person who is or was at the relevant time
the chief executive of the company;
 Any person who is or has at any relevant time been the company’s chief
executive or managing agent or an associate of such chief executive or
managing agent;
In order to widen his investigation to the above companies, Mr. Jameel would be
required to obtain permission from the Commission through a duly verified
application containing the facts in detail and the grounds for seeking such approval.
A.9 (a) The chairman is required to hold a poll in case the same is demanded by
(i) at least five members having the right to vote on the resolution and present in
person or by proxy; or
(ii) any member or members present in persons or by proxy and having not less than
one-tenth of the total voting power in respect of the resolution; or
(iii) any member or members present in person or by proxy and holding shares in the
company conferring a right to vote on the resolution, being shares on which an
aggregate sum has been paid up which is not less than one-tenth of the total sum
paid up on all the shares conferring that right.
If the shareholder who demanded the poll meets any one of the condition as
mentioned above, the decision of the Chairman of not holding the poll would be
invalid.
(b) The Chairman can delay the poll up to fourteen days from the day on which it is
demanded for all matters except the following:
(i) On the election of a chairman, the poll shall be taken forthwith.
(ii) On a question of adjournment, the poll shall be taken forthwith.
Page 6 of 7
CORPORATE LAWS
Suggested Answers
A.10 Since the e-mail was received after the meeting and Mr. Nihal had obtained sixth highest
number of votes in the election, the status of Mr. Nihal would depend on whether the
results of the election had been declared before his expiry or not.
If Mr. Nihal had expired prior to the declaration of the result of election of directors, the
candidate who had secured the highest votes at the 8th position in order will be declared as
elected, being the 7th Director.
If Mr. Nihal had expired after the declaration of the election results, Mr. Nihal would have
become a part of the board of directors. In this situation, a casual vacancy would have
arisen, on the death of Mr. Nihal. The directors of NML would be required to fill up this
casual vacancy at the earliest but not later than 90 days from the date of the occurrence of
the vacancy. The person so appointed shall hold office for the remainder of the term of Mr.
Nihal.
A.11 (a) Competence and Capability

In determining a person’s competence and capability the following shall be
considered:
(i) the directors should be individuals having management or business experience of

at least five years at a senior level;
(ii) the directors shall have experience and knowledge in any profession such as
banking, Collective Investment Schemes, accounting, law, internal audit or
information technology etc;
(iii) the chief executive should have a minimum experience of seven to ten years in a
senior management position, preferably in the regulated financial services sector;
(iv) the chief executive should have demonstrated, through his qualification and
experience, the capacity to successfully undertake the cognate responsibilities of
the position; and
(v) the key executives must be qualified professionals possessing relevant experience
and certification relating to the job or assignment.
(b) Conflict of interest

The directors or chief executive of NBFC shall not
(i) be a director in any other NBFC engaged in a similar business in Pakistan.

Provided that the condition shall not apply to nominees of the Federal or
Provincial Governments on the board of any NBFC;
(ii) be a director, chief executive, chief financial officer, chief internal auditor,
research analyst or a trader (by whatever name or designation called) in a stock
brokerage house or in any company or entity owned and controlled by a member
of a stock exchange; and
(iii) be a member of a stock exchange engaged in the business of brokerage or a

spouse of such member or in control of more than 20% shareholding, directly or
indirectly through his close relatives. In case of Key Executives, the NBFCs must
ensure that no Key Executives shall head more than one functional area that
gives rise to conflict of interest within the organization.
(iv) hold directorship in his or her personal capacity:
 in a business concern which is also a client of the NBFC, and

 in any other financial institution.
(THE END)
Page 7 of 7
SUBJECT SESSION
General:
The overall performance was better than the performance in the previous attempt. A
positive change was that majority of the students tended to provide “to the point” answers
instead of lengthy and irrelevant ones. Those who are still in a habit of writing long
answers must understand that unnecessary elaboration of matters that do not from part of
the requirement of the question, does not add marks and results in wastage of their
valuable time. Use of selective studies and poor presentation of the answers seemed to be
the main causes of the failure of the students.
Question 1
This part of the question required the students to advise a company regarding the
composition of its Board of Directors in the light of Code of Corporate Governance. Most
of the students seemed prepared on this topic. However, many students lost marks
because they were not very particular in the use of correct terms. For example, many of
them used the words “total number of directors” instead of “total number of elected
directors”. Similarly, the code requires that at least one and preferably one third of the
total members of the board should be independent directors but most of the students did
not mention the word “preferably” which was important.
Question 2 (a)
This part was from section 282E of the Companies Ordinance, 1984 regarding grounds on
which the Securities and Exchange Commission may order removal of the chief executive
of an NBFC. The performance remained average. Some students mentioned the way in
which a CEO can be removed by directors/shareholders instead of mentioning grounds on
which the Commission may remove the CEO. Further, many students listed the parties on
whose request Commission may appoint an inspector to investigate the affairs of the
company. Some students enumerated the rules pertaining to removal of CEO of Non-
NBFC companies.
Question 2 (b)
The students did not read this part of the question carefully as they generally mentioned
Commission’s power regarding removal of CEO after completion of enquiry whereas the
question pertained to Commission’s power for passing an interim order as has been
discussed in sub-section-2 of section 282 E.
Page 1 of 4
Question 3 (a)
This part required the students to explain the terms “Book Building Process” and “Free
Float” under the Listing Regulations. The performance remained mixed. Those who had
studied Listing Regulations were able to answer correctly. However, most of the students
relied on guesswork, which badly failed. For “Book Building Process” they mostly wrote
that “it is a process of listing of shares on a stock exchange” whereas “Free Float” was
explained as “the shares which are sold on daily basis on the stock exchange”. Some of
them even discussed Floating Charge.
Question 3 [b (i)]
A significant number of students produced irrelevant answers as instead of stating the

requirement of the Listing Regulations related to the issue of bonus shares, they stated the
requirements of the companies (Issue of Capital) Rules, 1996. Some of them described the
procedure for transmission of bonus shares with the CDC. Some students displayed utter
lack of knowledge as according to them, general meeting was required to be held for the
approval and declaration of bonus shares.
Question 3 [b (ii)]
The requirement in this sub-part was to explain the provisions of the Listing Regulations
related to sale or purchase of a company’s shares by its chief executive. Instead, many
students wrote about the provisions of section 224 of the Companies Ordinance, 1984
regarding trading by directors, officers etc. which was entirely irrelevant.
Question 4
It was a situation based question from the Listed Companies (Substantial Acquisition of
Voting Shares and Takeovers) Ordinance, 2002 about (a) the conditions required to
comply with while making a competitive bid and (b) status of offer made earlier by one
person and the rights available to him, in case another person makes a valid competitive
bid.
Although the requirements were quite lengthy yet a vast majority of the students managed
to cover most of the related information from Regulations 16 and 17 of the Listed
Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002
and gained good marks.
Question 5
It was a direct and easy question from NBFC Rules , 2003 regarding restrictions imposed
on (a) Purchase or sale transaction with a director, (b) Sale or transfer of ownership of
shares in subsidiary or associated company, (c) Investment in subsidiary, and (d)
Transaction with a broker.
Almost all the students gained good marks by giving relevant and to the point answers
from Rule 7(2) of NBFC Rules, 2003. A common omissions in part (a) was that many
students failed to mention that the given restriction would not apply to an NBFC if a
policy in this respect is approved by the NBFC’s Board of Directors.
Page 2 of 4
Question 6 (a)
It was a situation based question from the Companies (Buy-back of Shares) Rules, 1999
in which summarized statement of financial position of a company was given and the
candidates were required to evaluate and explain whether the company was eligible to
buy-back the shares held by the minority shareholders. The performance remained above
average as the students were generally able to mention the requirements correctly.
However, many of them could not calculate the correct current ratio and debt equity ratio
of the company, based on the given financial data. Some students extended their answers
unnecessarily and narrated the entire procedure for buy back of shares resulting in loss of
valuable time without any addition in marks.
Question 6 (b)
The performance remained mixed as many students mentioned incorrectly that auditor’s
certification would be required in respect of verification of the accounts and declaration of
solvency. Surprisingly, some students stated that no such certification requirement exists.
It is surprising as to how they believed that 03 marks would be awarded for making the
above statement only.
Question 7
In this question the requirement was to narrate the circumstances under which a company
is deemed to be unable to pay its debts. Most of the students gave satisfactory answer
covering the relevant provisions specified in section 306 of the Companies Ordinance,
1984. The most common mistake was that in one of the provisions instead of mentioning
“sum exceeding one per cent of paid-up capital or fifty thousand rupees, whichever is
less, many students wrote “and” in place of “or” and “whichever is greater” in place of
“whichever is less” which changed the entire meaning of the statement.
Question 8 (a)
In this part the students were required to identify the parties on whose request SECP may
initiate investigation proceedings against a company and the circumstances under which
the SECP may initiate investigation proceedings on its own motion. The question was
based on section 263 and 265 of the Companies Ordinance. A mixed performance was
witnessed as only about half the students had prepared for such a question. Many others
tried to rely on guesswork and gave long answers which mostly contained one or two
correct points only.
Question 8 (b)
The requirement was to identify the entities and individuals which an inspector can
include in his investigation while investigating the affairs of a company and what
measures the inspector would have to take in this regard.
Majority of the students tried to list as many parties as they could think of which showed
complete lack of knowledge and confidence. Such an approach cannot work in
professional examinations.
Page 3 of 4
Question 9
This was a simple question from sections 167 & 168 of the Companies Ordinance
pertaining to (a) validity of Chairman’s decision of not holding a poll and (b) powers of
Chairman to delay the holding of poll in the given situation. Though most of the students
gained good marks in both the parts, however, many students stated incorrectly that
chairman’s decision of not holding the poll was final. Similarly, many students held the
incorrect view that under all circumstances, the poll shall be taken forthwith.
Question 10
It was a situation based question which required good in-depth knowledge of matters
related to election of directors. According to the given situation, a person who was to be
elected as director of a company had died but it was not clear whether the death had
occurred prior to or after the declaration of the results of voting. The students were
expected to decide the course of action under either assumption. However, most of the
students solved the question only on the assumption that the death occurred after the
election. The other possibility was ignored.
Question 11
This question from NBFC Regulations, 2008 required the students to specify the criteria
that the Key Executives are required to fulfill with regard to (a) Competence and
capability and (b) Conflict of interest. The performance remained mixed as many students
could not differentiate between the requirements related to Directors, CEO and other key
executives.
(THE END)
Page 4 of 4
Corporate Laws
Winter 2013 100 marks - 3 hours
Q.1 Details of loans obtained by Al-Hamd Engineering Limited (AHEL) from commercial
banks are as follows:
Date of Amount
Name of bank Security
borrowing borrowed
Hypothecation charge on
Alpha Bank Limited 1 July 2010 Rs. 80 million
stock in trade and receivables
Hypothecation charge on
Beta Bank Limited 15 May 2012 Rs. 45 million
stock in trade and receivables
In August 2013, AHEL defaulted on its loan repayment obligations towards both banks.
It has now been discovered by Alpha Bank Limited that the Bank’s legal adviser who had
been assigned to register the charge had failed to deposit the required documents, which
were duly signed by both the parties, with the Registrar of Companies.
The charge in favour of Beta Bank Limited was duly registered.
Under the provisions of the Companies Ordinance, 1984:

(a) Advise Alpha Bank Limited about the effect of non-submission of the charge
documents with the registrar and how would it affect its position vis-a-vis Beta Bank
Limited. (05)
(b) Explain whether Alpha Bank Limited can now register the charge with the Registrar of
Companies. (04)
Q.2 Family Supermarket (Private) Limited (FSPL) is a successful family owned company and
has seven members. Due to personal reasons, one of its members, Hamid, who holds 20%
shares, wants to move abroad and sell all his shareholdings in FSPL. He has received an
attractive offer from a member of the company. However, Hamid believes that he would
obtain a higher price if he sells the shares to the general public.
State the conditions which Hamid would need to comply with under the provision of the
Companies (Issue of Capital) Rules, 1996 if he decides to sell his shareholdings to the
general public. (06)
Q.3 ABX Limited is a listed company. In its annual general meeting, ABX Limited announced
the distribution of shares of its unlisted subsidiary company in the form of specie dividend
and applied for registration of shares of the subsidiary at the Karachi Stock Exchange
(KSE). However, the application was refused by KSE.
Describe the responsibility of ABX Limited in the above situation, in view of Listing
Regulations of the Karachi Stock Exchange and the consequences of non-compliance
thereof. (06)
Q.4 Haris holds 3% shares in BYZ Limited whose shares are listed on the Lahore Stock
Exchange. He has a plan to acquire substantial shareholding of BYZ Limited as follows:
% of shareholding
S.# Tentative date
to be acquired
1 15 January 2014 5
2 15 February 2014 5
3 31 January 2015 10
4 15 March 2015 10
Advise Haris about the conditions to be complied with in respect of each of the above
acquisitions, under the Listed Companies (Substantial Acquisition of Voting Shares and
Takeovers) Ordinance, 2002. (08)
Q.5 The Board of Directors of Star Limited (SL) has decided to appoint SKF Associates as legal
advisers of all its group companies.
SKF Associates has two partners and are currently the legal adviser of the following entities:
(i) Wise (Guarantee) Limited (WGL) whose members have undertaken to contribute Rs.
0.6 million each, in the event of company’s winding up. However, WGL does not
have a share capital.
(ii) Nasir & Yasir, a partnership firm registered under the Partnership Act, 1932. The total
capital of the firm is Rs. 5 million.
(iii) Faraz Art Museum which is registered under the Societies Act, 1860.
(iv) Nice (Pvt.) Limited having a share capital of Rs. 1.2 million.
(v) Listed companies, A Limited, B Limited, C Limited and D Limited having share
capital of Rs. 800,000, Rs. 600,000, Rs.400,000 and Rs. 200,000 respectively.
SL’s group companies include two subsidiaries each having a share capital of Rs. 2 million
and an associated company with a share capital of Rs. 600,000. The share capital of SL is
Rs. 10 million.
Based on the requirements of the Companies (Appointment of Legal Advisers) Act, 1974,
explain whether SKF Associates can be appointed as the legal adviser of SL and its group
companies. (07)
Q.6 Explain the terms ‘Asset Management Services’, ‘Collective Investment Schemes’ and
‘Connected Persons’ as referred to in the NBFC (Establishment and Regulations)
Rules, 2003. (05)
Q.7 Mars Investment Finance Limited (MIFL) is in the process of making provisions against
non-performing loans. The loans provided by MIFL are secured against the following
categories of assets:
Category A Assets secured by registered mortgage

Category B Assets secured by equitable mortgage
Category C Stock pledged with MIFL
Category D Assets having pari-passu charge
Category E Assets which carries a floating charge over the stock-in-trade
MIFL has issued NOCs to some of its borrowers for creating further charge(s) on assets
falling under Category B.
Discuss the matters that should be considered in determining the realizable value of the
above assets, while making a provision against non-performing loans under the
Non-Banking Finance Companies and Notified Entities Regulations, 2008. (06)
Q.8 Kamran is the director of Amazing Paper Limited (APL) and Super Glue Limited (SGL).
In a meeting, the board of directors of APL approved a contract for the purchase of Glue
from SGL. Kamran voted in favour of the resolution. A shareholder of APL has objected
that Kamran has unlawfully influenced the transaction to benefit SGL.
Advise Kamran on the validity of the shareholder’s objections, and the consequences which
Kamran may face under the Companies Ordinance, 1984. (07)
Q.9 Beta Foods Limited, a listed company, has a paid up share capital of Rs. 20 million divided
into two different classes of shares ‘A’ and ‘B’. Class B shares do not have voting rights. In a
recent general meeting of the company, a special resolution has been duly passed, to alter
some of the rights associated with class B shares, which has aggrieved some of the class B
shareholders.
Under the Companies Ordinance, 1984 explain to the holders of class B shares, as regard
the following:
(a) Remedy available to them. (03)
(b) The conditions under which the decision of the company may be reversed. (03)
Q.10 Paramount Limited (PL) is incorporated in United Kingdom and is listed on London Stock
Exchange. In order to penetrate into Pakistan market, the company has recently established
a branch office in Karachi. The company has duly complied with all the statutory
requirements necessary for local registration.
Under the provisions of Companies Ordinance, 1984, briefly describe the obligations which
PL is required to fulfil after establishing its business in Pakistan with respect to the
following:
(a) Maintenance of Register of Pakistani members, directors and officers (02)
(b) Disclosure of name of the company and the country in which the company is
incorporated, on companies’ documents and at its places of business in Pakistan. (04)
(c) Preparation of balance sheet and profit and loss account with regard to its operations
in Pakistan. (03)
Q.11 Strong Industries Limited (SIL) is a listed company and is engaged in the manufacturing of
SIL cement. SIL’s market share is around 23%. SIL’s plans for the next year include the
following:
(a) Entering into negotiations for the merger of the company with Hard Industries
Limited.
(b) Launching a vigorous advertisement campaign which would involve television
advertisements highlighting some of the unique features of SIL cement and how it is
superior to the cement manufactured by other competitors.
Describe the steps that SIL should take and the matters that should be considered, in respect
of the above, in order to ensure compliance with the provisions of Competition Act, 2010. (11)
Q.12 Recently, the company secretary of Al-Falah Sugar Mill Limited (ASML) has received a
letter from Ghalib, a shareholder whose holdings in the company’s shares has increased to
14% during the year 2013, to seek appointment on ASML’s board of directors. The
company secretary has informed him that he cannot be admitted on the board till the next
elections become due.
Not being satisfied with the response, Ghalib has asked you to advise on the above matter
and explain the course of action available to him under the Companies Ordinance, 1984. (05)
Q.13 (a) State the situations under which a company may be wound-up voluntarily. (03)
(b) After incurring continuous losses, Hashim Cotton Mills Limited had decided to go
into members’ voluntary winding-up. Accordingly, a general meeting of the company
was held on 1 December 2012 and Ahmed was appointed as the Liquidator on a
remuneration of Rs. 500,000 of which 50% was paid at the time of his appointment.
On 20 November 2013, while the process of winding-up was still in process, Ahmed
received a lucrative offer of employment and is considering to resign as the liquidator
of the company.
In the context of the provisions contained in the Companies Ordinance, 1984, you are
required to explain the following:
(i) The steps that Ahmed should take at the end of first year from the
commencement of the winding-up. (07)
(ii) The responsibilities of Ahmed, if he decides to resign. (05)
(THE END)
CORPORATE LAWS
Suggested Answers
Final Examination ‐ Winter 2013
Ans.1 (a) According to the Companies Ordinance, 1984 every mortgage, charge or other interest
created by a company shall be void against any creditors of the company, unless the
prescribed particulars of the mortgage or charge, together with a copy of the instrument, if
any, are filed with the registrar for registration in the required manner within 21 days after
the date of its creation, but without prejudice to any contract or obligation for repayment of
the money thereby secured. And, when a mortgage or charge becomes void the money
secured thereby shall immediately become payable.
Based on the above, although the charge creating documents were signed by AHEL and
submitted to legal advisor of Alpha Bank Limited, however, the charge in favour of ABL is
void.. The bank can not avail the security purported to be created through this
hypothecation charge and is in the position of an unsecured creditor.
In view of the above provision of law, the amount borrowed by AHEL has become payable
immediately to ABL although ABL would stand in the position of an unsecured creditor.
On the other hand, charge of Beta Bank Limited is duly registered and hence it enjoys the
position of a secured creditor.
(b) The Commission may on the application of ABL and on being satisfied that the omission
to register a mortgage or charge within the stipulated time as required by Companies
Ordinance,1984 was accidental or due to inadvertence or to some other sufficient cause, or
is not of a nature to prejudice the position of creditors or that on other grounds it is just and
equitable to grant relief, and, on such terms and conditions as seem to the Commission just
and expedient, order that the time for registration be extended and the charge be registered.
However, even if the charge is registered, Beta Bank Limited would have the first charge on
the assets.
Ans.2 Hamid is not satisfied with the offer made by the existing member of the company and wants to
obtain a higher price which, we assume, the existing members have refused to pay. Therefore, in
view of the articles of association of the company, Hamid after taking prior approval of the board
of directors may sell/transfer his shares in the company to any other person.
Moreover, since Hamid who holds more than ten percent of the shares of FSPL, may offer such
shares for sale to the public subject to the following conditions, namely:
(i) The size of the capital to be offered to public through offer for sale shall not be less than one
hundred million rupees or twenty-five per cent of the capital, whichever is less;
(ii) no premium shall be charged unless the company has profitable operational record for at
least one year;
(iii) in case a premium is to be charged on the sale of shares, the offer shall be fully underwritten
and the underwriters, not being the associated companies, shall include at least two
financial institutions including commercial banks and investment banks and the
underwriters shall give full justification of the amount of premium in their independent due
diligence reports;
(iv) due diligence reports of the underwriters shall form part of the material contracts;
(v) full justification for the premium shall be disclosed in the offer for sale.
Ans.3 If the application for listing of shares of subsidiary is refused, ABXL would be required to encash
the shares of the subsidiary company at the option of the recipients at a price not less than the
current break-up value, or face value, whichever is higher, within 30 days after the expiry of 120
days from the date of the application for listing or from the date of refusal of listing whichever is
earlier. In the event of default, the trading in the shares of ABXL may be suspended by the KSE
or the company may be de-listed.
Page 1 of 6
CORPORATE LAWS
Suggested Answers
Ans.4 15th January 2014

Haris would not be required to meet any condition at the time of purchase of 5 % shares on 15
January 2014 , as his total voting shares on this date would not exceed 10%.
15th February 2014

On the purchases of 5% more shares, Haris’s total shareholding would be 13% i.e. in excess of 10
% and he would be required to disclose the aggregate of his shareholding to BYZ Limited and to
the Lahore Stock Exchange within two working days of the acquisition of voting shares.
31st January 2015

On the purchase of 10% more shares, his total shareholding would be 23% and he would not be
required to make any disclosure as the Listed Companies (Substantial Acquisition of Voting
Shares and Takeover) Ordinance, 2002does not require any further disclosure/communication on
acquisition of additional voting shares in a period of twelve months after crossing the FIRST
threshold of 10%unless his total shareholding in aggregate exceeds twenty five per cent.
15th March 2015

On purchases of 10% more shares, his total shareholding would be 33% that crosses the
SECOND threshold of 25% and before acquiring such shares Haris should:
(i) Make a public announcement of offer to acquire these voting shares.

(ii) Before making the public announcement, Haris would also be required to make disclosure
as made by him on 15 February 2014.
Ans.5 The number of companies, of which a registered firm can be appointed as the legal advisor, is the
product of three and the total number of partners of the firm.
Accordingly, SKF Associates can be appointed as legal advisors of 6 companies (i.e. 2x3)
However, the definition of a company given under the Companies (Appointment of Legal
Advisers) Act, 1974 specifically excludes:
(i) a company which has a share capital of less than Rs. 500,000
(ii) a company limited by guarantee
Similarly a society and a Partnership also do not form part of the definition of Companies.
In view of the above, SKF Associates are currently the legal advisors of i.e. Nice (Pvt.) Limited,
A Limited and B Limited.
Hence, SKF Associates can be appointed as the legal advisors of three out of four companies
belonging to SL group.
Ans.6 Asset Management services means the services provided for management of collective
investment scheme;
Collective Investment Schemes means a close-end fund and an open-end fund.
Connected Persons in relation to an NBFC or a collective investment scheme, means:-
(a) any person or trust beneficially owning, directly or indirectly, ten percent or more of capital
of the NBFC or the collective investment scheme;
(b) any person able to exercise, directly or indirectly, ten percent or more of the total voting
Page 2 of 6
CORPORATE LAWS
Suggested Answers
power in that NBFC or the collective investment scheme;

(c) a collective investment scheme being managed by the NBFC;
(d) the NBFC managing a collective investment scheme;
(e) a trustee or custodian of the collective investment scheme;
(f) any person or trust controlled by a person who or which meets the descriptions given in sub-
clause (a) to (e);
(g) any member of the group of which that person, or trust forms part; and
(h) any director or officer of that NBFC or the investment company being managed by that
NBFC or of any of their connected persons as specified in sub-clauses (a) to (g);]
Ans.7 Mars Investment Finance Limited (MIFL) shall observe the following criteria for determining the
realizable value of mortgaged, pledged, leased or collaterally held assets:
(i) Only assets having registered mortgage, equitable mortgage (where NOC for creating
further charge has not been issued by NBFC) and pledged or collaterally held assets shall be
considered;
(ii) Assets having pari-passu charge shall be considered on proportionate basis;
(iii) Hypothecated assets and assets with second charge or floating charge shall not be
considered;
(iv) Valuations shall be carried out by an independent professional valuer listed on the panel of
valuer maintained by the Pakistan Banks Association or the Leasing Association of
Pakistan;
(v) The valuer while assigning any values to the mortgaged, pledged, leased or collaterally held
assets, shall take into account all relevant factors affecting the salability of such assets
including any difficulty in obtaining their possession, their location; their condition; and the
prevailing economic conditions in the relevant sector, business or industry.
(vi) In determining the realizable value of mortgaged, pledged, leased or collaterally held assets,
the valuers must take into account the amount that can be realized from the asset if sold in
a forced or distressed sale condition;
(vii) The valuers shall in their report explain the assumptions, calculations, formula and method
adopted in determination of the realizable values;
Ans.8 Every director of a company who is in any way interested in any contract or arrangement entered
into, on behalf of the company shall disclose the nature of his interest at a meeting of the directors
or through a general notice.
Furthermore, no director of a company shall, as a director, take any part in the discussion of, or
vote on, any contract or arrangement entered into, by or on behalf of the company, if he is in any
way interested in the contract or arrangement and if he does vote, his vote shall be void.
In view of the above provisions of the C.O.1984, Kamran may have to face the following
consequences:
(i) Since Kamran is directly interested in the contract for purchase of glue, his failure to
disclose his interest to the directors shall constitute a violation and he shall be liable to a
penalty of Rs. 5,000.
(ii) Karman’s participation and voting on the proposed contract is also a breach of the above
provisions of the Companies Ordinance, 1984, and accordingly he shall be liable to a
further fine of Rs. 5,000.
(iii) Moreover, the court may, on a petition by members/shareholders having not less than ten
percent of the voting power in the APL, declare such proceedings or part thereof invalid on
account of irregularity in the proceeding of the meeting.
(iv) The Court may also declare Kamran as ineligible on account of lacking fiduciary behavior
after giving him an opportunity of showing cause against the proposed action. If such
Page 3 of 6
CORPORATE LAWS
Suggested Answers
declaration is given, Kamran would be rendered ineligible for appointment as director; and,
shall, ipso facto, cease to hold office.
Ans.9 (a) Persons holding not less than ten per cent of the Class B shares may, within thirty days of
the date of the resolution varying their rights, apply to the Court in the form of a petition
for an order cancelling the resolution.
(b) The Court shall cancel the decision of the company if it is shown to its satisfaction that:
(i) Some important facts were withheld by the company in getting the resolution passed
or,
(ii) Variation would unfairly prejudice such class of shareholders.
Ans.10 The obligation which Paramount Limited, being a foreign company and having a place of
business in Pakistan, would be required to fulfill are as follows:
(a) PL shall maintain at its principal place of business in Pakistan, or, if it has only one place of
business in Pakistan, in that place of business, a register of Pakistani members, directors
and officers, which shall be open to inspection and copies thereof supplied as in the case of
similar registers maintained by a company under the Companies Ordinance, 1984;
(b) PL shall:
 conspicuously exhibit on the outside of every place where it carries on business in
Pakistan the name of the company and the country in which the company is
incorporated in letter easily legible in English or Urdu characters and also, if any place
where it carries on business is beyond the local limits of the ordinary original civil
jurisdiction of a High Court, in the characters of one of the vernacular language used in
that place;
 cause the name of the company and of the country in which the company is
incorporated mentioned in legible English or Urdu characters in all bill-heads and letter
papers, and in all notices, advertisements, documents and other official publications of
the company;
(c) PL shall prepare a balance sheet and profit and loss account , audited by such person,
containing such particulars and including or having annexed or attached thereto such
documents ( including , in particular, documents relating to every subsidiary of the
company) as nearly as may be under the provisions of the Companies Ordinance, 1984 as if
it were a public company formed and registered under the Companies Ordinance, 1984 in
respect of the company’s operations in Pakistan as if such operations conducted by a
separate public company formed and registered under this Ordinance.
(d)
Ans.11 (a) Merger of SIL and HIL
After merger of two companies, the merged company shall be presumed to be in a
dominant position within the meaning of the Competition Commission Act, 2010.
Therefore, SIL shall follow the following steps before the merger:
First phase
(i) SIL and HIL shall submit a pre-merger application to the Commission as soon as
they agree in principle or sign a non-binding letter of intent to proceed with the
merger.
(ii) The above application shall be in the prescribed form and accompanied by a
prescribed processing fee.
(iii) After receiving of clearance from the Commission that the merger meets the
Page 4 of 6
CORPORATE LAWS
Suggested Answers
threshold and the presumption of dominance, SIL and HIL shall proceed with the
intended merger. If the Commission fails to make a determination within the
prescribed time of 30 days for the first review phase, it shall be deemed to mean that
the Commission has no objection to the intended merger.
Second phase
(iv) SIL and HIL shall be required to provide such information to the Commission as the
Commission may consider necessary to enable it to make the necessary
determination.
(v) After assessing whether the merger substantially lessens competition, the
Commission shall give its decision on the proposed transaction within 90 days of the
receipt of the above information (refer point no. iv). If Commission fails to render a
decision within 90 days, it shall be deemed to mean that the Commission has no
objection to the intended merger.
(b) Launching advertisement campaign

Before launching the advertisement campaign, SIL shall ensure that its marketing campaign
shall not resort to:
(i) the distribution of false or misleading information that is capable of harming the
business interests of another undertaking;
(ii) the distribution of false or misleading information to consumers, including
information lacking a reasonable basis, related to the price, character, method, or
place of production, properties, suitability for use, or quality of goods;
(iii) false or misleading comparison of goods in the process of advertisement.
Ans.12 Under the Companies Ordinance, 1984 the tenure of the BOD is 3 years.
Before expiry of the term a person can only be admitted to fill in the casual vacancy.
However, according to the Companies’ Ordinance, 1984 if a person acquires 12.5% or more
voting shares in a listed company in his own name, he may apply to the Commission to direct the
company to hold fresh election of directors in the forthcoming annual general meeting of the
company.
shareholders or the capital markets generally, direct the company to hold the election of directors
as above and the company shall comply with such direction.
However, in case the election is held as above, Ghalib shall be restricted from selling or disposing
of his shares for at least one year from the date of election of Directors of the company.
Ans.13 (a) A company may be wound up voluntarily when:
(i) the period (if any) fixed for the duration of the company by the articles expires, or the
event (if any) occurs, on the occurrence of which the articles provide that the company
is to be dissolved and the company in general meeting passes a resolution requiring the
company to be wound up voluntarily.
(ii) When the company resolves by special resolution that the company be wound up
voluntarily.
(b) (i) If the affairs of the HCML are not wound up in one year, Mr. Ahmed shall be
responsible to take the following steps:
 Apply to the court for extension of period by six months.

 Summon a general meeting of the company at the end of the first year from
the date of commencement of the winding up and if extension is granted by
Page 5 of 6
CORPORATE LAWS
Suggested Answers
court, within thirty days of such extended period;

 Present in the meeting an audited account of receipts and payments and acts
and dealings and of the conduct of the winding up during the preceding year
together with a statement in the prescribed form containing the prescribed
particulars with respect to the proceedings in and position of the liquidation,
including:
− Reasons for the delay in finalization of the winding up proceedings.
− steps taken to expedite the winding up proceedings.
− further time required for the purpose.
 Forward by post to every contributory, a copy of the account and statement
together with the auditor's report and notice of the meeting at least ten days
before the meeting.
 File with the registrar, a return of convening of each general meeting, together
with a copy of the notice, account, statement and minutes of the meeting,
within ten days of the date of the meeting.
Appointment of Liquidators.
(ii) He cannot resign or quit his office as liquidator before conclusion of the winding up
proceedings except for reasons of personal disability to the satisfaction of the Court.
In any case, Mr. Sajjad cannot quit his responsibilities before his replacement is
appointed by the court.
If Mr. Ahmed resigns before conclusion of the winding up of the company, he shall
not be entitled to any remuneration and 50% of the remuneration already received by
him, shall be refunded to the company.
(THE END)
Page 6 of 6
SUBJECT SESSION
General:
were out of context. The students are advised to read the questions carefully and figure
out their requirements, before attempting to answer them. For this purpose students are
also provided extra 15 minutes at the beginning of the paper, so that they can read the
questions carefully and figure out their requirements.
The students are also advised to refrain from writing unnecessary details. Some students
seem to be under the impression that they will get more and more marks if they write
more. Writing unnecessary details result in sheer wastage of time and nothing else. The
past question papers and ICAP’s suggested answers are available on its website. It is
strongly suggested that the students should study them carefully to understand how the
questions should be answered.
It has also been noted that many students try to answer the questions on the basis of their
general perception and by applying their own logics which are quite often different from
what the law says. Another common error is that students get confused between the
various authorities such as the court, SECP and registrar etc.
Question 1 (a)
The performance of most of the students was below par as they failed to explain the effect
of non-submission of charge documents with the registrar. Only a few students correctly
identified that as a result of non-registration of charge with the registrar, the borrowed
amount becomes immediately repayable and the charge becomes void.
Question 1 (b)
In this part the candidates were required to inform whether charge can now be registered
i.e. after the prescribed time of 15 days have passed. Most of the students gave partly
correct answers as they made one or more of the following mistakes:
• Instead of mentioning that now the bank may apply to the Commission for the
registration of charge, it was stated that the bank should apply to court or registrar for
registration of charge.
• Certain reasons have been specified under the Companies Ordinance on the basis of
which the Commission allows the charge to be registered in the case of delay. Many
students did not explain these.
• Many students did not specify that while allowing the charge to be registered, the
Commission may impose such conditions as it may deem necessary.
Page 1 of 5
Question 2
The question required the procedure that has to be followed under Companies (Issue of
Capital) Rules, 1996 if a shareholder holding more than 10% shares in a company wants
to dispose them of to the general public. The performance was generally good as similar
questions have been asked frequently in the past. However, some of the students ignored
the important requirement that the answer was to be based on the provisions of
Companies (Issue of Capital) Rules, 1996 and instead narrated the procedure for
conversion of private limited company into a public limited company.
Question 3
This question was based on a scenario whereby a listed company had announced the
distribution of shares of its unlisted subsidiary as specie dividend but application for
registration of shares of the subsidiary was refused by the Karachi Stock Exchange
(KSE).
The question had to be answered in the light of Regulation 25(2) of the listing regulations.
The performance was poor as most of the students were unaware of the requirements.
Even those who seemed to have studied this aspect mostly gave partly correct answers.
Most of them did not know the basis at which the shares of subsidiary had to be encashed.
Many students also seemed to be confused as regards suspension of trading of shares and
called it placement of shares on Defaulter’s Counter.
Some students misunderstood the question and narrated the procedure for issue of shares.
Question 4
A practical situation was given in this question according to which an individual holding
3% shares in a company, planned to acquire substantial number of shares at four different
dates. The percentages of shares to be acquired on each date were given.
The candidates were required to specify the conditions that the individual was required to
comply with in respect of each acquisition and the question had to be answered in the
light of Section 4 & 5 of the Listed Companies (Substantial Acquisition of Voting Shares
and Takeovers) Ordinance, 2002.
Majority of the students appeared well prepared as this was also a frequently tested topic.
However, despite the fact that it was clearly mentioned in the question that conditions to
be complied with under Listed Companies (Substantial Acquisition of Voting Shares and
Takeovers) Ordinance, 2002 had to be specified, about 25% of the students mentioned the
provisions of Sections 222 and 224 of the Companies Ordinance, 1984.
Some students did not give their answers in proper chronological order. As a result their
answers were somewhat haphazard and they also missed out some important points. A
common mistake was that on purchase of shares on January 31, 2015 no disclosure was
required but the students mentioned various types of conditions to be complied with. Few
students correctly mentioned that no disclosure was required but did not justify their
answer.
Page 2 of 5
Question 5
This question was also based on a practical situation and had to be answered in the light
of Companies (Appointment of Legal Advisers), Act, 1974. Details of clients of a legal
firm was provided in the question and the students were required to ascertain whether the
firm can be appointed as the legal advisor of a group consisting of a parent company, two
subsidiaries and an associated company.
Majority of the students were able to identify the primary condition that the number of
companies of which a registered firm can be appointed as the legal advisor, is the product
of three and the total number of partners of the firm, though some students replaced the
word ‘firm’ with the word ‘companies’. However, many students did not know the exact
criteria which needed to be considered in determining the total number of companies.
Moreover, many students were of the view that the whole group would be considered as
one company in determining the specified limit.
Question 6
This was a direct question from NBFC (Establishment and Regulations) Rules, 2003
requiring explanation of the terms (a) Asset Management Services (b) Collective
Investment Scheme, and (c) Connected Person. Only about half the students seemed to
know the right answers. While explaining the term ‘Connected Person’, many candidates
explained the terms associated companies and associated person as given in Companies
Ordinance, 1984.
Question 7
This question was based on Regulation 25(9) of the Non-Banking Finance Companies and
Notified Entities Regulations, 2008 related to the classification and provisioning for non-
performing assets. The students were required to discuss the matters that should be
considered in determining the realizable value of the various categories of assets while
making a provision against non-performing loans.
A below-average response was seen. Most of the students could only mention whether the
value of the assets mentioned in the question should be considered while making
provision against non-performing loans or not. They failed to mention other important
factors like salability of assets, their forced sales values, requirements for carrying out
valuations and requirements relating to such valuations etc. Some students also mentioned
percentage of provisioning which was not required.
Question 8
According to the question, Kamran held directorship in two companies APL and SGL.
APL awarded a contract to SGL and Kamran voted in favour of the board resolution. An
objection had been raised in this regard and the candidates were required to discuss
whether Kamran had unlawfully influenced the transaction and the consequences he may
face under the Companies Ordinance, 1984.
Most of the students gave appropriate comments as regards breach of the provisions of the
Companies Ordinance, 1984 related to participation and voting on the contract; however
quite a few deficiencies were noted in answers related to consequences of the breach. An
important point that Kamran may be declared ineligible on account of lacking fiduciary
behavior was missed by many candidates.
Page 3 of 5
Question 9
Both parts (a) and (b) of the question were from Section 108(2) of the Companies
Ordinance, 1984 related to variation of shareholder’s rights.
According to the given situation, a company had approved certain variations in the rights
of its Class B shareholders. Some shareholders were aggrieved by this decision and the
candidates were required to advise the remedy available to them and how the decision
may be reversed.
Generally the performance was good. The most common mistake was that it was advised
that an application has to be moved to the Commission/Registrar whereas such
application has to be filed with the court. A significant number of candidates were also
unable to specify the conditions under which the court may reverse the decision.
Question 10
This question related to a foreign company having a place of business in Pakistan. The
question had three parts as discussed below:
Question 10(a)
The requirement related to the maintenance of register of Pakistani members, directors

and officers. Although the obvious thing that such register should be kept at principal
place of business was mostly mentioned but mention about inspection and supply of
copies of such register was missing.
Question 10(b)
The requirements relating to disclosure of company’s name and country of incorporation

on the company’s documents and place of business were to be discussed. Most of the
students performed well as the answer was somewhat obvious.
Question 10(c)
In this part the students were required to explain the conditions related to preparation of
balance sheet and profit and loss account with regard to the company’s operations in
Pakistan. Most of the students were unaware of the requirements and could only specify
the provision regarding submission of accounts while the question required them to
describe the obligations regarding preparation of balance sheet and profit and loss
account.
Question 11
This question was from Competition Act, 2010. According to the situation given in the
question, a company having 23% market share planned to merge with another company
and to launch a vigorous advertisement campaign in which the superior quality of its
cement as compared to its competitors was to be highlighted. The students were required
to describe the steps and matters to be considered by the company under the provisions of
the Competition Act, 2010.
Page 4 of 5
The performance remained below average. It appeared that the students had not studied
the Competition Act, 2010 thoroughly. They seemed to possess adequate knowledge of
the concept of deceptive marketing practices and therefore the performance in the area
related to advertisement campaign was good but most of them failed to offer proper
answers in respect of the planned merger. Some of them were totally ignorant and omitted
this part altogether. Some students preferred to describe the provisions of Companies
Ordinance, 1984 regarding merger of two companies which was a sheer waste of time.
Most of those who seemed to have gone through the related provisions also made various
mistakes and omitted some important points.
A common mistake was that a pre-merger application is required to be made to the

Competition Commission, whereas, large number of students mentioned about filing of
such application either with the “SECP” or the “Court”. Many students mentioned about
filing of application after the merger.
Question 12
According to the situation given in this question, a shareholder had acquired 14%
shareholding in a company and wanted to be elected as a director but his request was
refused by the company on the grounds that he cannot be elected on the board till the end
of the term of the present board of directors. The students were required to advise the
shareholder in accordance with the provisions of Companies Ordinance, 1984.
The question was well attempted by majority of the candidates and many of them also
secured full marks. The mistakes noted in some of the scripts were as follows:
• Procedure for election of directors under normal situation was mentioned which was
totally different from the requirements of the question.
• Instead of mentioning about the approval of SECP, approval of Court was mentioned.
Question 13
In part (a) of the question the students were required to state the situations under which a
company may be wound up voluntarily as has been mentioned under Section 358(a) and
(b) of the Companies Ordinance, 1984. The candidates generally performed well but some
students, without understanding the question, specified provisions of section 362 (1)
related to declaration of solvency.
In sub part (i) of Part (b) the students were required to explain the steps to be taken by the
liquidator at the end of first year from the commencement of winding up and sub part (ii)
required the responsibilities of the liquidator if he decides to resign prior to completion of
the liquidation process.
Sub part (i) was to be answered in the light of provisions of Section 369 and 387 of the
Companies Ordinance, 1984. Very few students were able to give a complete answer as in
most cases comprehensive knowledge was lacking. Some students gave irrelevant
information like procedure for creditors winding up / court winding up etc.
Sub part (ii) was based on Section 364 (5) and (7) of the Ordinance and was answered in a
much better way.
(THE END)
Page 5 of 5
Corporate Laws
Q.1 ABC Limited and its subsidiary are unlisted companies. ABC Limited holds 60% shares in
the subsidiary. The subsidiary is involved in the research and development of a new product
for which it needs funded and non-funded financing facilities. The directors of ABC
Limited are considering to facilitate the subsidiary in this regard through one of the
following options:
Option I Making an equity investment amounting to Rs. 20 million; or
Option II Facilitating the subsidiary in the following manner:

Granting loan of Rs. 15 million which would be repayable in ten equal
instalments over a period of six years. The mark-up shall be chargeable at
KIBOR plus 1 % per annum payable on quarterly basis. A grace period of
one year would be allowed during which only 50% mark-up would be
charged.
Furnishing a guarantee of Rs 5 million to the subsidiary’s bankers against
LC facility.
ABC Limited is availing financing facilities from conventional banks.
In the light of provisions of Companies (Investment in Associated Companies or Associated

Undertakings) Regulations, 2012 advise the directors of ABC Limited regarding the
conditions to be complied with under each of the above options. (11)
Q.2 A group of shareholders of RAK Limited holding 13% of the voting power are of the view
that the company is being mismanaged by the directors. Consequently, the company is
incurring losses and that the company had never declared any dividend even when the
profits were available in the past years. Majority of the directors have been nominated by its
parent company which holds 82% of the voting power.
Being a Corporate Consultant of the group of shareholders, you are required to advise on
the following in light of the provisions of the Companies Ordinance, 1984:
(a) The authority with whom the shareholders may lodge their complaint and the action
which that authority may take in respect thereof. (04)
(b) The possible consequences for the management of RAK Limited in the above
situation. (04)
Q.3 A shareholder who holds 500 shares of a listed company intends to propose XY &
Company, Chartered Accountants as the new auditors in place of present auditors of the
company.
In light of the provisions of the Companies Ordinance, 1984 explain:
(a) Whether the shareholder can propose a change of the auditors of the company and
the procedure that is required to be followed in this regard. (03)
(b) The responsibility of the company if a change of auditors is proposed. (07)
Q.4 Name the authorities who can file a petition for winding up of a company. Narrate the
conditions required to be complied with in this regard. (10)
Q.5 Suleman is the Senior Manager Marketing of Premier Textile Limited (PTL), a listed
company. He purchased 100,000 shares of PTL 30 days prior to the close of financial year
and sold them 15 days after the declaration of annual results at a profit of Rs. 1.2 million.
An increase of 15% in the share price of PTL has been noted within 7 days of the
announcement of the annual results.
In light of the provisions of the Securities and Exchange Ordinance, 1969:
(a) Explain how you would evaluate whether the above transaction falls in the ambit of
insider trading. (06)
(b) State the possible consequences if Suleman is found involved in insider trading. (03)
Q.6 In light of the provisions of the Companies Ordinance, 1984 advise the directors of
KM Limited on the following matters:
(a) Faisal, one of the directors, wishes to assign his office to Saeed as Faisal is going
abroad for personal work. (04)
(b) The CEO has refused the personal loan application of Y, who is also employed as a
technical director, on the premise that grant of any loan to directors is prohibited
under the law. (04)
Q.7 The alteration in the memorandum of association shall not take effect until and except in so
far as it is confirmed by the Commission on petition. The petition shall be submitted and
signed by a responsible officer not later than sixty days from the date on which the special
resolution was passed.
In light of the provisions of the Companies (General provisions and forms) Rules, 1985
identify:
(a) The persons who are covered under the definition of responsible officer. (03)
(b) Documents to be attached with the petition. (05)
Q.8 Narrate the provisions contained in the Companies Ordinance, 1984 and the Listing
Regulations in respect of each of the following:
(a) Announcement of dividend. (03)

(b) Payment of dividend including issuance of dividend warrants. (06)
Q.9 (a) Farid is a shareholder of a listed company. He intends to contest the upcoming
election of the directors. Before filing his application with the company he has
requested for inspection of the register of directors’ shareholdings.
In light of the provisions of the Companies Ordinance, 1984 explain his right to
inspect the register. (04)
(b) State the provisions contained in the Companies Ordinance, 1984 under which a
member may give notice of a resolution and what steps would the member be
required to take in this regard. (04)
Q.10 A company is planning to register as a non-banking finance company. It has provided you
the following information:
(i) It wants to carry out the following businesses:

investment advisory business
investment finance services
asset management services
housing finance services.
(ii) Its paid up capital is Rs.80 million out of which Rs. 16 million is held by promoters
of the company.
(iii) The promoters have pledged their shares with a scheduled bank to obtain a loan for
its associated company.
(iv) A change in the memorandum of association is due to be made within the next six
months.
(v) The company is a member of AL-Shaban Group of Companies.
(vi) Mr. X is to be appointed as chief executive who was employed as a CFO in another
NBFC owned by the group in 2008 and is presently a director in that NBFC.
(vii) It is expected that the company would start its business from the next financial year.
In light of the provisions of the NBFC Rules, 2003 evaluate whether the company may
apply to the Commission for granting of licence to carry on the NBFC business. (12)
Q.11 A listed company is considering the issue of 100% right shares at a premium of 20%.
Advise the directors of the company about the conditions required to be complied with, for
the issuance of right shares under the Companies (Issue of Capital) Rules, 1996. (07)
(THE END)
CORPORATE LAWS
Suggested Answers
Final Examination – Summer 2014
Ans.1 ABC Limited will have to comply with the following conditions while making any
investments in the subsidiary.
General conditions to be complied with under each options

(i) Pass a special resolution in the general meeting of the company.
(ii) The investment shall be made within a period of twelve months from the date of
passing of special resolution.
(iii) The investment in the subsidiary(associated company) cannot be made if:
 any previous investment to the subsidiary has been written off; or

 The subsidiary is already indebted to ABC Limited and has failed to repay
the loan or advance including mark up thereon or has failed to comply with
any of the terms and conditions of the agreement in this regard, unless such
loan has been rescheduled under approval of special resolution of the
members of ABC Limited.
Conditions to be complied with in the case of option I (equity investment)

(i) Since subsidiary is an unlisted company, the fair value of its shares shall be
determined based on generally accepted valuation techniques and latest audited
financial statements of the subsidiary by;
 A chartered accountant firm, having a satisfactory rating under the Quality

Control Review Program of Institute of Chartered Accountants of Pakistan;
or
 A Non-banking finance company licensed by the Commission to carry out
the business of investment finance services which has been assigned a
minimum rating of “A+” or equivalent by a credit rating company registered
with the Commission, and has been in operation for at least five years.
(ii) In case the price to be paid is different from the fair value as determined above, an
explanation along with justification, reasons and basis of determination of price
shall be disclosed to the members.
(iii) Share deposit money shall be transferred for equity investment only after
announcement of the offer for issue of shares by its associated company and in
case shares are not issued within ninety days of the transfer of share deposit
money such share deposit money shall be treated as loan and interest/mark up
thereon shall be charged from the date of transfer of funds.
Conditions to be complied with in the case of Option II (funded and non-funded

facilities)
(i) The company shall not invest in its associated company by way of loans or
advances except in accordance with an agreement in writing and in accordance
with the approval of the members in the general meeting;
(ii) ABC Limited shall charge and recover interest in line with the standard terms
applied by the commercial banks on similar facilities. Mark-up for the grace period
is being charged at 50% less than the normal which seems not in accordance with
the standard terms normally applied. It should be re-considered by ABC Limited.
(iii) ABC Limited shall not extend to its subsidiary any loan for a period beyond one
year provided that members may approve renewal of such loan.
(iv) In case of unfunded facilities (i.e. for a guarantee), rate of return shall be
determined based on the rate of commission charged by commercial banks on
similar unfunded facilities.
Page 1 of 7
CORPORATE LAWS
Suggested Answers
Ans.2 (a) The group of shareholders of RAK Limited can file an appeal with the Securities
and Exchange Commission of Pakistan (SECP) as they hold more than 10% voting
power in the company.
Subsequently, the SECP may appoint an inspector to investigate the affairs of the
company.
On the report of the investigator, if SECP finds it appropriate, it may refer the matter
to the Court.
(b) When the case would be referred to the court, the court may:
(i) remove from office any director including the chief executive or other officer
of the company; or
(ii) direct that the directors of the company should carry out such changes in the
management or in the accounting policies of the company as may be specified
in the order; or
(iii) direct the company to call a meeting of its members to consider such matters
as may be specified in the order and to take appropriate remedial actions; or
(iv) direct that any existing contract which is to the detriment of the company or
its members or is intended to or does benefit any officer or director shall be
annulled or modified to the extent specified in the order:
Ans.3 (a) Any shareholder may recommend a change in the auditors, irrespective of his
shareholding in the company. He should give a notice to the company for a
resolution at its annual general meeting appointing XY & Company, Chartered
Accountant as new auditor of the company other than a retiring auditor. The notice
should be served to the company not less than fourteen days before the date of the
annual general meeting.
(b) On receipt of notice, the company shall forthwith send a copy of such notice to the
retiring auditor and shall also give notice thereof to its members not less than seven
days before the date fixed for the annual general meeting.
The company shall also publish the notice at least in one issue each of a daily
newspaper in English language and a daily newspaper in Urdu language having
circulation in the Province in which the stock exchange on which the company is
listed is situate.
The company shall, on the receipt of a representation in writing made by the retiring
auditor and on his requests for its communication to the members of the company
unless the representation is received by it too late for it to do so,-
 state the fact of the representation having been made , in any notice of the
resolution given to members of the company; and
 send a copy of the representation to every member of the company to
whom notice of the meeting is sent whether before or after receipt of the
representation by the company;
If a copy of the representation is not sent as aforesaid because it was received

too late or because of the company default, the retiring auditor may, without
prejudice to his right to be heard in person, require that the representation
shall be read out at the meeting:
Page 2 of 7
CORPORATE LAWS
Suggested Answers
Ans.4 Following authorities can file a petition for the winding up of a company subject to the
(i) A contributory may file a petition for the winding up when:

 the number of members is reduced, in the case of a private company, below
two, or, in the case of any other company, below seven; or
 the shares in respect of which he is a contributory or some of them either were
originally allotted to him or have been held by him, and registered in his name,
for at least six months during the eighteen months before the commencement
of the winding up, or have or devolved on him through the death of a former
shareholder.
(ii) The registrar may file a petition for the winding up with a prior permission of the
Commission.
(iii) The Commission may file a winding up petition when an investigation into the
affairs of the company has revealed that:
 it was formed for any fraudulent or unlawful purpose, or

 it is carrying on a business not authorised by its memorandum, or
 its business is being conducted in a manner oppressive to any of its members or
persons concerned in the formation of the company, or
 its management has been guilty of fraud, misfeasance or other misconduct
towards the company or towards any of its members.
(iv) A Creditor including contingent or prospective creditor may file a petition for
winding up:
 when security for costs has been given as the Court thinks reasonable.
 when prima facie case for winding up has been established to the satisfaction
of the Court.
(v) A company may file a petition for winding up.
Ans.5 (a) According to the Securities and Exchange Ordinance, 1969:
“Insider” includes any person obtaining inside information as part of his

employment or when discharging his usual duties in an official capacity or in any
other way relating to work performed under contract of employment or otherwise”.
and
“Inside information” means information which has not been made public relating,
directly or indirectly, to listed securities and which if it were made public, would be
likely to have an effect on the prices of listed securities”.
From the above definition, it is established that Suleman is an insider person as he is

in employment of the PTL and possess inside information as he is a senior manager
marketing and full knowledge of sales of PTL.
Whether the transaction falls in the ambit of insider trading or not, it depends upon:
 Whether the sudden increase in prices of shares was on account of any

information that had not been disclosed to the public prior to the declaration
of results.
 Whether Mr. Suleman possessed the above information when he purchased
the shares.
Page 3 of 7
CORPORATE LAWS
Suggested Answers
(b) If Mr.Suleman is found in contravention of the provisions of the law then he is liable
to pay a fine which may extend to Rs. 10 million or three times the amount of gain
made or loss avoided whichever amount is higher.
In addition to the fine imposed as above, the Commission may:

(i) direct Suleman to surrender to the Commission, an amount equivalent to the
gain made by them.
(ii) direct Suleman to pay any other person who has suffered a loss, an amount
equivalent to the loss so suffered by such person.
(iii) Direct PTL to remove Suleman from his office/services.
Ans.6 (a) Faisal can assign his office to Saeed if:
(i) there is a provision in the articles of KM Limited allowing such assignment or

there is an agreement between any person and the company for empowering
a director of KML to assign his office as such to another person.
(ii) The assignment of office is approved by a special resolution of the company.
The directors have also an option to appoint alternate or substitute director if Mr.
Faisal is going abroad for a period not less than three months. However, Saeed shall
vacate the office when Faisal returns to Pakistan.
(b) KML may with the prior permission of the Commission make a loan to the
technical director who is in full time employment: for
(i) the purpose of acquisition or construction of a dwelling house or land
therefore;
(ii) defraying the cost of any conveyance for personal use or household effects;
(iii) defraying any expense on his medical treatment;
(iv) the medical treatment of any relative as are ordinarily made or provided by
the company to its employees.
Ans.7 (a) "Responsible officer" in relation to a company, means—
(i) the chief executive of the company;

(ii) a director of the company;
(iii) the secretary of the company;
(iv) any other officer of the company who is declared by the Commission in
writing as a responsible officer of the company for the purposes of these rules;
(v) an administrator who has been appointed under the provisions of the
Companies Ordinance,1984, the administrator of such company; or
(vi) the liquidator of company which is in process of liquidation
(b) The following documents immediately preceding the day of the passing of the
special resolution and certified by a responsible officer shall be submitted along with
the application:
(i) a copy of the memorandum and the articles;

(ii) a copy of the special resolution;
(iii) minutes of the meeting at which the special resolution was adopted;
(iv) particulars of dissenting shareholders or creditors together with their
objections.'
Page 4 of 7
CORPORATE LAWS
Suggested Answers
(v) statement in comparative form showing the existing provisions of the

memorandum as are proposed to be altered and the provisions as would
appear after the proposed alterations have been made, indicating the object
clause under which each alteration is considered permissible by the company
along with brief reasons explaining how it considers it permissible;
(vi) pattern of holding of its shares;
(vii) names and addresses of each of its creditors to whom an amount exceeding
Rs. 50,000 is due with the amount mentioned against each along with their
consent to the alteration; and
(viii) names and addresses of the persons likely to be affected along with their
consent to the alteration.
Ans.8 Announcement of dividend

(a) (i) The dividend shall be deemed to have been declared on the date of general
meeting in case of a dividend declared or approved in the general meeting
and on the date of the commencement of closing of share transfer, for the
purpose of entitlement of dividend in the case of interim dividend and where
register of members is not closed for such purpose, on the date on which such
dividend is approved by the directors.
(ii) No dividend shall exceed the amount recommended by the directors.
(iii) Every listed company shall advise and keep advised to the Exchange all
decisions of its Board of directors relating to dividend in the manner notified
by the Exchange from time to time.
(iv) The above said information is required to be communicated to the Exchange
prior to its release to any other person or print/electronic media.
(v) Intimation of dividend shall be sent to the Exchange not later than 14 days
prior to the commencement of the book closure.
(b) (i) When a dividend has been declared, it shall not be lawful for the directors or
the company to with-hold or defer its payment.
(ii) The chief executive of the company shall be responsible to make the payment
in the manner provided in the Companies Ordinance, 1984 within such time
as the Commission may, from time to time, by notification in the official
Gazette, specify.
(iii) where a dividend has been declared but is not paid within the period specified
as above, the chief executive of the company shall be punishable.
(iv) dispatch dividend warrants to the shareholders concerned within 30 days
 In case of interim dividend, from the date of commencement of closing of
share transfer register for purpose of determination of entitlement of
dividend.
 In case of final dividend, from the date of General Meeting in which the
dividend has been approved;
(v) intimate the Exchange immediately as soon as all the dividend warrants are
posted to the shareholders;
(vi) dispatch interim and final dividend warrants to the shareholders by registered
post unless those entitled to receive the dividend require otherwise in writing.
(vii) All dividend warrants, in addition to the place of the Registered Office of the
issuing companies, shall be encashable at Karachi, Hyderabad, Sukkur,
Quetta, Multan, Lahore, Faisalabad, Islamabad, Rawalpindi and Peshawar*
for a period of three months from the date of issue.
Page 5 of 7
CORPORATE LAWS
Suggested Answers
Ans.9 (a) Subject to restrictions imposed by company’s articles or in the general meeting,
Farid has a right to inspect the register of director’s shareholding during the:
 period beginning fourteen days before the date of the annual general meeting of
the company and ending three day after the date of its conclusion. The register
shall remain open for not less than 2 business hours during each day.
 annual general meeting of the company.
(b) The members having not less than ten percent voting power in the company may
give notice of a resolution and such resolution together with the supporting
statement, if any, which they propose to be considered at the meeting, shall be
forwarded so as to reach the company-
(i) In the case of a meeting requisitioned by the members, together with the
requisition for the meeting;
(ii) In any other case, at least fifteen days before the meeting;
The company shall forthwith circulate such resolution to all the members.
Ans.10 (a) In the light of the provisions of the NBFC Rules, 2003 ,the company has to consider
the following factors before applying to the Commission for grant of licence of a
business:
(i) The company may carry on stated businesses in the following manner:
 Any of the business given in the question.
 Investment advisory services and asset management services together;
or
 Investment finance services and housing finance services together.
(ii)  The equity of the company should be equal to or in excess of the
minimum equity as may be specified by the Commission.
 At least twenty five percent of the paid up share capital should be held
by the promoters whereas at present only 20% is held by the promoters
of the company.
(iii)  The directors would have to get release their shares from the schedule
bank and shall have to deposit their shares with Central Depository
Company of Pakistan Limited in an account marked as “Blocked” and
such shares shall not be sold or transferred without prior approval of
the Commission.
 The directors and majority shareholders of the company shall
undertake that they would not enter into any agreement for sale or
transfer of their shares in any manner without prior approval of the
Commission.
(iv) The company should get changes in the memorandum before applying for
the license as in order to get a licence, the company has to give an
undertaking that no change in the Memorandum of Association, other than
increase in the authorized capital, would be made without prior approval of
the Commission.
(v) Any company in the Al-Shaban group of companies shall not already hold a
licence for the same form of business.
(vi) The company can appoint X as chief executive of the company with the
prior permission of the Commission, however, he has to fulfill the following
conditions.
 Gain one more year experience as the minimum experience
requirement is seven to ten years whereas he has an experience of six
years.
 Resign from the directorship of another NBFC where he is a director
Page 6 of 7
CORPORATE LAWS
Suggested Answers
(vii) The company has a plan to commence business from the start of the next
financial year but it must be noted that the licence would be valid for a
period of one year from the date of its issuance and if it fails, the licence shall
be deemed to be cancelled or otherwise as specified by the commission by
notification in the official gazette.
Ans.11 A listed company may issue rights shares subject to following conditions,
(i) The company shall not make a right issue within one year of the first issue of capital
to the public or further issue of capital through right issue.
(ii) the company, while announcing right issue, shall clearly state the purpose of the
right issue, benefits to the company, use of funds and financial projections for three
years. The financial plan and projections shall be signed by all the directors who
were present in the meeting in which the right issue was approved.
(iii) the decision of the company to issue right shares shall be communicated to the
Authority and the respective stock exchange on the day of the decision.
(iv) the company may charge premium on right shares up to the free reserves per share
as certified by the company’s auditors and the certificate of the auditors shall be
furnished to the Authority and the respective stock exchange along with intimation
of the proposed right issue.
Provided that where a company proposes to charge premium on right issue above
the free reserves per share it shall be required to fulfill the following requirements,
namely:-
 At least forty percent of all the shareholders undertake to subscribe their portion
of right issue; and
 The remaining right issue shall be fully underwritten and the underwriters, not
being associated companies, shall include at least two financial institutions
including commercial banks and investment banks and the underwriters shall
give full justification of the amount of premium in their independent due
diligence reports.
(v) right issue of a loss making company or a company whose market share price during
the preceding six months has remained below par value shall be fully and firmly
underwritten;
(vi) book closure shall be made within forty-five days of the announcement of the right
issue and the payment and renunciation date once announced for the letter of right
shall not be extended except with the permission of the respective stock exchange
under special circumstances; and
(vii) if the announcement of bonus and right issue is made simultaneously, resolution of
the board of directors shall specify whether the bonus shares covered by the
announcement quality for right entitlement.
(THE END)
Page 7 of 7
SUBJECT SESSION
General:
The performance in this attempt was much below the performance witnessed in the last
two attempts. One of the major reasons for poor performance seemed to be selective
studies because generally the students could not do well in questions based on those areas
which are less frequently tested such as questions # 1 and 5. Moreover, many students did
well in some of the questions but relied on guesswork in the other questions.
Question 1
This question was based on Regulations 6, 7 and 8 of (Investment in Associated

Companies or Associated Undertakings) Regulations 2012. The question required
candidates to advise the directors of a parent company regarding the conditions to be
complied with while investing in a subsidiary by way of (i) equity investment (ii)
providing funded and non-funded facilities. The performance was quite poor as most of
the candidates did not know the exact requirements. Since it is common knowledge that in
such situations a special resolution is required, most students wrote detailed answers
highlighting each and every aspect of a special resolution, stressing on the requirement to
give 21 days notice and the information that is to be provided along with the notice. They
knew very little about the other conditions that are required to be complied with in such
situations.
Question 2
This question was based on Section 271 of the Companies Ordinance 1984 and required
the candidates to name the authority to which complaint regarding mismanagement in a
company may be lodged and what action that authority might take and the possible
consequences for such a company. Generally the question was well attempted. The
commonly observed errors were as follows:
(i) A number of students did not know that on the report of the investigator the
Commission may refer the matter to the court. Rather many candidates mixed up
the functions of SECP and Court.
(ii) Many candidates incorrectly mentioned that the investigator appointed by the
Commission shall have the authority to appoint administrators.
Question 3
This question pertained to the change in auditors, the procedure to be followed by a

shareholder who wants a change in the auditor and the company’s responsibility in this
regard.
Page 1 of 4
This was a favourite question of the students and most of them performed well. Some of
the errors that were observed were as follows:
 The proposal was to be sent at least 14 days before the AGM; however, many students
mentioned 21 days, 15 days etc.
 Reference to Audit Committee/Board was not required as the question was about the
change of auditors in the AGM.
 Some of the students were of the opinion that change can only be proposed by
shareholders having a specific percentage of shareholding.
 Responsibility to send notice to the retiring auditor was not mentioned by most of the
students.
Question 4
This was a straightforward question requiring candidates to name the authorities who can
file a petition for winding up of a company and also to narrate conditions required to be
complied with in this regard as required under Section 309 of the Companies Ordinance
1984. Majority of the candidates attempted it well but only a few could secure full marks
as many important conditions were missed. A common mistake was that many candidates
did not know that a contingent or prospective creditor may also file such a petition.
Question 5
The question related to Regulations 15A, 15C and 15E of the Securities and Exchange
Ordinance, 1969. This question was hardly answered well by any of the students, which in
our opinion was due to selective study.
Question 5(a)
In this part the students were required to evaluate whether the situation narrated in the
question falls within the ambit of insider trading. However, instead of evaluating the
situation most of the students explained the meaning of insider trading.
Question 5(b)
In this part also most of the students had very little idea of the relevant provisions and
tried to guess the answers with little success.
Question 6(a)
This question was based on Section 192 of the Companies Ordinance, 1984 and pertained
to assignment of office by a director. The performance remained average. The most
common mistake was that students mixed-up assignment of office by a director with
appointment of an alternate director or substitute director.
Page 2 of 4
Question 6(b)
This question based on Section 195 of the Companies Ordinance 1984 relating to loan to
director etc. was one of the most well attempted question and a large number of students
scored full marks also. Some students wasted their time by giving additional irrelevant
details such as the persons to whom loan cannot be given. The most common mistake was
that many students did not state that prior permission of SECP is also required.
Question 7
This was a straight question requiring the candidates to identify the persons (responsible
officers) who may file a petition for alteration of the memorandum of association and the
documents which are to be provided to the Commission in this regard.
It was an easy question in the sense that passing marks were easily obtained even by those
who seemed to rely on guesswork. However, only few could obtain high marks as most
students missed the following:
 “Responsible officer” also include an administrator, a liquidator and any other officer
of the company declared by the Commission for such purposes.
 Documents to be provided to the Commission also include particulars of dissenting

shareholders, pattern of holding and names and addresses of persons likely to be
affected along with their consent for alteration.
Question 8
This was again a straight question where the candidates were required to list the relevant
provisions of Companies Ordinance, 1984 and Listing Regulations as regards
announcement and payment of dividend and issuance of dividend warrants.
Question 8(a)
Most of the students secured low marks in this part of the question as they narrated the
provisions regarding payment of dividend instead of announcement of dividend.
Question 8(b)
This part was well attempted. Those who failed to score high marks generally made the
following mistakes:
 Failed to mention that the Chief Executive is responsible for payment of dividend.
 It was stated that dividend is to be paid within 45 days whereas the requirement is that
dividend warrant is to be issued within 30 days. Further, it was not mentioned as from
when the period of 30 days shall be counted i.e. from the date of announcement or
book closures or AGM.
Page 3 of 4
Question 9(a)
According to the given situation, a shareholder who intended to contest the election of
directors, wanted to inspect the register of director’s shareholdings. The requirement was
to explain his right of inspection. Majority of the candidates performed well but somehow
quite a few candidates got mixed up and mentioned the requirements to contest the
elections of directors.
Question 9(b)
The requirement was to mention the provisions of Companies Ordinance, 1984 whereby a
member may give notice of a resolution and the procedure which such member has to
follow in this regard. The question was based on Section 164 of the Companies Ordinance
1984 and generally the candidates performed well. However, there were some students
who instead of giving the steps for filing a notice of a resolution to be considered in the
shareholders meeting, gave the procedures for calling a general meeting.
Question 10
This question was a small case study whereby certain information was provided about a
company which was planning to register as a non-banking finance company. Students
were required to evaluate the information in the light of relevant provisions and assess
whether the company could apply for a license to operate as an NBFC.
In a large number of cases students lost marks because they simply reproduced the legal
requirements but did not give any opinion with reference to the given information.
However, generally the performance was good. The major issues in the answers were as
follows:
 Very few candidates could identify that the company cannot enter into all the
businesses and explain the choices that were available to the company.
 The company was required to start business within one year from date of issuance of
license; however, some students mentioned the period as 6 months.
Question 11
In this question the candidates were required to quote the conditions required to be
complied with for issuance of right shares at a premium of 20% under Rule 5 of the
Companies (Issue of Capital) Rules 1996. Generally the performance was good. However,
some students restricted themselves to providing the requirement relating to issuance of
right shares at a premium. All other provisions were ignored. Interestingly, a mistake in
the Ordinance where ‘quality for right entitlement’ has been written instead of ‘qualify for
right entitlement’ was repeated by many candidates which indicated rote learning and lack
of conceptual understanding.
(THE END)
Page 4 of 4
Final Examination
Module E
The Institute of 3 December 2014
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Corporate Laws
Q.1 Rex Global Corporation (RGC), a foreign company, has branch offices in Islamabad and
Lahore. In November 2014, the entire shareholdings of RGC were acquired by Markers
Global Corporation (MGC). MGC has decided to appoint Qamar as the new Principal
Officer/authorised representative for the Islamabad office and close the Lahore office
within few weeks.
In the light of the provisions of the Companies Ordinance, 1984 you are required to list the
requirements to be complied with by Rex Global Corporation. (08)
Q.2 In May 2014, Metro Limited (ML) acquired majority shareholding in Metro Securities
(Private) Limited (MSPL). ML and MSPL close their books of account on 31 December
and 30 June respectively. The financial statements of ML for the year ending
31 December 2014 will be presented to the shareholders in upcoming annual general
meeting of the company.
State the responsibilities of ML as a holding company and MSPL as its subsidiary, under
the provisions of the Companies Ordinance, 1984 in respect of preparation of consolidated
financial statements. (09)
Q.3 Bubble Textiles Limited, a listed company, is examining a proposal to issue right shares to
finance the acquisition of a plant. Since the company has incurred losses during the past
two years, the directors are apprehensive about the response from the existing shareholders.
They are therefore considering the following options for issuance of shares:
To ABC Limited against supply of plant and machinery. The plant would be supplied
within three months after signing the agreement.
To Faraz, an existing shareholder, who has expressed his willingness to purchase
shares amounting to Rs. 90 million which is equivalent to 90% of the value of the
plant.
To employees of the company.
In the light of provisions of the Companies Ordinance, 1984 and Companies (Issue of
Capital) Rules, 1996, explain the matters that the company would be required to consider
in the above situation and briefly describe the conditions that are required to be complied
with under each of the above options. (10)
Q.4 (a) Draft a special resolution, regarding voluntary winding up of a listed company for
approval in the general meeting of the company. You may assume any necessary
information. (03)
(b) Explain the important characteristics of a fixed charge and floating charge and their
registration requirements. (05)
Q.5 Carrot Limited (CL) was formed for a period of three years. The period of three years is
due to complete on 31 December 2014. However, the project which the company had
undertaken is still in progress.
You are required to discuss the following:

(a) Legal status of CL on completion of three years while work on the project is not yet
complete. (07)
(b) Contents of declaration of solvency and its filing requirements for CL. (03)
Q.6 (a) Explain the meaning of the term Fit and Proper Criteria under the provisions
contained in the NBFC and Notified Entities Regulations, 2008. (06)
(b) Saleem has expressed his intention to be appointed as director of an NBFC. Identify
the conditions which may render him incompetent for such an appointment due to
conflict of interest under the provisions of NBFC and Notified Entities
Regulations, 2008. (06)
(c) Describe the provisions contained in the NBFC Rules, 2003 in respect of the
Appointment of Chief Operating Officer and Internal Auditor. (03)
Q.7 The directors of Abacus Limited (AL) intend to issue ordinary shares amounting to
Rs. 200 million to a local investor. However, since the directors would prefer not to dilute
their shareholdings, they are considering issuance of shares with restricted rights.
Advise the directors as regards the following, based on the provisions contained in the
Companies Share Capital (Variation in Rights and Privileges) Rules, 2000:
(a) The kind and classes of shares that AL can issue. (02)
(b) The rights and privileges that may be attached with different classes of shares. (05)
Q.8 Faizan Associates is an association of persons and is engaged in activities involving welfare
of the general public. Faizan Associates intends to register itself as a limited company and
would prefer that the word “Limited” is not included in its name.
In view of the provisions of the Companies Ordinance, 1984 and the related rules there
under, you are required to identify the conditions that Faizan Associates would need to
comply with in order to get the required permission from the Securities and Exchange
Commission of Pakistan. (08)
Q.9 (a) Chief Executive of Fast Food Limited (FFL) has received a notice from Karachi
Stock Exchange (KSE) stating that the name of the company has been placed on
defaulter segment due to non-payment of listing fees. It was further stated in the
notice that in the event the default is not rectified action would be taken against the
company in accordance with the listing regulations of the KSE.
The Chief Executive of FFL has sought your advice regarding validity of the action
taken by KSE and the possible action(s) that KSE can take if the default is not
rectified. (10)
(b) The Karachi Stock Exchange has recently outperformed several regional stock
exchanges and yielded consistently high rates of returns on the investments by the
domestic and international investors. John Secada, a US citizen, has shown interest
in share trading activities in Pakistan.
In the context of the provisions of Foreign Exchange Regulations, advise John

Secada the procedure to be followed for purchase/sale of shares of listed companies
by foreign investors in Pakistan. (07)
Q.10 Mr. Wahid has acquired 3 million ordinary shares of Wheel Limited, a listed company,
whose paid up share capital consists of 20 million ordinary shares of Rs. 10 each. The
election of directors of the company has recently been concluded. Mr. Wahid, being
confident of holding a sufficient number of shares to be elected as a director, has requested
the management to arrange a fresh election.
Based on the provisions contained in the Companies Ordinance, 1984 explain whether and
under what conditions a fresh election of the directors may be held. (08)
(THE END)
Corporate Laws
Suggested Answers
Final Examination – Winter 2014
Ans.1 Rex Global Corporation shall, within thirty days of the taking over deliver to the registrar for
registration a return containing the prescribed particulars of:
(i) alteration in the charter, statute or memorandum and articles of Rex Global or any such
instrument due to takeover of the company.
(ii) changes in the name of the directors, chief executive or secretaries along with their
particulars.
(iii) appointment of Mr. Qamar as a principal officer along with his consent.
(iv) change in the name, address and other particulars of the person authorised to accept service
of process, notices and other documents on behalf of the company along with his consent
to do so.
As the company intends to close Lahore office, it shall thirty days before the close of Lahore
office
(i) give a notice of such intention to the registrar;

(ii) publish a notice of such intention at least in two daily newspapers circulating in the
province of punjab.
Ans.2 Responsibilities of Metro Limited (ML)

(i) The director of ML shall ensure that, except where in their opinion there are good reasons
against it, the financial year of MSPL coincides with the ML’s own financial year.
(ii) ML is required to attach to its financial statements for the year ending 31 December 2014,
consolidated financial statements of the group presented as those of a single enterprise.
(iii) Consolidated financial statements shall comply with the disclosure requirement of the
Fourth Schedule of the Companies Ordinance, 1984 and International Accounting
Standards
(iv) The auditor of ML shall also report on consolidated financial statements.
(v) The consolidated financial statement shall be signed by the same person by whom the
individual balance sheet and the profit and loss account of the holding company are
required to be signed.
(vi) The consolidated financial statements shall disclose:
 any qualifications contained in the auditors’ reports on the accounts of MSPL for the
financial year ending with or during the financial year of ML.
 any note or saving contained in such accounts to call attention to a matter which
would properly have been referred to in such a qualification, in so far the matter
which is the subject of the qualification or note is not covered by ML’s own accounts
and is material from the point of view of its members.
Responsibilities of Metro Securities (Private) Limited (MSPL)

(i) As the financial year of MSPL precedes the day on which the ML financial year ends by
more than three months, MSPL is required to make an interim closing on the day on which
ML’s financial year ends i.e. December 31, 2014 and prepare financial statements for
consolidation purposes.
(ii) MSPL would also be required to have theses interim financial statements reviewed by its
statutory auditors who shall issue a review report thereon.
Page 1 of 6
Corporate Laws
Suggested Answers
Ans.3 According to the Companies Ordinance,1984 BTL would require to consider the following
matters in the given situation:
(a) As the directors of BTL have decided to increase the capital, in spite of their apprehension,
they have to offer such shares to the members in proportion to the existing shares held by
each member and such offer shall be made by notice specifying the number of shares to
which the member is entitled and limiting a time, within which the offer, if not accepted,
will be deemed to be declined.
(b) In case, the company intends to raise further capital without issuance of right shares, it will
follow the following procedures:
 The directors shall apply to the Federal Government for their approval to raise its
further capital without issue of right shares.
 A special resolution shall be passed by the members in the general meeting of the
company should be accompanied with the application.
Conditions to be complied with in each option, considering by the directors.

 In the case of issuance of shares to ABC Limited:
(i) Condition mentioned in (b) above
(ii) The value of plant and machinery shall be determined by a consulting engineer
registered with Pakistan Engineering Council and borne on the panel of at least two
financial institutions as a valuer ;
(iii) the value of assets taken over shall be reduced by depreciation charged on consistent
basis;
(iv) the goodwill and other intangible assets shall be excluded from the consideration; and
(v) certificate from a practicing Chartered Accountant shall be obtained to the effect that
the above mentioned conditions have been complied with.
 In the case of issuance of shares to Faraz
Conditions mentioned in (b) above would only be required to comply with.
 In the case of issuance of shares to employees of the company
BTL may issue a certain percentage of further issue to its employees under “Employees
Stock Option Scheme” to be approved by the Commission.
Ans.4 (a) To consider and pass the following special resolution with or without modification:
Resolved that approval of the members of the Company be and is hereby accorded to
recommend winding up of the company, through voluntary winding up, as may be deemed
expedient, immediately.
Resolved further that the Chief Executive Officer and Company Secretary be and are
hereby authorized to take any/all action (s) as may be required for the execution /
implementation of the above resolution on behalf of the Company.
(b) A fixed or specific charge attaches to the specific, clearly identifiable and defined asset of
the company as soon as it is created. From then, the company cannot transfer or dispose of
such property.
A floating charge does not attach to any specific property of the company until the
company commits some act or default (i.e. charge crystallizes). It is free to dispose of the
property unencumbered.
A fixed charge takes priority over a floating charge.
All charges, both fixed and floating have to be registered with the Registrar within 21 days
of their creation.
If such charge is not registered, the charge created by the company becomes void against
any liquidator or other creditor.
Page 2 of 6
Corporate Laws
Suggested Answers
Ans.5 (a) Though CL was formed for a period of three years a winding up would not commence
unless a resolution in this regard has been passed. Therefore, it would be necessary for the
directors of CL to have a resolution passed in the general meeting of the company.
Under the provisions of the Companies Ordinance, 1984 the company shall from the
commencement of winding up cease to carry on its business except so far as may be
required for the beneficial winding up thereof.
In view of the above provision of law, CL may continue its activities even after
commencement of winding up so far as it is necessary for completing the project.
Moreover, since it is a members’ voluntary winding up, the corporate state and the powers
of CL shall continue until it is dissolved notwithstanding anything to the contrary in its
articles.
However, it would not be advisable to commence winding up before the completion of the
project as it may not be possible for the company to sell its assets and pay off its liabilities
prior to completion of the project.
Therefore director of CL should extend the period fixed for the duration of the company by
making necessary amendments in the article of association of the company.
(b) Declaration of solvency must contain the following:

 That the company will be able to pay its debts in full within a period not exceeding
twelve months from the commencement of the voluntary winding up.
 A statement of the company’s assets and liabilities/profit and loss account and balance
sheet at the latest practicable date before the declaration.
A declaration is required to be made within five weeks immediately preceding the date of
passing of the resolution for winding up and is delivered to the registrar before the date.
Ans.6 (a) (i) Fit and proper criteria refer to the conditions which certain key individuals
associated with an NBFC are required to comply with.
(ii) This Criteria is applicable on the following persons:
 Promoters and major shareholders of the NBFC;
 Director of the NBFC;
 Chief executive of the NBFC;
 Key executives of the NBFC;
(iii) The fitness and propriety of a director shall be assessed by taking into account all the
relevant factors including but not limited to the following:
 Integrity and track record of such person;
 Financial soundness of such a person;
 Competence and capability of the person; and
 Conflict of interest of such person with the business of the NBFC.
(iv) The Fit and Proper Criteria is perpetual in nature and an NBFC shall always ensure
compliance with the provisions of Fit and Proper Criteria.
Page 3 of 6
Corporate Laws
Suggested Answers
(b) Saleem shall not be considered as eligible for appointment as director of an NBFC if he is:
(i) a director in any other NBFC engaged in a similar business in Pakistan.

(ii) a director, chief executive, chief financial officer, chief internal auditor, research
analyst or a trader (by whatever name or designation called) in a stock brokerage
house or in any company or entity owned and controlled by a member of a stock
exchange; and
(iii) a member of a stock exchange engaged in the business of brokerage or is a spouse of
such member or in control of more than 20% shareholding, directly or indirectly
through his close relatives.
(c) The NBFC rules refer to fit and proper criteria notified by SECP that are applicable on all
key executives. The same criteria shall also be applicable on COO.
However, for the appointment of internal auditor, following rules shall be followed.
 Appoint a person having minimum three years experience as internal auditor who is:
─ a chartered accountant; or
─ a cost and management accountant; or
─ a certified internal auditor; or
─ a certified information system auditor; or
─ a member of a recognized foreign accountancy organization; or
─ An individual having master’s degree in commerce or business administration with
specialization in finance; or
 Appoint a chartered accountancy firm having satisfactory Quality Control review and
not being the statutory auditors to whom this function is outsourced.
Ans.7 Under the provisions of Companies’ Share Capital (Variation in Rights and Privileges) Rules ,
2000
(a) AL may issue more than one kind of share capital which may have different classes of
share under each kind.
(b) AL may issue the shares to a local investor with the following right and privileges:
(i) Different voting rights; voting rights disproportionate to the paid up value of share
held; voting rights for specific purposes only; or no voting rights at all;
(ii) Different rights for entitlement of dividend, right shares or bonus shares or
entitlement to receive the notices and to attend the general meetings; and
(iii) Rights and privileges for indefinite period, for a limited specified period or for such
periods as may from time to time be determined by the members through special
resolution.
Ans.8 Faizan Associates (FA) may get required permission on fulfillment of the following conditions:
(i) FA shall prove to the satisfaction of the Commission that

 It is capable of being formed as public limited company.
 The company will promote commerce, art, science, religion, sports, social services,
charity or any other useful objects.
 It intends to apply its profits or other income for promoting its objects.
 It prohibits the payment of any dividend to its members.
Page 4 of 6
Corporate Laws
Suggested Answers
(ii) Payment of remuneration for services or otherwise to its members, whether holding an
office in the company or not, shall be prohibited.
(iii) No change in the memorandum and the articles shall be made except with the prior
(iv) The limit of liability of its members shall not be less than a reasonable amount having
regard to all the circumstances of the case.
(v) Patronage of any government or authority, express or implied, shall not be claimed unless
such government or authority has signified its consent thereto in writing.
(vi) The Commission may also direct to include the above conditions in the memorandum of
Ans.9 (a) (i) Under the listing regulations of Karachi Stock Exchange, if a company does not pay
listing fees for a period of two years, the Exchange can place the company on
defaulters segment. However, a period of ninety days is given to the company to
rectify the default before taking any further action.
Hence the action taken by the Exchange is valid if the time period of two years has
lapsed.
(ii) If FFL fails to pay listing fees within the period of ninety days, the Exchange shall
immediately suspend trading in shares of the company and simultaneously issue
compulsory buy-back directions to the majority shareholders having control of FFL
to provide all the shareholders an option for selling their shares to the majority
shareholders and the shares tendered by the shareholders shall be purchased by the
majority shareholders
The price for such buy-back of shares shall be fixed by the Exchange in accordance
with listing regulations.
Upon completion of the compulsory buy-back of shares by majority shareholder or

failure of the company to comply with the compulsory buy-back directions within
such reasonable time as may be specified by the Exchange in its notice, but not
exceeding 90 days in total from the date of such directions, the name of FFL shall be
delisted through a notice in writing by the Exchange under intimation to the
Commission.
In case FFL is also listed on another stock exchange in Pakistan but not in similar
default at such other stock exchange, the Exchange shall not issue any directions for
compulsory buy-back of its shares and shall delist the company.
If FFL is in default at all the stock exchanges where it is listed, the compulsory buy-
back directions shall be issued by all the stock exchanges in coordination with each
other.
(b) (i) John Secada would be required to open “Special Convertible Rupee Account” with
any Authorised Dealer in Pakistan.
(ii) He may remit funds from abroad or by transfer from a foreign currency account
maintained by him in Pakistan. The balance available therein can be used for
purchase of any share quoted on the Stock Exchange.
(iii) Payment for such purchase of shares may be debited to the account on production of
stock broker’s memo showing sale of shares to the account holder.
Page 5 of 6
Corporate Laws
Suggested Answers
(iv) Disinvestment produce may be credited provided evidence of the sale price in the
shape of stock broker’s memo is produced.
(v) The fund available in such special account can be transferred outside Pakistan or
credited to a foreign currency account maintained in Pakistan at any time without
prior approval of the State Bank.
(vi) Dividend income can also be credited to the above accounts.
(vii) Transfers from one such account may also be made to special account of another
person, in case of transfer of shares between the two account-holders.
Ans.10 Fresh election of directors

Mr. Wahid has acquired more than 12.5% (3/20 = 15%) shares in the company. Therefore, he
may apply to the Commission for requiring the company to hold fresh election of directors in the
forthcoming annual general meeting of the company.
shareholders or the capital markets generally, direct the company to hold the election of directors
in the manner provided in Companies Ordinance 1984, and the company shall comply with such
directions.
If fresh elections are held on the directions of the Commission, Mr. Wahid shall not sell or
dispose of his shares for at least one year from the date of election of directors.
(The End)
Page 6 of 6
SUBJECT SESSION
General:
The overall performance was much better in this attempt. Significant improvement was
observed in the preparation of laws other than the Companies Ordinance, 1984, which is a
good sign.
It was good to observe that many students gave precise and to the point answers, which
ultimately benefitted them in saving time and concentrate on all the questions properly.
However, significant improvement is still required in the use of appropriate English as
quite often it becomes difficult to understand what the student is trying to write.
Question 1
This question from Section 452 and 458 of the Companies Ordinance, 1984 required the
candidates to list the requirements to be complied with by a branch office in Pakistan of a
foreign company, where the company has been acquired by another foreign company and
has changed its Principal Officer in Pakistan and had also closed one of its branches.
Most of the students could get good marks; however, the following mistakes were
observed:
 Many students wrote that the notice for closure of office is to be published in two
newspapers circulating in the city where the branch office that was closed was located,
whereas the requirement is for publication in two newspapers circulating in the
concerned province.
 A return is required to be delivered to the “Registrar”; whereas, many students

mentioned “Commission” instead of registrar.
 A larger number of students did not read the question carefully and mentioned the
requirement that a foreign company needs to follow while establishing a new place of
business in Pakistan.
 Many students narrated the requirements which are to be fulfilled when a foreign
company is closing its operations in Pakistan.
Question 2
The requirement was to state the responsibilities of a Holding Company and its subsidiary
company in respect to the preparation of consolidated financial statements as are specified
in Sections 237(1), (2), (5a) and 238(1).
Page 1 of 5
The performance remained mixed. A significant number of students were unable to note
that year ends of both the companies were different and hence the related requirements
were ignored.
Question 3
According to the situation given in the question, a company needed funds for the
acquisition of a plant and intended to issue right shares. In this regard, it had three options
i.e. (i) issue shares to the supplier of the plant. (ii) issue shares to an existing shareholder
who had offered to purchase shares worth 90% of the cost of plant (iii) issue of shares to
the employees of the company.
The students were required to explain the matters to be considered and conditions to be
complied with under the provisions of the Companies Ordinance, 1984 and the
Companies (Issue of Capital) Rules, 1996, in each case.
Most of the students succeeded in scoring good marks by writing majority of the
provisions and rules. However, a number of students wasted a lot of time by mentioning
other things which were not required such as procedure for issue of right shares and
requirements for issuance of shares at premium and underwriting requirements for
issuance of right shares by a loss making company. Some of the other mistakes were as
under:
 In case shares are to be issued other than to the existing shareholders, an application is
required to be made to the “Federal Government” but many students wrote
“Commission” or “Court”.
 Instead of “Special Resolution”, many students wrote “Resolution”.
 Instead of “Pakistan Engineering Council” many students mentioned “Pakistan

Banking Council”.
 In the case of issuance of shares to employees under “Employees Stock Option

Scheme”, many students failed to mention that the scheme is to be approved by the
Commission.
Question 4(a)
The requirement was to draft Special Resolution regarding the voluntary winding up of a
listed company for approval at the general meeting.
It was really disappointing to see the drafting of the students at the final level. Most of
them were totally unable to present the required resolution due to poor English as well as
lack of understanding of the contents of such a resolution. Despite the fact that all students
must have seen various types of resolutions during the practical training and also while
going through annual reports, newspapers etc., most of them did not even know the format
of the resolution. Different variations were presented such as in the form of a letter, notice
of the meeting etc. Some of the students did not understand the requirement in the
question and wrote the procedure of voluntary winding up.
Page 2 of 5
Question 4(b)
This part required explanation of the important characteristics of fixed charge, floating
charge and their registration requirements. Very few students could properly differentiate
between both the charges. However, they correctly wrote about its registration formalities
as per section 121 of the Companies Ordinance, 1984.
Some students unnecessarily wrote provisions related to charges registered outside

Pakistan, which was totally irrelevant to the question and a waste of time.
Question 5(a)
This part of the question pertained to a company which had been formed for a period of 3
years but the project undertaken by the company was still in progress, on completion of
the above time period. Only few students presented good answers whereas the majority
had very little idea of the related provisions contained in sections 358, 360 and 362 of the
Companies Ordinance, 1984. Consequently, the following types of mistakes were
observed:
 Only about 50% of the students knew that it was not mandatory for the company to
commence winding up and that it could extend the period by bringing appropriate
change in the Articles.
 Very few students knew that even in the given situation, the company would require a
resolution in the general meeting before commencing winding up proceedings.
 Some students narrated the procedure of members’ voluntary winding up which was
totally irrelevant.
Question 5(b)
This part required contents of declaration of solvency and its filing requirements under the
Companies Ordinance, 1984. It was well attempted as in most cases all relevant points
specified u/s 362(2) of the Ordinance were covered. However, many students wasted
precious time in writing extra details e.g. the circumstances in which the declaration is
required and who is responsible for its preparation. Other common mistake was that they
did not state that a statement of the company’s assets and liabilities/profit and loss account
and Balance Sheet at the latest practicable date should be attached with the Declaration.
Question 6(a)
The requirement was to explain the meaning of Fit & Proper Criteria as is defined under
Schedule IX of the Non-Banking Finance Companies and Notified Entities Regulations,
2008. Most of the students achieved good marks by identifying the persons who are
required to fit the criteria and the related factors/conditions. However, without considering
the exact requirement of the question and the marks allocated, many students filled pages
in describing each condition separately and wasted time which could have been better
utilized in improving the presentation of the other answers.
Page 3 of 5
Question 6(b)
In this part the candidates were required to identify the conditions which may render a
person incompetent to be appointed as the director of an NBFC, because of conflict of
interest under the provisions contained in Schedule IX of the NBFC and Notified Entities
Regulations, 2008.
Majority of the candidates answered well. The most common mistake was that instead of
mentioning ‘a member of a stock exchange engaged in the business of brokerage’ many
candidates wrote ‘a member of stock brokerage house’.
Question 6(c)
Majority of the students correctly mentioned the provisions relating to appointment of

Internal Auditor. However, very few students knew that NBFC rules do not specify any
criteria for the appointment of Chief Operating Officer. Many students repeated the same
criteria for COO as was mentioned in case of internal auditor. Many candidates specified
the criteria relating to the Chief Executive Officer.
Question 7
In this question the candidates were required to specify the kind and classes of shares that
a limited company may issue and the rights and privileges that may be attached with
different classes of shares. The question was based on Rule 3 and 4 of the Company’s
Share Capital (Variation in Rights and Privileges) Rules, 2000.
The question was well answered by majority of the students. However, many candidates
wrote that “a company may have different kinds and classes of shares capital” whereas,
the correct Rule is that “a company limited by shares may have more than one kind of
share capital and may have different classes of shares under each kind”.
Question 8
The requirement in this question was to identify the conditions that are to be complied
with to obtain permission from the SECP to register a Not-for-Profit company. The
performance was good as the candidates were generally able to quote the relevant
requirements as are given in Section 42 of the Companies Ordinance, 1984 and Rule 6 of
the Companies (General Provisions and Forms) Rules 1985. Many candidates mentioned
the documents to be accompanied with the application which was not relevant. Some
students gave the detailed procedure for the formation of such a company which was not
required either.
Question 9(a)
According to the question, a company had received a notice from the Stock Exchange
informing the company that its name has been placed on the defaulters segment due to
non-payment of listing fee. The candidates were required to comment on the validity of
the notice and the possible action that can be taken if default is not rectified.
The overall performance was below average as the candidates lacked knowledge of the
relevant listing regulations 30(e) (2a to 2c) and in many cases gave irrelevant replies.
Page 4 of 5
Many students discussed the requirement for holding of AGM which was totally
irrelevant as the reason for placing on defaulter segment was mentioned in the question
itself.
Some of them wrote regulations related to cases where company is under winding up by
Court which was also irrelevant.
Question 9(b)
The question required the procedure to be followed by a foreign investor for purchase /
sale of shares of listed companies in Pakistan under the Foreign Exchange Regulations.
The performance was good as majority of the students managed to give correct answer as
per Regulation 9(a)(ii) of Chapter XX of the said Foreign Exchange Regulations. A
common mistake was that instead of mentioning “Special Convertible Rupee Account”
many students wrote opening of “Separate Rupee Account”.
Question 10
This question was based on a situation whereby a person had purchased 15% shares in a
listed company and requested for holding fresh election of directors. It was based on
Section 178 of the Companies Ordinance, 1984. This area has been tested in past few
attempts and majority of the students performed well.
(THE END)
Page 5 of 5
Final Examinations
Module E
The Institute of 1 June 2015
Corporate Laws
Q.1 (a) The Board of Directors of HAQ Limited (HL), a listed company, has decided to buy-
back its ordinary shares through a tender process.
Draft a special resolution for the proposed buy-back of shares of HL. You may
assume any information you may consider necessary. (04)
(b) Assume that HL has received an overwhelming response against the tender. Zakir is
one of the respondents and has holdings of one million shares. He has expressed his
interest to sell these shares to HL.
Describe the provisions contained in the Companies (Buy-back of Shares) Rules, 1999
whose compliance would be necessary for HL prior to making payment to Zakir. (04)
(c) Assume that HL has accepted Zakir’s offer and has purchased all the shares at the
price approved by the board of directors and the shareholders.
Advise HL about the information that it would be required to disclose in its financial
statements in respect of the above and the documents to be submitted to the
authorities as specified in the Companies (Buy-back of Shares) Rules, 1999. (04)
Q.2 Jaffrey Pharma Limited is currently involved in creditors’ voluntary winding-up

proceedings. At a meeting of the creditors, seven creditors with aggregate outstanding
balance of Rs. 20 million, approved Wasif as the liquidator whereas twelve creditors with
aggregate outstanding balance of Rs. 8 million wanted to appoint Asim as the liquidator.
The members in their meeting also voted to appoint Asim as the liquidator.
In the context of the provisions contained in the Companies Ordinance, 1984 you are
required to explain the following:
(a) Who would be considered as the liquidator of the company and what course of action
is available to those who do not agree to such an appointment? (06)
(b) Powers of the duly appointed liquidator. (06)
Q.3 (a) Save Foundry Limited (SFL) has recently obtained a certificate of incorporation from
SECP and has applied for certificate for the commencement of business. Meanwhile,
SFL has entered into an agreement with Feroz Engineering Limited (FEL) for the
supply and installation of machinery at its factory. SFL has also signed an agreement
with a commercial bank for a short-term finance facility for advance payment to FEL.
In the light of the Companies Ordinance, 1984 analyse above situation and comment
on its legality and the implications of entering into the above agreements. (05)
(b) Adnan is a director of Star Limited (SL), a listed company. During the preceding
quarter he had purchased and sold shares of SL.
Under the provisions of Companies Ordinance, 1984 narrate the conditions which
Adnan would be required to comply with in respect of the above transactions. (03)
Q.4 In the light of the Companies Ordinance, 1984 describe the circumstances under which:
(a) Auditors of a company may be appointed by person(s) other than the shareholders of
the company. (06)
(b) Investments by a company may not be made and held by it in its own name. (06)
Q.5 Saad holds 10% voting shares in Strong Machine Limited (SML), a company listed on
Karachi Stock Exchange. Saad intends to acquire 16% additional voting shares in SML. In
this respect he has made a public announcement of the offer to acquire voting shares in
SML and has also sent a copy of the public announcement to SML.
Shares and Takeovers) Ordinance, 2002 you are required to explain:
(a) The term ‘offer period’ and the obligations of the board of directors of SML during
the offer period. (07)
(b) The condition(s) under which Saad would be entitiled to have a representation on the
Board of SML. (02)
Q.6 Based on the provisions of the Central Depository Act, 1997:

(a) Briefly explain the term “Participant” and state the services performed by a
Participant. (03)
(b) Identify the circumstances in which Central Depository Company may disclose
information or documents to any person. (06)
Q.7 Hyper (Pvt.) Limited (HPL) has two shareholders. All the directors of the company are
nominees of these two shareholders. The details are as follows.
No. of Nominee
Name of shareholders
shares directors
Western Cement Limited (WCL) - listed company 8,040,000 5
Furqan 3,960,000 *3
12,000,000 8
* including chief executive
WCL is presently considering to appoint one of its directors as the chief executive of HPL
to replace the existing chief executive.
Comment on the above proposal in the light of the provisions contained in the Companies
Q.8 The meeting of Board of Directors of Duck Limited (DL) would be held on 20 June 2015 to
consider declaration of 20% final cash dividend. The directors intend to close the share
transfer register from 2 July 2015 for determining shareholders entitlement for the purpose
of dividend, meeting, etc. The AGM is to be held on 15 July 2015.
In the light of the listing regulations you are required to advise the directors as regards the
following :
(a) The information which DL would be required to provide to the concerned stock
exchange(s) in Pakistan in respect of the above matter and the timing thereof. (05)
(b) Possible dates for commencement of book closure. (02)
Q.9 (a) List the criteria which an NBFC should observe for determining the realizable value
of mortgaged, pledged, leased or collaterally held assets under the NBFC and Notified
Entities Regulations, 2008. (04)
(b) Shams Housing Finance Company Limited (SHFCL) was incorporated on 1 January
2008 under the NBFC Rules, 2003 as a housing finance company.
A statement of account receivables (age-wise) and forced sale values of mortgaged

properties held by SHFCL as at 31 March 2015 is presented below:
Rental receivables Forced-sale value

Ageing of mortgaged
Principal Mark-up Total
properties
---------------------- Rs. in million ----------------------
Less than 30 days 596 169 765 328
30 days but less than 90 days 203 57 260 112
90 days but less than 180 days 113 51 164 62
180 days but less than 1 year (Note 1) 90 49 139 50
1 year but less than 2 years 56 38 94 31
2 years but less than 3 years 45 34 79 25
More than 3 years 23 25 48 13
1,126 423 1,549
Note 1: It includes principal amount of Rs. 20 million and mark-up thereon

amounting to Rs. 5 million which are secured by a guarantee furnished by
the Government of Sindh.
In accordance with the requirements of the NBFC and Notified Entities Regulations,
2008 you are required to:
(i) Classify the non-performing receivables in their defined categories. (02)
(ii) Determine the required amount of provision against non-performing receivables
and explain the treatment of mark-up income in the books of SHFCL. (08)
Q.10 Zahid, a recently appointed director on the board of Zodiac Limited, a listed company, has
sought your help in resolving the following issues which he observed while reviewing the
working papers of the board meeting:
(a) The CEO is the chairman of Human Resource and Remuneration Committee which
includes two members, the CFO and the company secretary. (03)
(b) Certain transactions with related parties which were not executed on arm’s length
basis are not shown in the working papers. (03)
(c) The pattern of shareholdings presented in the note does not disclose the necessary
details. (04)
(d) After the death of the Chairman, the CEO has assumed the charge of the chairman of
the company. (03)
As a consultant, you are required to write a letter advising Zahid about the requirements of
the Code of Corporate Governance, 2012, in respect of the above matters.
(THE END)
Corporate Laws
Suggested Answers
Ans.1 (a) Special resolution passed in the extraordinary general meeting of the shareholders Haq
Limited.
“RESOLVED THAT the company be and is hereby authorized, under and pursuant to the
provisions of Section 95A of the Companies Ordinance, 1984 and the Companies (Buy-
Back of Shares) Rules, 1999, to buy back / purchase, in accordance with the provisions of
the said Section and Rules, upto maximum of 20,000,000 its own issued ordinary shares of
the nominal value of Rs. 10/- each at a purchase price of Rs. 20/- per share within a period
of sixty days from the date on which this resolution is passed.”
“FUTHER RESOLVED THAT the ordinary shares purchased pursuant to the above
resolution will be cancelled and issued share capital will be reduced by an amount equal to
the aggregate nominal value of the cancelled shares.”
FUTHER RESOVLED THAT the purchased aforesaid by the Company of its own issued
ordinary share shall be made through a tender offer and by notices to the Members of the
Company individually.
“FUTHER RESOLVED THAT the Chief Executive Officer/Company Secretary be and

is/are hereby authorized to take all necessary steps in respect of the above buy-back.”
(b) Before making any payment to Zakir, HL would be required to ensure that:
(i) The acceptance of the offer shall be on pro-rata basis in lots of five hundred shares as
the offers received exceed the quantity to be purchased.
(ii) Communicate to Zakir the acceptance of the offer within seven days of the decision.
(iii) Receive the share certificates from Zakir, along with the transfer deed duly signed,
verified and witnessed, in the company through designated branches of the bank
within seven days of the receipt of acceptance by Zakir from the company.
(iv) If the shares are on CDC, receive a confirmation from CDC that shares are available
and they have necessary authorization to transfer them.
(c) HL would be required to:
(i) disclose in its financial statements:

 the purchase (buy-back) of shares as reduction of share capital.
 other necessary details including the mode and purchase price.
(ii) Submit to the Commission and the registrar concerned a return and a declaration of
solvency within thirty days of the purchase in the prescribed manner.
Ans.2 (a) In a creditor’s voluntary winding up, if the creditors and company nominate different
persons, the persons nominated by the creditors shall be liquidator.
As name of Wasif is proposed by the creditors with an outstanding balance of Rs.20 million
(though the creditors in number were seven) shall be the liquidator of Jaffrey Pharma
Limited.
The directors and creditors who voted for Asim to be appointed as liquidator of the
company may, within seven days after the date on which the nomination was made by the
creditors, apply to the Court for an order either directing that the person nominated as
liquidator by the company shall be liquidator instead of or jointly with the person
nominated by the creditors or appointing some other person to be liquidator instead of the
person appointed by the creditors.
Page 1 of 7
Corporate Laws
Suggested Answers
(b) The liquidator shall have the following powers:
(i) to institute or defend any suit, action, prosecution or other legal proceeding, civil or
criminal, in the name and on behalf of the company;
(ii) to carry on the business of the company so far as may be necessary for the beneficial
winding up thereof;
(iii) to pay any classes of creditors in full;
(iv) to make any compromise or arrangement with creditors or persons claiming to be
creditors, or having or alleging themselves to have any claim, present or future, certain
or contingent, ascertained or sounding only in damages against the company, or
whereby the company may be rendered liable;
(v) to compromise all calls and liabilities to calls, debts and liabilities capable of resulting
in debts, and all claims, present or future, certain or contingent, ascertained or
sounding only in damages, subsisting or supposed to subsist between the company
and a contributory or alleged contributory or other debtor or person apprehending
liability to the company, and all questions in any way relating to or affecting the assets
or the winding up of the company, on such terms as may be agreed, and take any
security for the discharge of any such calls, debt, liability or claim and give a complete
discharge in respect thereof:
(vi) to sell the movable and immovable property and things in action of the company by
public auction or private contract, with power to transfer the whole thereof to any
person or company or to sell the same in parcels.
(vii) exercise the power of the Court under this Ordinance of settling a list of
contributories, which shall be prima facie evidence of the liabilities of the persons
named therein to be contributories;
(viii) exercise the power of the Court of making calls;
(ix) summon general meeting of the company and creditors for the purpose of obtaining
the sanction of the company by special resolution or for any other purpose he may
think fit.
Ans.3 (a) The agreement signed between SFL and the FEL shall be provisional only till SFL is
entitled to commence business and will not be binding on SFL. The agreement will become
binding on that date when SFL obtains the certificate of commencement of business from
the registrar.
The exercising of borrowing powers by SFL by way of obtaining a short term finance from a
bank prior to the issue of certificate of commencement of business is in contravention of the
Companies Ordinance, 1984 and every officer and other person, who is responsible for
arranging the credit facility, shall be liable to a fine.
(b) Star Limited is a listed company. If its director(s) makes any gain by the purchase and sale,
or the sale and purchase of its shares within a period of less than six months, they shall
tender the amount of gain to the company such director shall make a report and
simultaneously send an intimation to this effect to the registrar and the commission.
Ans.4 (a) In the following circumstances, the auditors may be appointed by the person (SECP) other
than the shareholder of the company:
(i) where the first auditors are not appointed by the directors within sixty days of the date
of incorporation of the company and the company also fails to appoint the auditors in
the first annual general meeting of the company within one hundred and twenty days
of date of incorporation of the company.
Page 2 of 7
Corporate Laws
Suggested Answers
(ii) where at an annual general meeting no auditors of the company are appointed,
(iii) where the auditors appointed are unwilling to act as auditors of the company,
(iv) where a casual vacancy in the office of an auditor is not filled within thirty days after
the occurrence of the vacancy.
(v) where auditors are removed by the company.
(b) In the following cases, investment may not be made and held by the company in its own
name:
(i) where the company has a right to appoint or get elected any person as a director of
any other company and a nominee of the company in the exercise of such right has
been so appointed or elected, the shares in such other company of an amount not
exceeding the nominal value of the qualification shares which are required to be held
by a director thereof, may be registered or held by such company jointly in its own
name and in the name of such person or nominee, or in the name of such person or
nominee alone.
(ii) holding company may hold any shares in its subsidiary company in the name of its
nominee or nominees if and in so far as it is necessary so to do for ensuring that the
number of member of the subsidiary company is not reduced below seven in case it is
a public company, or below two in case it is a private company.
(iii) investment made by an investment company, that is to say, a company whose
principal business is the purchase and sale of securities.
Nothing shall be deemed to prevent a company from:
(iv) depositing with a bank, being the banker of the company, any shares or securities for
the collection of any dividend or interest payable thereon; or
(v) depositing with or transferring to or holding in the name of a scheduled bank or a
financial institution approved by the Commission shares or securities in order to
facilitate the transfer thereof.
(vi) depositing with or transferring to any person any shares or securities, by way of
security for the repayment of any loan advanced to the company or the performance
of any obligation undertaken by it.
(vii) depositing with, or transferring to, or holding, or registering in the name of a central
depository any shares or securities.
Ans.5 (a) Offer period means the period from the date of public announcement of public offer to the
date of closure of public offer or earlier withdrawal thereof.
Obligations of the Board of Directors of SML during the offer period:
(i) The board of directors of SML shall not:

 sell, transfer, or otherwise dispose of or enter into an agreement for sale, transfer,
or for disposal of the undertaking or a sizeable part thereof, not being sale or
disposal of assets in the ordinary course of business of the company or its
subsidiaries
 encumber any asset of the company or its subsidiary
 issue any right or bonus voting shares during the offer period or
 enter into any material contract.
Page 3 of 7
Corporate Laws
Suggested Answers
(ii) Once the public announcement has been made, the board of directors of SML shall
not appoint an additional director or fill in any casual vacancy on the board of
directors, by any person representing or having interest in the acquirer till the date of
certification by the manager to the offer.
(iii) The board of directors of the target company may, if it so desires, send its unbiased
comments and recommendations on the public offer to the shareholders:
(iv) The board of directors of the target company shall facilitate the acquirer in verification
of securities tendered for acceptance.
(v) Upon fulfillment of all obligations under the Companies Ordinance,1984 as certified
by the manager to the offer, the board of directors of the target company shall transfer
the securities acquired by the acquirer, in the name of the acquirer.
(b) If an investor wants a representation on the board, he has to acquire at least thirty per cent
of the voting shares of target company. Then he would be entitled to a proportionate
representation on the board of directors of the target company.
By considering the above provision of law, Saad would be entitled to have a representation
on the board of directors of SML, if he acquires further 4% shares of SML.
Ans.6 (a) Participant means:
(i) an account-holder who is a member of a stock exchange; and

(ii) any other account-holder who meets the qualifications of a participant prescribed in
the regulations.
Provided that such account holders:
(i) perform services for sub-account holders in accordance with the terms of an
agreement entered into between the CDC and each of the participants.
(ii) transfer any securities to the CDC to the credit of any sub-accounts under their
respective accounts and
(iii) handle, on behalf of sub-account holders, the book-entry securities in the sub-accounts
under their respective accounts.
(b) The CDC may provide information to any person to:
(i) which an account-holder or a sub-account holder has authorised in writing to

disclose;
(ii) in a case where an account-holder or a sub-account holder is declared a bankrupt, or,
if the account-holder or sub-account holder, as the case may be, is a company or body
corporate and is being or, has been, wound up within or outside Pakistan;
(iii) in the case of any litigation or other legal proceedings;
(iv) to any person duly authorised by a competent court, the Authority or the State Bank
of Pakistan to investigate into any offence under any law for the time being in force;
(v) for the purpose of enabling or assisting the Authority to exercise any power conferred
on it by this Act or by any other law for the time being in force;
(vi) for the purpose of enabling or assisting the State Bank of Pakistan to exercise any
power conferred on it by any other law for the time being in force;
(vii) for the purpose of enabling or assisting a stock exchange or clearing house of a stock
exchange to discharge its functions;
Page 4 of 7
Corporate Laws
Suggested Answers
(viii) for the purpose of enabling or assisting auditors of a central depository or participant
to discharge their functions; or
(ix) to the Authority if the disclosure is required in the interest of investors or in the public
interest.
Ans.7 The directors of a company by a resolution passed by not less than three-fourths of the total
number of directors for the time being, or the company by a special resolution, may remove a
chief executive before the expiration of his term of office.
Therefore, the Chief Executive of HPL can be removed only if the proposal is supported by:
(i) at least 6 directors of the HPL, or

(ii) by 3/4th majority of the members in the general meeting either present in person or by way
of proxy.
Since WCL has only 5 nominee directors on the board of HPL and has 67% shareholdings, it
cannot remove the existing chief executive without the support of Furqan or his nominee
directors.
Ans.8 (a) The company would be required to provide the following information to the Stock
Exchange:
(i) Date, time and place of its board meeting at least one week in advance.
(ii) Decision of the Board about cash dividend and approval of the audited accounts
immediately after the meeting.The information is required to be communicated to the
Exchange prior to its release to any other person or print/ electronic media.
(iii) DL shall send to the Exchange such number of copies of its annual report and audited
accounts as may be prescribed by the Exchange not later than 21 days before a
meeting of shareholders is held to consider the same.
(iv) DL shall furnish certified true copies of minutes of its annual general meeting within
60 days of such meeting.
(b) As DL plan to hold its AGM by 15 July 2015, the notice of AGM should be sent at least 21,
days before the meeting i.e. latest by 24 June 2015.
It can close its books for a period of 7-15 days and that period should fall between 30 June
2015 to 14 July 2015.
Further, DL is also required to give minimum of 14 days notice to the KSE prior to closure
of share transfer books, therefore, this aspect should also be considered by the directors in
deciding the dates of book closure.
Ans.9 (a) An NBFCs shall observe the following criteria for determining the realizable value of
mortgaged, pledged, leased or collaterally held assets, namely:-
(i) only assets having registered mortgage, equitable mortgage and pledged or collaterally
held assets shall be considered;
(ii) assets having pari-passu charge shall be considered on proportionate basis;
(iii) hypothecated assets and assets with second charge or floating charge shall not be
considered;
Page 5 of 7
Corporate Laws
Suggested Answers
(iv) valuations shall be carried out by an independent professional valuer listed on the
panel of valuers maintained by the Pakistan Banks Association / the Leasing
Association of Pakistan;
(v) the valuers while assigning any values to the mortgaged, pledged, leased or collaterally
held assets, shall take into account all relevant factors affecting the salability of such
assets including any difficulty in obtaining their possession, their location, their
condition and the prevailing economic conditions in the relevant sector, business or
industry;
(vi) the realizable value of mortgaged, pledged, leased or collaterally held assets
determined by the valuers must take into account the amount that can be realized from
the asset if sold in a forced or distressed sale condition;
(vii) valuations shall be conducted at least once in three years:
Provided that, except for a Housing Finance Company, if a valuation is older than three
years, a fresh re-valuation shall be done failing which the valuation shall be taken as nil.
(b) Rs. in million

Rental receivables
Government
factor (70%)
Provision %
Adjustment
be provided
Classification
Amount to
guarantees
Adjusted
Amount
Principle
FSV
Aging
Mark up
Total
A B C=B×70% D E=A–C–D F E×F

Substandard Between 180
days to 1-year 90 49 139 50 35 20 35 25% 9
Doubtful Between 1-year

to 2-years 56 38 94 31 22 34 50% 17
Loss Between 2-years

to 3-years 45 34 79 25 18 27
Over 3-years 23 25 48 13 9 14
68 59 127 38 27 - 41 100% 41
146 67
Mark-up receivable on non-performing loans i.e. Rs. 146 million should be put in suspense
account and not to be credited to income account except when realized in cash.
Ans.10 1 June 2015

Mr. Zahid
Director
Zodiac Limited
Subject: Requirement of Code of Corporate Governance

Dear Sir,
The requirements of the Code of Corporate Governance in respect of the matter quoted in your
letter are as follows:
(a) The CEO cannot become the chairman of Human Resource and Remuneration (HR&R)
committee; however, he may be included as a member of the committee. The HR&R
committee should consist of at least of three members comprising a majority of non-
executive directors, including preferably an independent director. The CEO, if he is a
member of HR&R committee shall not participate in the proceedings of the committee on
matters that directly relate to his performance and compensation.
Page 6 of 7
Corporate Laws
Suggested Answers
(b) The details of all related party transactions shall be placed before the Board whether they
are on arm’s length basis or not. The related party transactions which are not executed at
arm's length price shall also be placed separately at each board meeting along with
necessary justification for consideration and approval of the board on recommendations of
the Audit Committee.
(c) The pattern of shareholding should be prepared in such a way showing aggregate number of
shares held by:
(i) associated companies, undertakings and related parties (name wise details);
(ii) mutual funds (name wise details);
(iii) directors and their spouse(s) and minor children (name wise details);
(iv) executives;
(v) public sector companies and corporations;
(vi) banks, development finance institutions, non-banking finance companies, insurance
companies, takaful, modaraba and pension funds; and
(vii) shareholders holding five percent or more voting rights in the listed company (name
wise details).
(d) On the death of the chairman, the chief executive officer (CEO) cannot become the
chairman of the company. As the chairman and CEO shall not be the same person except
where provided for under any other law. The chairman shall be elected from among the
non-executive directors.
Yours sincerely,
— Sd —
Consultant name
(The End)
Page 7 of 7
SUBJECT SESSION
General:
Although it was an easy paper, the overall performance of the students was average,
which in our opinion was mainly due to lack of complete knowledge. Almost in all
questions a vast majority of students got between 30 to 70% marks. On the other hand, on
average, in each question about 20% students got 0 to 1 mark. It shows that most of the
students had read the relevant provisions but lacked comprehensive understanding thereof.
Question 1(a)
This question was not answered well by majority of the students, as they were not able to
properly draft the special resolution for the proposed buy-back of shares. Majority of the
students drafted this resolution from their general perception, without taking into account
the important legal points which should form a part of this resolution. For example, hardly
any student mentioned that the company is authorized to buy back/purchase these shares
u/s 95A of the Companies Ordinance, 1984 and the Companies (Buy-Back of Shares)
Rules, 1999, and that the shares purchased will be cancelled and the issued share capital
will be reduced by the nominal value of these shares.
Question 1(b)
This question from Rule # 5 of Companies (Buy back of shares) Rules, 1999 and was
answered well by about 50% of the students. However, very few students stated an
important rule that the acceptance of the offer shall be on pro-rata basis in lots of 500
shares. Further, many students stated that HL should take the decision about acceptance of
the offer within 10 days instead of 7 days.
Question 1(c)
This question from Rule # 6 of Companies (Buy back of shares) Rules, 1999 was quite
straight forward. Majority of the students knew the relevant requirements and got high
marks.
Question 2(a)
This question pertained to creditors’ voluntary winding up and was based on Section 375
of the Companies Ordinance, 1984.
According to the scenario given in the question, there was a difference of opinion between
the creditors on the appointment of liquidator. Students knew in most of the cases that in
the above situation, the view of creditors who are more in value will prevail. However,
various errors were observed in the explanation of the course of action available to those
who do not agree to such appointment. Majority of the students did not know that
directors may also appeal against the appointment as they were of the view that only
creditor(s) may file such an appeal. Further, many students suggested that an application
in this regard should be filed with Commission/Registrar, instead of the court.
Page 1 of 5
Question 2(b)
This question, from Section 333(1) & 387 of the Companies Ordinance, 1984, was an
easy and scoring question and was answered well by majority of the students.
However, in many cases, the students specified the duties and responsibilities of a
liquidator instead of mentioning powers of liquidator.
Question 3(a)
This question tested students’ knowledge with regard to two issues i.e. signing agreement
for supply of machinery and exercising borrowing power before obtaining certificate for
the commencement of business.
A significant number of the students gave the same opinion in either case i.e. many of
them were of the view that both agreements would be void and some of them stated that
they would become valid on the date of the certificate of commencement of business.
Only about 20% of the candidates knew that the borrowing agreement is in contravention
of the Companies Ordinance, 1984 and the directors shall be liable to a fine.
Question 3(b)
In this question the candidates were required to narrate the conditions specified under the
Companies Ordinance, 1984 which the director of a listed company has to fulfill if he
engages in the trading of that company’s shares.
It was an easy question and was answered well by majority of the students. However, a
number of students didn’t mention the most important point i.e. that these conditions
would apply if the sale and the purchase is carried out within a period of six months.
Further, many students also mentioned the procedures for computation of gain and
reporting for beneficial ownership etc. which was not required.
Question 4(a)
This question was based on Section 252(3) & (6) of the Companies Ordinance, 1984 and
the candidates were required to describe the circumstances when auditor of a company is
appointed by a person other than the company’s members.
This was one of the best attempted question and majority of the students got good/high
marks.
Question 4(b)
This question was based on Section 209(2) to (6) of the Companies Ordinance, 1984 and
the candidates were required to describe the circumstances when investments by a
company may not be made and held by it in its own name. It was also an easy and scoring
question and was answered well by most of the students.
Page 2 of 5
Question 5(a)
This question was based on Listed Companies (Substantial Acquisition of Voting Shares
and Takeovers) Ordinance, 2002. According to the scenario, a shareholder who already
held 10% voting shares in a company had made a public announcement for purchase of a
further 16% shares. The requirement was to explain the term ‘offer period’ and to specify
the obligation of the board during the offer period. The overall performance was below
average. A significant number of students knew two obligations i.e. that the board should
refrain from selling a sizeable part of the assets of the company and from issuance of
right/bonus shares.
A lot of confusion was observed with regard to the directors’ responsibility of assisting
the acquirer in verification of securities tendered for acceptance and with regard to
transfer of such securities. Instead of the above, majority of the candidates wrote that the
Board should provide a list of shareholders to the acquirer. Further, restriction on entering
into material contract and restriction on filling any casual vacancy on the board were
mentioned by few students only.
Further, most of the students could not define the term “offer period”. Most of them used
30, 45 and 60 days from the offer to describe that period. Proper definition is given in
section 2(g) of the Listed Companies (Substantial Acquisition of Voting Shares and
Takeovers) Ordinance, 2002.
Question 5(b)
In this part the candidates were required to explain the conditions under which the
acquirer would be entitled to have a representation on the board. The required condition is
obtaining a minimum of 30% interest. Majority of the students mixed-up the situation
whereby fresh election may be held in case a person acquires 12.5% interest or
representation on the board if someone acquires 25% voting powers.
Question 6(a)
This question was from Section 2(17) of Central Depository Act, 1997 and was not
answered well by majority of the students.
Most of the students were not aware of the term “Participant” and confused it with sub-
account holders. Quite obviously, all such students were also unable to specify the
services performed by a participant.
Question 6(b)
This was an easy and scoring question and was answered well by about 50% of the
students. Many students narrated the provisions regarding supply of list of beneficial
owners, by CDC, to the companies for issuance of notices, dividend warrant etc., which
was totally irrelevant.
Question 7
In this short question, a scenario was given whereby a company had only two
shareholders. One of them was a listed company (WCL) with 67% shareholding whereas
the other was an individual (Furqan) with a 33% shareholding. There were 8 directors on
the board, five of whom were nominees of WCL whereas three were nominees of Furqan
including the Chief Executive.
Page 3 of 5
The candidates were required to assess whether WCL was in a position to replace the
existing CEO. However, the performance was very poor as very few students could
provide appropriate comments. The students are advised to seek guidance from ICAP’s
suggested answer.
Question 8
This question was from Rules 13, 16, 18, 21, and 29 of the Listing Regulations. Both parts
(a) and (b) of this question were not answered well by majority of the students.
Question 8(a)
In this part the students were required to give the information that a company is required
to provide to the stock exchange with respect to declaration of dividend by the board and
intimation of book closure and the date of AGM. Majority of the students did not read the
question carefully and only mentioned about the responsibility of the company to provide
immediate information regarding declaration of dividend and book closure but missed the
provisions related to AGM whereby the company is also required to submit copies of
annual report and audited accounts and certified copies of minutes of AGM.
Further, many students discussed a lot of irrelevant things such as approval for AGM,
dispatch of dividend warrants, CEO’s liability for payment of dividend, etc.
Question 8(b)
Although the students correctly mentioned that the share transfer register can be closed for
7-15 days but failed to advise the correct possible dates for book closure, in the light of
the given scenario.
Question 9(a)
This question was based on Rule 25(9) of NBFC & Notified Entities Regulations 2008.
The requirement was to list the criteria which an NBFC should observe for determining
the realizable value of mortgaged, pledged or collaterally held assets and was answered
well by majority of the students.
Question 9(b)
This was a very practical scenario based question in which the candidates were provided
with age-analysis of the receivables of an NBFC. The candidates were required to classify
the non-performing receivables according to categories defined in Sch XI of NBFC &
Notified Entities Regulations 2008, determine the required amount of provision and
explain the treatment of mark-up.
The question was not answered well by majority of the students. The major errors were as
follows:
 Many students did not know the proper classification i.e. Sub-standard, Doubtful and
Loss. Many students used guesswork and categorized these as good, doubtful and bad
whereas many students considered the ageing as the required classification.
 Many students did not know that an adjustment factor of 70% has to be applied on
Forced Sale Values (FSV).
Page 4 of 5
 Majority of the students did not know that the receivables secured by Government
guarantees are not subject to provisioning.
 Provision was calculated on the total outstanding i.e. principal plus mark-up.
 Mostly students mentioned that the amount of markup should be put in suspense
account but did not explain further that it will only be transferred to income account
when it is recovered in cash.
Question 10
The question mentioned four situations on which comments were required in the light of
Code of Corporate Governance, 2012. The performance in each case is discussed below:
Question 10(a)
Most of the students have correctly identified that the CEO cannot be the chairman of the
HR&R committee but many of them failed to mention that he can become a member.
Most of the students also wrongly mentioned that the committee should consist of non-
executive directors only and they also did not mention that preferably the committee
should also have an independent director also.
Question 10(b)
Almost all students could easily answer that related party transactions which are not at
arm’s length should be placed before the Board of Directors. However, the important
thing i.e. their justification should also be tabled and discussed was not mentioned by
majority of the students.
Question 10(c)
Most of the students failed to present the pattern of shareholding and those who presented
the pattern of shareholding also failed to mention many classifications like executives,
mutual funds. Majority of the students also wrongly mentioned that the list of shareholder
having 10% or more voting rights should be disclosed, whereas, such information is
required in respect of shareholders having 5% of more voting rights. Further, instead of
giving the pattern of shareholder many students gave shareholders’ information which is
mentioned in the members’ register.
Question 10(d)
Most of the students explained correctly that Chairman and CEO cannot be the same
person, however, numerous students did not elaborate further that the above condition
may not apply where any other law allows the same person to be the Chairman and the
CEO.
(THE END)
Page 5 of 5
Final Examinations
Module E
Corporate Laws
Q.1 Following are the extracts from the audited financial statements of Moon Limited (ML), a
listed company, for the year ended 30 September 2015:
Rs. in million
Ordinary share capital (Rs. 10 each) 100
General reserves 105
Surplus on revaluation of fixed assets 15
Intangible assets 12
Tangible assets 200
Deferred taxation (debit balance) 15
Contingent liabilities as shown in the financial statements 18
Subsequent to the finalization of audited accounts, a claim of Rs. 5 million was filed against
ML by its customers. ML’s legal adviser is of the view that the expected liability in this case
is Rs. 2 million.
ML is planning to issue 60% right shares at a premium of Rs. 4 per share in January 2016.
In a board meeting, the CFO has provided a list of conditions that the company would be
required to meet in this regard. However, two directors are of the opinion that in view of the
sound financial position of the company the right issue should be at a premium of Rs. 10
per share.
In the light of the provisions of the Companies (Issue of Capital) Rules, 1996 and the
Companies Ordinance, 1984:
(a) What additional conditions ML would be required to meet in case of issuance of
right shares at premium of Rs. 10. (07)
(b) Assume that subsequent to the issuance of right shares at premium of Rs. 10, ML
wants to issue bonus shares. Compute the maximum amount of bonus shares that
can be issued. (05)
Q.2 William Garments plc. (WG), a UK based company, has a branch office in Pakistan. WG
has filed a petition in the UK for winding up of the company and liquidation proceedings
had started on 20 November 2015. WG has also decided to discontinue its business in
Pakistan by 31 December 2015.
In the light of the provisions of the Companies Ordinance, 1984, advise the management
about the necessary formalities to be carried out under the Companies Ordinance, 1984. (07)
Q.3 Haider Limited (HL), a listed company, is in the process of finalization of a financing
facility with a bank. The bank requires a copy of the board resolution for approval of the
terms of the financing. However, no board meeting is planned in the near future and few
directors are out of the country.
In the light of the provisions of the Companies Ordinance, 1984 explain what alternative
course of action is available to HL and the steps it would be required to take assuming that
nothing in this regard is stated in the articles of association of the company. (05)
Q.4 An abstract from the statement of financial position as on 30 September 2015 of Sami
Industries Limited (SIL) is as follows:
Rs. in billion
Issued, subscribed and paid up capital 15.00
Undistributed profit 0.52
Capital redemption reserve fund 1.50
Redeemable preference shares – unsecured 10.00
Current maturity of redeemable preference shares 2.50
In order to pay the current maturity of the preference shares and to improve its liquidity, the
board is considering to borrow funds from a commercial bank by way of equitable mortgage
of SIL’s plant and machinery.
In the context of the provisions contained in the Companies Ordinance, 1984, advise the
directors regarding the redemption of preference shares. (05)
Q.5 A major contract of Bolan Sugar Limited (BSL), a listed company, has been cancelled. BSL
used to purchase raw material for this contract from KBL which is also a listed company
and a subsidiary of BSL
The CFO of BSL wants to publish the above information whereas the management of KBL
wants to delay it as it may have an adverse impact on a financing arrangements currently
being negotiated by KBL.
In the light of the provisions of the Securities Act, 2015:

(a) Advise BSL on the above issue. (07)
(b) Assuming that BSL decides to publish the information, discuss what matters should
be kept in perspective in order to ensure that the responsibilities of the directors are
fulfilled. (03)
Q.6 The audit of Metal Corporation Limited (MCL), a public unlisted company, for the year
ended 30 June 2015, is in progress. The auditor is not satisfied on certain issues and is
adopting alternative procedures for verification. The management of MCL fears that this
will delay the audit and consequently, financial statements would not be available in time
for the upcoming annual general meeting. Therefore, the directors are considering to apply
for extension in the date of holding the AGM.
In the light of the provisions contained in the Companies Ordinance, 1984 and related
Rules made thereunder, you are required to:
(a) Discuss the possibility of making such an application by MCL. (03)
(b) List the information/documents to be submitted alongwith such an application. (05)
Q.7 The Annual General Meeting of Nihal Limited (NL) would be held in the first week of
January 2016. During the year NL had paid Rs. 80 million as advance to Yasir Limited, its
associated undertaking. This is in accordance with the approval of Rs. 100 million granted
by the shareholders in NL’s last annual general meeting.
In the light of the Companies (Investment in Associated Companies or Undertakings)

Regulations, 2012, explain what information should be provided to the shareholders in
respect of the above. (06)
Q.8 The directors of Landmark Group are considering to merge the following NBFCs:
Landmark Asset Management Limited
Landmark Leasing Limited
Landmark Investment Advisory Limited
Landmark Investment Finance Limited
Landmark Housing Finance Services Limited
In the light of the provisions contained in the Companies Ordinance, 1984 and the NBFC
Rules, 2003 discuss:
(a) the possibility of the merger of the above companies. (03)
(b) the procedures to be followed by the companies for the proposed merger. Also explain
how the dissenting shareholders (if any) would be dealt with. (06)
Q.9 Due to a dispute among the directors of Sun Limited, a listed company, all the directors
want to remove Faheem from the directorship of the company prior to the completion of his
term.
Explain the conditions which must be met in order to remove Faheem from the
Directorship under the provisions of the Companies Ordinance, 1984. (05)
Q.10 A listed non-banking financial company (NBFC) intends to make investment in the shares
of a private limited company.
List the conditions which the NBFC would need to comply with under the NBFC Rules,
2003 while making the investment. (05)
Q.11 Aftab holds 22% shares in TUF Limited, a listed company. He intends to file a petition with
the Court against the management of the company, on the following grounds:
(i) Failure to pay dividend
(ii) Continuous losses being made by the company
(iii) Conduct of the business in unlawful manner.
With reference to the provisions of the Companies Ordinance, 1984 comment on the
admissibility of the petition in each of the above cases. (05)
Q.12 The Annual General Meeting of Trade Limited was held at 11:25 a.m. on
10 November 2015. Certain shareholders have lodged following complaints with the
company secretary:
(i) Notice of the annual general meeting was not received by them although they are
resident in Pakistan and their registered addresses have also been provided to the
company.
(ii) Since the meeting could not commence at the scheduled time i.e. 11:00 a.m., it
became invalid and should be called again.
(iii) A resolution passed in the meeting was approved by a show of hands. However, a
poll should have been carried out.
(iv) Mr. Hamid who voted for a resolution was represented through a proxy which was
deposited at 5:01 p.m. i.e. after office hours on 8 November 2015. Since
9 November 2015 was a public holiday, the condition of depositing the proxy at least
48 hours before the commencement of the meeting, was not met.
(v) Mr. Ghulam who holds 100,000 shares was represented by two proxies
i.e. Mr. Cassim (75,000 shares) & Mr. Danish (25,000 shares). Only proxy with
75,000 shares was counted for the purpose of voting.
In the light of the provisions of the Companies Ordinance, 1984 you are required to:
(a) Comment on the validity of each of the above complaints. (07)
(b) Describe the circumstances under which a court may declare the resolution(s) passed
in the above meeting or the entire proceedings of the meeting as invalid. (04)
Q.13 No undertaking shall enter into a merger which substantially lessens competition by
creating or strengthening a dominant position in the relevant market.
Under the provisions of the Competition Act, 2010 and the Competition (Merger Control)
Regulations, 2007:
(a) Explain the term dominant position. (02)
(b) Identify the factors which the Competition Commission shall consider in determining
whether or not the merger situation is likely to substantially prevent or lessen
competition in the market. (06)
(c) List any three situations under which the Competition Commission may allow merger
of companies even if it determines that intended merger substantially lessens
competition by creating or strengthening a dominant position. (04)
(THE END)
Corporate Laws
Suggested Answers
Ans.1 (a)
Issue of Right Shares
ML may charge premium on right shares up to the free reserve per share. The free reserves
available to ML as on 30 September 2015 are as follows:
Rs. in million
Deferred taxation (debit balance) 15

Intangible assets 12
Contingencies as shown in the financial statements 18
Claim by customers (subsequent event) 02 47
Free reserves available 58
In case, ML issues right shares at a premium of Rs. 4 per share, required free reserves i.e.
Rs. 24 (6  4) are lesser than available reserve. However, if ML wishes to issue right shares
at a premium of Rs. 10 per share, it has to fulfill the additional conditions because the
amount of required free reserves i.e. Rs. 60 (10  6) is greater than available reserve.
The additional conditions require to be complied with are as follows:
(i) At least forty percent of all the shareholders undertake to subscribe their portion of
right issue; and
(ii) The remaining right issue shall be fully underwritten and the underwriters, not being
associated companies, shall include at least two financial institutions including
commercial banks and investment banks;
(iii) The underwriters shall give full justification of the amount of premium in their
independent due diligence report;
(b)
Issue of Bonus Shares
Under the Companies (Issue of Capital) Rules, 1996, a listed company must retain in the
free reserves twenty-five percent of the capital after bonus shares. Further, under the
Companies Ordinance 1984, the share premium account may be applied in issuance of fully
paid bonus shares.
Since the objective is to issue maximum bonus shares, the company would first utilize share
premium account in issuance of bonus shares and then utilize general (free) reserves, to an
extent available. The maximum amount of bonus may be computed as follows:
Rs. in million
Share capital after issuance of right share (100+60) 160
Bonus that can be issued by utilizing share premium account) 60
Amount of share capital after issue of bonus share from share premium account 220
Amount of equity if premium is utilized fully plus general (free) reserves
(220 + 58 as computed above) 278
Amount of share capital if general (free) reserves is fully utilized (278÷125×100) 222.4
Amount that can be issued out of general (free) reserves to issue bonus shares 2.4
Maximum bonus that can be issued (60 + 2.4) 62.4
Page 1 of 7
Corporate Laws
Suggested Answers
Ans.2
Formalities to be carried out in respect of WG’s liquidation in the UK
WG would be required to:
 give notice of liquidation on or before 20 December 2015 to the registrar;
 furnish all returns and accounts relating to the liquidation in respect of its business in
Pakistan, within 30 days of the conclusion of the liquidation proceedings to the Registrar;
and
 Publish a statement on every invoice, order, letter paper, bill head, notice or other
publications in Pakistan that the company is being wound up in the country of its
incorporation.
Formalities to be carried out in respect of closure of business in Pakistan

Branch office must give a notice, on or before 1 December 2015, about closing the business and
ceasing to have any place of business in Pakistan to the Registrar along with the prescribed fee.
Publication of Notice in Newspaper

In both cases WG and its branch office will have to publish a notice of such intention at least in
two daily newspapers circulating in the Province in which such place of business is situated at
least thirty days before the closing of the business.
Ans.3
Alternative course of action available to HL
Since nothing is given in the Articles of Association, the matters described in Table A shall become
applicable. Therefore, resolution in writing signed by all the directors for the time being entitled to
receive notice of a meeting of the directors shall be as valid and effectual as if it had been passed at a
meeting of the directors duly convened and held.
The required resolution may be passed by way of a circular resolution. However, if one-third of the
total numbers of directors of HL require that the resolution under circular resolution must be decided
at a board meeting in person, the resolution would have to be decided at a meeting of the board.
Steps required for passing a resolution by circulation

(i) The proposed resolution shall be circulated in draft along with other necessary documents, if
any, to all the directors entitled to receive the notice of the meeting.
(ii) The resolution will become valid if the same is approved by all the directors entitled to vote on
the resolution.
Ans.4
The company has to pay Rs. 2.5 billion against the redemption of preference shares whereas
capital redemption reserve fund shows a balance of Rs. 1.5 billion.
SIL can pay up to Rs. 1.5 billion from the capital redemption reserve fund as it is allowed under
the Companies Ordinance, 1984.
For the balance amount of Rs. 1 billion, SIL has to arrange funds from one of the following
sources:
(i) out of profits of the company which would otherwise be available for dividend; or
(ii) out of the proceeds of a fresh issue of shares made for the purposes of the redemptions; or
(iii) out of sale proceeds of any property of the company.
Borrowing from commercial bank/financial institution for redemption of preference shares is not
permissible.
Page 2 of 7
Corporate Laws
Suggested Answers
Ans.5
(a) According to the Securities Act, 2015, it is the responsibility of the Directors of BSL to
disclose to the public forthwith any price sensitive information relating to the company or
its subsidiaries which has come to the company’s knowledge and which would be material
to an investor’s investment decision.
Further, an information is required to be disclosed if it:

 is necessary to enable the public to appraise the position of the company and its
subsidiaries;
 is necessary to avoid the creation or continuation of a false market in the securities of
the company (false market being defined as an uninformed market or one which is
based on incomplete information); or
 might reasonably be expected to materially affect the market activity and the price of
its securities.
However, on the request of KBL the directors of BSL, under their own responsibility, may
delay the public disclosure of price sensitive information such as not to prejudice its
legitimate interests, if:
(i) such delay would not be likely to mislead public investors
(ii) BSL is able to ensure the confidentiality of that information.
(b) In order to fulfill their responsibility relating to publishing the information, the directors of
BSL must ensure that:
(i) when disclosing the above information, the means they use for disseminating
information are such that they equally, timely and effectively provide access to such
information by the holders of the securities of the company and investors.
(ii) the information that affects the market or a sector of the market generally is made
public in a manner that would be likely to bring it to the attention of persons who
commonly invest in securities of a kind whose price or value might be affected by the
information.
Ans.6 (a)
MCL may apply to the concerned Registrar for grant of an extension in the time for holding
any annual general meeting and laying before the AGM a balance-sheet and profit and loss
account, not less than thirty days before the last date on which such AGM is required to be
held. Accordingly, the application should have been made by September 30, 2015.
However, if the application is made in the first week of October, which is less than thirty
days before the last date, the concerned Registrar may for special reasons to be recorded,
may grant an extension for holding the annual general meeting.
(b)
The application for grant of extension in holding the AGM must be submitted alongwith
the following information documents:
(i) Registration number, name and address of the company.
(ii) Date on which the last general meeting was held and the financial year for which the
balance-sheet, profit and loss account and other statements and reports relating to
accounts were laid at such meeting.
(iii) Date up to which the annual general meeting is required to be held under and for the
purposes of the relevant sections of the Ordinance and the date up to which the
balance-sheet, profit and loss account and other statements and reports relating to
accounts are required to be laid therein.
(iv) Reasons for not being able to hold the annual general meeting or laying the balance-
Page 3 of 7
Corporate Laws
Suggested Answers
sheet and profit and loss account at the general meeting by the date mentioned in
clause (iii) and justification or extension in the period to the extent applied for.
(v) When the delay is attributed to non-completion of books of accounts or non-
finalization of audit, the exact state of books of accounts with reasons for non-
completion of such books or for non- finalization of the audit.
(vi) In case of non finalization of the audit, such information being accompanied by a
certificate of the company’s auditors as to the state of its accounts, reasons for delay
in completion of audit and the minimum time required for the purpose;
(vii) Accompanied by a copy of the last audited balance sheet and profit and loss account.
Ans.7
Since decision to make investment of Rs. 100 million approved by the shareholders of Nihal
Limited in their last annual general meeting has not been fully implemented, Nihal Limited shall
annex to the notice of the annual general meeting a statement explaining the status of the decision
along with the following details:
(i) total investment approved i.e. Rs.100 million.
(ii) amount of investment made to date i.e. Rs. 80 million.
(iii) reasons for not making complete investment so far where resolution required it to be
implemented in specified time; and
(iv) material change (if any) in financial statements of associated company or associated
undertaking since date of the resolution passed for approval of investment in such company.
Latest audited annual financial statements of Yasir Limited along with the latest reviewed
financial statements, if any, shall be made available for inspection of the members of NL in its
general meeting.
Ans.8 (a)
Landmark group cannot merge all of the NBFC businesses in one group as there is a
restriction in the NBFC, Rules 2003 to carry on certain businesses under the same NBFC
together. However, the following businesses may be combined:
 Land Investment Advisory Limited and Landmark Asset Management Limited;
 Landmark Investment Finance Services, Landmark Housing Finance Limited, and
Landmark Leasing Limited.
(b)
The steps involved in the merger of these companies are as follows:
(i) A scheme of amalgamation shall be approved by a majority number representing two
thirds in value of the shareholders of each NBFC, by way of a resolution, at a meeting
called for the purpose.
(ii) Notice of every such meeting shall be given to all shareholders of each NBFC
indicating the time, place and object of the meeting.
(iii) The notice shall be published at least once a week for three consecutive weeks in not
less than two newspapers which circulate in the) localities (province) where the
registered offices of the NBFCs are situated; one such newspapers being in a language
commonly understood in the locality.
(iv) If the scheme is approved by the shareholders, it shall be submitted to the
Commission for sanction.
(v) When the scheme of amalgamation is sanctioned by the Commission, the merged
entity shall transmit a copy of such order to the registrar.
(vi) The property and liabilities of the amalgamated NBFCs shall, by virtue of sanction
order, be transferred to the merged NBFC.
Dissenting shareholders (if any) will be entitled to claim from the NBFC concerned the
value of their shares as may be determined by the Commission when sanctioning the
scheme.
Page 4 of 7
Corporate Laws
Suggested Answers
Ans.9
The directors of Sun Limited may remove Faheem from the directorship by passing a resolution
in general meeting subject to the following conditions:
If Faheem was appointed by the members of the company the resolution for removing Faheem
shall not be deemed to have been passed if the number of votes cast against the resolution is equal
to or exceeds the minimum number of votes that were cast for the election of director at the
immediately preceding election of directors.
If Faheem was appointed by the subscribers to the memorandum of association of the company
or to fill a casual vacancy the resolution for removing him shall not be deemed to have been
passed if the number of votes cast against such resolution is equal to or exceeds the total number
of votes for the time being computed in the prescribed manner (at the time of his appointment)
divided by the number of directors for the time being.
Ans.10
The conditions that need to be satisfied are as follows:
(i) The investment in unquoted shares of any company is not in excess of twenty percent of
NBFC’s equity.
(ii) The investment should be approved in a board meeting after carefully analyzing the merits
and financial impact of the investment and recording the decision in detail in minutes of the
meeting and such decision shall be communicated to the Commission within fourteen days
of the board meeting along with copy of the minutes.
However, an investment by NBFC out of its surplus equity (i.e. over and above the minimum
specified regulatory requirement for the licenses held by the NBFC) in its wholly owned
subsidiaries, for undertaking a form of business, shall not be taken into account for calculating the
limit for unquoted shares.
Ans.11
According to the Companies Ordinance, 1984 if any member holding not less than 20% of the
issued share capital of the company, is of the view that the affairs of the company are being
conducted:
(i) in an unlawful or fraudulent manner;

(ii) in a manner not provided for in its memorandum;
(iii) in a manner oppressive to the member or any of the members or the creditor or any of the
creditors;
(iv) in a manner prejudicial to the public interest;
such a member, may make an application to the Court by petition for an order.
However, the following do not constitute mismanagement/oppression:

(i) Continuous losses being made by company.
(ii) Failure to pay dividend or low payment of dividend.
By considering the above, as Aftab holds 22% shares, he can file a petition to the court on the
ground of conduct of business in unlawful manner.
Page 5 of 7
Corporate Laws
Suggested Answers
Ans.12
(a) (i) Where a notice is sent by post at the registered addresses of the shareholders, service
of the notice shall be deemed to be effected by properly addressing, prepaying and
posting a letter containing the notice and, unless the contrary is proved, to have been
effected at the time at which the letter would be delivered in the ordinary course of
post.
By considering the above provisions of law, if Trade Limited has sent a notices after
meeting the above requirement of the law, the shareholders’ complaint is not valid.
(ii) As per the Ordinance, if within half an hour from the time appointed for the meeting,
a quorum is not present, the meeting may either be dissolved or adjourned. Since the
quorum was present within 30 minutes, the meeting is valid.
(iii) As per the Ordinance, at any general meeting, a resolution put to the vote of the
meeting shall be decided on show of hands, unless a poll is demanded. The
concerned shareholders should have demanded a poll on or before the declaration of
the result of the voting by show of hands and not after the meeting is concluded.
Therefore the shareholder’s protest is not valid.
(iv) Proxy is not valid as it was not deposited 48 hours before the meeting.
(v) A member shall not be entitled to appoint more than one proxy to attend any one
meeting. In this case, Mr. Ghulam had appointed more than one proxy for the
meeting and more than one instrument of proxy was deposited with the company,
therefore both the instruments of proxy would be rendered invalid.
(b)
The court may, on a petition by members having not less than ten per cent of the voting
power in the company, that the proceedings of a general meeting be declared invalid by
reason of any material defect or omission in the notice or irregularity in the proceedings of
the meeting which prevented members from using effectively their rights, declare such
proceedings or part thereof invalid and direct holding of fresh general meeting:
However, the petition shall be made within thirty days of the impugned meeting.
Ans.13 (a)
"dominant position" of one undertaking or several undertakings in a relevant market shall
be deemed to exist if:
 such undertaking or undertakings have the ability to behave to an appreciable extent
independently of competitors, customers, consumers and suppliers; and
 its share of the relevant market exceeds forty per cent;
(b)
When determining whether or not the merger situation is likely to substantially prevent or
lessen competition, the Commission shall:
(i) assess the strength of competition in the relevant market,
(ii) assess the probability that the merger parties in the market after the merger will
behave competitively or co-operatively,
(iii) take into account any factor that is relevant to competition in that market, including
Page 6 of 7
Corporate Laws
Suggested Answers
but not limited to:
 the actual and potential level of import competition in the market;
 the ease of entry into the market, including tariff and regulatory barriers;
 the level and trends of concentration, and history of collusion, in the market;
 the degree of countervailing power in the market;
 the dynamic characteristics of the market, including growth, innovation and
product differentiation;
 the nature and extent of vertical integration in the market;
 whether the business or part of the business of a merger party or merger has
failed or is likely to fail; and
 whether the merger situation will result in the removal of an effective
competitor.
(c)
If the Commission determines that the intended merger substantially lessens competition by
creating or strengthening a dominant position, it may nonetheless approve the transaction,
if it is shown that:
 it contributes substantially to the efficiency of the production or distribution of goods
or to the provision of services;
 such efficiency could not reasonably be achieved by a less restrictive means of
competition;
 the benefits of such efficiency clearly outweigh the adverse effect of the absence or
lessening of competition; or
 it is the least anti-competitive option for the failing undertaking's assets, when one of
the undertakings is faced with actual or imminent financial failure;
(The End)
Page 7 of 7
SUBJECT SESSION
General:
adequately prepared for the examination. It was observed that many students fared very
well in some of the questions especially those pertaining to Companies Ordinance, 1984
but performed poorly in other areas. This was a clear indication of selective studies. The
failure to understand the requirement was another major issue. Further, most of the
students mixed up the provision of one question or law with those of the other. Another
common issue was the difficulty faced by the students in dealing with scenario based
questions. It has been observed that in situation based questions, students either mention
the relevant law only and do not relate their answers with the specific situations given in
the question or they analyze the given situation but do not discuss the relevant law. Ideally
the students should explain the situation with appropriate reference to the applicable legal
provisions.
Question-wise comments
Question 1(a)
According to the scenario given in this question, a company was considering two options
with regard to premium on issuance of right shares i.e. charging premium of Rs. 4 or Rs.
10 per share. The candidates were required to narrate what additional conditions the
company would be required to fulfill if it charges premium of Rs. 10 per share. A
significant number of candidates were unable to understand the requirement and did not
even display their understanding about what difference would it make if premium of Rs.
10 is charged instead of Rs. 4. Some such students wrote a very lengthy answer and
mentioned all the conditions for issuance of right shares and wasted lot of time.
Among those who at least adopted the right approach, a number of mistakes were
observed in the calculation of free reserves especially with regard to the treatment of
deferred taxation, intangible asset and claim filed by the customer, subsequent to the
finalization of audited accounts.
Question 1(b)
This was another simple question requiring the determination of the maximum amount of
bonus shares that the company might issue subsequent to the right issue. It was also
answered poorly by majority of the students as they could not understand or properly deal
with the given situation and made the following mistakes:
 Did not take into account that after the issuance of right shares, the share capital
would increase and a share premium amounting to Rs. 60 million would also be
received which can be used for the issuance of bonus shares.
Page 1 of 5
 Were unable to work back the amount so that the remaining reserves should be equal
to 25% of the share capital after issuance of bonus shares. They calculated the amount
of bonus shares by deducting 25% of the existing share capital before issuance of
bonus shares, from the total reserves.
 Some of the students explained the relevant rule or produced the formula instead of
making the actual calculations.
Question 2
This question required listing down of formalities to be carried out by a Pakistan branch
office of a UK based company which has decided to wind up in UK and also cease
operations in Pakistan. The question was based on Sections 458 and 465 of the Companies
Ordinance, 1984.
A large number of candidates seemed to ignore that two events were to take place i.e.
winding up of the UK based company and discontinuance of business of Pakistani branch
and separate dates were mentioned for each. Most such students mentioned the liquidation
process of a Pakistani company which was totally irrelevant. Some of the candidates
narrated the procedure for obtaining declaration of solvency from directors, which had
also not been asked for.
Question 3
This was a simple question pertaining to circular resolutions. Although a good

performance was expected because such questions have been tested frequently in the past,
the overall performance was just average. The common mistakes were as follows:
 Many candidates only mentioned that a circular resolution may be approved but did
not mention the other conditions.
 Many candidates mentioned some or all the conditions but did not state the source of
such conditions i.e. Table A.
 Many candidates mentioned the option of holding a meeting through video conference
without realizing that such meeting also required notices to the directors and
fulfillment of various other formalities.
 Many students mentioned about calling Extra Ordinary General Meeting which was
totally incorrect.
Question 4
This question contained a scenario and was based on Section 85 of the Companies
Ordinance, 1984. The overall performance was average. The most common mistakes
made by the candidates were that instead of stating that Preference shares can be
redeemed out of “Capital redemption reserve fund”, they stated “Sinking fund” and
instead of stating, out of sale proceeds of “any property”, they stated, “immovable
property”. Besides, very few students stated categorically that borrowing from banks is
not permissible for the purpose of redemption of preference shares. In most of the cases
the students simply ignored this information in the question and did not cover this aspect
in their answers.
Page 2 of 5
Question 5
This was a scenario based question and the requirement pertained to Section 96(1) and (4)
of Securities Act, 2015. This was one of the worst attempted question as both parts (a) and
(b) of this question were not answered well by majority of the students. Most probably
because of selective study they did not seem to have much idea of the related provisions
and relied on guesswork.
The question was about disclosure of price sensitive information whereas the students
mixed it up with insider trading. In part (a) very few students discussed the most
important issue i.e. the possibility of delaying the public disclosure of information.
Similarly in part (b), very few students were aware of the necessary requirements and
most students relied on guesswork.
Question 6(a)
Most of the students got low marks on this part of the question as they failed to mention
the last date by which application for extension in the date of AGM can be made to the
registrar. The students also failed to specify that even if the application to registrar is not
made within the prescribed time, the Registrar for special reasons to be recorded in
writing, may allow such extension. Many students mentioned incorrectly that the
application has to be made to the SECP. It must be noted that MCL was a public unlisted
company and therefore the application was required to be made to the Registrar and not to
the Commission.
Question 6(b)
Most of the students got high marks in this part of the question as they correctly
mentioned the information/documents which are required to be submitted to registrar
along with the application for grant of extension in holding of AGM.
Question 7
This question was based on Regulation 4(2) and 5 of Companies (Investment in associated
companies and associated undertakings) Regulations, 2012. The performance remained
below average as a large number of students did not seem to read the question carefully.
They did not notice that the approval for making the investment in the associated
undertaking had already been given in the last AGM but the full approved amount has not
been released and therefore the requirement was to update the shareholders on the issue
such as reasons for short payment and material changes in the financial statement of the
associated undertaking. Instead, they narrated the requirements for making investment in
an associated undertaking which was not relevant at all.
Question 8
This was a scenario based question relating to Rule 5(2) and (4) of the NBFC Rules, 2003
and Section 282L of the Companies Ordinance, 1984. Both parts of this question were
answered well by majority of the students.
Page 3 of 5
Question 9
This was a straightforward question from Section 181 of the Companies Ordinance, 1984
regarding removal of director of a listed company prior to completion of the tenure. The
performance remained mixed. The good students were able to distinguish between two
possibilities i.e. (i) whether Faheem was elected in the normal course or (ii) whether he
was the first director or was appointed to fill a casual vacancy and mentioned the
conditions relevant in each case. Quite obviously, those students who did not make this
distinction, gave wayward answers and could not secure any mark.
Question 10
This was a straightforward question from Para 7(2)(h) of NBFC Rules, 2003 where the
requirement was to list the conditions which an NBFC would have to comply with while
investing in shares of a private limited company and was answered well by majority of the
students. The most common mistake was that exception allowed under the said rule was
not mentioned i.e. that an investment by NBFC out of its surplus equity, in its wholly
owned subsidiaries, for undertaking a form of business, shall not be taken into account for
calculating the limit for unquoted shares.
Question 11
According to the question, a shareholder having 22% shares wanted to file a petition in
the court against the company’s management on three different grounds. The candidates
were required to comment on the admissibility of such a petition. The question was based
on Section 290 of the Companies Ordinance, 1984 and the candidates were expected to
point out that continuous losses and failure to pay dividend do not constitute a valid
ground for filing such petition with the court. However, majority of the students did not
seem to possess the requisite knowledge. A large number of students narrated the
provisions of Section 290 correctly but did not offer any comment on the grounds
mentioned in the question. On the other hand, many students discussed the requirement
for minimum shareholding correctly but considered all the three reasons mentioned in the
question as admissible grounds for filing the petition. Many candidates specified 10%
shareholding as the minimum required to file a petition, instead of 20%.
Question 12(a)
In this part of the question, five different complaints lodged by the shareholders were
mentioned, which pertained to proceedings of AGM of a company. The candidates were
required to discuss the validity of each complaint. The overall performance was quite
good. However, some candidates discussed the validity of the meeting and the decisions
taken instead of discussing the validity of the complaint.
Question 12(b)
This part was well attempted by the most of the students.
Page 4 of 5
Question 13
This was a straightforward question relating to Competition Act, 2010 and the
Competition (Merger Control) Regulations, 2007. It had three parts. Part (a) requiring
explanation of the term ‘dominant position’ was generally answered well by majority of
the students. In part (b) most of the students failed to secure good marks as they narrated
the situations which are considered abuse of dominant position, whereas the question
required them to identify the factors which shall be considered in determining whether or
not the merger situation is likely to substantially prevent or lessen the competition in the
market. Performance in part (c) was mixed. A large number of candidates secured full
marks but an even greater number of candidates had no clue whatsoever and could not
secure any mark.
(THE END)
Page 5 of 5
Final Examinations
Module E
Corporate Laws
Q.1 Sun Energy Limited (SEL) was incorporated on 1 January 2016. The statutory meeting of
SEL is scheduled to be held on 9 June 2016. The statutory report to be presented to the
shareholders has been signed by the CFO, the CEO and a non-executive director of the
company on 20 May 2016. However, the auditors of the company have refused to verify
the statement of receipt and payments on the grounds that a payment of Rs. 12 million
dated 12 May 2016 has not been included in it. The CFO contends that the payment had
not been included because the contract against which the cheque was issued has been
cancelled with mutual consent and the party has returned the payment by way of a
pay-order dated 20 May 2016.
In the light of the provisions of the Companies Ordinance, 1984, you are required to:
(a) comment on the observations of the auditors and the contention of the CFO. (03)
(b) identify the non-compliances by SEL in the above circumstances. (05)
Q.2 Abid Brothers Limited (ABL) owns two industrial undertakings, one in Peshawar and the
other in Karachi. ABL has decided to go into member’s voluntary winding-up.
Accordingly, an extraordinary general meeting of ABL was held on 1 December 2015 in
which Akber and Farid were appointed as the Liquidators. Akbar was responsible for
disposing of the Peshawar factory whereas disposal of Karachi factory was assigned to
Farid.
On 1 June 2016 Farid resigned without assigning any reason. He has written a letter
claiming 20% of the agreed remuneration after deduction of the amount already advanced
to him. According to him, he has completed 20% of the work assigned to him.
Akber has held negotiations with Hercules Limited (HL), a listed company, who has
offered one million shares as purchase consideration for Peshawar factory. However, he
expressed his concerns about the time involved in the liquidation process and has requested
for reconsideration of his remuneration.
In context of the provisions of the Companies Ordinance, 1984 you are required to explain
the following:
(a) Whether ABL can accept Farid’s resignation and his request for payment of
remuneration? (03)
(b) Whether Akber’s request for increase in remuneration may be accepted? (02)
(c) What conditions would have to be complied with if Peshawar factory is sold to HL as
per their offer? Describe Akbar’s response if some shareholders of ABL do not agree
to the terms of sale of Peshawar factory. (06)
Q.3 Latif held more than 13% voting shares in Clovers Limited (CL), a listed company,
throughout the year 2015-16. During the year, he made number of sale and purchase
transactions in CL’s shares and earned substantial amount of gain.
You are required to discuss Latif’s responsibilities under the Securities Act, 2015 in respect
of the above transactions. (08)
Q.4 Rahat Mills Limited (RML) and Global Limited (GL) are listed companies and their
financial years end on 30 June.
RML has been purchasing its raw material from Beta Limited (BL) for the last five years
under an agreement. The purchase prices are reviewed by the Board of Directors of RML
after every six months.
Nadir, who is an elected director in RML, acquired 5% shares in BL on 15 January 2016.

On the same day, he served a general notice to the directors of RML about his interest in
BL.
Nadir’s wife Shehla was appointed as a director in GL on 1 March 2016 as a nominee of

Zahid and Zubair Limited (ZZL). GL is a major customer of RML. However, Shehla has
not intimated the Board of Directors of GL about her interest because of being the wife of
the director (Nadir) of RML.
In the light of the provisions of the Companies Ordinance, 1984 explain the responsibilities
of Nadir and Shehla during the period from 1 March 2016 to 30 June 2016. (09)
Q.5 Following are the details of matters related to investment by Sparrow Limited (SL) in its
associated unlisted companies i.e. Duck Limited (DL) and Tiger Limited (TL):
(i) SL is planning to acquire 1.0 million ordinary shares in DL from a shareholder of DL

at Rs. 25 per share. The face value of the shares is Rs. 10 each.
(ii) On 1 September 2015 SL had paid Rs. 10.0 million to TL for purchase of 0.5 million
right shares at 100% premium. However, due to a legal dispute, TL is unable to issue
the right shares. TL is hopeful that the matter would be resolved by 30 June 2016.
Required:
(a) Advise the Directors of SL regarding the conditions to be complied with in respect of
the purchase of shares of DL, from the shareholder, under the Companies
(Investment in Associated Companies or Associated Undertakings) Regulations,
2012. (06)
(b) In light of the provision of Companies Ordinance, 1984 and Companies (Investment
in Associated Companies or Associated Undertakings) Regulations, 2012, explain the
rights of SL in (ii) above. (03)
Q.6 An abstract from the statement of financial position as on 31 March 2016 of Ryan Limited
(RL) is as follows:
Rs. in million
Authorized share capital
100 million ordinary shares of Rs. 10 each 1,000
Issued, subscribed and paid up capital

50 million ordinary shares of Rs. 10 each 500
Share premium account 50
550
RL is planning to get listed on the Pakistan Stock Exchange by selling 8 million shares to
the general public at a premium of Rs. 15 each. Out of 8 million shares, RL plans to offer
1 million shares to its employees and 3 million shares to overseas Pakistanis.
You are required to advise the Directors of RL regarding the conditions to be complied by
them for issue of capital in the above circumstances under the Listing Regulations. (10)
Q.7 (a) Junaid wishes to acquire 14% voting shares of Calico Limited. In this respect he
wants to appoint “Manager to the offer”.
State who can be appointed as “Manager to the offer” under the provisions of the
Securities Act, 2015. (03)
(b) Assuming that Junaid becomes insolvent after the public offer was made by him and
withdraws the public offer.
State the responsibilities of the manager to the offer under the provisions of the Listed
Companies (Substantial Acquisition of Voting Shares & Takeovers) Regulations,
2008. (03)
Q.8 Annual general meeting of Fusion Enamels Limited was held on 31 May 2016 to transact
the following agenda items:
(i) Approval of the minutes.

(ii) To discuss and approve annual audited accounts.
(iii) To approve the dividend as recommended by the directors in their meeting.
(iv) To appoint auditors for the forthcoming year.
The meeting commenced at 10.30 a.m. However, soon after the minutes were approved i.e.
at 11.15 am, Farhan, the chairman, left the meeting due to misbehaviour of few
shareholders. One of the shareholders, Saleem, took the chair to conduct the meeting. The
dividend as recommended by the directors and the audited financial statements were
approved by the shareholders. Later, the meeting was adjourned to 18 June 2016 without
the appointment of auditors.
Farhan wants to pass a resolution regarding approval of loan to an associated undertaking
at the adjourned meeting.
In view of the provisions of the Companies Ordinance, 1984, and the regulations in
Table A you are required to comment on the following:
(a) Validity of the decisions taken at the meeting when it was chaired by Saleem. (04)
(b) Assuming that the meeting as chaired by Saleem was valid, what conditions would
have to be complied with for holding the adjourned meeting and for passing the
resolution as desired by Farhan. (04)
Q.9 Lucky Garments Limited (LGL) is being wound up by the Court. The Official Liquidator
after realization of the assets, has an amount of Rs. 5,600,000 available for payment to the
creditors. Details of creditors are as follows:
Rupees
Salam Bank Limited (Note 1) 4,000,000
Wages and salaries (100 employees; payable for three months) 1,000,000
Income tax payable 500,000
Unsecured creditors (Note 2) 8,100,000
Note 1:
LGL had created a charge on all the assets of the company in favour of Salam Bank
Limited.
Note 2:
Unsecured creditors are, Amin, Waseem and Kashif. The amounts payable to them are
Rs. 2,025,000, Rs. 4,293,000 and Rs. 1,782,000 respectively.
Required:
Under the provisions of the Companies Ordinance, 1984 show how the available funds
would be applied by the Liquidator under the above circumstances. (05)
Q.10 State the requirements of the Code of Corporate Governance, 2012 relating to the
following:
(a) Certification of companies’ directors under Directors’ Training Program (03)
(b) Composition of audit committee (03)
Q.11 (a) Under the NBFC (Establishment and Regulation) Rules, 2003 subordinated loans are
regarded as part of equity. State the conditions which must be complied with, for a
loan to be classified as subordinated loan. (07)
(b) State the conditions pertaining to Fit and Proper Criteria for appointment of Chief
Executive of an Investment Company which is registered under NBFC and Notified
Entities Regulations, 2008. Also state the conditions that would have to be complied
with at the end of each calendar year after appointment. (07)
Q.12 The Experts Education Foundation (EEF) is a public company registered under section 42
of the Companies Ordinance, 1984. The directors have requested for your advice relating to
renewal of its licence. The following information has been made available to you in this
regard:
(a) The company was registered on 1 October 2011. (02)

(b) The company receives local grant of funds on monthly basis and foreign donations
once in a year. (02)
(c) A director has not paid his utility bill amounting to Rs. 500,000. The due date of the
bill was 2 April 2016. (02)
(THE END)
Corporate Laws
Suggested Answers
Ans.1 (a) Comments on the observation of auditors and contention of the CFO
According to CO-1984, an abstract of the receipts of the company and of the payments
made up to a date within seven days of the date of the statutory report is to be included in
statutory report. Since the statutory report is signed by the chief executive on 20 May 2016
and the amount was paid on 12 May 2016, therefore, the payment of Rs. 12 million should
have been included in the receipts and payments. Hence, the auditor is correct.
CFO’s contention is not correct as the requirement is to include all payments up to seven
days of the date of signing irrespective of its subsequent status.
(b) The following non-compliances have been noted from the stated situation:
(i) The directors are required to send the statutory report to every member at least
twenty-one days before the date on which the statutory meeting is held.
In this situation, statutory meeting was to be held on 9 June 2016 and the statutory
report of SEL had been certified by CEO on 20 May 2016 which confirms that there
would be a delay in circulation of the report among the members as the 21 days
requirement could not have been fulfilled.
(ii) The statutory report is required to be certified by not less than three directors, one of
whom shall be the chief executive of the company, but in the given situation, the
statutory report had been signed by the CEO, a non-executive director and the CFO
which is a non-compliance under the provisions of the Companies Ordinance, 1984
unless the CFO was also a director of the company.
Ans.2 (a) Farid cannot resign or quit his office before conclusion of the winding up proceedings
except for reasons of personal disability to the satisfaction of the Court.
Farid has resigned from the office before conclusion of winding up, therefore, no
remuneration may be paid to him and advance already paid to him, shall be refunded by
him to the company.
(b) Akber’s request for re-consideration of the remuneration cannot be accepted as the
remuneration fixed in the general meeting shall not be enhanced subsequently but may be
reduced by the Court. However, ABL with the approval in general meeting may allow him
a monthly allowance for meeting the expenses of the winding up for a period not
exceeding twelve months from the date of commencement of winding up.
(c) If Peshawar factory is sold to HL, Akber will have to obtain permission of the
shareholders of ABL through special resolution conferring on Akber the authority to
dispose of the Peshawar factory as above.
If one or more shareholders disagree with the proposal, Akber shall be required to do
either of the following:
 Abstain from carrying the resolution into effect; or
 Purchase the interest of the dissenting shareholder(s) at a price to be determined by
agreement or by arbitration.
If Akber elects to purchase the member’s interest, the purchase money shall be paid before
ABL is dissolved and be raised by Akber in such manner as may be determined by special
resolution.
Page 1 of 5
Corporate Laws
Suggested Answers
Ans.3 Latif is a substantial shareholder as he holds more than ten percent voting shares in Clovers
Limited, which is a listed company. Latif is therefore required to report to:
 the company and the Commission in writing, within seven days about any change in
beneficial ownership. The notice given to the company shall state the number, amount and
description of securities involved and any gain made from the sale or purchase of shares
within a period of less than six months.
 the Commission before the expiration of a period of seven days beginning with the day on
which the gain accrues from the purchase and sale, or sale and purchase of CL’s shares
within a period of less than six months, and to tender the gain to the commission within the
period of six months of the accrual of the gain. The gain shall be tendered after deduction of
the stamp duty, brokerage and other expenditure actually paid or incurred in making the
gain subject to the production of documentary evidence in support of payment.
Ans.4 Responsibilities of Shehla

As a nominee Director on the Board of GL, Shehla should disclose to the Directors of GL that
her spouse is a director in RML therefore she will be considered as indirectly interested. The
disclosure may be made on or before the date of a meeting of the directors at which any matter
related to the purchases from RML is to be discussed.
Shehla shall not take any part in the discussion of the Board meeting where contract with RML is
being discussed and her presence shall not be counted for the purpose of forming a quorum at the
time of any such discussion or vote and if he does vote her vote shall be void.
Responsibilities of Nadir
Conditions as mentioned in Shehla’s responsibilities would also apply to Nadir as regards his
involvement in discussion by RML as regards GL and BL.
According to law, any general notice given to the directors regarding the interest of directors shall
expire at the end of the financial year in which it is given.
Therefore, the notice given by Nadir on 15 January 2016 expired on 30 June 2016 as it is the end
of financial year of RML.
Nadir is required to renew the general notice for the financial year 2017 for which he has to serve
a fresh notice in the month of June 2016.
Further, Nadir has to either give the notice in the meeting of director of RML or take reasonable
steps to ensure that the notice is brought up and read in the first meeting of the directors after it is
given; otherwise the notice would be of no effect.
Ans.5 (a) SL will have to consider the following points before buying shares of DL, an associated
unlisted company.
(i) The fair value of the securities of DL shall be determined based on generally
accepted valuation techniques and latest audited financial statements of DL by
 A chartered accountant firm, which must have been given a satisfactory rating
under the Quality Control Review Program of Institute of Chartered
Accountants of Pakistan; or
 A Non-banking finance company licensed by the Commission to carry out the
business of investment finance services which has been assigned a minimum
rating of “A+” or equivalent by a credit rating company registered with the
Commission and has been in operation for at least five years.
Page 2 of 5
Corporate Laws
Suggested Answers
(ii) In case the price to be paid for DL is different from the fair value as determined
above, an explanation along with justification, and basis of determination of price
shall be disclosed to the members.
(b) According to the Associated Companies Regulations, 2012, the rights of SL are as under:
(i) Since shares are not issued within ninety days from the transfer of the funds into
share deposit money, the amount paid by SL on 1 September 2015 would be
considered as loan.
(ii) Interest/markup thereon shall be charged for the period from 1 September till the
date when shares would be issued in accordance with the provisions of CO-1984.
Ans.6 RL has to comply with the following conditions relating to the issue of shares to general public,
employees and overseas Pakistanis:
(i) Since the post issue paid-up capital of RL is above Rs. 500 million, the allocation of capital
to the general public excluding the premium amount shall be at least Rs. 125 million or
12.5% of the post-issue paid up capital (i.e. Rs. 62.5 million), whichever is higher.
Therefore, RL will have to offer at least 12.5 million shares to the general public.
(ii) RL will also be required to subsequently enhance the quantum of public shareholding to
25% within next four years of its listing through any means mentioned in the Listing
Regulations or approved by the Commission.
(iii) RL may allocate share capital up to 20% of the public offer to overseas Pakistanis. By
considering this regulation, maximum offer of RL to overseas Pakistanis could be 2.5
million shares (12,500,000 × 20%). Further, the amount should be subscribed through
proper banking channel.
(iv) RL may allocate share capital up to five percent of the public offer to employees of the
company. This regulation allows the company to offer up to 625,000 shares (12,500,000 ×
5%).
(v) In case of under subscription in either of the categories i.e. the quota allocated to resident
or non-resident Pakistanis, the unsubscribed portion will be allocated to the applicants of
other category.
(vi) The allocation of shares to Sponsors in excess of 25% and allocation of shares under Pre-
IPO placement including employees of the company/group companies shall not be
saleable for a period of six months from the date of public subscription.
Ans.7 (a) “Manager to the offer” means a bank, securities broker or an investment bank licensed by
the Commission, who shall not be an associate, or a group company, of Junaid or Calico
Limited.
(b) Upon withdrawal of public offer by Junaid, the manager to the offer will have to return the
shares to the respective shareholders of CL within a period of three working days from the
date of the public announcement of withdrawal in the newspapers.
Thereafter, release the security amount deposited by Junaid to the Court because of
bankruptcy of the acquirer.
Page 3 of 5
Corporate Laws
Suggested Answers
Ans.8 (a) In accordance with the provisions of the Companies Ordinance, 1984 the chairman of the
board of directors shall preside as chairman of the meeting and if he is unwilling to act as
the chairman, any one of the directors present may be elected to be chairman, and if none
of the directors is present or is unwilling to act as chairman the members present shall
choose one of their member to be the chairman.
Therefore, the meeting under Saleem’s chairmanship would only be considered valid if no
other directors showed his willingness to act as the chairman.
(b) If AGM is adjourned for ten days or more, notice of the adjourned meeting shall be given,
as in the case of an original meeting, otherwise, it shall not be necessary for the company to
give any notice of an adjournment or of the business to be transacted at an adjourned
meeting. Therefore, if adjourned meeting is held on 18 June 2016, FEL would have to give
notice of the adjourned meeting as in the case of original meeting.
Further, no business shall be transacted at any adjourned meeting other than the business
left unfinished at the meeting from which the adjournment took place. Therefore, FEL may
appoint auditors of the company but resolution regarding approval of the loan to associated
undertaking cannot be discussed and approved.
Ans.9 Under the Companies Ordinance, 1984 Official Liquidator shall make the payment in the
following order:
Payment
Payment details Rupees
order
1 Income tax payable 500,000
2 Wages and salaries (100 × 2,000) 200,000
3 Salam Bank Limited 4,000,000
4,700,000
4 Amount available to unsecured creditor (0.9 = 5.6 – 4.7)
Amin (900 × 25%) 225,000
Wasim (900 × 53%) 477,000
Kashif (900 × 22%) 198,000
5,600,000
Ans.10 (a) It shall be mandatory for all the directors of the listed companies to have certification
under any directors' training program offered by institutions – local or foreign – that meet
the criteria specified by the SECP:
Provided that from 30 June 2012 to 30 June 2016 every year, a minimum of one director
on the board shall acquire the said certification under this program each year and
thereafter all directors shall obtain it:
Provided further that individuals with a minimum of 14 years of education and 15 years of
experience on the board of a listed company – local and/or foreign – shall be exempted
from the directors' training program.
(b) The board of directors of every listed company shall establish an Audit Committee
consisting of at least three members comprising of non-executive directors and at least one
independent director. The chairman of the committee shall preferably be an independent
director who shall not be the chairman of the board. The board shall satisfy itself such that
at least one member of the audit committee has relevant financial skills/expertise and
experience.
Page 4 of 5
Corporate Laws
Suggested Answers
Ans.11 (a) According to the NBFC, Rules 2003, following conditions must be complied with for a
loan to be classified as a subordinated loan:
(i) The loan from sponsor will be considered as sub ordinated loan.
(ii) Rate of profit, if any, shall be decided by NBFC subject to the clearance of the
Commission;
(iii) Neither the interest nor the principal shall be paid even at maturity if such payment
would result in non-compliance with the equity or capital adequacy requirements;
(iv) It shall be un-secured and sub-ordinate to all other indebtedness including deposits.
(v) It shall be in the form of cash or liquid assets only;
(vi) Auditor certificates evidencing injection of funds into NBFC as subordinated loan;
(vii) Minimum tenor of the loan shall be specifically mentioned;
(viii) Prior approval of the Commission shall be required for repayment of the loan.
(b) Conditions pertaining to Fit and Proper criteria for the appointment of chief executive are
as follows:
(i) A chief executive of Investment Company shall not assume the charge of office until
their appointment has been approved by the Commission.
(ii) The application for seeking approval of the Commission shall be submitted by
Investment Company along with the requisite information and an Affidavit.
(iii) The fitness and propriety criteria shall be considered by taking into account the
following:
 Integrity and track record of such person.
 Financial soundness of such person.
 Competence and capability of such person.
 Conflict of interest of such person.
Conditions to be complied with at the end of each calendar year

The investment company shall within 30 days of the close of each calendar year submit the
following documents with regard to its chief executive:
 Updated resume
 CIB reports of the chief executive and the companies, firms, sole proprietorship, etc.
where he is acting as director, partner or owner; and
 Latest tax returns
Ans.12 For renewal of its license , EEF has to consider the following :
(a) The license is issued for a period of five years. EEF will complete its five year period on
30 September 2016, therefore it has to apply to SECP for renewal of its license. The
application for renewal can be made three months before the expiration of period of license
i.e. by 1 July 2016.
(b) The foundation is required to maintain a record of all local and foreign donations and
grants irrespective of its amount. A certificate from a Chartered Accountant would be
required that all funds have been received through banking channel and are in conformity
with the books of account of the foundation.
(c) The director would not be allowed to act as director if the CIB report shows an overdue
amount exceeding Rs. 500,000 Non-payment of bills does not appear on CIB report and
will not affect his eligibility.
(The End)
Page 5 of 5
SUBJECT SESSION
Corporate Laws Final Examination - Summer 2016
General:
Overall performance in this paper was below average. It was observed that many students
performed well in questions pertaining to Companies Ordinance, 1984 but performance in
other areas was rather poor. This was a clear indication of selective studies.
Many students seemed to be under the impression that they would earn more marks if they
wrote lengthy answers. Writing unnecessary details is absolute wastage of time and therefore
students are advised to refrain from writing unnecessary details. The past question papers and
suggested answers are available on ICAP’s website. It is suggested that the students should
study them carefully to understand how the answers should be framed.
Question wise Comments:
Question 1(a)
An average performance was seen in this scenario based question pertaining to statutory
meeting and statutory report, based on section 157 of the Companies Ordinance, 1984. The
requirement was to comment on the observation of the auditors and contention of the CFO as
mentioned in the scenario.
A number of students did not know the requirements of law, whereas many students who were
able to state the correct provision of law did not offer any comments on the contention of the
CFO and observations of the auditors.
Question 1(b)
In this part, students were required to identify the non-compliances by the company under the
given situation. Overall performance was average. Many students did not identify that if CFO
is not the director of the company, then the company will be in non-compliance with the law
which requires that the statutory report must be signed by three directors, one of whom shall be
the chief executive of the company. Further, some students explained various requirements of
holding statutory meetings which was not required.
Question 2(a)
This question regarding tendering of resignation by the liquidator and requesting for payment
of remuneration [Section 364(5) and (7)] of the Companies Ordinance, 1984 was answered
well by majority of the students.
Question 2(b)
This question regarding request for increase in remuneration by a liquidator was based on
section 364(3) & (4) of the Companies Ordinance, 1984. An average performance was
witnessed. Majority of the students were able to clarify that once approved in the general
meeting, the remuneration cannot be increased. However, most of them were unable to explain
Page 1 of 5
the other aspect of the situation, i.e. that the company subject to the approval in general
meeting may allow liquidator a monthly allowance for meeting the expenses of the winding-up
for a period not exceeding twelve months from the date of commencement of the winding up
proceedings.
Question 2(c)
An average performance was observed in this question which was based on section 367 (3) &
(4) of the Companies Ordinance, 1984. Commonly observed errors were as follows:
 Many students were confused over the powers of liquidator where some of the shareholders
did not agree to his decision of sale of the Peshawar factory. They stated that in such
situation, the liquidator shall submit the proposal for approval/guidance of the Court. Some
of the students mentioned that the shareholders should file complaint with the SECP, which
was totally irrelevant.
 The students generally failed to mention that the liquidator may purchase the shares of the
dissenting shareholders. Those students who correctly mentioned this provision failed to
mention the manner in which the price will be determined and how funds may be raised for
payment.
Question 3
The question was based on Sections 101 to 105 of the Securities Act, 2015 relating to reporting
requirements to be complied with by a substantial shareholder.
Although most of the students correctly explained about tendering of gain earned by the
substantial shareholder on sales and purchase of shares, to the Commission, within a period of
less than six months, they failed to mention that such shareholders should also report to the
Commission and company about the change in beneficial ownership within seven days of the
change.
Few students mixed up the concept with insider trading and wrote irrelevant answers.
Question 4
Average performance was seen in this scenario-based question pertaining to Sections 214 &
216 of the Companies Ordinance, 1984 requiring students to explain the responsibilities of
directors relating to disclosure of their direct or indirect interest. Many students wrote
unnecessary details and wasted their precious time. Other commonly observed mistakes are as
follows:
 Many students did not highlight the basis that lead to the existence of direct / indirect
interest of Shehla and Nadir.
 Few students were of the view that Shehla being nominee director is not required to
disclose her interest and there is no restriction on her taking part in the Board Meeting in
which contract of RML is being discussed.
 Most of the students did not explain the provision relating to expiry and renewal of notice.
Question 5(a)
In this part, students were required to advise the directors of SL regarding the conditions to be
complied with in respect of purchase of shares of SL’s associated (unlisted) company DL, from
one of the shareholders of DL. Overall performance of the students was poor as majority of the
Page 2 of 5
students answered on the basis of provisions of Section 208 of the Companies Ordinance,
1984, whereas the question specifically required the answer in the light of Associated
Companies & Associated Undertaking Regulations, 2012.
Question 5(b)
This part required the candidates to explain the rights of (SL) which had made payment
towards right shares that were to be issued to its associated undertaking (unlisted) TL but TL
could not issue right shares within the prescribed time to SL. Overall performance was
average. A number of students incorrectly stated that SL should demand refund of amount
along with surcharge. They are advised to refer to ICAP’s suggested answer for guidance on
this question.
Question 6
Poor performance was witnessed in this question which required the students to advise the
directors of a company regarding the conditions to be complied with for issuance of share
capital in the given circumstances. Majority of the students seemed to lack the required
knowledge with regards to issuance of shares to employees and overseas Pakistanis. They
narrated the procedure for further issuance of shares by the company, which fulfilled only a
part of the requirement of the question.
Other commonly observed mistakes are as follows:
 Many students did not take cognizance of the fact that subsequent to issue of shares, the
share capital of RL will exceed Rs. 500 million and consequently failed to correctly
calculate the number and amount of share capital which can be issued to general public,
overseas Pakistanis and employees of the company.
 Those who correctly identified that share capital will be more than Rs. 500 million,
wrongly calculated the allocation of capital to general public as Rs. 125 million or 12.5%
of the post-issue paid up capital whichever is ‘lower’ whereas it should have been the
higher of the two figures.
 Very few students were able to highlight that allocation of shares to the sponsors in excess
of 25% under IPO shall not be saleable for a period of 6 months from the date of public
subscription.
Question 7(a)
This part of the question simply required the students to identify who can be appointed as
‘Manager to the Offer’. The performance was quite poor. Apparently, majority of the students
had not studied the relevant provision and resorted to guesswork. They are advised to seek
guidance from ICAP’s suggested answer.
Question 7(b)
Poor performance was seen in this question which required students to state the responsibilities
of the Manager to the Offer. An exceptionally large number of students did not attempt this
question. Majority of those who did attempt it, failed to mention the time limit within which
the Manager to the Offer is responsible to return the shares to the shareholders. Further, most
of the students did not know that since offeror has become insolvent, security amount
deposited by him shall be released to the Court.
Page 3 of 5
Question 8(a)
This scenario based question which required the students to comment on the validity of the
decisions taken at the annual general meeting which was chaired by a shareholder, was well
attempted by majority of the students.
Question 8(b)
Average performance was seen in this question which required listing of the conditions to be
complied with for holding the adjourned meeting and for passing the resolution in the given
scenario. Generally the students were not clear about the situation in which a fresh notice is
required even in case of an adjourned meeting. Further, a large number of students did not
mention the important point that no business shall be transacted at the adjourned meeting other
than the business left unfinished at the meeting which was adjourned.
Question 9
It was a straight forward question from Section 405 of the CO-1984. The requirement was to
state the manner in which the available funds would be applied by the liquidator under the
given circumstances. Overall performance was quite good and about 15% students were able to
secure full marks. The most common error was that equal amount was allocated to each
unsecured creditor for payment instead of allocation on a pro-rata basis.
Question 10(a)
This straight forward question from Rule 35(xi) of the Code of Corporate Governance
regarding certification of directors of companies under Directors’ Training Program was well
attempted by majority of the students.
Question 10(b)
This question required the students to state the requirements of composition of audit committee
under Rule 35(xxiv) of the Code of Corporate Governance. It was generally well attempted.
However, an important requirement that at least one member of the audit committee should
have financial skills and experience, was missed by most of the students. Some of the students
who tried to cover this aspect, stated incorrectly that one member of the audit committee
should have knowledge of relevant industry or have 10 years of business experience, etc.
Question 11(a)
An average performance was seen in this part which required the students to state the
conditions to be complied with for a loan to be classified as Subordinated Loan under the
NBFC (Establishment and Regulation) Rules, 2003. Commonly observed mistakes were as
follows:
 Many students stated that this loan should be taken ‘preferably from directors’. The use of
the word preferably changed the entire context and rendered their answer incorrect.
 Few students confused ‘Subordinated loans’ with ‘Sub-standard loans’.
Page 4 of 5
Question 11(b)
This part pertained to Fit and Proper criteria for appointment of Chief Executive. Overall
performance was satisfactory as many students achieved high marks. However, one or more of
the following mistakes were commonly observed in many answer scripts:
 Some of the students failed to mention that the chief executive cannot be appointed until it
is approved by the Commission on an application made by the company.
 A number of students failed to mention the condition relating to submission of CIB reports
of chief executive and the companies, firms, sole proprietorship, etc. where he is acting as a
director, partner or owner.
Question 12
This question pertained to matters concerning renewal of license of a public company

registered under section 42 of the Companies Ordinance, 1984 read with the Circular 28 of
2015. It was an extremely poor attempted question as following mistakes were observed in
most of the answer scripts:
 The license is issued for a period of five years, whereas most of the students mentioned
“one year” or “three years”.
 The application for renewal can be made three months before the expiration of period of
license, whereas majority students mentioned “30 days”.
 Non-payment of bills does not appear on CIB report and will not affect eligibility of a
director, whereas most of the students wrote that license cannot be renewed if a director has
utility bills of any amount outstanding for more than 90 days.
(THE END)
Page 5 of 5
Certified Finance and Accounting Professional Stage Examinations

Corporate Laws
Q.1 Pioneer Limited (PL) holds 55% shareholding in Abid Limited (AL). Due to financial
difficulties AL has not been able to repay three consecutive quarterly instalments of a bank
loan amounting to Rs. 100 million. AL has requested PL to repay the entire amount of
bank loan and in return AL would issue 1 million term finance certificates of Rs. 100 each
at the prevailing market interest rate.
AL had also taken a loan from PL in 2015. The principal amount of the loan has been
repaid but PL had agreed to recover the interest thereon in 2017.
In the light of provisions of Companies (Investment in Associated Companies or

Associated Undertakings) Regulations, 2012 you are required to list the conditions to be
complied with if PL agrees to provide the required financing. (05)
Q.2 To acknowledge the contribution of its executives, Tulip Works Limited is planning to
offer them shares under the Employees Stock Option Scheme.
In the light of the provisions of the Public Companies (Employees Stock Option Scheme)
Rules, 2001, you are required to:
(a) explain the term ‘Employees’ and identify the persons who are eligible to participate
in the scheme. (03)
(b) specify the pre-requisites/pre-conditions for launching such a scheme. (03)
(c) specify matters to be considered while drafting the scheme relating to the following:
(i) Lock-in period and variation of terms of the scheme. (03)
(ii) The rights of option holders (employees) in respect of the following: (03)
Dividends and voting rights
Transferability of options
Pledge of options
Death or permanent incapacity of the employee
Resignation or termination of the employee
Q.3 Rapid Constructions Limited (RCL) is a listed company. Advise the Board of Directors
of RCL on the following matters, in the light of the provisions of the Companies
Ordinance, 1984:
(a) A request has been made by an independent director for increase in remuneration of
directors from Rs. 25,000 to Rs. 40,000 for attending the Board and sub-committee
meetings and performing extra services. (02)
(b) Mr. Dawood, who is a director, wants to appoint his brother in his place as he is
going abroad on vacations. (02)
(c) On 5 December 2016 an urgent request has been received from Farid, a member, for
inspection and supply of minutes of the company’s fifteenth extraordinary general
meeting held on 2 December 2016. (04)
(d) Mr. Asad is a director but is not a member of the company. (03)
Q.4 Jahangir (SMC-Private) Limited was formed by Jahangir in 2006 in accordance with
Single Member Companies Rules, 2003. His close family includes his wife and two
daughters.
He has sought your advice with regard to the following:
(a) How would the company operate in case of Jahangir’s death? (05)
(b) What procedure would have to be followed if Jahangir transfers 10% of the shares to
each of his two daughters? (03)
Q.5 (a) Specify the forms of business which may be carried on by a Fund Management
NBFC as provided under the NBFC Rules, 2003. (03)
(b) On 15 June 2016 SECP has issued permission to Asif Asset Management Limited
(AAML) to establish a “Fund Management NBFC”. In the light of the NBFC Rules,
2003 you are required to advise the directors of AAML in respect of the following
matters:
(i) Incorporation of NBFC has been delayed because it is not possible to

commence business by 1 July 2017. (05)
(ii) The directors of AAML intend to nominate Dilawar as the chief executive of
the NBFC. Dilawar is currently working as chief executive officer of Salman
Management Services Limited. (03)
(iii) Arif, who is also a major shareholder in AAML, has recommended the name
of his son Nadir for appointment as Chief Investment Officer of the NBFC. (03)
Q.6 Narrate the conditions required to be complied with by the following for filing a petition
for winding up of a company as specified under the Companies Ordinance, 1984:
(a) A contributory (03)

(b) The Registrar and the Commission (03)
(c) A contingent or prospective creditor (02)
Q.7 (a) Solar Power Limited (SPL), an unlisted company, is the subsidiary of Zest Limited
(ZL), a listed company. On 1 November, 2016 ZL has declared an interim dividend.
According to the announcement, ZL will issue shares if SPL in the form of specie
dividend.
Describe the responsibilities of ZL in the above situation, in view of the Pakistan

Stock Exchange Regulations and the consequences if ZL fails to fulfill its obligations. (06)
(b) Alpha Limited (AL) is listed on Pakistan Stock Exchange Limited. Its shares are
traded on ready as well as future counter. Its board of directors has approved annual
accounts in their meeting held on 25 November 2016 and have decided to hold the
Annual General Meeting on 31 December 2016.
State the requirements of Pakistan Stock Exchange Regulations to be complied with

by AL with regard to issuance of notice to the stock exchange for closure of share
transfer books. (03)
(c) Narrate the provisions related to notice of general meeting as specified in the
Companies E-Voting Regulations, 2016. (04)
Q.8 No person shall make a public offer of securities unless the issuer or offeror of the securities
has submitted a copy of the prospectus to the Commission for approval and the
Commission has approved the prospectus.
List the exceptions to the above rule, under the provisions of the Securities Act, 2015. (05)
Q.9 Star Fertilizers Limited (SFL) holds 20% shareholding in Mars Limited (ML) and intends
to acquire further 20% shareholding in ML. Before making a public announcement of its
intention, SFL seeks your advice regarding the following in the light of the Listed
Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations, 2008:
(a) The steps to be taken by SFL before making the public announcement. (02)
(b) The requirements that ML has to comply with after the public announcement of
intention by SFL and prior to the withdrawal of the public announcement or
commencement of the offer period, as the case may be. (04)
(c) The possible consequences if SFL makes the public announcement but wants to
withdraw it, under each of the following circumstances:
If the public announcement was made with the intention to deceive the public (02)
If the public announcement is withdrawn because of any other reason. (02)
Q.10 (a) Discuss the composition of the Board of Directors under the Code of Corporate
Governance, 2012. (05)
(b) Sedan Limited (SL) has recently been converted into a listed company. Mr. Shah,
representing minority shareholders, has submitted his papers for contesting the
election of the directors.
Based on the regulations of the Code of Corporate Governance, 2012 you are
required to state the steps that SL should take with regard to the request submitted by
Mr. Shah. (03)
(c) Briefly state the conditions which are required to be fulfilled by a listed company
while offering shares through book building under the Book Building Regulations,
2015. (06)
(THE END)
Corporate Laws
Suggested Answer
Certified Finance and Accounting Professional – Winter 2016
Ans.1 General conditions to be complied by PL:

(i) Since interest on previous loan is outstanding from AL, PL may grant further loan only if
repayment of such loan is rescheduled after approval of special resolution of the members
of PL.
(ii) The investment shall be made within twelve months from the date of passing of special
resolution.
(iii) There shall be an agreement in writing and such agreement shall inter-alia include the
terms and conditions specifying the nature , purpose , period of the loan, rate of interest,
mark-up, profit, penalty clauses in case of default or late repayments and security for the
loan in accordance with the approval of the members in the general meeting.
(iv) Interest shall be recovered periodically by PL in line with the standard terms normally
applied by the commercial banks.
(v) Interest rate on TFCs is in line with the prevalent market interest rate so no adjustment is
required in this regard.
Ans.2 (a) “Employee” means:

(i) A regular employee of a company working in Pakistan or out of Pakistan.
(ii) An executive director who is on pay roll of a company.
(iii) A chief executive who is on pay roll of a company.
Only regular employees who are on the pay roll of TWL are eligible to participate in the
Scheme.
(b) The prerequisite which TWL would be required to do are:

(i) Constitute a Compensation Committee for administration and superintendence of the
Scheme.
(ii) Pass a special resolution for approving the Scheme.
(iii) Get the Scheme approved by the Commission in accordance with the ESOS Rules.
(c) (i) Lock-in period and variation of terms of a scheme:

 TWL shall have the freedom to specify the lock-in period for the shares issued
pursuant to an exercise of option.
 However, there shall be a minimum period of one year between the grant of
option and vesting of option.
 A company may by special resolution in a general meeting vary the terms of a
Scheme offered pursuant to an earlier resolution of a general body but not yet
exercised by its employees provided such variation is not prejudicial to the
interests of the option holders.
(ii) Right of employee regarding the option granted

 Dividends and voting rights
 No such rights
 Transferability of options
 Not transferable to any other person except to an entitled employee of the
company
 Pledge of options
 Cannot be pledged
Page 1 of 6
Corporate Laws
Suggested Answer
 Death or permanent incapacity of the employee

 All options granted to employee, upto the time of his death shall vest in his
legal heirs or nominees
 All options granted to employee, as on the date of permanent
incapacitation, shall vest in him on that day.
 Resignation or termination of the employee

 All options which are not vested as on the day of resignation/termination
shall expire. However, the vested options may be retained if it is provided in
the scheme.
Ans.3 (a) The remuneration of a director for performing extra services, may be determined by the
directors or the company in general meeting, in accordance with the provisions in the
company's articles.
Further, the remuneration for attending the Board of directors’ meetings or Committee
Meetings cannot exceed the scale approved by the company or the directors, as the case
may be, in accordance with the provisions of the articles of the company.
(b) Following conditions must be complied with if Dawood’s brother is to be appointed as an

alternate director
(i) The absence of Dawood should be for a period of at least 3 months.
(ii) The directors of the company approve the grant of leave to Mr. Dawood and the
appointment of alternate director.
(iii) Dawood’s brother must be a member of RCL and should not be ineligible to be
appointed as a director of RCL in any other manner.
(c) According to the provision of the Companies Ordinance, 1984 any member shall at any
time after seven days from the meeting, be entitled to be furnished with a certified copy of
the minutes of the general meeting. Therefore, Farid cannot request for inspection or a
copy of the minutes of the meeting before 9 December 2016 as the meeting was held on 2
December 2016.
Further, RCL is required to furnish copy of the minutes of the meeting within seven days
from the date of the request. Since Farid has made the request on 5 December 2016, RCL
may furnish a copy by 16 December 2016.
(d) The condition for a director to be a member of the company does not apply to Asad if he
is:
(i) representing the Government or an institution or authority which is a member;

(ii) an employee of the company;(whole-time director)
(iii) a Chief executive;
(iv) representing a creditor.
Ans.4 (a) If Jahangir dies, Jahangir (SMC-Private) Limited may either be wound up in accordance with
the provisions of the Companies Ordinance,1984 or be converted into private company and in
this regard:
(i) The secretary shall manage affairs of the company till transmission of shares to legal heirs
of the single member.
(ii) The secretary shall inform the registrar concerned about the death and provide particulars
of the legal heirs.
Page 2 of 6
Corporate Laws
Suggested Answer
(iii) The secretary shall take steps for transfer of shares in the name of legal heirs of the single
member within seven days of the receipt of succession certificate and in case of any
impediment, report the circumstances of the case to the registrar.
(iv) the company shall pass a special resolution for change of status from single member
company to private company and alter its articles accordingly within thirty days of
transfer of shares; and
(v) the members shall appoint and elect one or more additional directors within fifteen days
of date of passing of the special resolution and notify the appointment to registrar within
fourteen days of date of such appointment;.
(b) If Jahangir transfer 10% shares to each of his two daughters, the company shall:
(i) pass a special resolution for change of status from single member company to private
company and alter its articles accordingly within thirty days of transfer of shares ; and
(ii) appoint and elect one or more additional directors within fifteen days of date of passing
of the special resolution and notify the appointment to registrar within fourteen days.
Ans.5 (a) A “fund management NBFC” may carry out the following types of business:
(i) Asset Management Services.
(ii) REIT Management Services.
(iii) Pension Fund Scheme Business.
(iv) Private Equity and Venture Capital Fund Management Services.
(v) Investment Advisory Services.
(vi) Any combination of the above.
(b) (i) AAML was supposed to incorporate NBFC and submit an application to the
Commission for grant of license on or before 14 December 2016 i.e. within six
months from the date of permission granted by the Commission after fulfilling all the
conditions specified in the rules.
Since the period of six months is due to complete on 14 December 2016, directors
should immediately apply to the Commission for extension. The Commission may
extend the period for a maximum period of three months
NBFC is supposed to commence its business within the period as specified by the
Commission while issuing license. Hence the NBFC should be able to commence
business within the time specified in the license. If the company is unable to do so,
the license shall be cancelled.
(ii) Dilawar cannot be appointed as chief executive officer of the NBFC because he
already holds the office of CEO in another company. However, if he resigns from
Salman Management Services Limited, he would be eligible to be appointed as CEO
of the NBFC subject to fulfillment of fit and proper criteria and prior approval of the
Commission.
Furthermore the requirement shall not be applicable if Salman Management Services

Limited is acting as an investment company being managed by the Asif Asset
Management Limited and the appointment is being made with the approval of SECP.
(iii) There is no restriction, under the NBFC Rules, with regard to the appointment of son
of a major shareholder, as Chief Investment Officer provided the NBFC can furnish,
within 90 days of grant of licence, evidence to the satisfaction of the Commission
that Nadir possesses sufficient educational qualifications and professional experience
to fulfill his responsibilities.
Page 3 of 6
Corporate Laws
Suggested Answer
Ans.6 (a) A contributory may file a petition for winding up if:

 the number of members is reduced, in the case of a private company, below two, or, in
the case of any other company, below seven; or
 the shares in respect of which he is a contributory or some of them either were
originally allotted to him or have been held by him, and registered in his name, for at
least six months during the eighteen months before the commencement of the winding
up, or have devolved on him through the death of a former shareholder.
(b) The registrar may file a petition for the winding up with prior permission of the
Commission. The Commission may file a winding up petition when an investigation into
the affairs of the company has revealed that:
 it was formed for any fraudulent or unlawful purpose, or
 it is carrying on a business not authorised by its memorandum, or
 its business is being conducted in a manner oppressive to any of its members or
persons concerned in the formation of the company, or
 its management has been guilty of fraud, misfeasance or other misconduct towards the
company or towards any of its members.
(c) A contingent or prospective creditor may file a petition for winding up if:
 prima facie case for winding up has been established to the satisfaction of the Court.
 security for costs has been given as the Court thinks reasonable.
Ans.7 (a) According to the PSX Listing Regulations, ZL is responsible to get SPL’s shares listed on
or before 1 March 2017 (i.e. 120 days from 1 November 2016).
If SPL fails to apply for listing or the application for listing of shares of SPL is refused on
account of insufficient public interest or any other reason, ZL would be required to encash
the shares of SPL at the option of the recipients at a price not less than the current break-up
value, or face value, whichever is higher, within 30 days after the expiry of 120 days or
from the date of refusal of listing whichever is earlier. In the event of default, the trading in
the shares of ZL may be suspended by PSX or the company may be de-listed.
(b) AL is required to give a minimum of fourteen (14) days’ notice to the Exchange prior to
closure of Share Transfer Books for any purpose.
Further as AL is quoted on the Futures Counter, the company must intimate to the
Exchange the dates of their book closure on or before twentieth (20th) day of the month
with a notice period of at least twenty one (21) days after the said twentieth (20th) day for
commencement of book closure.
(c) (i) Notice of general meeting shall clearly specify that members can also exercise their
right to vote through e-voting by giving his consent in writing on the appointment of
the execution officer by the Intermediary as a proxy.
(ii) The notice of meeting and e-voting shall also be placed on the website of the
company.
(iii) Form for choosing the option of e-voting shall be attached with the notice of the
meeting.
Ans.8 The provision is not applicable under the following :

(i) where the securities are offered by the State Bank of Pakistan.
(ii) where the securities are offered in connection with a private offering or private placement.
(iii) in case of issue of shares of a subsidiary to the members of a listed holding company by
way of specie dividend or any other distribution in the prescribed manner.
Page 4 of 6
Corporate Laws
Suggested Answer
(iv) where the securities are offered by the issuer to:

 members or employees of the issuer; or
 members of the families of any such members or employees; and
(v) where the securities are shares and are offered as bonus shares to any or all of the members
of the issuer
Ans.9 (a) SFL shall at least two working days before making public announcement submit a copy of
the announcement, through the manger to the offer, to the Commission, to the
management of ML, and the Pakistan Stock Exchanges .
(b) Once a public announcement of intention has been made by SFL and till SFL withdraws
the public announcement of intention or the commencement of the offer period, the board
of directors of ML, shall not:
(i) sell, transfer, or otherwise dispose of or enter into an agreement for sale, transfer, or
for disposal of the undertaking or a sizeable part thereof, not being sale or disposal of
assets in the ordinary course of business of the target company or its subsidiaries.
(ii) encumber any asset of the company or its subsidiary unless otherwise in the ordinary
course of business.
(iii) issue any right or bonus voting shares.
(iv) enter into any material contract.
(v) appoint any person who represents or has an interest in the acquirer as an additional
director or against a casual vacancy on the board of directors.
(c) The possible consequences if SFL makes the public announcement but subsequently wants
to withdraw it are as follows:
(i) If the public announcement was made with the intention to deceive the public, SFL
shall be liable to a fine of upto Rs. 30 million.
(ii) The regulations allow SFL to withdraw the public announcement of intention under
various conditions. Hence, there are no consequences if it withdraws the offer as
allowed.
Ans.10 (a) Under the Code of Corporate Governance, 2012, the board of directors is encouraged to
have a balance of executive and non-executive directors, including independent directors
and those representing minority interests with the requisite skills, competence, knowledge
and experience so that the board as a group includes core competencies and diversity,
including gender, considered relevant in the context of the company’s operations.
A listed company should have:

 at least one and preferably one third of the total members of the board as independent
directors.
 Executive directors, i.e., paid executives of the company from among senior
management, shall not be more than one third of the elected directors, including the
Chief Executive.
(b) The minority shareholders as a class are required to be facilitated to contest the election of
directors by proxy solicitation. Therefore, with regard to the request submitted by Mr. Shah
representing minority shareholders, SL shall:
 annex with the notice issued in respect of election of directors, a statement by Mr.
Shah including his profile.
 provide him information regarding members and shareholding structure; and
 on a request by Mr. Shah annex to the notice issued in respect of election of directors,
an additional copy of proxy form duly filled by Mr. Shah, at the company’s cost.
Page 5 of 6
Corporate Laws
Suggested Answer
(c) According to the Book Building regulations, 2015 the following conditions are required to
be fulfilled while offering shares through book building:
(i) The Issuer meets all requirement as stipulated under the Listing of Companies and
Securities Regulations of the stock exchange.
(ii) The Offer Size shall not be less than twenty five million shares or such higher
number of shares as may be specified by the Commission.
(iii) Allocation of shares under the Book Building Portion shall not exceed seventy five
per cent of the total Offer Size or such lower percentage as may be specified by the
Commission.
(iv) A Book Runner, shall be appointed through an agreement in writing, for
undertaking the Book Building;
(v) Name of the Book Runner and Sub-Book Runner, if any, shall be disclosed in the
prospectus.
(vi) The Issuer or the Offerer shall enter into a tripartite agreement in writing with the
Designated Institution and the Book Runner and such agreement shall specify inter-
alia, the rights, duties, responsibilities and obligations of each party to the agreement
and shall provide a clause on dispute resolution mechanism among the parties to the
agreement.
(vii) Details including address and contact persons for each designated Bid Collection
Center shall be disclosed in the prospectus.
(viii) Approval of the Commission shall be obtained for issue, circulation and publication
of the prospectus.
(ix) The prospectus shall be issued, circulated and published not less than seven days
and more than thirty days before the commencement of the subscription period for
the retail portion of the Issue;
(x) within five working days of the closing of the Bidding Period, supplement to the
prospectus shall be published at least in all those newspapers in which the prospectus
was earlier published and also disseminated through securities exchange where
shares are to be listed.
(The End)
Page 6 of 6
SUBJECT SESSION
Corporate Laws Certified Finance and Accounting
Professional (CFAP) Examination -
Winter 2016
General:
An average performance was observed in this paper which was slightly better than the
performance in the previous attempt. The same types of issues were noted in this attempt also
which the examiners have been highlighting during the past few years i.e. selective studies,
failure to address the exact requirement of the question and use of inappropriate legal terms.
Question 1
This question pertained to the issue of investment in associated company. Only few students
were able to secure good marks. Most of the students got low marks as they failed to list down
the conditions mentioned in Regulation 7 & 8 of the Companies (Investment in Associated
Companies or Associated undertaking). Generally the students discussed the rate of interest on
loan and recovery thereof but failed to mention the conditions like approval of members
through special resolution. Finer points like the following were rarely mentioned:
(i) Since interest on previous loan is outstanding further loan may only be granted if
repayment of such loan is rescheduled after approval by way of a special resolution.
(ii) Investment shall be made within 12 months of special resolution.
Question 2
This question of 12 marks comprised of three parts and tested the area of Employees Stock
Option Scheme. Part-wise comments are given below:
Question 2(a)
This part required the students to define ‘employees’ and identify the persons who are eligible
to participate in the scheme. Majority of the students were unable to secure good marks as they
did not know that the definition of employee for this purpose is quite different from the way in
which the term employee is generally understood. Further, while discussing the eligibility,
most of them used the term permanent employee instead of regular employee.
Question 2(b)
This part required the pre-requisites / pre-conditions for launching such a scheme. A significant
number of students did not seem to have no clue and did not attempt the question or gave
totally wayward answers.
Page 1 of 6
Examiners’ Comments on Corporate Laws – CFAP Examination Winter 2016
Question 2(c)
This part of the question required the candidates to specify the matters to be considered while
drafting the Scheme, in respect of Lock-in period, variation of terms of the Scheme and right of
option holders with regard to dividend, voting, transferability and pledge of options and in case
of death, permanent incapacity or resignation of the employee. Quite apparently, only few
students had read the relevant rules. Consequently, they failed to correctly explain the lock in
period and variation in terms of scheme. However, as regards the rights of option holder, most
of them used their general understanding of these areas and were able to secure reasonable
marks.
The common shortcomings were as under:
 Many students ignored the requirement of the question and tried to define these terms.
 Only few students mentioned that TWL shall have the freedom to specify the lock-in
period for the shares issued pursuant to an exercise of option.
Question 3
This question of 11 marks consisted of four part and each part tested a different area as
discussed below:
Question 3(a)
The performance was good as most of the students correctly explained that the remuneration of
directors for performing extra services is determined by the directors or members as per the
articles of the company. However, some candidates seemed totally confused and stated that no
remuneration can be paid to an independent director.
Question 3(b)
In this part, the candidates were required to specify the conditions relating to the appointment
of alternate director. The overall performance was quite poor probably because the candidates
were somewhat confused because the person to be appointed as the alternate director was the
brother of the director who was going on vacations. Previously, when the same issue was tested
in a simpler situation, the performance was much better.
Question 3(c)
According to the situation given in this part of the question, an urgent request had been
received from a member for inspection and supply of minutes. The overall performance was
good but many students did not read dates given in the question clearly or ignored them
altogether. Consequently, they were unable to understand the crux of the matter i.e. the
member had requested the inspection and supply of minutes of the meeting within three days
whereas the members are entitled to be furnished certified copy of the minutes of the general
meeting after seven days.
Question 3(d)
This was a simple question which was well replied by most of the students.
Page 2 of 6
Question 4
This question of 8 marks comprised of two parts relating to Single Member Companies Rules,
2003. Part-wise comments are as under:
Question 4(a)
In this part the candidates were required to advise how the company would operate in case of
death of the single member. Quite obviously, those who had studied the relevant rules were
able to answer the question correctly; however, the number of such students was quite limited.
Moreover, the point related to succession certificate was missed by most of the good students
as well.
Question 4(b)
This part required students to advise what procedure would have to be followed if the single
member transfers 10% of the shares to each of his two daughters. This part was based on Rule
4 and was generally attempted well as the candidates described the procedure to be followed
correctly. However, most of them were unable to mention an obvious but important point that
the company would be converted into a private limited company.
Question 5(a)
This part of the question requires students to specify the forms of business which may be
carried on by a Fund Management NBFC. It was a simple question which was well attempted
by the students.
Question 5(b)
This part of the question required students to advise the board of directors on three given
situations in the light of the provisions of Non-Banking Finance Companies Rules, 2003.
Situation-wise comments are as under:
(i) According to this situation SECP had given permission on 15 June 2016 to an asset
management company to establish a Fund Management NBFC but incorporation of the
NBFC has been delayed because it was not possible to commence business by 1 July
2017.
Most of the students seemed unaware of the relevant rules and used guesswork. They
did not mention anything about application to the Commission for grant of licence
which was the key issue as the date of commencement of business is specified in the
licence.
(ii) Here the advice was sought regarding appointment of a person as the CEO of an NBFC
where the said person was currently working as CEO of another company. This was an
easy question and most of the students performed well.
(iii) According to the given situation, a major shareholder of an NBFC had recommended
the name of his son for appointment as Chief Investment Officer (CIO) of the NBFC.
The response was below average and the following mistakes were generally observed:
 Majority of the students did not know that there is no restriction under the Rules
with regard to the appointment of son of a major shareholder as CIO and declared
that the appointment would be invalid.
Page 3 of 6
 Many students did not read the question clearly and discussed the appointment of
CEO instead of CIO.
Question 6
This question of 8 marks required students to narrate the conditions required to be complied
with by (i) A contributory (ii) The Registrar and the Commission and (iii) A contingent or
prospective creditor, for filing a petition for winding up of a company under Section 309 of the
Companies Ordinance 1984. Majority of the students explained the conditions related to a
contributory correctly. In the case of Registrar and the Commission, the response was average
as many students mixed up the two or gave the same conditions for both. Very few students
could correctly explain the conditions relating to contingent or prospective creditor especially
the condition related to costs was rarely mentioned.
Question 7
This question of 13 marks comprised of three parts. Part-wise comments are as under:
Question 7(a)
According to this part of the question, a listed company (ZL) had announced interim dividend
which was to be paid in the form of shares of ZL’s unlisted subsidiary. The candidates were
required to describe the responsibilities of ZL in respect of the above under the Pakistan Stock
Exchange Regulations and the consequences if ZL fails to fulfill its obligations.
The overall performance was below average as many students got mixed up and narrated the
responsibilities of the company and the CEO under section 251 of the Companies Ordinance,
1984. Among those who did refer to the concerned regulations, many were confused between
the par value and market value and/or didn’t mention the correct time limit. Moreover, ZL was
responsible to get the subsidiary’s shares listed but many students termed it as the
responsibility of the subsidiary.
Question 7(b)
This part of the question required the students to state the requirements of Pakistan Stock
Exchange Regulations, to be complied with by a company with regard to issuance of notice to
the stock exchange for closure of share transfer books, where its shares are traded on ready as
well as future counter. Majority of the students were not aware of the requirements especially
those relating to the future counter.
Question 7(c)
This part of the question requires students to narrate the provisions related to notice of general
meeting as specified in Regulation 6 of Companies E-Voting Regulations, 2016. The
performance was average. Most of the students only mentioned that the notice of the meeting
should specify the right of members to vote through e-voting and such notice shall be placed
on the website of the company. However, they failed to narrate the conditions under which e-
voting becomes binding on the company.
Page 4 of 6
Question 8
This question contained 5 marks and required the students to list the exceptions to the rule
whereby a person making a public offer of securities is required to get the prospectus approved
by the Commission, as stated in Section 87 of the Securities Act 2015. Though about 11% of
the students secured full marks in this question, about 41% could not secure any mark, which
was quite obviously due to lack of knowledge and selective studies.
Question 9
This question pertained to a company (SFL), which held 20% shares in a company (ML) but
intended to acquire a further 20% shareholding in ML and was based on Listed Companies
(Substantial Acquisition of Voting Shares and Takeovers) Regulations, 2008. There were three
parts of this question. The requirement of each part and the performance is discussed below:
Question 9(a)
The requirement was to specify the steps to be taken by SFL before making the public
announcement. Majority of the students got low marks on this part of the question as they only
mentioned the responsibility of the company for submission of copy of announcement but
failed to identify the authorities to whom the copy of announcement has to be submitted.
Question 9(b)
In this part the students were asked to specify the conditions which ML had to comply with
after the public announcement and prior to withdrawal of public announcement or
commencement of the offer period, as the case may be. This part was well attempted by most
of the students.
Question 9(c)
The requirement was to advise the possible consequences if SFL makes the public
announcement but wants to withdraw it under the given circumstances. Generally the
performance was poor as the students were not aware of the relevant rules. They are advised to
seek guidance from ICAP’s suggested answers.
Question 10
This question was of 14 marks and comprised of three parts. Part-wise comments are as under:
Question 10(a)
This part of the question requires students to discuss the composition of the BOD under the
Code of Corporate Governance, 2012. Generally, the performance was average. Majority of the
students were able to explain about the number of each type of directors but could not say
much about the general guideline given in the code.
Question 10(b)
This part of the question required the students to state the steps that a company should take to
facilitate a person contesting the elections as the representative of minority shareholders. The
overall performance was below average as quite evidently only a few students seemed to have
studied this topic.
Page 5 of 6
Question 10(c)
This part of the question required the students to briefly state the conditions which are required
to be fulfilled by a listed company while offering shares through book building process. The
performance was below average. Majority of the students had no idea whatsoever and resorted
to guesswork. A number of students did not attempt this part altogether. They are advised to
refer to Regulation 4 of the Book Building Regulations, 2015 to seek guidance on this issue.
(THE END)
Page 6 of 6
CORPORATE LAWS
Summary of Marking Key
Certified Finance and Accounting Professional Examination – Winter 2016
Note regarding marking scheme:

The marking scheme is given as a guide. However, markers also award marks for alternative
approaches to a question and relevant/well-reasoned comments/explanations. Moreover, the
available marks in a question may exceed the total marks.
Mark(s)
A.1 Between 0.5 to 2.5 marks for each condition to be complied by PL before granting
of loan to its associated undertaking 5.0
A.2 (a) Explanation of the term “Employees” 2.0

Identification of the persons who are eligible to participate in the scheme 1.0
(b) 01 mark for specifying each pre-requisite for launching (Employees Stock
Option Scheme) Rules, 2001 3.0
(c) Up to 01 mark for each matter that needs to be considered while drafting the
(Employees Stock Option Scheme) Rules, 2001 relating to the following:
(i) Lock-in period and variations of terms of the scheme 3.0
(ii) Rights of option holders 3.0
A.3 (a) Advice on request to increase the remuneration of director for attending
board and sub-committee meetings 2.0
(b) Up to 01 mark for each condition which should be complied with if a director
wants to appoint a person as alternate director during his absence from the
country 2.0
(c) Advice on the earliest date at which a member can inspect or request for
a copy of the minutes 2.0
Advice on the earliest date at which RCL is required to furnish a copy
of minutes to the above member 2.0
(d) Up to 01 mark for mentioning each situation under which a director is not
required to hold the minimum number of shares specified in the Articles 3.0
A.4 (a) Up to 01 mark for each step to be followed with respect to the operation of
business of a single member company on the death of the only shareholder 5.0
(b) Up to 02 marks for each step to be followed if Jahangir transfers 10% of the
shares to each of his daughters 3.0
A.5 (a) 0.5 mark for each form of business which may be carried out by a Fund
Management NBFC 3.0
(b) (i) Explanation of the provisions relating to the incorporation of

NBFC and commencement of business 3.0
Application of the provisions in the given scenario 2.0
(ii) Advice to the directors regarding appointment of a person as chief

executive of NBFC where he is presently the CEO of another company 3.0
(iii) Advice to the directors regarding appointment of the son of a major

shareholder as chief investment officer of the NBFC 3.0
Page 1 of 2
CORPORATE LAWS
Mark(s)
A.6 (a) Conditions to be complied with under Companies Ordinance 1984, by a
contributory if he wishes to file a petition for winding up of a company 3.0
(b) Conditions to be complied with by the Registrar and the Commission if they
want to file a petition for winding up of a company 3.0
(c) Conditions to be complied with by a contingent or prospective creditor if he
wishes to file a petition for winding up of a company 2.0
A.7 (a) Description of the responsibilities of ZL on issuance of its subsidiary’s shares

as specie dividend 5.0
Description of the consequences if ZL fails to fulfil its obligations 1.0
(b) Stating the requirement of issuance of notice for closure of share transfer
books 3.0
(c) Between 0.5 to 02 mark for each provision related to notice of general
meeting as specified in the Companies E-Voting Regulations, 2016 4.0
A.8 01 mark for each exception to the rule regarding submission of a copy of prospectus
to the Commission before making any public offer of sale of securities 5.0
A.9 (a) Steps to be taken before making public announcement of the intention to
acquire substantial shareholding 2.0
(b) Up to 01 mark for each requirement to be complied with by the company

after the public announcement of the intention to buy further shares has been
made 4.0
(c) The possible consequences:

if the public announcement was made to deceive the public 2.0
if the public announcement was withdrawn for any other reason 2.0
A.10 (a) Discussing the requirement of the Code of Corporate Governance, 2012
relating to the Composition of the Board of Directors 5.0
(b) Up to 01 mark for each step that SL should take with regard to the request
submitted by Mr. Shah 3.0
(c) Up to 1.5 marks for each condition required to be fulfilled by a listed

company while offering shares through Book Building Regulations, 2015 6.0
(THE END)
Page 2 of 2
Certified Finance and Accounting Professional Stage Examination

Corporate Laws
Q.1 The summarised balance sheet of Zahoor Mills Limited (ZML), a listed company, is as
under:
2016 2016
Share capital (Rs. 10 each) 200 Non-current assets 350
Accumulated profit 100 Current assets 150
Equity 300
Long term liabilities 140
Current liabilities 60
500 500
Nadeem, Faheem and Saleem respectively hold 1 million, 2 million and 3 million shares in
ZML respectively. They intend to offer their shares to the public at the rate of Rs. 30 per
share. The market price of the share is Rs. 33. ZML has not made any divestments during
the last six months.
In the light of the provisions of the Companies (Issue of Capital) Rules 1996, you are
required to advise:
(a) whether they can offer their shares to the public individually or jointly. (05)
(b) the conditions to be complied with in view of the premium being demanded by the
investors. (05)
Q.2 (a) List the types of businesses which NBFCs are permitted to carry out under the
provisions of the Companies Ordinance, 1984. (03)
(b) Haider Investment Limited (HIL) is a non-banking financial company (NBFC) listed
on Pakistan Stock Exchange. A group of shareholders having 15% voting rights have
filed an application with the Commission that affairs of the company are not being
managed properly and requested the Commission for removal of the chief executive.
Moreover, the shareholders have also expressed the concern that the time required to
comply with the necessary procedures would delay the matter which would be
detrimental to their interests.
In the light of the Companies Ordinance, 1984 you are required to state:
(i) the grounds on which the Commission may order removal of the Chief
Executive. (04)
(ii) the course of action available to the Commission if it decides to address the
shareholders’ apprehension regarding procedural delays. (04)
(c) Elite Housing Finance Limited (EHFL), a listed NBFC, is in the process of entering
into a rental agreement for an office premises owned by Zyan who is the brother of a
director of EHFL.
Discuss the validity of the rental agreement in the light of NBFC Rules, 2003. (02)
Q.3 In the light of the provisions of the Companies Ordinance, 1984 you are required to advise
in respect of the following matters:
(a) Junaid was elected as a director of Abid Limited in its last annual general meeting.
After a few months, it was found that Junaid’s appointment was not valid as votes by
certain members were counted twice due to an error. Few directors have challenged
the validity of all meetings attended by him and the actions taken therein. (02)
(b) Duck Limited is engaged in the business of consumable products. The company has
appointed distributors throughout Pakistan and has received substantial amounts from
them as security deposits. (02)
(c) On 1 June 2017 it has come to the knowledge of the CFO of Naeem Limited that the
charge given to FG Bank Limited against the loan taken on 1 May 2017 has not been
filed for registration with the Registrar of companies. (05)
Q.4 (a) Zahid was appointed as liquidator for the purpose of members’ voluntary winding-up
of Multi Sources Limited (MSL) at a general meeting held on 25 October 2016. After
reviewing the realisable value of the company’s assets, Zahid is of the opinion that
MSL would not be able to pay its debts in full within the period as stated in the
declaration made by the directors under section 362 of the Companies Ordinance,
1984.
Under the provisions of the Companies Ordinance, 1984 you are required to state:
(i) the responsibilities of Zahid in the above situation. (03)
(ii) the consequences of the above situation on the directors of MSL. (04)
(b) Zahid wants to resign as the liquidator, because of the difficulties being faced by him
in the performance of his responsibilities. He has discussed the matter with some of
the directors who have assured him that his request would be considered in their
meeting to be held soon.
Comment on the above in the light of the provisions of Companies Ordinance, 1984. (03)
Q.5 Shiraz Limited (SL) is a listed company and operates an employees’ provident fund. The
size of the fund is Rs. 500 million. The break-up of the investment made by the fund is as
under:
Rs. in million
Government securities 210
Listed debt securities 100
Shares in the listed companies 120
Bank balances 70
The trustees intend to make the following investments:

(i) Rs. 20 million in listed debt securities of Faizan Limited (FL). Total amount of debt
securities issued by FL is Rs. 200 million.
(ii) Rs. 40 million in the shares of Beta Textiles Limited (BTL), a listed company. Total
paid up capital of BTL is Rs. 600 million and market capitalization is Rs. 800 million.
The fund has not made any investment in the above companies previously.
Being the financial consultant of the company, you are required to advise SL regarding the
following matters in the light of the provisions of the Employees’ Provident Fund
(Investment in Listed Securities) Rules, 2016:
(a) whether the trustees can make the above investments. (06)
(b) what other conditions have to be met for making the above investments. (04)
Q.6 (a) Upon receiving information from some reliable sources, the Commission is of the
opinion that the affairs of GT Limited are being conducted in a manner unfairly
prejudicial to the interest of some of the shareholders. The Commission has made an
application against the company to the Court.
Under the provisions of the Securities Act, 2015 describe various actions which the
Court may order against the management of GT Limited. (05)
(b) Under the provisions of the Code of Corporate Governance, 2012 state the duties and
responsibilities of the chief executive and the company secretary of a listed company,
in case of sale or purchase of shares of the company by the chief executive. (03)
(c) State the circumstances specified under the Code of Corporate Governance, 2012 in
which a director is not considered as an independent director. (04)
Q.7 Nabil Group of Companies (NGC) in its meeting held on 15 May 2017 has approved buy-
back of shares by the following group companies:
(a) 5% of the total paid up capital of Nabil Earth Limited which was listed on Pakistan
Stock Exchange (PSX) on 1 August 2015 with a paid up capital of Rs. 300 million. (02)
(b) 10% of the total paid up capital of Nabil Sun Limited which was listed on PSX on
1 July 2014 with a paid up capital of Rs. 220 million. (02)
(c) 15% of the total paid up capital of Nabil Moon Limited which was listed on PSX on
30 July 2010 with a paid up capital of Rs. 400 million. The shares would be purchased
through tender offer. However, these shares would be re-sold in the market after a
period of three months. (02)
In the light of the provisions of the Listed Companies Buy Back of Shares Regulations, 2016
you are required to advise NGC on the legality of the above transactions.
Q.8 (a) Javed Ahmed is the head of production department of Folad Cement Limited (FCL),
a listed company. He acquired 70,000 shares in FCL 20 days prior to the close of
financial year and sold them 12 days after the declaration of annual results at a profit
of Rs. 5 million.
An increase of 25% in the share price of FCL has been noted within 10 days of the
announcement of the annual results.
In the light of the provisions of the Securities Act, 2015 evaluate whether the above
transaction falls within the ambit of insider trading. (05)
(b) Under the Securities Act, 2015 state the responsibilities of a listed company regarding
disclosure of inside information. (05)
Q.9 (a) Explain the term ‘Suspicious Transaction’ with reference to Anti-Money Laundering
Act, 2010. Also list the names of authorities who are required to report Suspicious
transactions and the authority to which these are to be reported. (06)
(b) Dewan intends to borrow Rs. 1,000,000 from Marhaba Bank Limited (MBL) against
pledge of shares as security. The shares are held by Dewan in a sub-account
maintained with a participant.
In the light of the provisions of the Central Depository Act, 1997 discuss:
(i) whether Dewan can pledge his shares in CDC in favour of MBL. (02)
(ii) the rights of MBL over the pledged shares. (03)
Q.10 Explain the following under the provisions of the Companies (Invitation and Acceptance of
Deposits) Rules, 1987:
(a) Restrictions on acceptance of deposits by private and public companies. (05)

(b) Maintenance of liquid assets. (04)
(THE END)
CORPORATE LAWS
Suggested Answers
Certified Finance and Accounting Professional Examination – Summer 2017
Ans.1 (a) According to Issue of Capital Rules, 1996 a person or group of persons holding
more than ten percent shares of a company, may offer such shares for sale to the
public. However, the size of offer of the capital to the public shall not be less than
Rs. 100 million.
Based on the above rule, none of the three can offer the shares to the public
individually based on the size of offer.
However, the three of them together or either Nadeem or Faheem in combination

with Saleem can offer the shares to the public as a group.
(b) Nadeem, Faheem and Saleem cannot charge any amount of premium unless
 ZML whose shares are offered fulfills the following
− has commenced commercial operations and based on its latest audited
accounts for not less than twelve months, it has-
 earned profit from its principal operations; and
 has positive earnings per share;
 the offer is fully underwritten as follows:

− the issue shall be fully underwritten by at least two underwriters and the
underwriters shall not be associated companies or associated
undertakings of the issuing company;
− the sponsors shall not enter into any agreement or arrangements directly
or indirectly with the underwriters with respect to the purchase of shares
taken up by the underwriters to the issue;
 the offerer shall justify the amount of premium per share and the justification
shall be disclosed in the offer for sale document.
Ans.2 (a) Following are the businesses which may be carried out by NBFCs under the
provisions of the Companies Ordinance, 1984:

(ii) Leasing;
(viii) Any other form of business which the Federal Government may specify, by
notification in the Official Gazette, from time to time.
(b) (i) The Commission may remove the chief executive of HIL on any one of the
following grounds:
 continued association of the chief executive is or is likely to be
detrimental to the interests of NBFC or its shareholders or persons
whose interest is likely to be affected; or
 the public interest so demands; or
 to prevent the affairs of NBFC being conducted in a manner
detrimental to the interest of its shareholders or in a manner prejudicial
to the interests of NBFC; or
 If it is necessary to secure a proper management of the NBFC.
Page 1 of 7
CORPORATE LAWS
Suggested Answers
(ii) If in the opinion of the Commission, any delay in the removal of CEO
would be detrimental to the public interest or the interest of the
shareholders, the Commission may, at the time of giving the opportunity
being heard or at any time thereafter, direct that:
 the chief executive shall not, with effect from the date of the order:
− act as chief executive of the NBFC; or
− in any way, be concerned with or take part in the management of
the NBFC;
 any person authorized by the Commission in this behalf shall act as

such chief executive of the NBFC till another person is elected to fill in
the vacancy.
Any person appointed as chief executive shall:

 hold office subject to such conditions as may be specified in the order of
his appointment and, subject thereto, for such period, not exceeding
three years as the Commission may specify; and
(c) EFHL cannot enter into the rental agreement with Zyan who is considered as a
close relative of one of the director of EHFL. However, this restriction shall not
apply to EHFL if it has a policy to this effect duly approved by its board of
directors.
Ans.3 (a) According to the Companies Ordinance, 1984 any act of a director or a meeting of
a director cannot be considered invalid merely on the ground of any defect
subsequently discovered in his appointment. Therefore all the acts of Junaid during
this period are valid. However, he should not exercise right of his office with
immediate effect and any act after this cannot be considered valid.
(b) Duck Limited can receive or utilize the amount on account of security deposit
against a contract in writing only. Duck Limited (DL) shall deposit all the amount
received on account of deposit in a special account with a scheduled bank.
(c) The time limit of 21 days has expired therefore Naeem Limited (NL) will have to
apply to the Commission for extension of time for the registration of the charge.
NL must satisfy the Commission:
(i) That the omission was accidental or due to inadvertence or due to some
other sufficient cause, or
(ii) It would not be of a nature to prejudice the position of creditors or
shareholders of the company, or
The Commission may extend the time for registration of charge on such terms and
conditions as seem to the Commission just and expedient.
A certified copy of the order of the Commission, shall be filed by the company
with the registrar within twenty-one days of the date of such order.
Page 2 of 7
CORPORATE LAWS
Suggested Answers
Ans.4 (a) (i) Since Zahid is of the opinion that MSL cannot pay its debts in full within the
period as declared by the directors , he shall forthwith summon a meeting of
the creditors and shall lay before the meeting a statement of the assets and
liabilities of MSL and such other particulars as may be specified.
Zahid shall submit a return of convening the creditors meeting along with
notice and minutes of meeting and a statement of assets and liabilities of
MSL with the registrar within ten days of the date of the meeting.
(ii) As MSL is unable to pay its debts in full as declared by the directors in the
statement of solvency, it shall be presumed that the directors did not have
reasonable grounds for their opinion, therefore, unless the directors can
prove otherwise they would be punishable with imprisonment for a term
which may extend to six months or with fine which may extend to ten
thousand rupees or with both.
(b) According to the Companies Ordinance, 1984 the liquidator shall not resign or quit
his office as liquidator before conclusion of the winding up proceedings except for
reasons of personal disability to the satisfaction of the Court.
Therefore, Zahid cannot resign.
The power of accepting or rejecting the resignation of liquidator before completion

of winding up proceedings rests with the Court and not with the management of
the company.
Ans.5 (a) The fund has already made investment in the listed securities equal to 44% of the
size of the funds i.e. 24% in listed equity securities and 20% in listed debt securities.
Under the EPF Rules:
(i) The maximum limit of investment in listed debt securities is 50% of the fund.
The additional investment of Rs. 20 million would increase the funds
investment in debt securities to 24% which is within the allowable limit.
(ii) The maximum limit of investment in listed equity securities is 30% of the
fund. The additional investment of Rs. 40 million would increase its
investment in equity securities to 32% which is above the allowable limit.
The fund can make investment in BTL up to Rs. 30 million only (500 × 30%
- 120.
(iii) The maximum aggregate investment in listed securities is 50% of the fund.
The additional investment of Rs. 60 million (i.e. Rs. 20 million in debt
securities and Rs. 40 million in equity securities) would increase its
investment in listed securities to 56% which is above the allowable limit.
(iv) The aggregate investment in listed equity securities of a particular company
shall be restricted to ten per cent of the size of the employees’ provident fund
i.e. (Rs. 50 million) or five per cent of the paid up capital of the investee
company i.e. (Rs. 30 million) whichever is lower, therefore investment in
BTL shares under this rule is allowed up to Rs. 30 million.
(v) The aggregate investment in listed debt securities of a particular company
shall be restricted to ten per cent of the size of the employees’ provident fund
i.e. (Rs. 50 million) or five per cent of debt issue of the investee company i.e.
(Rs. 10 million) whichever is lower, therefore investment in FL under this
rule is allowed up to Rs. 10 million.
Therefore, the maximum aggregate investment should also not exceed Rs. 30
million {(500×50%)–(100+120)}. Therefore, it may invest the entire amount of Rs.
Page 3 of 7
CORPORATE LAWS
Suggested Answers
30 million in BTL OR Rs. 20 million in BTL and Rs. 10 million in FL.
(b) Other conditions to be met

for listed debt securities i.e. FL
(i) The securities must have been assigned a minimum rating of “AA” with at
least a stable outlook at the time of investment.
for listed equity securities i.e. BTL

(i) BTL should have a minimum operational record of three years.
(ii) BTL must have exhibited average total return on investments, not less than
prevailing risk free rate i.e., the rate on which 6 months T-Bill are issued+50
basis point, at the time of investment.
(iii) BTL must not have defaulted on any of its financial obligations.
(iv) Its listed securities must not be on the defaulter segment of Pakistan Stock
Exchange.
Ans.6 (a) The Court may order the following:

(i) make an order restraining the carrying out the act or conduct;
(ii) order that GTL shall proceed against the persons involved in such manner
and terms as the Court may deem fit;
(iii) appoint a receiver, specify the powers and duties of the receiver or manager
and fix his remuneration; and
(iv) make any other order it considers fit, whether for regulating the conduct of
the GTL's affairs in future or for the purchase of the shares of any members
of the company by other members of the company or by the company and, in
the case of a purchase by the company, for the reduction accordingly of the
company's capital or otherwise.
(b) Duties and responsibilities of the Chief Executive and the company secretary in
respect of transactions entered into by the Chief Executive are as follows:
(i) Where the chief executive of a listed company sells or buys shares of the
listed company of which he is the chief executive, he shall immediately notify
in writing to the Company Secretary of such transaction.
(ii) He shall also deliver a record of the price, number of shares, form of share
certificates, i.e., whether physical or electronic within the Central Depository
System, and nature of transaction to the Company Secretary within four days
of effecting the transaction.
(iii) The notice of chief executive shall be presented by the Company Secretary at
the meeting of the board of directors immediately subsequent to such
transaction.
(iv) In the event of default by the chief executive to give a written notice or
deliver a written record, the Company Secretary shall place the matter before
the board of directors in its immediate next meeting:
(c) A director shall not be considered as independent, if one or more of the following
(i) He/she has been an employee of the company, any of its subsidiaries or
holding company within the last three years;
(ii) He/she is or has been the CEO of subsidiaries, associated company,
associated undertaking or holding company in the last three years;
(iii) He/she has, or has had within the last three years, a material business
relationship with the company either directly or indirectly as a partner,
major shareholder or director of a body that has such a relationship with the
company.
The major shareholder means a person who, individually or in connection
with his family or as part of a group, holds 10% or more shares having
Page 4 of 7
CORPORATE LAWS
Suggested Answers
voting rights in the paid up capital of the company.
(iv) He/she has received remuneration in the three years preceding his/her
appointment as a director or receives additional remuneration, excluding
retirement benefits from the company apart from a director’s fee or has
participated in the company’s share option or a performance-related pay
scheme;
shareholders:
Close relative means spouse(s) , lineal ascendants and descendants and
siblings;
(vi) He/she holds cross-directorships or has significant links with other directors
through involvement in other companies or bodies;
(vii) He/she has served on the board for more than three consecutive terms from
the date of his first appointment provided that such person shall be deemed
“independent director” after a lapse of one term.
(viii) He/she is nominated as director by the company’s creditors or other special
interest by virtue of contractual agreements.
(ix) He/she is nominated as a director by the corporation/company who has
made investment or otherwise extended facilities.
(x) He/she is nominated as a director by Federal Government, Provincial
Government, Commission, foreign equity holders on the board of PICIC or
any other company set up under a regional co-operation.
Ans.7 (a) According to the Buy back of Shares Regulations 2016, a company shall be eligible
to purchase its own shares when it is listed on the stock exchange for a period of
not less than two years.
Therefore, Nabil Earth Limited cannot buy back its own shares as the period of
two years has not been completed as it was listed on 1 August 2015.
(b) According to the Buy back of Shares Regulations 2016, a company shall be eligible
to purchase its own shares when it has a paid up capital of not less than Rs. 200
million after the purchase.
Therefore, Nabil Sun Limited cannot buy back its own shares as its paid up capital
would be reduced below two hundred million rupees after the purchase.
(c) Nabil Moon Limited (NML) can buy back shares provided that:
(i) Shares held as treasury shares shall not exceed ten percent of the total paid
up capital of NML.
(ii) The treasury shares shall not be sold, transferred or otherwise disposed of
within a period of six months from the closure of the purchase period.
Therefore, NML cannot re-sell the share in the market after a period of three
months.
Ans.8 (a) According to the Securities Act, 2015, an ‘insider’ includes any executive officer of
an issuer of listed securities; and ‘inside information’ means information which
has not been made public relating, directly or indirectly, to listed securities and
which if made public, would be likely to have an effect on the prices of listed
securities”.
From the above definition, it is established that Javed Ahmed is an insider person
as he is in employment of the PTL and may possess inside information as he is
Page 5 of 7
CORPORATE LAWS
Suggested Answers
head of production department and full knowledge of production of FCL.
The transaction will falls in the ambit of insider trading if:
 Mr. Javed Ahmed possessed the above information when he purchased the
shares.
 The decision was taken on the basis of such information.
(b) Responsibilities of a listed company regarding disclosure of inside information are

as follows:
(i) Whenever a listed company discloses any inside information to any third
party in the normal course, complete and effective public disclosures of that
information must be made simultaneously. However, this rule shall not apply
if the person receiving the information owes a duty of confidentiality.
(ii) A listed company shall maintain a list of persons employed, under contract,
or otherwise in the prescribed manner, who have access to inside information
and such company shall regularly update this list and send it to the
Commission whenever required by the Commission.
(iii) A listed company shall in the list of persons that have access to insider
information state that the persons listed have acknowledged the requirements
of this part related to the prohibition to conclude transactions with the use of
inside information and to advise the persons to whom they provide insider
information.
Ans.9 (a) (i) The term suspicious transaction means a transaction or a pattern of
transactions of which the transaction is a part which:
 Involves funds derived from illegal activities or is intended or conducted

in order to hide or disguise proceeds of crime.
 Is designed to evade any requirements of section 7 of Anti Money
Laundering Act, 2010.
 Has no apparent lawful purpose.
 Involves financing of terrorism.
(ii) Suspicious transactions are reported to Financial Monitoring Unit (FMU) by

 Financial institutions
 Non-financial businesses and professions
 Government agencies
 Autonomous bodies
 Regulatory authorities
 Any other entity designated by the Federal Government.
(b) (i) Dewan can pledge his shares, deposited in CDC account, provided Marhaba
Bank is an eligible pledgee, by giving instructions to the relevant participant
as he is a sub-account holder.
(ii) Rights of MBL are as under

 MBL shall have all the powers available to it under the Contract Act,
1872.
 MBL shall have the power, upon the default of Dewan, to transfer the
pledged book entry securities.
Page 6 of 7
CORPORATE LAWS
Suggested Answers
 Any other power which may be granted to MBL in writing by Dewan in

relation to the pledged book-entry securities.
 CDC cannot remove the pledge without the consent of MBL.
Ans.10 (a) A public and a private company cannot accept any deposit:
 for purposes other than the financing of its own business.
 from another company, except a company which is its holding company.
 which is repayable on demand/notice or repayable earlier than the expiry of
six months or later than the expiry of thirty-six months from the date of
acceptance or renewal of such deposit.
Provided that in case of short-term requirements of funds, accept deposits for

repayment earlier than six months from the date of deposit subject to the
conditions that such deposit:
− shall not exceed ten per cent, of the aggregate of the paid-up share capital
and free reserves of the company; and
− shall be repayable not earlier than three months from the date of such
deposit
 The total amount of deposit accepted shall not exceed twenty-five per cent of
the aggregate of the paid-up share capital and free reserves of the company.
Restrictions applicable to private companies only

 No private company shall invite deposits from the public.
 A private company may accept deposits from persons other than its directors
or shareholders or their spouses or minor children, provided that the number
of such persons shall not exceed twenty at any time
(b) Every company shall before the 31st day of December of each calendar year
deposit or invest, at least ten per cent of the amount of its deposits maturing during
the year ending on the 31st day of December next following in any one or more of
the following, namely:
(i) in a National Savings Scheme;

(ii) in a special account opened for the purpose in a scheduled bank, free from
charge or lien;
(iii) in Government securities; or
(iv) in such other securities as are notified by the Authority for the purpose.
(The End)
Page 7 of 7
Corporate Laws
Examiners’ comments and Suggested answers
Certified Finance and Accounting Professional (CFAP) – Summer 2017
Examinations
Overall General Comments:
The overall performance was slightly better as 20.85% candidates passed as compared to
18.20% in the previous attempt. Very poor performance in question 9 was reflective of
selective study as the question pertained to areas which were tested after a long time.
Below average performances were witnessed in some of the scenario based questions like
Question 5 and 8(a).
Question 1
General comments:
36.72% candidates secured passing marks in this question.
Part (a)
Common errors:
 Candidates knew only one condition i.e. that the offer should consist of 10% or more
shares and did not know the other condition i.e. regarding the minimum offer size of
100 million.
 Even among those who knew both the conditions, few could give a comprehensive
conclusion.
 Offer size was computed on the basis of par value instead of the offer price.
Suggested answer:
According to Issue of Capital Rules, 1996 a person or group of persons holding more than ten
percent shares of a company, may offer such shares for sale to the public. However, the size
of offer of the capital to the public shall not be less than Rs. 100 million.
Based on the above rule, none of the three can offer the shares to the public individually
based on the size of offer.
However, the three of them together or either Nadeem or Faheem in combination with
Saleem can offer the shares to the public as a group.
Page 1 of 15
Examiners’ comments and Suggested answers on Corporate Laws,
CFAP Examination Summer 2017
Part (b)
Common errors:
 Answers revolved around the requirement for issuance of prospectus only.

 Candidates mixed up the requirement with those specified in case of issue of right
shares by listed companies.
Suggested answer:
Nadeem, Faheem and Saleem cannot charge any amount of premium unless
 ZML whose shares are offered fulfills the following

- has commenced commercial operations and based on its latest audited accounts for
not less than twelve months, it has-
 earned profit from its principal operations; and
 has positive earnings per share;
 the offer is fully underwritten as follows:

- the issue shall be fully underwritten by at least two underwriters and the
underwriters shall not be associated companies or associated undertakings of the
issuing company;
- the sponsors shall not enter into any agreement or arrangements directly or
indirectly with the underwriters with respect to the purchase of shares taken up by
the underwriters to the issue;
 the offerer shall justify the amount of premium per share and the justification shall be
disclosed in the offer for sale document.
Question 2
General comments:
Part (a)
Common errors:
 Students could only specify three or four types of businesses.

 Pension fund management and REIT management services were incorrectly included.
Suggested answer:
Following are the businesses which may be carried out by NBFCs under the provisions of the
Companies Ordinance, 1984:

(ii) Leasing;
Page 2 of 15
(viii) Any other form of business which the Federal Government may specify, by
notification in the Official Gazette, from time to time.
Part (b)(i)
Common errors:
 Frequent use of guesswork was noted resulting in the use of terms which have not
been used in the Ordinance such as involvement in fraudulent activities, any other
matter deemed appropriate by the Commission, etc.
 Instead of mentioning about the interest of the shareholders and the NBFC, interest of
directors was mentioned.
Suggested answer:
The Commission may remove the chief executive of HIL on any one of the following
grounds:
 continued association of the chief executive is or is likely to be detrimental to the interests

of NBFC or its shareholders or persons whose interest is likely to be affected; or
 the public interest so demands; or
 to prevent the affairs of NBFC being conducted in a manner detrimental to the interest of
its shareholders or in a manner prejudicial to the interests of NBFC; or
 if it is necessary to secure a proper management of the NBFC.
Part (b)(ii)
Common errors:
Students were unable to clarify that any person appointed by the Commission to replace
the CEO shall be appointed for a maximum of three years only.
Suggested answer:
If in the opinion of the Commission, any delay in the removal of CEO would be detrimental
to the public interest or the interest of the shareholders, the Commission may, at the time of
giving the opportunity being heard or at any time thereafter, direct that:
 the chief executive shall not, with effect from the date of the order:
− as chief executive of the NBFC; or
− in any way, be concerned with or take part in the management of the NBFC;
 any person authorized by the Commission in this behalf shall act as such chief executive
of the NBFC till another person is elected to fill in the vacancy.
Any person appointed as chief executive shall:
 hold office subject to such conditions as may be specified in the order of his appointment
and, subject thereto, for such period, not exceeding three years as the Commission may
specify; and
Page 3 of 15
Part (c)
Common errors:
 It was stated that siblings are not included in the definition of close relatives.
 Students were of the view that such agreement would require a special resolution.
 Candidates were of the view that there is no bar on such agreement provided the
concerned director does not participate in the meeting/discussion/voting.
 Candidates were of the view that agreement can only be entered into if the rentals are
based on market value.
Suggested answer:
EHFL cannot enter into the rental agreement with Zyan who is considered as a close relative
of one of the director of EHFL. However, this restriction shall not apply to EHFL if it has a
policy to this effect duly approved by its board of directors.
Question 3
General comments:
Part (a)
Common errors:
Only the relevant rule was stated. No conclusion was drawn. It must be noted that
whenever the requirement is to give advice, the law as well as the conclusion are required
to be stated.
Suggested answer:
According to the Companies Ordinance, 1984 any act of a director or a meeting of a director
cannot be considered invalid merely on the ground of any defect subsequently discovered in
his appointment. Therefore all the acts of Junaid during this period are valid. However, he
should not exercise right of his office with immediate effect and any act after this cannot be
considered valid.
Part (b)
Common errors:
 Students were of the view that the amount cannot be utilised by the company. Some of
them stated that it can only be utilised with the permission of SECP.
 It was stated that the amount of security deposit should be deposited in a special
account in a bank instead of a scheduled bank. Some of them mentioned financial
institution instead of a scheduled bank.
 Candidates gave totally absurd advices such as:
o Deposits should not exceed 25% of the paid-up capital.
o Security deposits can only be utilised for the execution of contracts.
o Security deposit can only be utilised in case of default by the payer.
Page 4 of 15
Suggested answer:
Duck Limited (DL) can receive or utilize the amount on account of security deposit against a
contract in writing only. DL shall deposit all the amount received on account of deposit in a
special account with a scheduled bank.
Part (c)
Common errors:
 Candidates were of the view that the consequence of the delay in registration is that
the loan becomes payable immediately and did not know the provisions related to the
extension of time.
 It was stated that the extension would be granted by the Registrar instead of the
Commission.
Suggested answer:
The time limit of 21 days has expired therefore Naeem Limited (NL) will have to apply to the
Commission for extension of time for the registration of the charge.
NL must satisfy the Commission:
(i) That the omission was accidental or due to inadvertence or due to some other
sufficient cause, or
(ii) It would not be of a nature to prejudice the position of creditors or shareholders of the
company, or
The Commission may extend the time for registration of charge on such terms and conditions
as seem to the Commission just and expedient.
A certified copy of the order of the Commission, shall be filed by the company with the
registrar within twenty-one days of the date of such order.
Question 4
General comments:
Part (a)(i)
Common errors:
 The condition related to submission of returns, notice of meeting and statement of

assets and liabilities, to the registrar was missed in most of the cases. Candidates
suggested submission to the Commission instead of Registrar.
 Candidates were too careless in the use of words as they mentioned submission of
assets and liabilities instead of submission of statement of assets and liabilities.
Page 5 of 15
Suggested answer:
Since Zahid is of the opinion that MSL cannot pay its debts in full within the period as
declared by the directors, he shall forthwith summon a meeting of the creditors and shall lay
before the meeting a statement of the assets and liabilities of MSL and such other particulars
as may be specified.
Zahid shall submit a return of convening the creditors meeting along with notice and minutes
of meeting and a statement of assets and liabilities of MSL with the registrar within ten days
of the date of the meeting.
Part (a)(ii)
Common errors:
The students were expected to realize that the inability to pay the debts in full may be due
to circumstances developing after the submission of declaration of solvency by the
directors or due to any other acceptable reason. Consequently, it was necessary that the
directors should be given a chance to clarify their position. This aspect was ignored.
Suggested answer:
As MSL is unable to pay its debts in full as declared by the directors in the statement of
solvency, it shall be presumed that the directors did not have reasonable grounds for their
opinion, therefore, unless the directors can prove otherwise they would be punishable with
imprisonment for a term which may extend to six months or with fine which may extend to
ten thousand rupees or with both.
Part (b)
Common errors:
Students did not clarify that the power to accept the resignation of the liquidator rests with
the Court and not the Board.
Suggested answer:
According to the Companies Ordinance, 1984 the liquidator shall not resign or quit his office
as liquidator before conclusion of the winding up proceedings except for reasons of personal
disability to the satisfaction of the Court.
Therefore, Zahid cannot resign.
The power of accepting or rejecting the resignation of liquidator before completion of

winding up proceedings rests with the Court and not with the management of the company.
Page 6 of 15
Question 5
General comments:
Part (a)
Common errors:
 Candidates did not have comprehensive knowledge of all the relevant rules i.e.
limitation with regard to debt securities, shares and combination thereof.
 Candidates were aware of the aggregate limits only and did not say anything with
regard to investment in a single entity.
Suggested answer:
The fund has already made investment in the listed securities equal to 44% of the size of the
funds i.e. 24% in listed equity securities and 20% in listed debt securities. Under the EPF
Rules:
(i) The maximum limit of investment in listed debt securities is 50% of the fund. The
additional investment of Rs. 20 million would increase the funds investment in debt
securities to 24% which is within the allowable limit.
(ii) The maximum limit of investment in listed equity securities is 30% of the fund. The
additional investment of Rs. 40 million would increase its investment in equity
securities to 32% which is above the allowable limit. The fund can make investment in
BTL up to Rs. 30 million only (500 × 30% - 120).
(iii) The maximum aggregate investment in listed securities is 50% of the fund. The
additional investment of Rs. 60 million (i.e. Rs. 20 million in debt securities and Rs. 40
million in equity securities) would increase its investment in listed securities to 56%
which is above the allowable limit.
(iv) The aggregate investment in listed equity securities of a particular company shall be
restricted to ten per cent of the size of the employees’ provident fund i.e. (Rs. 50
million) or five per cent of the paid up capital of the investee company i.e. (Rs. 30
million) whichever is lower, therefore investment in BTL shares under this rule is
allowed up to Rs. 30 million.
(v) The aggregate investment in listed debt securities of a particular company shall be
restricted to ten per cent of the size of the employees’ provident fund i.e. (Rs. 50
million) or five per cent of debt issue of the investee company i.e. (Rs. 10 million)
whichever is lower, therefore investment in FL under this rule is allowed up to Rs. 10
million.
Therefore, the maximum aggregate investment should also not exceed Rs. 30 million
{(500×50%)–(100+120)}. Therefore, it may invest the entire amount of Rs. 30 million in BTL
OR Rs. 20 million in BTL and Rs. 10 million in FL.
Part (b)
Common errors:
 Incorrect rating was mentioned whereas the correct rating was AA or above.
 Candidates mentioned the required rating as AA but did not mention that it was the
minimum required rating.
 The rules related to default on financial obligation and not being on the defaulters’
counter were mostly missed.
Page 7 of 15
Suggested answer:
Other conditions to be met

for listed debt securities i.e. FL
(i) The securities must have been assigned a minimum rating of “AA” with at least a
stable outlook at the time of investment.
for listed equity securities i.e. BTL
(i) BTL should have a minimum operational record of three years.

(ii) BTL must have exhibited average total return on investments, not less than prevailing
risk free rate i.e., the rate on which 6 months T-Bill are issued+50 basis point, at the
time of investment.
(iii) BTL must not have defaulted on any of its financial obligations.
(iv) Its listed securities must not be on the defaulter segment of Pakistan Stock Exchange.
Question 6
General comments:
Part (a)
Common errors:
 Many incorrect measures were specified such as removal of CEO and the
management, winding-up of the company, etc.
 The power to appoint receiver and fix his/her remuneration and regarding purchase of
shares of any member were mostly missed.
 The question was not attempted.
Suggested answer:
The Court may order the following:
(i) make an order restraining the carrying out the act or conduct;
(ii) order that GTL shall proceed against the persons involved in such manner and terms
as the Court may deem fit;
(iii) appoint a receiver, specify the powers and duties of the receiver or manager and fix
his remuneration; and
(iv) make any other order it considers fit, whether for regulating the conduct of the GTL's
affairs in future or for the purchase of the shares of any members of the company by
other members of the company or by the company and, in the case of a purchase by
the company, for the reduction accordingly of the company's capital or otherwise.
Page 8 of 15
Part (b)
Common errors:
 Candidates mentioned the requirements of section 224 of the Companies Ordinance,

1984.
 Candidates were totally confused and mentioned that the Company Secretary should
present the required information to the CEO.
 The secretary’s responsibility in case the CEO fails to meet his obligation was not
mentioned in majority of the cases.
Suggested answer:
Duties and responsibilities of the Chief Executive and the company secretary in respect of
transactions entered into by the Chief Executive are as follows:
(i) Where the chief executive of a listed company sells or buys shares of the listed
company of which he is the chief executive, he shall immediately notify in writing to
the Company Secretary of such transaction.
(ii) He shall also deliver a record of the price, number of shares, form of share certificates,
i.e., whether physical or electronic within the Central Depository System, and nature
of transaction to the Company Secretary within four days of effecting the transaction.
(iii) The notice of chief executive shall be presented by the Company Secretary at the
meeting of the board of directors immediately subsequent to such transaction.
(iv) In the event of default by the chief executive to give a written notice or deliver a
written record, the Company Secretary shall place the matter before the board of
directors in its immediate next meeting.
Part (c)
Common errors:
 Candidates could not mention more than four or five points.

 In many cases, the complete provision was not mentioned, for example, while
mentioning the condition of being an employee, employment in subsidiaries and the
holding company was not covered.
 Candidates who did not appear to have the requisite knowledge provided lengthy
discussion on the term ‘independence’.
Suggested answer:
A director shall not be considered as independent, if one or more of the following

(i) He/she has been an employee of the company, any of its subsidiaries or holding
company within the last three years;
(ii) He/she is or has been the CEO of subsidiaries, associated company, associated
undertaking or holding company in the last three years;
(iii) He/she has, or has had within the last three years, a material business relationship
with the company either directly or indirectly as a partner, major shareholder or
director of a body that has such a relationship with the company.
Page 9 of 15
The major shareholder means a person who, individually or in connection with his
family or as part of a group, holds 10% or more shares having voting rights in the
paid up capital of the company.
(iv) He/she has received remuneration in the three years preceding his/her appointment
as a director or receives additional remuneration, excluding retirement benefits from
the company apart from a director’s fee or has participated in the company’s share
option or a performance-related pay scheme;
shareholders:
Close relative means spouse(s), lineal ascendants and descendants and siblings;
(vi) He/she holds cross-directorships or has significant links with other directors through
involvement in other companies or bodies;
(vii) He/she has served on the board for more than three consecutive terms from the date
of his first appointment provided that such person shall be deemed “independent
director” after a lapse of one term.
(viii) He/she is nominated as director by the company’s creditors or other special interest
by virtue of contractual agreements.
(ix) He/she is nominated as a director by the corporation/company who has made
investment or otherwise extended facilities.
(x) He/she is nominated as a director by Federal Government, Provincial Government,
Commission, foreign equity holders on the board of PICIC or any other company set
up under a regional co-operation.
Question 7
General comments:
Part (a)
Common errors:
The transaction was considered as valid on the basis of the fact that paid up capital after
the purchase would be Rs. 285 million. The fact that treasury shares cannot be purchased
before completion of two years from the date of listing was ignored.
Suggested answer:
According to the Buy back of Shares Regulations 2016, a company shall be eligible to
purchase its own shares when it is listed on the stock exchange for a period of not less than
two years.
Therefore, Nabil Earth Limited cannot buy back its own shares as the period of two years has
not been completed as it was listed on 1 August 2015.
Part (b)
Common errors:
 The transaction was considered as valid on the basis of the fact that the purchase was
being made after two years from the date of listing. The fact that paid up capital after
the purchase would be less than Rs. 200 million was ignored.
Page 10 of 15
 Many students calculated the paid up capital after purchase as Rs. 200 million instead
of Rs. 198 million.
Suggested answer:
According to the Buy back of Shares Regulations 2016, a company shall be eligible to
purchase its own shares when it has a paid up capital of not less than Rs. 200 million after the
purchase.
Therefore, Nabil Sun Limited cannot buy back its own shares as its paid up capital would be
reduced below two hundred million rupees after the purchase.
Part (c)
Common errors:
 Candidates offered comments only on the issue of resale. The fact that treasury shares
shall not exceed 10% of the paid up capital was not mentioned.
 The period after which resale was possible was mentioned as 1 year or 3 years instead
of six months. Many candidates were of the view that treasury shares cannot be resold
altogether.
Suggested answer:
Nabil Moon Limited (NML) can buy back shares provided that:
(i) Shares held as treasury shares shall not exceed ten percent of the total paid up capital of
NML.
(ii) The treasury shares shall not be sold, transferred or otherwise disposed of within a
period of six months from the closure of the purchase period. Therefore, NML cannot
re-sell the share in the market after a period of three months.
Question 8
General comments:
Part (a)
Common errors:
 The requirement was to evaluate whether the given transaction falls under the ambit of
insider trading. Consequently, it was necessary to briefly mention the meaning of
insider and insider trading. Instead, a number of candidates gave concluding remarks
without any evaluation.
 Many candidates declared it to be a case of insider trading only on the basis of the fact
that share price has risen after the declaration of result or because Mr. Javed had made
a substantial profit. However, either or both the above situations do not necessarily
lead to insider trading. (Please see the suggested answer for further clarity on this
aspect.)
Page 11 of 15
Suggested answer:
According to the Securities Act, 2015, an ‘insider’ includes any executive officer of an issuer
of listed securities; and ‘inside information’ means information which has not been made
public relating, directly or indirectly, to listed securities and which if made public, would be
likely to have an effect on the prices of listed securities.
From the above definition, it is established that Javed Ahmed is an insider person as he is in
employment of the PTL and may possess inside information as he is head of production
department and full knowledge of production of FCL.
The transaction will falls in the ambit of insider trading if:

 Mr. Javed Ahmed possessed the above information when he purchased the shares.
 The decision was taken on the basis of such information.
Part (b)
Common errors:
Candidates were not aware of the fact that listed companies are supposed to maintain a list
of ‘insiders’, to keep it updated and to send it to SECP whenever required.
Suggested answer:
Responsibilities of a listed company regarding disclosure of inside information are as follows:
(i) Whenever a listed company discloses any inside information to any third party in the
normal course, effective disclosures of that information must be made
simultaneously. However, this rule shall not apply if the person receiving the
information owes a duty of confidentiality.
(ii) A listed company shall maintain a list of persons employed, under contract, or
otherwise in the prescribed manner, who have access to inside information and such
company shall regularly update this list and send it to the Commission whenever
required by the Commission.
(iii) A listed company shall in the list of persons that have access to insider information
state that the persons listed have acknowledged the requirements of this part related
to the prohibition to conclude transactions with the use of inside information and to
advise the persons to whom they provide insider information.
Question 9
General comments:
Part (a)
Common errors:
 Candidates were of the opinion that all transactions above a certain amount are
suspicious transaction and various limits were assigned arbitrarily.
Page 12 of 15
 Majority of the candidates had little knowledge of the relevant provisions and resorted
to all sorts of guesswork.
Suggested answer:
(i) The term suspicious transaction means a transaction or a pattern of transactions of

which the transaction is a part which:
 Involves funds derived from illegal activities or is intended or conducted in order to
hide or disguise proceeds of crime.
 Is designed to evade any requirements of section 7 of Anti Money Laundering Act,
2010.
 Has no apparent lawful purpose.
 Involves financing of terrorism.
(ii) Suspicious transactions are reported to Financial Monitoring Unit (FMU) by
 Financial institutions
 Non-financial businesses and professions
 Government agencies
 Autonomous bodies
 Regulatory authorities
 Any other entity designated by the Federal Government.
Part (b)
Common errors:
 Candidates did not know that shares can only be pledged in favour of an eligible
pledgee.
 Candidates resorted to guesswork while specifying the rights of MBL. Their answers
included points such as MBL has the right to get the charge registered, MBL shall be
informed regarding movement in the sub-account, etc.
Suggested answer:
(i) Dewan can pledge his shares, deposited in CDC account, provided Marhaba Bank is an
eligible pledgee, by giving instructions to the relevant participant as he is a sub-account
holder.
(ii) Rights of MBL are as under

 MBL shall have all the powers available to it under the Contract Act, 1872.
 MBL shall have the power, upon the default of Dewan, to transfer the pledged
book entry securities.
 Any other power which may be granted to MBL in writing by Dewan in relation to
the pledged book-entry securities.
 CDC cannot remove the pledge without the consent of MBL.
Question 10
General comments:
Page 13 of 15
Part (a)
Common errors:
 Candidates mentioned the provisions contained in section 226 of the Companies

Ordinance, 1984 which had already been tested in Question 3(a) instead of the
provisions of Companies (Investment and acceptance of Deposits) Rules, 1987.
 Restrictions applicable to private companies were not mentioned by significant
number of candidates.
Suggested answer:
A public and a private company cannot accept any deposit:

 for purposes other than the financing of its own business.
 from another company, except a company which is its holding company.
 which is repayable on demand/notice or repayable earlier than the expiry of six months
or later than the expiry of thirty-six months from the date of acceptance or renewal of
such deposit.
Provided that in case of short-term requirements of funds, accept deposits for repayment
earlier than six months from the date of deposit subject to the conditions that such
deposit:
− shall not exceed ten per cent, of the aggregate of the paid-up share capital and free
reserves of the company; and
− shall be repayable not earlier than three months from the date of such deposit
 the total amount of deposit accepted shall not exceed twenty-five per cent of the aggregate
of the paid-up share capital and free reserves of the company.
Restrictions applicable to private companies only
 No private company shall invite deposits from the public.

 A private company may accept deposits from persons other than its directors or
shareholders or their spouses or minor children, provided that the number of such persons
shall not exceed twenty at any time.
Part (b)
Common errors:
The question was very poorly attempted and candidates did not provide reasonably correct
answers. They mentioned only one correct point i.e. regarding deposit of the amount in a
scheduled bank.
Suggested answer:
Every company shall before the 31st day of December of each calendar year deposit or invest,
at least ten per cent of the amount of its deposits maturing during the year ending on the 31st
day of December next following in any one or more of the following, namely:
(i) in a National Savings Scheme;

(ii) in a special account opened for the purpose in a scheduled bank, free from charge or
lien;
Page 14 of 15
(iii) in Government securities; or
(iv) in such other securities as are notified by the Authority for the purpose.
(THE END)
Page 15 of 15
CORPORATE LAWS

available marks in a question may exceed the total marks.
Mark(s)
A.1 (a) Explanation of the applicable legal requirements relating to the offer for
sale of shares to the public individually or jointly 2.0
Advising the situation under which they can offer the shares to the public 2.0
Advising the situation under which they cannot offer the shares to the
public 1.0
(b) Up to 02 marks for each condition which need to be complied with in view of
the premium being demanded by the investors 5.0
A.2 (a) 0.5 mark for identification of each type of business that an NBFC may carry out 3.0
(b) (i) Up to 01 mark for identification of each ground on which the Commission
may remove the chief executive of the company 4.0
(ii) Identification of situation in which the Commission may decide to

address the shareholders’apprehension regarding procedural delays 1.0
Explanation of the course of action available to the Commission 3.0
(c) 01 mark for discussion on the reason for not entering into the rental agreement
and 01 mark for mentioning the exception to the rule 2.0
A.3 (a) Advice on the validity of the appointment of Junaid as a director and actions
taken by him up to the date of discovery of defect in his appointment 2.0
(b) Advice on receiving / utilization of the amount received as security deposits 2.0
(c) Advice on the requirements to be followed if the charge created by a company

is not registered within the stipulated time 5.0
A.4 (a) (i) Up to 01 mark for each responsibility of Zahid as liquidator 3.0
(ii) Stating the consequences for the directors of MSL 4.0
(b) Comment on Zahid’s intention to resign as the liquidator 3.0
A.5 (a) Up to 01 mark for each requirement of investment in the employees’

provident fund 3.0
Comment on the intention of the trustees relating to their decision of
investment in listed debt and equity securities. 3.0
(b) Other conditions to be complied with:

in the case of listed debt securities 1.5
in the case of listed equity securities 2.5
Page 1 of 2
CORPORATE LAWS
Mark(s)
A.6 (a) Up to 02 marks for stating each action that the Court may take against the
management of GT Limited 5.0
(b) Up to 01 mark for stating each responsibility and duty of chief executive and
company secretary in case of sale or purchase of shares of the company by chief
executive 3.0
(c) Up to 0.5 mark for stating each circumstances under which a director is not
considered as an independent director 4.0
A.7 (a) Brief explanation of the relevant provision of law 1.5

Conclusion 0.5
(b) Brief explanation of the relevant provision of law 1.5

Conclusion 0.5
(c) Brief explanation of the relevant provision of law 1.5

Conclusion 0.5
A.8 (a) Brief explanation of the relevant provisions of the law 1.5
Evaluation of the situation in the light of the relevant provision of the law 1.5
Conclusion on the basis of the above 2.0
(b) Up to 02 marks for stating each responsibility of a listed company regarding the
disclosure of inside information 5.0
A.9 (a) Explanation of the term ‘suspicious transactions’ 4.0

0.5 mark for mentioning the name of each authority which is required to
report suspicious transactions and to whom these are reported 2.0
(b) (i) Brief description of the legal requirement applicable on Dewan while
pledging his shares in CDC in favour of MBL 1.5
Conclusion 0.5
(ii) 0.75 mark for discussing each right of MBL over the pledged shares 3.0
A.10 (a) Up to 01 mark for explanation of each restriction on acceptance of deposits by

private and public companies under the provisions of the Companies (Invitation
and Acceptance of Deposits) Rules, 1987 5.0
(b) Explanation of the provisions relating to maintenance of liquid assets under the
provisions of the Companies (Invitation and Acceptance of Deposits) Rules,
1987 4.0
(THE END)
Page 2 of 2

Corporate Laws
Q.1 Waseem, a shareholder of Best Medicines (Pvt.) Limited (BMPL), gave a notice to the
board of directors on 15 November 2017 regarding his intention to sell his shareholding in
the company. In the notice, he has mentioned that one of his friends has agreed to buy his
entire shareholding at Rs. 500 per share.
The board of directors in its meeting held on 20 November 2017 discussed this matter and
were of the view that fair value of BMPL’s share is approximately Rs. 275 and the price
offered by Waseem’s friend is too high.
(a) In the light of provisions of the Companies Act, 2017 and Rules made thereunder,
explain how the board of directors shall proceed to resolve the above situation. (07)
(b) Discuss the steps which the directors would need to take if Waseem agrees to sell the
shares for Rs. 275 per share. (05)
Q.2 (a) Explain the treatment of the surplus assets or property of a company registered under
section 42 of the Companies Act, 2017, in case of dissolution of the company. (03)
(b) World Class Football Association (WCFA) was set up on 1 July 2017 under section
42 of the Companies Act, 2017 and has made its articles and memorandum of
association in accordance with Table F.
In the light of the provisions of the Companies Act, 2017 advise WCFA with regard to
the following:
(i) WCFA intends to appoint Afzal, who is a member of the association and a
lawyer by profession, as legal adviser of the association on a retainer ship fee of
Rs. 10,000 per month. Afzal is willing to resign, if needed, from the membership
of the association. (03)
(ii) Waleed, a Saudi national, has offered to pay a cash donation for the purchase of
a ground. (02)
Q.3 The paid-up share capital of Fast Limited (FL), a listed company, comprises of 50 million
ordinary shares of Rs. 10 each. On 1 August 2017, FL acquired 3 million ordinary shares as
treasury shares. FL also plans to buy-back further 4 million ordinary shares in
December 2017 and dispose of the entire treasury shares on or before 31 March 2018. A
foreign investor has shown interest in buying the treasury shares at 20% above the buy-back
price whereas one of the directors is also interested in buying the shares.
In the light of the Listed Companies (Buy Back of Shares) Regulations, 2016:
(a) advise whether FL can acquire and dispose of the treasury shares, as discussed above. (05)
(b) discuss the procedure to be followed by FL for disposing of the treasury shares. (07)
Q.4 Ryan Industries Limited (RIL) operates an employees’ provident fund which has a size of
Rs. 200 million which includes investments in equity securities amounting to
Rs. 58 million. The trustees estimate that additional funds of Rs. 30 million would become
available to the fund during the next six months. They plan to invest the available amount
in upcoming initial public offerings (IPO) of five equity securities. The treasurer of the fund
has gathered the following information in respect thereof:
Share capital
Name of company Size of IPO Comments
before offering
First Energy Limited Rs. 500 million Rs. 200 million − Fully underwritten
− Profitable operations of two
years
Medium Textiles Limited Rs. 500 million Rs. 100 million − Fully underwritten
− Profitable operations of three
years
Home Appliances Limited Rs. 400 million Rs. 200 million − Fully underwritten. One of
the underwriters is an
associated undertaking of
Home Appliances Limited
− Profitable operations of more
than ten years
Mazboot Cement Limited Rs. 300 million Rs. 100 million − Fully underwritten
− Profitable operations of five
years
Nice Pakistan Limited Rs. 400 million Rs. 100 million − Fully underwritten
− Profitable operations of more
than ten years
In the light of the provisions of the Employees’ Provident Fund (Investment in Listed
Securities) Rules, 2016 advise the trustees in respect of the above. (08)
Q.5 Salman holds 10% shares in Sehar Industries Limited (SIL). On 15 November 2017, he
made public announcement of his offer to acquire further 10% shares in SIL. The directors
of SIL are satisfied that all the other formalities regarding the acquisition have also been
complied with. However, some of the members have filed an application for investigation
with the Securities and Exchange Commission of Pakistan (SECP) pleading that all
required formalities have not been followed with regard to the offer for acquisition of
further shares and therefore SECP may restrict transfer of these shares till such time that the
matter has been investigated.
In the light of the provisions of the Companies Act, 2017 explain whether SECP may
impose restriction on transfer of shares in the above situation. Also describe the effect of
such restrictions on SIL and Salman. (09)
Q.6 Under the provisions of NBFCs and Notified Entities Regulations, 2008 explain:
(a) the term ‘Exposure’. (05)

(b) the conditions relating to inclusion of revaluation reserves in the amount of equity. (03)
(c) the conditions which must be complied by an NBFC while dealing with its customers,
in order to ensure prevention of money laundering and other illegal trades. (08)
Q.7 You are the corporate consultant of Shahkar Limited (SL) which is planning to raise
financing from public offering of the shares at Ready Board of Pakistan Stock Exchange
and wishes to raise 80% of the amount through the book building process. Under the
provisions of the Public Offering Regulations, 2017, advise SL about the following matters:
(a) Can SL raise the requisite amount through the book building process? (06)
(b) How is strike price determined using the Dutch Auction Method? (03)
(c) What are the restrictions placed on the bidders during the book building process? (03)
Q.8 (a) Javed Limited and Saleem Limited are the leading manufacturers of textile products
in Pakistan. Both companies have recently signed an agreement under which they
would restrict the supply of their products to particular geographical areas.
Under the provisions of the Competition Act, 2010:
(i) discuss the legality of the agreement signed by the two companies. (02)
(ii) state the criteria based on which the Commission may allow the companies to
sign such an agreement. (03)
(b) In the light of provisions of the Competition Act, 2010, state the conditions under
which exemption granted by the Commission may be cancelled. (03)
Q.9 Hakim (Pvt.) Limited (HL) holds 15% shares of Mehkoom Limited (ML), a listed
company. HL has recently made public announcement of the offer, after completion of
initial requirements, for the acquisition of 20% shares in ML. The offer is valid till
31 December 2017.
Under the provisions of the Securities Act, 2015 discuss the obligations of the board of
directors of ML during the offer period and on completion of the acquisition. (06)
Q.10 Sukoon Investment Management Limited (SIML) manages a mutual fund, Sukoon Equity
Fund. Based on the recommendations of its research team, SIML is presently considering to
invest USD 5 million in the shares of two companies listed on Singapore Stock Exchange.
State the conditions contained in the Foreign Exchange Regulations which SIML is
required to comply, with regard to the above investment. (04)
Q.11 Under the provisions of Modaraba Companies and Modaraba (Floatation and Control)
Ordinance, 1980 describe the circumstances in which an application may be filed for
winding up a modaraba (other than voluntary winding up) and who may file such
application. (05)
(THE END)
CORPORATE LAWS
Suggested Answers
Ans.1 (a) The directors should advise Waseem that he can sell the shares to his friend only if
the other shareholders decline to purchase them. They should also inform Waseem
within seven days from the date of receipt of Waseem’s notice that price of Rs. 500
per share is materially higher than the fair value, and Waseem should revise the
price of shares within seven days thereof. If Waseem does not respond within these
seven days, the offer shall be deemed to be withdrawn.
If Waseem agrees to reduce prices upto its fair value or any other price agreed with
the directors, the directors shall issue notice to the existing shareholders and fulfill
all formalities regarding offering of shares.
However, if Waseem disagrees to revise the share price, the director shall, at the
cost of the company, proceed towards determination of fair value of the said shares
from a firm of Chartered Accountant not being the auditors of the company, who
shall submit a share valuation report to the company and the company shall
forthwith send a copy of the same to the seller.
If the fair value determined in the report is not acceptable to Waseem, he shall
communicate the same to the company within seven days from the date of the
receipt of the share valuation report, failing which the offer made by him shall be
deemed to be withdrawn.
(b) On settlement of the offer price, the board of directors shall offer those shares for
sale to the members in proportion to their existing shareholdings through a notice
in writing specifying the number of shares each member is entitled to, the price per
share and time period, being not less than seven days and not more than fifteen
days from the date of receipt of the notice, for acceptance of the offer.
If the offer for sale of shares by the company is not accepted by a member, it shall
be the responsibility of such member to send a letter of decline containing his
signature and thumb impression, to the company within the period specified in the
letter.
If no letter is received by the company within the specified time in the offer letter,
the company shall send a reminding letter allowing further time not being less than
seven days, for replying to the offer, failing which the offer will be deemed to be
declined.
If the whole or any part of the shares offered is declined or is not taken, the board
may offer such shares to the other members in proportion to their shareholding.
The company shall maintain the record of all the communication, regarding the
offer of shares.
If all the members decline to accept the offer or if any shares are left over, the
shares may be sold to any other person as may be determined by Waseem.
Ans.2 (a) In the case of winding up or dissolution of the company, any surplus assets or
property shall not be paid or distributed among the members, but shall be given or
transferred to some other company established under section 42 of the Companies
Act, 2017 preferably having similar or identical objects to those of the company
which is being wound up.
Page 1 of 7
CORPORATE LAWS
Suggested Answers
(b) (i) WCFA can appoint Afzal as legal adviser of the association but cannot pay
any remuneration as company is prohibited from making payment of
remuneration for services or otherwise to its members. Even after quitting the
association the prohibition of payment shall continue to apply for a period of
five years.
(ii) WCFA is not allowed to receive donations in cash from foreign sources. Even
receiving the funds through banking channels require prior
permission/approval from the relevant public authorities.
Ans.3 (a) (i) Treasury shares shall not at any time exceed ten percent of the total paid up
share capital of the purchasing company. Therefore, FL can now buy 2
million shares only (50 × 10% = 5 – 3 = 2).
(ii) Treasury shares shall not be sold by the purchasing company within a period
of six months from the closure of the purchase period. Therefore, FL can sell
its 3 million shares acquired in August 2017, in March 2018 but will not be
able to sell the shares to be acquired in December 2017 in March 2018.
(iii) Treasury shares shall not be disposed of through negotiated deals. Therefore
FL cannot sell the shares to foreign investor or to anyone of the director
against their offers. It can either dispose of in any of the following manners or
combination thereof:
 against consideration in the market through the securities automated
trading system;
 sold to its employees under the Public Companies (Employees Stock
Options Scheme) Rules, 2001 under the authority of a special resolution
and with prior approval of the Commission.
(b) (i) In case of sale of treasury shares through the securities exchange, the
following procedure shall be followed:
 the decision of sale shall be made by the board of director and such
decision shall be communicated to the Commission and the securities
exchange on the day the decision is made;
 the Treasury Shares shall not be sold before the expiry of the seventh (7 th)
day of the decision of the board of directors regarding such sale;
 daily sale volume shall not be higher than twenty percent (20%) of the
average traded volume of the shares over the last thirty trading days; and
 the price for sale of Treasury Shares shall not be less than the weighted
average market price for the thirty trading days immediately prior to the
sale or the weighted average cost per treasury shares whichever is higher.
(ii) Where the purchasing company decides to dispose of the Treasury Shares
under the Public Companies (Employees Stock Option Scheme) Rules, 2001,
it shall take approval of the same in the general meeting and in this regard
annex a statement of facts to the notice of general meeting containing
information required under the Ordinance and any other law including the
following:
 number and price of the Treasury Shares to be sold;
 purpose of the sale and its benefits to the company and its shareholders;
and
 price at which the Treasury Shares were purchased.
Page 2 of 7
CORPORATE LAWS
Suggested Answers
Ans.4 Under the Employees Provident Fund (Investment in Listed Securities) Rules, 2016, the
trustees of employees provident fund can make the investment in IPO in the following
manner:
(i) The fund cannot invest in First Energy Limited as it has less than three years of
profitable operations.
(ii) The fund cannot invest in Home Appliances Limited because one of the
underwriters is the associated undertaking of the company.
(iii) The fund can invest in the rest of the IPOs. However, the maximum limit of
investment in each IPO is 1% of the paid up capital of the investee company or 2%
of the size of the fund, whichever is lower. By considering this rule, the fund can
invest the following maximum amount in remaining three IPOs.
 Medium Textile Limited – investment of Rs. 4.6 million

(1 % of the capital i.e. Rs.6 million or 2 % of the size of the fund i.e. Rs. 4.6
million whichever is lower).
 Mazboot Cement Limited – investment of Rs. 4 million
(1 % of the capital i.e. Rs.4 million or 2 % of the size of the fund i.e. Rs. 4.6
 Nice Pakistan Limited – investment of Rs. 4.6 million
(1 % of the capital i.e. Rs. 5 million or 2 % of the size of the fund i.e. Rs. 4.6
(iv) The aggregate investment through IPOs shall not exceed 5% of the size of the fund
i.e. Rs. 11.5 million (230 × 5 ÷ 100) during every six months in a calendar year. In
the given situation, if all the IPOs are coming within six months, the fund
maximum aggregate investment in IPOs is Rs. 11.5 million. However, the
aggregate investments in listed equity securities shall not exceed 30% of the size of
the employees’ provident fund.
In view of this above rule the maximum investment in IPOs which provident fund
can make is 11 million as calculated below:
Rs. in million
Existing size 200
Additional funds 30
230
30% of 230 69
Equity investment in listed securities (58)
11
Ans.5 Where it appears to the Commission while investigating the affairs of SIL that there is
good reason to find out the relevant facts about any shares, and the Commission is of the
opinion that such facts cannot be found out unless restrictions on that transfer are
imposed, the Commission may impose such restriction for a specified period but not
exceeding one year.
However, before making an order, the Commission shall provide an opportunity of
showing cause to the company and the persons likely to be affected by the restriction.
The effects of restrictions imposed by the Commission may be:
(i) Any transfer of those shares shall be void;
(ii) no voting right shall be exercisable in respect of those shares;
(iii) no further shares shall be issued in right of those shares or in pursuance of any offer
made to the holder thereof; and any issue of such shares shall be void;
Page 3 of 7
CORPORATE LAWS
Suggested Answers
(iv) no payment shall be made of any sums due from the company on those shares,
whether in respect of dividend, capital or otherwise; and
(v) no change other than a change by operation of law shall be made in the directors,
chief executive.
Ans.6 (a) Exposure includes Finance, subscription to or investment in securities, debt

instruments, units or certificates or shares of a Notified Entity, placements, deposits
with Financial Institutions, derivatives, Margin Trading System (MTS) or any
mechanism that replaces it, but does not include:
(i) Obligations under letters of credit and letters of guarantee to the extent of
cash margin held by an NBFC.
(ii) Finance provided to financial institutions though REPO transactions with
underlying statutory liquidity requirement eligible securities.
(iii) Deposit in current and savings accounts other than term deposits.
(b) Revaluation reserves will remain part of the equity for first three years only, from
the date of asset revaluation. However, if a borrower gets further revaluation
during the three years period, the borrower will be allowed the benefit from fresh
revaluation, but the benefit would be restricted to the incremental amount and for
further 3 years only. Similarly, if after 3 years, the borrower again gets revaluation
of the assets with resultant addition in their value, the benefit of such revaluation
may also be allowed for the next 3 years, again to the extent of increase in
revaluation.
(c) All NBFCs shall ensure prevention of money laundering and other illegal trades
and abide by such laws, directives and circulars as may be issued by the Federal
Government or the Commission to safeguard the NBFC against involvement in
money laundering activities and other illegal trades.
NBFCs shall comply with the following conditions:
(i) it shall determine the true identity of the prospective customer or investor
before extending its services and care shall be taken to establish beneficial
ownership of all accounts and those using safe custody.;
(ii) it shall accept money from a customer only after ensuring that an account has
been opened in the name of the customer using the account opening form
developed by the respective industry associations in consultation with the
Commission;
(iii) it shall establish effective procedures for obtaining identification from new
customers and devise a policy to ensure that business transactions are not
conducted with persons who fail to provide evidence of their identity;
(iv) it shall conduct its business in conformity with the Rules and these
Regulations and shall not offer services or provide any assistance in
transactions which, in the opinion of the NBFC, are associated with illegal
activities or relating to terrorist financing from legitimate or illegal means;
(v) it shall establish effective procedures for monitoring of customer accounts on
a regular basis, checking identities and bonafide of remitters and beneficiaries
of transactions and retain record of transaction; and
(vi) it shall not make payment or receive amounts in cash exceeding Rs. 50,000/-.
All transactions into or from the account maintained with the NBFC which are not
usual transactions shall be thoroughly scrutinized and properly investigated by the
NBFC.
Page 4 of 7
CORPORATE LAWS
Suggested Answers
Ans.7 (a) Shahkar Limited (SL) can issue shares through book building method if offer size is
not less than twenty five million shares and two hundred fifty million rupees or
such higher number of shares and amount as may be specified by the Commission
from time to time.
As SL is planning to offer shares at ready board, a maximum of seventy-five

percent of the offer size can be allocated to book building portion. Therefore, SL
cannot raise 80% of the offer size through book building.
However, there is another alternative i.e. to offer shares through the book building
process to institutional investors and high net worth individuals only, through a
special board. In that case, SL would be required to offer the entire (100%) shares
through this process and no shares would be offered to retail investors. In such
cases the Commission may impose any other conditions on case to case basis.
(b) Under the Dutch Auction Method all the bids are arranged in descending order
based on bid prices. The Strike Price is determined by lowering the bid price to the
extent that total (cumulative) number of securities offered under the Book Building
Portion are subscribed.
(c) The bidder shall not make:

(i) bid below the floor price;
(ii) a bid with price variation of more than 10% of the prevailing indicative strike
price or such other percentage as may be specified by the Commission;
(iii) a bid for more than 10% of the shares allocated under the Book Building
Portion;
(iv) a consolidated bid;
(v) more than one bid either severally or jointly; or
(vi) downward revision or withdraw the bid
The bidder shall not directly or indirectly severally or jointly in any manner or
engage in any act or practice which create a false and misleading appearance of
active bidding for raising or depressing strike price in the book building process.
Ans.8 (a) (i) Under the Competition Act, 2010, no company shall enter into any
agreement in respect of the, supply/distribution, which have the object or
effect of restricting/reducing competition within the relevant market unless
exemption has been granted by the Competition Commission.
Since the agreement between Javed Limited and Saleem Limited will restrict
the competition because of sharing of market, this agreement would be void.
(ii) The Commission may grant exemption in respect of an agreement which

substantially contributes to:
 improving production or distribution;
 promoting technical or economic progress, while allowing consumers a
fair share of the resulting benefit ; or
 the benefits of which clearly outweigh the adverse effect of absence or
lessening of competition
Page 5 of 7
CORPORATE LAWS
Suggested Answers
(b) The Commission may cancel the exemption under the following circumstances:
(i) The Commission has reasonable grounds for believing that there has been a
material change of circumstances since it granted an individual exemption
(ii) The Commission has reasonable suspicion that the information on which it
based its decision to grant an individual exemption was incomplete, false, or
misleading.
(iii) Breach of a condition
(iv) Failure to comply with an obligation
Ans.9 Obligations of the Board of Directors of Mehkoom Limited (ML) during the offer
period:
(i) the board of directors of ML shall not:

 sell, transfer, or otherwise dispose of or enter into an agreement for sale,
transfer, or for disposal of the undertaking or a sizeable part thereof, not being
sale or disposal of assets in the ordinary course of business of the company or
its subsidiaries.
 encumber any asset of the company or its subsidiaries.
 issue any further shares during the offer period.
 enter into any material contract.
 appoint any person representing or having interest in the acquirer as an
additional director or against a casual vacancy, during the period.
(ii) The target Company shall not transfer the securities acquired by the acquirer unless
all obligations have been fulfilled by the acquirer as certified by the manager to the
offer.
Obligations of the Board of Directors of ML post acquisition:

Once the acquisition has been completed in accordance with the Securities Act, 2015 ML
shall allow such changes in the board of directors as would give HL a proportionate
representation on the board.
Ans.10 Locally established mutual funds are allowed to invest abroad for the purposes of
diversification of their asset classes/portfolio, to the extent of 30% of the aggregate funds
mobilized (including foreign currency funds), in permissible categories subject to a cap of
US$ 15 million at any given time.
The investment made abroad must strictly follow the scope approved by Securities and
Exchange Commission of Pakistan (SECP) and subject to all other terms and conditions
as specified for the operations and investments abroad by SECP.
SIML would also need prior approval of State Bank for investment outside Pakistan.
Page 6 of 7
CORPORATE LAWS
Suggested Answers
Ans.11 A Modaraba shall be wound up by the Tribunal on an application made by the Registrar
in the following circumstances:
(i) If modaraba is for a fixed period on the expiry of that period or, in the case of a
modaraba for a specific purpose on the accomplishment of its purpose if no
application (declaration of solvency) has been filed by the directors.
(ii) In case the Registrar has declared that:

 The modaraba is unable to discharge its liabilities
 The accumulated losses of the modaraba exceed fifty percent of the total
amount subscribed by the holders of the Modaraba Certificates; or
 The business of modaraba is being or has been conducted for a fraudulent
purpose or with the intent to defraud the holders of the Modaraba Certificates,
or creditors or any other person;
(iii) The Tribunal is of opinion that it is just and equitable that the modaraba should be
wind up.
(The End)
Page 7 of 7
SUBJECT SESSION
Corporate Laws Certified Finance and Accounting Professional
(CFAP) Examination - Winter 2017
General:
The overall performance in this attempt was poor as the passing percentage was 10.1% as
compared to 20.5% in the previous attempt. The candidates suffered mainly because of
selective studies as performance remained exceptionally poor in those areas which are
less frequently tested such as Foreign Exchange Regulations, Modaraba Ordinance and
Provident Fund Rules. Another major reason for poor performance was the candidates’
inability to answer in the light of the given scenario. In many cases, the candidates
mentioned the correct rules but could not conclude appropriately.
Question 1
This question was based on a scenario in which shareholder of a private company wanted
to sell his shareholding to his friend. The overall performance in this question was quite
poor as only 6 % of the candidates secured passing marks and 43% of the candidates
either did not attempt it altogether or obtained zero mark. The question consisted of two
parts. Performance in each part is discussed below:
Question 1(a)
In this part of the question, the candidates were required to explain how the directors
would respond if they believe that the agreed price exceeds the fair value of the shares.
The performance remained very poor as most of the candidates were totally unaware of
the objective with which the directors would respond in the given situation i.e. that they
have to ensure that the shares are first offered to the existing shareholders. Further, the
directors also have to see that the price fixed does not exceeding the fair value because in
that case the existing shareholders would not be inclined to purchase the shares, and
fixation of a very high price may be a deliberate attempt to discourage the existing
shareholders. The students are advised to see the ICAP’s suggested answer to understand
the relevant rules and how they are aimed at achieving the above objective.
A large number of candidates did not attempt this part altogether. Many candidates tried
to link the situation with the rules related to public announcement of sale of shares. Some
even considered it in the light of rules related to premium on right shares.
Page 1 of 6
Question 1(b)
In this part of the question, the requirement was to explain how the directors would
proceed if the shareholder agrees to reduce the share price to Rs. 275 which was the fair
value of the shares. The performance remained poor but was slightly better than the
performance in part (a).
The most common mistake was that the candidates believed that if any one of the
existing shareholders declines to purchase the shares, the seller would be entitled to sell it
to anybody he likes. Moreover, in this part also, many students tried to answer in the light
of rules related to public announcement of sale of shares.
Question 2
This question was based on section 42 of the Companies Act, 2017. The overall
performance remained good as about 48% of the candidates secured passing marks. The
question consisted of two parts. The second part was further divided into two sub-parts.
Performance in each part is discussed below:
Question 2(a)
This part required the candidates to explain the treatment of the surplus on assets or
property of a company registered under section 42 of Companies Act, 2017 in the event
of its dissolution. Majority of the candidates managed to answer in accordance with the
said provisions.
Question 2(b)(i)
Generally, the candidates knew that no member can get remuneration even after quitting
the association till the completion of a five year period. The main issue with most of the
candidates was that they failed to understand the finer point i.e. that the member can be
appointed as legal advisor but cannot receive any remuneration.
Question 2(b)(ii)
Generally, the candidates knew that donation shall have to be received through proper
banking channel. However, most of them could not specify that donation from foreign
sources is not allowed to be received without prior permission from relevant authorities
even in case of donation transmitted through banking channels.
Question 3
This question was based on rules related to disposal and reacquisition of treasury shares.
The overall performance was unsatisfactory as only 17% candidates secured passing
marks. The question consisted of two parts. Performance in each part is discussed below:
Page 2 of 6
Question 3(a)
The performance in this part remained average. Most of the students had reasonable
understanding of the relevant provisions but were unable to apply them in the given
situation. Some of the common errors were as follows:
 It was stated that the treasury shares cannot be sold within 12 months of their
purchase whereas the period specified by law is 6 months.
 Maximum percentage of buy back i.e. 10 percent of paid up capital was either not
mentioned or incorrectly stated.
 Mode of disposal of treasury shares was not mentioned.
Question 3(b)
The performance remained poor as the candidates did not seem to be well versed with the
related provisions. Most common errors were as follows:
 The requirement related to disposal of shares under stock option scheme was not
discussed.
 The requirement to communicate the Board’s decision to Stock Exchange & SECP
was not mentioned.
 Sale price mechanism and the restrictions on daily sales volume percentages were not
explained correctly.
Question 4
This question was based on a scenario in which the trustees of a provident fund wanted to
invest in 5 IPOs which were being floated and the candidates were required to advise
them in this regard. The performance in this question remained below average as only
25% of the candidates secured passing marks. A significant number of candidates had no
knowledge of the relevant rules; consequently, 20% of the candidates did not attempt this
question whereas 7% scored zero marks. The common mistakes from the remaining
candidates were as under:
 According to the rules, the maximum investment limit in any one company is 1% of
the paid-up capital of the company or 2% of the size of the fund whichever is lower.
Many students reversed the percentages whereas some of them considered the higher
of the two as the limit instead of the lower of the two.
 Existing fund size was used instead of the fund size after investment, for the purpose
of calculating the maximum investment.
 Investment in individual companies was discussed but limit on total investment in
listed companies was not discussed.
 Some candidates mentioned the rules but did not carry out the calculations.
Page 3 of 6
Question 5
This question was about SECP’s powers of restricting the transfer of shares in a
particular situation. It required the candidates to evaluate the scenario in the light of the
provisions of section 272 of Companies Act. The performance remained below average
as only 25% of the candidates secured passing marks. In this question also, a significant
number of candidates had no knowledge of the relevant provision of the law;
consequently, 11% of the candidates did not attempt this question whereas 16% scored
zero marks. The common mistakes from the remaining candidates were as under:
 Several types of incorrect reasons were given based on which SECP may exercise its
powers such as public interest, shareholders’ interest, etc.
 While discussing the effects of registration, in most cases, only one or two points
were mentioned.
 Restriction on change in directors and CEO was referred to as restriction on change
in management.
Question 6
This question was based on the provisions of NBFCs and Notified Entities Regulations,
2008. From the performance of the students it was quite evident that area had been
neglected in the studies. The overall performance remained very poor as only 4% of the
candidates secured passing marks. Moreover, about 20% of the candidates could not
secure any mark. Performance in each part is discussed below:
Question 6(a)
Barring few, the candidates were unaware of the meaning of the term ‘Exposure’. Most
of them used guesswork. Many among them tried to explain it in terms of their general
knowledge about banking and economics. Some students described the maximum
exposure criteria or the rules related to calculation of Exposure which were totally
irrelevant to the requirement of the question.
Question 6(b)
The situation was similar to part (a) as only few students had any clue to the correct
answer. Many students mentioned about requirement of transferring 20% of profit to
general reserve which was totally irrelevant. Some students were of the view that
revaluation reserve should not be taken in to account to calculate equity which was
totally incorrect.
Question 6(c)
The requirement in this part was to state the conditions which must be complied by an
NBFC to ensure prevention of money laundering and other illegal activities. This part
was attempted well by majority of the candidates and some students achieved full marks
also. However, some students attempted this part casually based on their general
knowledge without any resemblance to law, relevant language and requirements, and
obtained low marks.
Page 4 of 6
Question 7
The question was based on a scenario relating to book building process and the overall
performance was satisfactory but the performance in individual parts varied significantly.
The question consisted of three parts and performance in each part is discussed below:
Question 7(a)
In this part the candidates were required to advise whether the company can raise the
required amount, in the given situation, through the book building process. The
performance remained below average as the candidates were unable to assess the
situation in the light of the given scenario.
Question 7(b)
The requirement in this part was to explain how strike price is determined using the
Dutch Auction Method. This part of the question was well attempted by most of the
students. A significant number of students were however totally unaware of this method
and did not attempt it altogether.
Question 7(c)
This was also a high scoring part and many students scored full marks. However, many
students could mention one or two points only.
Question 8
This was one of the best attempted question and 56% of the candidates secured passing
marks. In part (a)(i), most of the students stated correctly that the agreement was void but
many of them failed to clarify that exemption in this regard may be applied for, from the
Competition Commission.
In part a (ii) about 50% of the students scored high and even full marks. The remaining
students mostly resorted to guesswork and mentioned irrelevant reasons such as
employment generations, promoting a particular industry, etc.
In part (b), the response was average. Some students mentioned inappropriate reasons
which were not in accordance with the relevant provision of the act i.e. expiry of time
period, increase in prices, reduction in production, etc. Further, many candidates lost
marks due to incomplete answers.
Question 9
This question required candidates to discuss the obligations of the board of directors
during the offer period i.e. from the date of public announcement of the offer to purchase
shares and till the validity of the offer and on completion of the acquisition.
Page 5 of 6
This was also a well attempted question as about 51% of the candidates secured passing
marks. The most common mistake was that while mentioning the restriction on
transfer/disposal and encumbrance of assets, the fact that such restriction would apply to
the subsidiary of the company also was ignored. Moreover, the obligation on completion
of the acquisition was mostly ignored.
Question 10
This question based on Foreign Exchange Regulations was one of the worst attempted
question. It was quite evident that most of the students had resorted to selective studies
and had not prepared this area of syllabus. 29% of the students did not attempt it
altogether whereas a further 25% could not secure any mark. It has been mentioned many
times that all areas of the syllabus need to be covered to be successful. However, no
improvement is being witnessed in this regard.
Question 11
This question required candidates to describe the circumstances in which an application

of winding up of a modaraba may be filed and who may file such application. Extremely
poor performance in this question was another indication of selective studies approach by
the students. 28% students did not attempt this question whereas 12% of the students
secured zero marks. Since the question was very straight forward, lack of
knowledge/preparation seemed to be the only reason for poor performance.
(THE END)
Page 6 of 6
CORPORATE LAWS

available marks in answer may exceed the total marks of a question.
Mark(s)
A.1 (a) Brief description of:
how the Board should respond to notice received from Waseem 3.0
what should Board do if Waseem does not agree to reduce price to fair
value 4.0
(b) 0.5 to 01 mark for each step that the directors should take if Waseem agrees to
sell the shares for Rs. 275 per share 5.0
A.2 (a) Explanation of the treatment of surplus assets or property of a company

registered under section 42 of the Companies Act, 2017 3.0
(b) (i) Advice on the appointment of Afzal, who is a member of the association,
as the legal adviser of the association 3.0
(ii) Advice whether WCFA can receive cash donation from a foreign national 2.0
A.3 (a) Description of the applicable legal requirement 2.0

Advice whether FL can acquire or dispose of the treasury shares 3.0
(b) Discussion on the procedures to be followed if disposal of treasury shares are to

be made through:
the securities exchange 4.0
the Employees Stock Option Scheme 3.0
A.4 Brief description of the applicable legal requirements relating to investment in

IPOs 1.5
01 mark for advice to the trustees in respect of each IPO 5.0
Advice with regard to aggregate investment 1.5
A.5 Explanation of the situation where SECP may impose restriction on transfer of
shares 4.0
01 mark for describing each effect of the restriction imposed by the Commission 5.0
A.6 (a) Explanation of the term ‘Exposure’ 5.0
(b) Identification of conditions relating to inclusion of revaluation reserves in

equity 3.0
(c) Up to 1.5 marks for identification of each condition to be complied by an

NBFC in order to ensure prevention of money laundering and other illegal
trades 8.0
Page 1 of 2
CORPORATE LAWS
Mark(s)
A.7 (a) Description of the applicable legal requirement 3.5
Advice whether SL can raise the requisite amount through the book
building process 2.5
(b) Discussion on determination of strike price using Dutch Auction Method 3.0
(c) 0.5 mark for identification of each restriction that can be placed on the bidders
during the book building process 3.0
A.8 (a) (i) Discussion on the legality of the agreement signed by the two companies 2.0
(ii) Up to 01 mark for identification of each criteria/condition based on which

the Commission may allow the companies to sign such an agreement 3.0
(b) 01 mark for identification of each condition under which exemption granted by
the Commission may be cancelled 3.0
A.9 01 mark for discussing each obligation of the board of directors during the offer
period 5.0
Explanation of the obligation of the board of directors on completion of the
acquisition 1.0
A.10 Identification of conditions which SIML is required to comply with regard to the
investment 4.0
A.11 Up to 02 marks for identification of each situation under which an application may be
filed for winding up a modaraba 5.0
(THE END)
Page 2 of 2

Corporate Laws
Q.1 CF (Pvt.) Limited (CF) has been incurring losses for past few years. The Board which
comprises of 4 directors, is considering members’ voluntary winding up which requires a
declaration of solvency that CF would be able to pay all its debts in full within one year
from the commencement of winding up. The board of directors plans to appoint Agha Rafiq
who is presently working as chief accountant of CF as the liquidator on the ground that he
knows the entire affairs of the company.
(a) Under the provisions of the Companies Act, 2017:

(i) advise the directors of the company about the requirements of filing of
declaration of solvency. (06)
(ii) discuss whether Agha Rafiq can be appointed as the liquidator and who has the
final authority to make the appointment. (02)
(b) On 5 March 2018, CF submitted declaration of solvency to the Registrar and

appointed a liquidator in accordance with the requirements of the
Companies Act, 2017. On 5 May 2018, the liquidator came to know that it would not
be possible to pay the company’s debts.
Under the provisions of Companies Act, 2017 you are required to explain:
(i) the responsibilities of the liquidator in the above situation. (03)
(ii) whether the present liquidator can continue to act as liquidator in such a
situation. (02)
(c) Assume that all affairs of CF are fully wound up and a final meeting has been called
but the required quorum is not present in the final meeting.
Under the provisions of Companies Act, 2017 explain how the liquidator should
proceed to fulfil his responsibilities. (02)
Q.2 The directors of Pioneer Shipping Limited have decided to issue Class B ordinary shares
which would have different rights and would be issued to a group of investors. The existing
paid up capital will be classified as Class A shares.
(a) In the light of Companies’ Share Capital (Variation in Rights and Privileges)
Rules, 2000 explain the following:
(i) Validity of directors’ resolution regarding the issuance of Class B shares. (02)
(ii) The nature of variation in the rights and privileges that may be attached to
different classes of shares. (05)
(b) Ahmed and Faraz holding 9% and 10% shareholdings respectively, do not agree with
the issuance of class B shares as in their opinion this would adversely affect their
interest, though a majority of the members are in favour of the resolution.
In the light of the provisions of the Companies Act, 2017 advise the course of action
which Ahmed and Faraz should take in respect of the above. (04)
Q.3 (a) Discuss the restrictions imposed by the Companies (Issue of Capital) Rules, 1996 on
the sponsors of issuing company when they intend to raise capital through issue of
shares to the general public. (05)
(b) Pan Industries Limited (PIL), a public unlisted company, has been operating in
Pakistan for last 30 years. There are seven shareholders who are also directors of the
company.
Directors are presently considering to list the company on Pakistan Stock Exchange
by issuing shares to the public as well as to its employees. Considering PIL’s
established brand and profitable operations, they intend to issue these shares at
premium. The proposed details of the offer are as follows:
Number of shares to
Shares to be offered to Target price
be issued
General public 1,000,000 Rs. 25
Employees 50,000 Rs. 23
PIL expects to issue shares to its employees on 15 August 2018 and to general public
on 30 November 2018.
Under the provisions of Companies (Issue of Capital) Rules, 1996 advise PIL about
the conditions which are required to be fulfilled for issuance of shares at premium. (08)
Q.4 (a) Kalaam Limited (KL) is negotiating a syndicate loan with a consortium of banks for
expansion of its business. KL intends to offer its factories, land and building located
in Multan and Sharjah as security. However, the consortium would approve the loan
only if the present charge on Multan factory, in favour of a local bank, is released.
As the Corporate Consultant of KL, the management has sought your advice on
various matters related to the loan. As part of your advice, you are required to discuss
the following matters under the provisions of Companies Act, 2017:
(i) the procedure that may be followed for the release of charge over the Multan
factory. (03)
(ii) requirement that KL should follow for registration of charge over its Multan
and Sharjah factories. (05)
(b) Bravo (Pvt.) Limited (BPL) has two shareholders. All the directors of the company
are nominees of these two shareholders. The details are as follows:
Nominee
Name of shareholders No. of shares
directors
Tiara Limited (TL) – listed company 6,030,000 5
Junaid 2,970,000 *3
9,000,000 8
* including chief executive
TL wants to change the chief executive officer and appoint one of its directors as the
chief executive of BPL before the expiry of the term of the office of the existing chief
executive.
In the light of the provisions of Companies Act, 2017 advise TL in the above
situation. (03)
Q.5 Assume that the date today is 31 May 2018.

The following information pertains to receivables of United Leasing Limited (ULL):
(a) On 30 September 2017, total exposure to Star Car Rental (SCR) was Rs. 30 million.
Instalments were overdue by one year and SCR was classified as ‘doubtful’. ULL
restructured the exposure in October 2017. SCR has been repaying the instalments
regularly since then and has repaid Rs. 5 million till today. (02)
(b) On 31 January 2016, total exposure of Rs. 70 million to Yahya Chemicals Limited
(YCL) was rescheduled. In August 2017, on compliance with the conditions of
rescheduling, YCL was reclassified from ‘doubtful’ to ‘regular’. In November 2017,
YCL defaulted in repayment of instalments. (03)
Under the provisions of NBFCs and Notified Entities Regulations, 2008 advise the
management about the classification of the above receivables.
Q.6 (a) Giants Limited, a listed company, has reconstituted its board. Details of board
members are as follows:
S. No. Name of director Qualification Type of directorship
1 Dawood (Chairman) M. Com Non-Executive
2 Ebad MBA – Marketing Non-Executive
3 Faheem MA – International Relations Non-Executive
4 Abid Bachelor of Engineering Executive
5 Bilal Chartered Accountant Executive
6 Karim MBA – Human Resource Executive
7 Ghafoor Chartered Accountant Independent
8 Haris LLB Independent
9 Ibrahim Chartered Accountant Independent
The board is in process of finalizing the members of audit committee and following
options are under consideration:
(i) Ibrahim (Chairman), Dawood and Abid
(ii) Dawood (Chairman), Ebad and Faheem
(iii) Haris (Chairman), Ebad and Faheem
Discuss appropriateness of the above options under the Listed Companies (Code of
Corporate Governance) Regulations, 2017. (05)
(b) On 1 April 2018, Dynamics Limited, a listed company, held its board meeting.
Aslam being an independent director disagreed with certain approvals and recorded
his dissent. Subsequently, on reviewing the minutes of the meeting he noticed that his
dissent has not been properly recorded.
Under the provisions of the Listed Companies (Code of Corporate Governance)

Regulations, 2017 advise Aslam with respect to the above situation. (02)
Q.7 On 1 July 2017, Sabiha was appointed as a director of New Chemicals Limited (NCL), a
listed company. Jamal, husband of Sabiha, is a retail investor and actively trades in
securities listed on Pakistan Stock Exchange. He did not hold any shares of NCL on the
date of Sabiha’s appointment but undertook the following transactions subsequently in the
shares of NCL:
(i) Bought 10,000 shares at Rs. 175 per share on 1 August 2017
(ii) Sold 8,000 shares at Rs. 240 per share on 2 March 2018
(iii) Bought 18,500 shares at Rs. 225 per share on 1 April 2018
(iv) Sold 6,500 shares at Rs. 285 per share on 6 June 2018
In the light of the Securities Act, 2015 discuss the responsibilities of Sabiha in respect of the
above transactions and the gain thereon. (09)
Q.8 (a) Under the provisions of the Anti-Money Laundering Act, 2010 describe when a
person would be considered as guilty of offence for money laundering. (04)
(b) Sunshine Limited (SL) is a listed company whose entire shares are registered in the
name of Central Depository Company (CDC). SL has announced 20% bonus issue.
Under the provisions of Central Depositories Act, 1997 discuss the responsibilities of
SL and CDC in the above situation. (04)
(c) Under the provisions of Competition Act, 2010, identify the marketing practices
which shall be deemed to fall under the ambit of deceptive market practices. (03)
Q.9 Under the Single Member Companies Rules, 2003 briefly comment on the following
statements:
(a) Only the single member may be the director of a single member company. (02)
(b) There is no need to appoint a company secretary if the sole director is willing to take
the responsibility of company secretary. (02)
(c) A single member company cannot enter into contract with the single member. (02)
Q.10 (a) Under the provisions of Companies Act, 2017 describe who manages and controls
Investor Education and Awareness Fund (Fund) and specify the amounts which are
credited to this Fund. (05)
(b) Mujtaba Engineering Limited (MEL) is listed on Pakistan Stock Exchange. It intends
to buy-back 10% of its paid up capital.
In the light of Listed Companies Buy Back of Shares Regulations, 2016 advise the
board of directors regarding eligibility conditions to be fulfilled by MEL, for buy-back
of its own shares. (07)
(THE END)
CORPORATE LAWS
Suggested Answers
Ans.1 (a) (i) The directors of CF should comply with the following requirements with
regard to declaration of solvency:
 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 CF, and that having done
so, they have formed the opinion that CF 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.
 Such declaration should be made within five weeks immediately
preceding the date of the passing of the resolution for winding up and
should be delivered to the registrar for registration before that date.
 The declaration of solvency should also contain a statement (declaration)
that CF is not being wound up to defraud any person or persons.
 The declaration should be accompanied by a copy of the report of the
auditors of the CF on the statement of financial position and profit and
loss account of CF (financial statements may be accepted) 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.
(ii) There is no bar on the appointment of chief accountant as the liquidator.

However, the appointment of liquidator shall be made in the general meeting
and the liquidator’s written consent to act as such should be obtained in
advance.
(b) (i) The liquidator shall forthwith summon a meeting of the creditors and lay
before the meeting a statement of the assets and liabilities of CF.
He shall also file with the registrar, a return of convening the creditors
meeting, a copy of the notice thereof, a statement of assets and liabilities of
CF and the minutes of the meeting within ten days of the date of the meeting.
(ii) The present liquidator can continue to be the liquidator if the creditors in their
meeting decide to continue him as liquidator.
(c) If the quorum is not present at the meeting, the liquidator shall make a return with
the registrar that the meeting was duly summoned and that no quorum was present
thereat, and upon such a return being made within one week after the date fixed for
the meeting along with a copy of his report and account in the specified manner. By
following this procedure, the liquidator will be deemed to have complied with the
requirement of filing return.
Ans.2 (a) (i) The directors may issue more than one kind of share capital which may have
different classes of shares under each kind. However, the decision of the
directors would only be valid if such issuance is specifically provided in PSL’s
memorandum and articles of association.
(ii) The variation in the rights and privileges attached to different classes of shares
may be of the following nature:
 different voting rights; voting rights disproportionate to the paid up value
of share held; voting rights for specific purposes only; or no voting rights
at all;
Page 1 of 7
CORPORATE LAWS
Suggested Answers
 different rights for entitlement of dividend, right shares or bonus shares or

entitlement to receive the notices and to attend the general meetings; and
 rights and privileges for indefinite period, for a limited specified period or
for such periods as may from time to time be determined by the members
through special resolution.
(b) Since Ahmed and Faraz hold more than 10% of the Class A shares, they can apply
for cancellation of resolution to the Court within 30 days of the date of resolution.
However, in order to get a favorable decision they shall have to satisfy the Court
that:
 some facts which would have had a bearing on the decision of the shareholders
were withheld by PSL in getting the aforesaid resolution passed; or
 having regard to all the circumstances of the case, the variation would unfairly
prejudice the Class A shareholders .
Ans.3 (a) Under the Rules, the sponsors shall:

(i) not enter into any agreement or arrangements directly or indirectly with the
underwriters with respect to the purchase of shares taken up by the
underwriters to the issue ;
(ii) retain their entire shareholding in the company for a period not less than
twelve months from the last date for the public subscription or from the date
of commencement of commercial operation or production by the company,
whichever is later ;
(iii) retain not less than twenty-five percent of the paid up capital of the company
for not less than three financial years from the last date for the public
subscription or from the date of commencement of commercial operations or
production by the company, whichever is later ;
(iv) Subject to (ii) and (iii) above, the sponsors of the issuing company may sell
their shareholding through block sale and shall report the sale of shares, on
same day, to the stock exchange on which the shares are listed.
(v) Shares held by sponsors shall be deposited in an account with a depository
company in frozen form.
(b) PIL may issues shares to the general public at premium subject to the following
conditions namely:
 PIL has commenced commercial operations and based on its latest audited
accounts for not less than twelve months , PIL has:
 earned profit from its principal operations ; and
 has positive earnings per share .
 The issue shall be fully underwritten by at least two underwriters and the
underwriters shall not be associated companies or associated undertakings of
the PIL.
 The directors shall not enter into any agreement or arrangements directly or
indirectly with the underwriters with respect to the purchase of shares taken
up by the underwriters to the issue.
 PIL shall justify the amount of premium per share which shall be disclosed in
the prospectus.
Page 2 of 7
CORPORATE LAWS
Suggested Answers
 Since the shares are to be allotted to employees on account of preferential

allocation within a period of six months preceding the opening of the public
subscription, at a price lesser than the price at which shares are to be offered
to the general public, these shall not be saleable or transferable for a period of
six months from the date of close of the public subscription.
 Since PIL intends to issue shares to its employees at price lesser than the price
offered to public, PIL shall deposit the shares allotted to employees on
account of preferential allocation with a depository company in frozen
account.
Ans.4 (a) (i) The following procedures will be followed for release of charge over KL’s
Multan factory:
 KL shall give intimation to the registrar, of payment or satisfaction of

loan in full in the manner specified within a period of thirty days from
the date of such payment or satisfaction.
 the registrar shall, on receipt of intimation, cause a notice to be sent to
the local bank calling upon it to show cause as to why payment or
satisfaction in full shall not be recorded within such time not exceeding
14 days. If no cause is shown, the registrar shall accept the
memorandum of satisfaction and make an entry in the register of
charges kept by him. However, if KL wants to expedite the matter it
shall submit a no objection certificate on behalf of the local bank, then
no such notice shall be sent to the local bank.
(ii) KL should follow the following requirement for registration of charge over its
Multan and Sharjah factories:
For both factories:

KL shall file the specified particulars of the mortgage or charge , together with
the copy of the instrument , if any, verified in the specified manner, by which
the mortgage or charge is created or evidenced, with the registrar for
registration within a period of thirty days beginning with the day after the
date of its creation ;
Additional procedure for Sharjah factory:

Since the charge is created in Pakistan but comprises property outside
Pakistan, a copy of the instrument creating or purporting to create the
mortgage or charge verified in the specified manner may be filed for
registration with the registrar. However, further proceedings may be
necessary to make the mortgage or charge valid or effectual according to
UAE’s law.
The registrar shall, on registration of a mortgage or charge as above, issue a

certificate of registration.
(b) The directors of a company by a resolution passed by not less than three-fourths of
the total number of directors for the time being, or the company by a special
resolution, may remove a chief executive before the expiration of his term of office.
Page 3 of 7
CORPORATE LAWS
Suggested Answers
Therefore, the chief executive of BPL can be removed only if the proposal is
supported by:
 at least 6 directors of the BPL, or

 by 3/4th majority of the members in the general meeting either present in
person or by way of proxy.
Since TL has only 5 nominee directors on the board of BPL and has 67%
shareholdings, it cannot remove the existing chief executive without the support of
Junaid or his nominee directors.
Ans.5 (a) ULL can change the status of classification of a restructured non performing rental
receivables only when:
 the terms and conditions of the restructured finance are fully met for a period of
at least six months excluding grace period from the date of such restructuring ;
and
 at least 20% of the outstanding amount (principal and mark up) is recovered in
cash .
In case of SCR although the loan was restructured more than six months ago but
still 20% of the outstanding amount (i.e., Rs. 6 million) is not yet recovered and
therefore ULL would have to classify SCR as doubtful.
(b) As YCL has defaulted subsequent to the rescheduling, ULL shall classify such
leases in the same category as it was in at the time of rescheduling i.e., doubtful.
However, since now the balance is outstanding for more than one and half year
YCL needs to be further downgraded and should now be classified as ‘loss’.
Ans.6 (a) In the light of above regulations, my advice on the options suggested by the Board is
as follows:
(i) Ibrahim (Chairman of the Committee), Dawood and Abid
Abid being executive director cannot be part of the audit committee.
(ii) Dawood (Chairman of the Committee), Ebad and Faheem

The audit committee shall comprise at least one independent director and
none of the above is an independent director. Further, Dawood cannot be the
chairman of the audit committee as he is chairman of the Board. Further, only
an independent director can be the chairman of the audit committee.
(iii) Haris (Chairman of the Committee), Ebad and Faheem

The audit committee shall have at least one member of the audit committee
who qualifies as ‘financial literate’ i.e., financial literate i.e. either a member
of a recognized body of professional accountants or has a post graduate degree
in finance. None of the above fulfill this requirement.
(b) Aslam may refer the matter to the company secretary and ask the company
secretary to revise the note. If the company secretary fails to do so, Aslam may file
an objection with the Commission in the form of a statement to that effect within 30
days of the date of confirmation of the minutes of the meeting .
Page 4 of 7
CORPORATE LAWS
Suggested Answers
Ans.7 Responsibilities of Sabiha:

Shares held by Jamal will be deemed to be beneficially owned by Sabiha and she is
required to give notice in writing to the company about ;
(i) her beneficial ownership in the shares of the company; and

(ii) the amount and description of the shares of the company and date of acquisition of
beneficial ownership
Further, she shall also give notice in writing to the company about:
(i) purchase and sale of shares along with the number and amount of
securities/(shares).
(ii) any gain on purchase and sale of shares or sale and purchase of shares made within
a period of six months .
Such notice shall be given within 7 days of occurrence of above events.
Treatment of gain earned by Jamal

If any gain has been made on the purchase and sale or sale and purchase of such shares
within a period of less than six months . She shall make a report to the Commission in the
prescribed form before the expiration of a period of seven days beginning with the day on
which the gain accrues . Moreover, such gain shall be tendered to the Commission within
the period of six months of the accrual of gain .
Therefore, the gain made on transaction occurring on 2 March 2018 will not be tendered
to the Commission. However, only gain made on transaction occurring on 1 April 2018
and 6 June 2018 will be tendered to the commission.
Ans.8 (a) A person shall be guilty of offence of money laundering, if the person:
(i) acquires, converts, possesses, uses or transfers property, knowing or having

reason to believe that such property is proceeds of crime;
(ii) conceals or disguises the true nature, origin, location, disposition, movement
or ownership of property, knowing or having reason to believe that such
property is proceeds of crime;
(iii) holds or possesses on behalf of any other person any property knowing or
having reason to believe that such property is proceeds of crime; or
(iv) participates in, associates, conspires to commit, attempts to commit, aids,

abets, facilitates, or counsels the commission of the acts specified above.
(b) Sunshine Limited (SL) shall allot the shares to be issued in the name of central
depository company (CDC).
CDC shall determine the entitlements (of bonus shares) of the relevant account-
holders and sub-account holders on the day before the first day of the period of
closure of register of members and enter the book-entry securities in the relevant
accounts and sub-accounts in accordance with determined entitlements .
Page 5 of 7
CORPORATE LAWS
Suggested Answers
However fractional entitlements to book-entry securities relating to bonus shares

shall not be credited by the CDC to the relevant accounts and sub-accounts.
Securities representing such fractional entitlements shall be consolidated and dealt
with in accordance with CDC’s regulations.
(c) The deceptive marketing practices shall be deemed to have been resorted to or
continued if an undertaking resorts to:
(i) The distribution of false or misleading information that is capable of harming
the business interests of another undertaking;
(ii) The distribution of false or misleading information to consumers, including
the distribution of information lacking a reasonable basis, related to the price,
character, method or place of production, properties, suitability for use, or
quality of goods;
(iii) False or misleading comparison of goods in the process of advertising; or
(iv) Fraudulent use of another’s trademark, firm name, or product labeling or
packaging.
Ans.9 (a) It’s incorrect as there may be non-member director. Such director is nominated by
and due to membership of a body corporate , government or an institution or
authority .
(b) The sole director shall not be the company secretary of the company . The
company is required to appoint a company secretary within 15 days of
incorporation or of becoming a single member company or of the office of company
secretary falling vacant .
(c) It’s not correct. Single member company can enter into contract with the single
member. However, the contract should be in writing. If the contract is not in
writing, then the company shall ensure that the terms of the contract are forthwith
set out in a written memorandum or are recorded in the minutes of the first meeting
of the directors of the company following the making of the contract.
Ans.10 (a) Investor Education and Awareness Fund (“Fund”) is managed and controlled by
the Commission as may be prescribed through rules.
The Fund shall be credited with:
(i) the interest/profit earned on the “Companies Unclaimed Instruments and
Dividend and Insurance Benefits and Investors Education Account”;
(ii) forfeited amounts by the Commission whereby person making public offer of
securities make a false or fictitious application;
(iii) grants or donations given by the Federal Government, Provincial
Governments, companies, or any other institution or person for the purposes
of the Fund;
(iv) the interest or other income received out of the investments made from the
Fund;
(v) Funds remaining with the official liquidator/liquidator of a company licensed
under S.42 if those funds are not transferred to S.42 company having similar
or identical objects due to any reason; and
(vi) such other amounts as may be prescribed.
(b) MEL shall be eligible to purchase its own shares if it fulfills the following
conditions:
(i) MEL is listed on the securities exchange for a period of not less than two
years;
Page 6 of 7
CORPORATE LAWS
Suggested Answers
(ii) MEL is included in the list of margin eligible securities for the last one year
issued by the clearing house;
(iii) MEL has paid-up capital of not less than Rs. 200 million after the purchase;
(iv) MEL is compliant with the minimum capital or equity requirements, if any,
after the purchase;
(v) MEL is compliant with the minimum free float requirement of the securities
exchange, after the purchase and has obtained a certificate from the securities
exchange to this effect ;
(vi) MEL has obtained approval of its members for purchase through special
resolution;
(vii) MEL has obtained a certificate from the statutory auditors certifying that the
funds specified for the purchase are available ;
(viii) MEL has obtained no objection from its creditors; and
(ix) MEL shall disclose all the price sensitive information on a full and prompt
basis and submit to the Commission, an undertaking on non-judicial stamp
paper, to this effect.
(x) The board of directors of a company shall not propose a purchase where
winding up proceedings is commenced, inquiry or investigation is not yet
complete , proceedings related to oppression, mismanagement or change of
management are not yet complete, scheme of arrangement, compromise,
reconstruction, merger or de-merger is in process, a public offer for acquisition
of shares has commenced.
(xi) The board of directors shall not recommend purchase before the expiry of
three months from the date of an earlier general meeting in which the
purchase was disapproved by the members
(The End)
Page 7 of 7
SUBJECT SESSION
(CFAP) Examination - Summer 2018
General:
The overall performance in this attempt was quite good as the students seemed to have
come to terms with the Companies Act 2017. The passing ratio was 42.6% as compared
to 10.1% in the previous attempt. However, failure to apply knowledge in scenario based
question still remained a very weak area of the students. Failure to use the appropriate
legal terms was also a common issue with the students.
Question 1
This question was based on a simple scenario according to which the directors of a
private company were considering members’ voluntary winding up and planned to
appoint the company’s existing chief accountant as the liquidator. The question consisted
of three parts. Performance in each part is discussed below:
Question 1(a)
In this part the candidates were asked to specify the requirement of filing a declaration of
solvency and discuss whether the chief accountant can be appointed as the liquidator.
The overall performance was average. Generally, the candidates wrote most of the
requirements correctly but failed to give proper justification while responding to the issue
of appointment of existing chief accountant as the liquidator. Another common mistake
was that instead of mentioning majority of the directors, most candidates stated that
declaration of solvency has to be signed by all the directors. Moreover, the need to
specify the period during which the directors intend to pay all the debts and that this
period shall not exceed one year was not stated by majority of the candidates. Further,
there was lot of confusion as regards whether the declaration has to be filed with the
Registrar or the SECP.
Question 1(b)
In this part, the requirement was to discuss the responsibility of the liquidator in case the
declaration of solvency is filed by the directors but subsequently the liquidator assesses
that it would not be possible to pay the company’s debts and whether the liquidator could
continue to act as liquidator in such a situation.
Page 1 of 6
Examiners’ Comments on Corporate Laws – CFAP Examination Summer 2018
The performance was average as almost 50% of the students knew the responsibilities of
the liquidator in the given situation. A number of candidates mentioned members instead
of creditors. Some of them even mentioned members/creditors.
Question 1(c)
In this part the candidates were required to state what action would the liquidator have to
take in case he calls a final meeting after the completion of the liquidation process but the
quorum for the meeting is not complete. The performance in this part was very poor as
only few students could specify all the relevant provisions, whereas about 25% of the
candidates gave partially correct answers.
Question 2
This question was based on a simple scenario in which the directors of a company had
decided to issue Class B shares and classify the existing shares as Class A shares. The
overall response was good as 59.4% candidates secured passing marks. The question
consisted of two parts and part wise comments are given below:
Question 2(a)
In this part the candidates were required to discuss the validity of the resolution passed
by the directors and to explain the nature of the variation in rights and privileges that may
be attached to different classes of shares.
The performance remained average. Very few students knew that directors’ resolution
would only be valid if the variation in rights is specifically allowed under the Articles
and Memorandum of Association. However, most of them were able to write the
different types of variations that may be attached to the different classes of shares. The
most common omission in this regard was that the provision related to different voting
rights was missed.
Question 2(b)
In this part the candidates were required to specify the remedy available to the
shareholders who did not agree with the directors’ decision. The performance was
satisfactory. However, some students used the term voting rights instead of shares.
Further, many students were of the view that petition in this regard had to be filed with
SECP instead of the Court.
Question 3
This question consisted of two parts. Good performance was witnessed in this question as
59.1% candidates secured passing marks. Part wise comments are given below:
Question 3(a)
In this part, the requirement was to state the restrictions imposed under Companies (Issue
of Capital) Rules, 1996 on the sponsors when the company issues shares to the general
public.
Page 2 of 6
Good performance was witnessed in this part. The most common omissions were with
regard to restriction on making any arrangement with the underwriters to buy the shares
which the underwriters may have to buy and reporting of block sale to stock exchange on
the same day.
Question 3(b)
This part contained a simple scenario in which the directors were considering to issue
shares at a premium to general public as well as the employees of the company. The
requirement was to state the conditions required to be fulfilled in respect thereof under
Companies (Issue of Capital) Rules, 1996.
Though the performance was satisfactory, many students could not specify that if shares
are issued to employees at a lower price, then these shares shall not be transferable or
saleable for six months. Many candidates stated incorrectly that same price has to be
charged from the employees and the general public.
Question 4
This question consisted of two independent parts. The overall performance was below
average as only 25% of the candidates secured passing marks. Performance in each part
is discussed below:
Question 4(a)
According to the scenario given in this part a company had offered its factories in Multan
and Sharjah as security against a loan after release of existing charge on the Multan
Factory. The requirement was to specify the procedures to be carried out in this regard.
The performance remained average as most of the students gave too generalised answers.
Some of the common mistakes were as follows:
 For release of charge it was stated that the company should give notice to the
Registrar but what should the notice state was not specified.
 Similarly, with regard to registration of charge it was stated that necessary documents
should be filed with the registrar without exactly specifying the required documents.
 Only few students knew that additional procedures may be required to register charge
over Sharjah factory, to comply with the laws in Sharjah.
Question 4(b)
According to the scenario given in the question, a private company had two shareholders
holding 67% and 33% of the shares. The number of directors nominated by them were
five and three respectively. The candidates were required to assess whether the 67%
shareholder was in a position to remove the existing chief executive of the company
before expiry of his term.
Page 3 of 6
The performance remained poor as most of the students only knew that the chief
executive may be removed by passing a special resolution. Only few mentioned the other
possibility i.e. by a resolution passed by not less than three fourth of the total number of
directors. Further, many students only quoted the related provision without applying
them to the given situation. Further, many students were of the opinion that the Chief
Executive can be removed with simple majority of the directors.
Question 5
This question required the candidates to classify the receivables (under two different
situations) under the provisions of NBFCs and Notified Entities Regulations, 2008. The
performance was reasonable as 33.6% of the candidates secured passing marks. The
common errors were as follows:
Question 5(a)
In this part the candidates classified the receivables based only on the fact that the
overdue installments have been restructured and six months have passed since
restructuring. The finer point that the classification can only be changed if terms of
restructured finance are fully met for six months and 20% of the outstanding amount
(principal and markup) is recovered in cash.
Question 5(b)
In this part majority of the candidates wrote that the leases would be classified as
doubtful because the debtor has failed to comply with the terms of rescheduling.
However, they failed to notice that since the period for which the balance is outstanding
has increased to more than one and a half year, the amount would have to be further
downgraded and classified as a loss.
Question 6
This question consisted of two independent parts. The overall performance was good as
58% of the candidates secured passing marks. Performance in each part is discussed
below:
Question 6(a)
In this part names, qualifications and type of directorship of 9 directors of a listed

company were given. Further, three options for constituting the audit committee were
also given and the candidates were required to comment on the appropriateness of those
options.
The overall performance was quite good. However, some of the commonly observed
errors are discussed below:
 In option (i), many students were of the view that executive director can also be part
of the committee.
Page 4 of 6
 In option (ii), many students were of the view that chairman of board of directors
cannot be a member of the audit committee which is incorrect. He can be a member
of the committee but cannot be the chairman. Moreover, only few students were able
to identify that there was no independent director in this option.
 In option (iii), many students declared it to be an appropriate composition of Audit
Committee missing out the requirement of having a “Financial Literate” in the
Committee. Moreover, some students used the term financially sound instead of
financial literate.
 Many students mentioned the requirements of the Code of Corporate Governance but
did not offer any comment on the options given in the question.
Question 6(b)
This part was very well attempted by the students and most of them secured full marks. A
common error was that many candidates mentioned about taking the matter to the court
instead of the Commission.
Question 7
A below average performance was witnessed in this question as only 23.7% of the
candidates were able to secure passing marks. Some of the common errors were as
follows:
 Many students mixed the requirements with that of Insider Trading and therefore
included many irrelevant points.
 Various types of errors were made in the treatment of the gain. The candidates are
advised to refer to the ICAP’s suggested answer in this regard.
 Some candidates mention about depositing the gain with the Federal Consolidated
Fund instead of the Commission.
Question 8
This question consisted of three independent parts. The overall performance was average
as 44.5% of the candidates secured passing marks. Part wise comments are given below:
Question 8(a)
This part was generally well attempted. Most common error was that the candidates
linked the concept of money laundering to terrorism and hawala business whereas the
term used in the law is much vast in scope i.e. proceeds of crime.
Question 8(b)
This question was generally well attempted. The most common error was that the
candidates failed to specify how the fractional entitlements would be dealt with.
Page 5 of 6
Question 8(c)
The performance in this part was average as only 50% of the students appeared to have
answered on the basis of their knowledge of the Competition Act. The rest of them
resorted to guesswork. For example, many of them stated that actions which lead to
reduction in competition, low quality products, charging of higher prices are deceptive
marketing practices.
Question 9
This question consisted of three short questions related to single member companies. The
performance remained below average as only 37.2% of the candidates secured passing
marks. Most of them did not know the correct answer of part (a). Part (b) was better
attempted but in part (c) again, the candidates were mostly of the incorrect view that a
single member cannot enter into contract with the single member company. Some of
them who knew that such a contract can be entered into but did not explain that it should
be in writing or its terms shall be set out in a written memorandum or recorded in the
minutes of directors’ meeting.
Question 10
This question consisted of two parts. The performance remained below average as only
38.2% of the candidates secured passing marks. Part wise comments are given below:
Question 10(a)
In this part the candidates were required to specify who manages and controls the
Investor Education and Awareness Fund and specify the amounts which are credited to
the fund.
Most of the students mentioned incorrectly that the fund is managed by the Federal
Government whereas it is managed by the Securities and Exchange Commission. The
remaining portion was also not attempted well as most of the students could give one or
two correct points only.
Question 10(b)
The overall performance in this part was almost similar to that of part (a) i.e. most of the
students were able to list two or three conditions only.
(THE END)
Page 6 of 6
CORPORATE LAWS

The marking scheme is given as a guide. Markers also award marks for alternative approaches
to a question and relevant/well-reasoned comments/explanations. Moreover, the available
marks in answer may exceed the total marks of a question.
Mark(s)
A.1 (a) (i) Discussion on the requirements for:
approval of declaration of solvency 3.0
filing of declaration with the Registrar 1.0
submission of documents along with the declaration of solvency 1.0
reference to statement that declaration is not being made to defraud
any person(s) 1.0
(ii) Discussion on the appointment of chief accountant as the liquidator 0.5

Discussion on the authority for liquidator’s appointment in case of
members’ voluntary winding up 1.5
(b) (i) Explanation of liquidator’s responsibilities for calling creditors’

meeting 1.5
Explanation of liquidator’s filing responsibilities with registrar 1.5
(ii) Discussion on continuation of present liquidator in the given situation 2.0
(c) Explanation of liquidator’s responsibilities to:

file return with the registrar 1.0
submit documents along with the return to the registrar 1.0
A.2 (a) (i) Explanation of validity of directors’ resolution regarding the

issuance of Class B shares 1.5
Conclusion 0.5
(ii) Up to 02 marks for explanation of each nature of variation in voting

rights and privileges 5.0
(b) Discussion on course of action available to Ahmed and Faraz 4.0
A.3 (a) 0.5 to 1.75 marks for discussing each restriction for entering into
arrangements with underwriters for purchase of shares 5.0
(b) 0.5 to 2.5 marks for discussing each condition required to be fulfilled for
issuance of shares at premium 8.0
A.4 (a) (i) Discussion on the procedures to be followed by KL for releasing the
charge 3.0
(ii) Discussion on requirements for registration of charge over Multan

and Sharjah factories 3.0
Discussion on additional procedures that needs to be followed for
Sharjah factory 2.0
Page 1 of 3
CORPORATE LAWS
Mark(s)
(b) Discussion on conditions for removal of chief executive 2.0
Conclusion 1.0
A.5 (a) Discussion on requirements that needs to be met for reclassifying a

restructured loan 1.0
Conclusion 1.0
(b) Discussion on requirements that needs to be met for reclassifying a

rescheduled loan 2.0
Conclusion 1.0
A.6 (a) Discussion on the appropriateness of:

Option (i) 1.0
Option (ii) 2.0
Option (ii) 2.0
(b) Discussion on process to be followed by the dissenting board member to have

his dissent properly recorded in the minutes of the meeting in the given
situation 2.0
A.7 Discussion on responsibilities of Sabiha in respect of reporting to the company 5.5

Discussion on responsibilities of Sabiha in respect of reporting of gain to the
Commission 3.5
A.8 (a) 01 mark for describing each situation under which a person shall be guilty of
offence of money laundering 4.0
(b) Discussion on responsibilities of SL 1.0

Discussion on responsibilities of CDC 3.0
(c) Up to 01 mark for identification of each deceptive marketing practice 3.0
A.9 (a) Discussion in the light of Single Member Companies Rules, 2003 for
appointment of non-member director 1.5
Conclusion 0.5
(b) Discussion in the light of Single Member Companies Rules, 2003 for
appointment of company secretary 1.5
Conclusion 0.5
(c) Discussion in the light of Single Member Companies Rules, 2003 for
entering into contract 1.5
Conclusion 0.5
Page 2 of 3
CORPORATE LAWS
Mark(s)
A.10 (a) Identification of authority who manages Investor Education and
Awareness Fund 0.5
Up to 01 mark for identification of each source of funds credited to
Investor Education and Awareness Fund 4.5
(b) Up to 01 mark for discussing each condition that needs to be fulfilled for
buy-back of shares 7.0
(THE END)
Page 3 of 3

Corporate Laws
Q.1 Salam Holdings Limited (SHL) is a listed company which has shareholdings in a number of
companies. The board has referred the following matters to SHL’s Corporate & Legal
Affairs Department (CLAD):
(a) SHL had obtained a loan of Rs. 150 million from a financial institution which was
secured by way of mortgage on company’s fixed assets. The loan has been re-paid in
full but SHL has been unable to have the charge vacated because confirmation of
repayment has not been received from the financial institution. (2.5)
(b) Mr. Shaikh Abid, a director of SHL has informed the board that he is planning to
move to UK for one year due to his daughter’s higher education. He is interested in
assigning his office to his brother Shaikh Javed. The Board wants to know what
options are available in the given situation. (2.5)
(c) A group of shareholders of one of SHL’s subsidiaries, Haleem Limited (HL) holding
13% of the voting power in HL has filed an appeal with the Securities & Exchange
Commission of Pakistan in which they have alleged that HL is being mismanaged by
the directors. Consequently, HL is incurring losses and had never declared any
dividend even when the profits were available in the past years.
The directors have asked CLAD to explain the possible consequences of this appeal
on HL and its management. (06)
Required:
As the head of Corporate & Legal Affairs Department (CLAD) advise the Board about each
of the above matters, in the light of the provisions of Companies Act, 2017.
Q.2 (a) The shareholders of Moon Limited approved through special resolution in the annual
general meeting for the year ended 31 October 2017, an investment of Rs. 500 million
in a project of its associated undertaking, Stars Limited.
Rs. 400 million have so far been invested on the project. The project has been delayed
and is not expected to be completed before the next annual general meeting which
would be held on 28 December 2018.
Required:
Under the provisions of Companies (Investment in Associated Companies or
Associated Undertakings) Regulations, 2017 discuss the responsibilities of
Moon Limited regarding disclosure of information to the members in respect of the
above. (04)
(b) Under the provisions of Companies Act, 2017 who may be considered as
non-executive director of a listed company and under what circumstances he would be
held liable? (05)
Q.3 Khas Limited (KL), a listed company, plans to hold an extra-ordinary general meeting for
the election of directors. Ms. Mehwish, the Company Secretary of KL has asked you to
advise on the following matters in the light of Companies (Postal Ballot) Regulations, 2018:
(a) KL’s responsibilities for publication of ballot paper. (03)

(b) Procedure for voting through ballot paper and responsibilities of chairman of the
meeting in this regard. (06)
Q.4 Hamza Limited is a listed company and has three subsidiaries. The company is presently
considering to offer its shares to all its employees as well as employees of its subsidiaries.
It has recently constituted a Compensation Committee for administration and
superintendence of the Scheme.
Required:
Under the Public Companies (Employees Stock Option Scheme) Rules, 2001, discuss:
(a) the requirements of shareholders’ approval including information to be disclosed in
the notice to the shareholders, in the above situation. (05)
(b) the terms and conditions of the Scheme which shall be formulated by the
Compensation Committee. (06)
Q.5 (a) Institutional Leasing (IL) intends to invest in the shares of an unlisted company,
Minnow Limited (ML) for a period of two years. A shareholder of ML is interested in
selling its entire shareholding to IL at Rs. 25 per share. The paid up capital of ML
consists of 25 million shares of Rs. 10 each.
Following information has been extracted from IL’s latest financial statements:
Rs. in ‘000
Ordinary share capital 500,000
Preference share capital 20,000
Reserves 75,000
Accumulated profits 100,000
Revaluation reserves 50,000
Investments in unlisted shares 70,000
Investments in listed shares 40,000
Investments in unlisted shares include 800,000 shares of ML which were purchased at

Rs. 20 per share.
Required:
Under the provisions of Non-Banking Finance Companies (Establishment and
Regulation) Rules, 2003 determine the maximum number of shares of ML which IL
can purchase. Clearly state your assumptions, if any. (07)
(b) The directors of Accurate Investment Advisory Services Limited (AIASL) have
recently identified a strategic investment under which it would acquire 15%
shareholdings in Mazboot Housing Finance Limited (MHFL) for Rs. 85 million.
Required:
Under the provisions of Non-Banking Finance Companies (Establishment and
Regulation) Rules, 2003, advise the board of directors of AIASL about making
strategic investments in MHFL. (03)
Q.6 (a) Zulfi Garments (Pvt) Limited has two wholly owned subsidiaries Abid Textiles
Limited, an unlisted public company and Zahid Textile (Pvt) Limited.
Under the provisions of Companies Act, 2017 advise the management as to how these
companies can amalgamate and operate as one company without going through the
normal amalgamation process. (05)
(b) On 1 October 2018, Asif Publishers Limited (APL), an unlisted public company,
appointed liquidator for members’ voluntary winding up in the general meeting.
All the APL’s liabilities have been settled. The liquidator has now received an offer
from Kashif Publishers Limited (KPL) for purchase of some of APL’s remaining
assets in consideration of KPL’s shares, at fair value determined by an independent
auditor. Mr. Shahrukh who holds 10% shareholding in APL has objected to this
proposal.
Required:
Under the provisions of Companies Act, 2017 discuss the liquidator’s responsibilities
in the above situation. (05)
Q.7 (a) Rawalpindi (Pvt) Limited (RPL) holds 20% voting shares in Bolan Limited (BL), a
listed company whose shares are frequently traded at Pakistan Stock Exchange. The
management of RPL intends to acquire additional 15% shares in BL and have been
advised by their legal counsel to appoint a ‘manager to the offer’ for this purpose.
Required:
(i) Under the provisions of Securities Act, 2015 briefly describe whether it is
necessary for RPL to appoint ‘manager to the offer’ and who may be eligible for
appointment as ‘manager to the offer’. (04)
(ii) Under the provisions of Listed Companies (Substantial Acquisition of Voting
Shares & Takeovers) Regulations, 2017, advise RPL regarding minimum price
to be offered to acquire the additional shares of BL. (06)
(b) Assume that RPL made public announcement to acquire 15% additional shares in BL
on 30 November 2018 and another shareholder, Khyber Limited (KL), which holds
12% shares in BL, also desires to make a bid to acquire further shares in BL.
Required:
(i) Briefly discuss the provisions of Securities Act, 2015 that KL should comply
with while making competitive bid to acquire shares in BL. (03)
(ii) Suggest the course of action available to RPL under the Securities Act, 2015 if
KL makes an offer on 20 December 2018. (04)
Q.8 Under the Anti-Money Laundering Act, 2010 Financial Monitoring Unit (FMU) is
empowered to receive Suspicious Transaction Reports (STRs) from the reporting entities.
Required:
Under the provisions of Anti-Money Laundering Act, 2010:
(a) specify the transactions which are required to be reported in STRs. (07)
(b) briefly discuss the requirements related to reporting of STRs to FMU and the retention
of records. (03)
Q.9 (a) Under the Pakistan Stock Exchange Limited Regulations, briefly state the
circumstances under which a listed company may be placed in the Defaulters’
Segment. (05)
(b) The share capital of Unique Limited (UL), a listed company, comprises of 16 million
ordinary shares of Rs. 10 each. The existing free float of the company is 4.5 million
shares.
Required:
In the light of Pakistan Stock Exchange Limited Regulations, discuss the following:
(i) Free float requirements for UL and what should UL do if the number of free
float shares falls below the minimum requirement. (02)
(ii) Different modes through which UL may enhance the number of its free float
shares. (03)
(c) Titan Limited (TL) intends to make a right issue at par i.e. Rs. 10 per share. The
sponsors hold 35% of the share capital. Mr. Hanif a director of the company informed
the Board that since the market value of TL’s shares during the preceding six months
remained between Rs. 9.25 to Rs. 9.65, TL needs to comply with some additional
conditions for issuing right shares under the Companies (Issue of Capital) Rules, 1996.
Required:
Specify the additional conditions which Mr. Hanif may be referring to. (03)
(THE END)
CORPORATE LAWS
Suggested Answers
Ans.1 (a) If the confirmation has not been received from the financial institution, Salam
Holdings Limited (SHL) should intimate the registrar about the payment or
satisfaction in full within 30 days of the date of the re-payment of the loan. The
Registrar shall issue a notice to the financial institution to show cause within a time
limit not exceeding 14 days to be fixed in such notice why the re-payment or
satisfaction of the charge or mortgage should not be recorded. If no cause is shown
by the financial institution, the Registrar will order that a Memorandum of
Satisfaction be entered in the register.
(b) Mr. Shaikh Abid cannot assign his office to any other person and any such
appointment shall be void ab-initio. However, since he is outside Pakistan for more
than 90 days with the approval of the board;
 he can appoint an alternate director or

 he can obtain leave of absence
The alternate director appointed above shall ipso facto vacate office if and when Mr.
Shaikh Abid returns to Pakistan.
(c) The SECP on the basis of application, supported by the evidence, of shareholders
holding not less than 10% of the voting power and after giving an opportunity to HL
of being heard may appoint an inspector to investigate the affairs of HL and shall
define the scope of such investigation. On the report of the investigator, if SECP finds
it appropriate, it may refer the matter to the Court.
When the case would be referred to the Court, the Court may:
(i) remove from office any director including the chief executive or other officer
of the company; or
(ii) direct that the directors of the company should carry out such changes in the
management or in the accounting policies of the company as may be specified
in the order; or
(iii) direct the company to call a meeting of its members to consider such matters
as may be specified in the order and to take appropriate remedial actions; or
(iv) direct that any existing contract which is to the detriment of the company or its
members or is intended to or does benefit any officer or director shall be
annulled or modified to the extent specified in the order:
Ans.2 (a) In case any decision to make investment under the authority of a special resolution is
not fully implemented in line with the approval of members till the holding of
subsequent general meeting, the status of decision shall be explained to the members
through a statement having the following details namely:
(i) total investments approved;

(ii) amount of investment made to date;
(iii) reasons for deviations from the approved timeline of investment, where
investment decision was to be implemented in specified time; and
(iv) material change in financial statements of associated undertaking since date of
resolution passed for approval of investment.
In addition to the above, latest annual audited financial statements along with the
latest interim financial statements of Star Limited, if any, shall be made available for
inspection of the members in the general meeting called for considering investment
decision in such associated undertaking.
Page 1 of 8
CORPORATE LAWS
Suggested Answers
(b) A non-executive director means a person on the board of the listed company who:
(i) is not from among the executive management team and may or may not be
independent.
(ii) is expected to lend an outside viewpoint to the board of a company.
(iii) does not devote his whole working time to a company and is not involved in
managing the affairs of the company.
(iv) is not a beneficial owner of the company or any of its associated companies or
undertakings.
(v) does not draw any remuneration from the company except the meeting fee.
A non-executive director would be held liable only in respect of such acts of omission
or commission by a listed company which had occurred with his knowledge
attributable through board processes and with his consent or connivance or where he
had not acted diligently.
Ans.3 (a) KL must publish the ballot paper not later than seven days before the general meeting
(i) publish ballot paper in English and Urdu languages at least in one issue each
of a daily newspaper of respective language having nationwide circulation
substantially on the prescribed format and with following information:
 business address and contact details of chairman of the general meeting

where duly filled ballot paper has to be sent by members.
 detailed procedure for submission of ballot papers.
(ii) KL shall also upload the ballot paper and above mentioned related information
on its website.
(b) Procedure for voting through ballot paper:
(i) The members of KL shall ensure that duly filled and signed ballot paper along
with copy of computerized National Identity Card (CNIC) should reach the
chairman of the meeting through post or email one day before the day of poll,
during working hours.
(ii) The signature on the ballot paper shall match with the signature on CNIC.
(iii) In case of foreign members and representatives of a body corporate,
corporation or Federal Government, acceptability of other identification
document in lieu of CNIC shall be approved by board of KL.
Responsibilities of chairman:
(i) The chairman of the general meeting shall record the time and date of receipt
of ballot papers, keep them in safe custody and ensure confidentiality of the
result till it is formally announced at the conclusion of the voting in the meeting.
(ii) The chairman of the meeting is responsible to immediately after the conclusion
of voting for election of directors to:
 take decision regarding the validity of the vote count votes casted during
the meeting including postal ballot.
Page 2 of 8
CORPORATE LAWS
Suggested Answers
 announce result in the meeting and also it shall be published on KL’s

website at the earliest but not later than twenty four hours from the
conclusion of the general meeting.
 after announcement of result of poll, the chairman shall send execution
report of poll substantially on the prescribed format to KL who shall
preserve it safely in accordance with provisions of Companies Act, 2017.
Ans.4 (a) No Scheme shall be offered to employees of a company unless shareholders of the
company approve the Scheme by passing a special resolution in the general meeting.
Moreover, Hamza Limited is also offering share options to the employees of its
subsidiaries, it requires to obtain approval of shareholders by way of a separate
resolution.
A statement of facts shall be annexed to the notice and resolution proposed to be

passed in the general meeting for the Scheme shall, inter alia, contain the following
information:
(i) total number of options to be granted;

(ii) identification of classes of employees entitled to participate in the Scheme;
(iii) requirements of vesting and period of vesting;
(iv) maximum period within which any option shall be vested;
(v) exercise price or pricing formula;
(vi) exercise period and process of exercise;
(vii) appraisal process for determining eligibility of an employee to the Scheme;
(viii) maximum number of options to be issued per employee and in aggregate; and
(ix) a statement to the effect that the company shall conform to the prescribed
accounting policies.
(b) The Compensation Committee shall formulate the detailed terms and conditions of
the Scheme including the following:
(i) Quantum of option to be granted under a Scheme to each employee and in
aggregate;
(ii) Conditions under which option vested in an employee may lapse in case of
termination of employment for misconduct;
(iii) exercise period within which an employee should exercise option;
(iv) specified time period within which an employee shall exercise vested options
in the event of termination from service or resignation;
(v) right of an employee to exercise all options vested in him at one time or at
various points of time within an exercise period;
(vi) procedure for making a fair and reasonable adjustment to the number of
options and to the exercise price in case of rights issues, bonus issues and other
corporate actions;
(vii) grant, vesting and exercise of option in case of an employee who is on long
leave; and
(viii) procedure for cashless exercise of options.
Page 3 of 8
CORPORATE LAWS
Suggested Answers
Ans.5 (a) In the given situation, IL would have to ensure compliance with three different
requirements of the NBFC rules. The implication in each case are given below:
Rs. in ‘000
A Limit of 20% of IL’s Equity:
Ordinary Share Capital 500,000
Reserves 75,000
Accumulated profit 100,000
Equity of IL 675,000
Investment allowed up to 20% of IL’s equity in the shares of
unlisted companies (20% of 675,000,000) 135,000
Already held – investment in unlisted shares 70,000
Limit available for further investment (A) 65,000
B Lower of 10% of IL’s Equity:

Investment permitted in single company up to 10% of IL’s own
equity (10% of 675,000,000) 67,500
Amount already invested in ML (800,000×20) 16,000
Further amount which can be invested in ML (B) 51,500
Number of shares that can be purchased (51,500,000/25) 2,060,000
C Total No. of shares of ML which IL can hold (10% of 25

million) 2,500,000
Shares already held 800,000
Additional shares which can be purchased 1,700,000
Considering the above, IL can purchase a maximum of 1.7 million shares.
Assumption: It has been assumed that preference shares are not convertible.
For ignoring revaluation reserves
(b) Accurate Investment Advisory Services Limited (AIASL) can make strategic
investment in Mazboot Housing Finance Limited (MHFL) subject to the following
conditions:
(i) Such investment would require prior approval of the Commission.

(ii) AIASL should make this investment with the intention to hold it for a period
of minimum of 5 years.
(iii) Such investment should represent more than 10% of AIASL’s equity.
Any strategic investment cannot be disposed of unless AIASL obtains prior approval
of the Commission in writing.
Ans.6 (a) These companies may amalgamate and continue as one company without going
through the normal amalgamation process because both the subsidiaries are directly
wholly owned. Further steps required in this regard would be as follows:
(i) the scheme of amalgamation should be approved by the board of each

amalgamating company; and
Page 4 of 8
CORPORATE LAWS
Suggested Answers
(ii) each resolution shall provide that:

 the shares of each transferor company i.e., Abid Textiles Limited and Zahid
Textile (Pvt) Limited will be cancelled without payment or other
consideration; and
 the board is satisfied that the transferee company i.e. (Zulfi Garments (Pvt)
Limited (ZGL) will be able to pay its debts as they fall due during the period
of one year immediately after the date on which the amalgamation is to
become effective and a declaration verified by an affidavit to the effect will
be filed with the registrar
 the person(s) named in the resolution will be the director(s) of the transferee
company (ZGL).
Further, the board of each amalgamating company must, not less than twenty days
before the amalgamation is proposed to take effect, give written notice of the
proposed amalgamation to every secured creditor of the company.
The transferee company shall file a copy of scheme so approved with the registrar
where the registered office of the company is situated.
(b) APL’s liquidator may sell the surplus assets to KPL in consideration of its shares
provided the sale is approved by a special resolution.
If Mr. Shahrukh objected to the proposal by not voting in favour of the special
resolution and has expressed his dissent in writing addressed to the liquidator and left
at the registered office of the company within seven days after the passing of the
special resolution, the liquidator may:
 abstain from carrying the resolution into effect; or

 purchase his interest at a price to be determined by agreement or by arbitration.
If the liquidator elects to purchase Mr. Shahruk’s interest, the purchase money shall
be paid before the company is dissolved, and be raised by the liquidator in such
manner as may be determined by the special resolution.
Ans.7 (a) (i) Yes it is necessary for RPL to appoint ‘manager to the offer’ as its acquisition
would make it a holder of 35% voting shares in listed company. Securities Act,
2015 makes it mandatory for acquirer who after acquiring such shares would
be entitle to more than thirty percent voting shares in a listed company to make
public offer for such acquisition of shares and such public offer can only be
made through a manager to the offer.
Manager to the offer means a bank, securities broker or an investment bank

licensed by the Commission who shall not be an associate or a group company,
of the acquirer or the target company.
(ii) Since the shares of Bolan Limited (BL) are frequently traded, the public
announcement of offer shall be at the price which is highest amongst the
following:
 The negotiated weighted average price under share purchase agreement(s)

for the acquisition of voting shares of BL;
 The highest price paid by RPL for acquiring the voting shares of BL during
six months prior to the date of public announcement of offer;
Page 5 of 8
CORPORATE LAWS
Suggested Answers
 The weighted average share price of BL as quoted on the securities

exchange during the last six months preceding the date of announcement
of public offer;
 The weighted average share price of BL as quoted on the securities
exchange during four weeks preceding the date of public announcement of
intention; and
 The price per share arrived at on the basis of net assets value determined
by a Chartered Accountant firm based on audited financial data not older
than six months from the date of public announcement of offer made by the
manager to the offer. In case of fixed assets, being part of total assets, the
Chartered Accountant firm shall obtain services of a valuer to carry-out
valuation of fixed assets. The valuers should be on the list of panel valuers
maintained by Pakistan Banks’ Association.
(b) (i) KL shall make first public announcement within twenty-one days of public
announcement made by RPL i.e., 21 December 2018. Such offer shall be made
for at least same number of voting shares of Bolan Limited and shall offer
higher purchase price against the offer made by RPL.
The provisions of Securities Act, 2015 which are applicable for public
announcement for takeover of shares shall apply mutatis-mutandis to the
competitive bid.
(ii) The following options are available to RPL in case of competitive bid by
another acquirer i.e. KL:
 RPL may make upward revision in its offer in respect to the price or the
number of voting shares to be acquired, at any time up to seven working
days prior to the date of the closure of public offer.
 RPL may withdraw its public offer within seven working days of public
announcement of the competitive bid by KL.
 If RPL does not withdraw or does not make an upward revision of its offer,
its earlier offer on the original terms shall continue to be valid and binding
on RPL, except that the closing date of such public offer shall stand
extended to the date of closure of public offer under the last subsisting
competitive bid.
Ans.8 (a) Transactions to be reported in STRs include all transactions which are conducted or
attempted by, at or through the reporting entity, if the entity:
 knows, or
 suspects or
 has reason to suspect
that the transaction or a pattern of transactions of which the transaction is a part:
(i) involves funds derived from illegal activities or is intended or conducted in

order to hide or disguise proceeds of crime.
(ii) is designed to evade any requirement of the Act
(iii) has no apparent lawful purpose after examining the available facts, including
the background and possible purpose of the transactions or
(iv) involves financing of terrorism, including funds collected, provided, used or
meant for, or otherwise linked or related to, terrorism, terrorist acts or
organizations and individuals concerned with terrorism.
Page 6 of 8
CORPORATE LAWS
Suggested Answers
(b) If a reporting entity knows, suspects or has reason to suspect that the transaction or a
pattern of transactions as discussed in (a) above, it shall file STR with the FMU
immediately but not later than seven working days after forming that suspicion.
This requirement shall have effect notwithstanding any obligation as to secrecy or

other restriction on the disclosure of information imposed by any other law or written
document.
Every reporting entity shall keep and maintain all record related to STRs filed by it
for a period of at least five years after reporting of transactions.
Ans.9 (a) A listed company may be placed in the Defaulters’ Segment if:
(i) It has not commenced its commercial production in the case of a

manufacturing company or business operations in the case of any other
company within ninety (90) days of the date of commencement of commercial
production/business operations as disclosed in its Prospectus;
(ii) It has suspended commercial production/ business operations in its principle
line of business for a continuous period of one year;
(iii) It has failed to hold its one Annual General Meeting as per law;
(iv) It has failed to submit its annual audited accounts for the immediately
preceding financial year as per law;
(v) It has failed to pay within the time specified by the Exchange:
 the annual listing fees for two (2) years; or

 any penalty imposed by the Exchange under these Regulations though
final order; or
 any other dues payable to the Exchange under these Regulations;
(vi) It for any reason whatsoever has failed to join CDS after its security has been
declared eligible security;
(vii) Its CDS eligibility has been suspended by the CDC;
(viii) Its CDS eligibility has been revoked by the CDC;
(ix) Its statutory auditor has issued a qualified opinion on the going concern
assumption or has issued a disclaimer or an adverse opinion in the audit report;
(x) License of the listed regulated person or listed company, as the case may be,
has been cancelled or revoked by the Commission or licensing authority;
(xi) It has failed to comply with any provision of this Chapter or where, in the
opinion of the Exchange, it is necessary to do so in the interest of protecting
investors and maintaining a fair, orderly and transparent market;
(xii) Winding up proceedings have commenced.
(b) (i) Free float requirement for a listed company is 25% of the total issued number
of shares.
25% of ULs’ share means 4 million shares. Hence, UL is not required to

increase the free-float.
(ii) UL may enhance the minimum free-float levels prescribed under this
regulations through:
 Issuance of new shares to public through prospectus, bonus or right issue;
or
 Offer for sale of shares held by the promoters to public through prospectus;
Page 7 of 8
CORPORATE LAWS
Suggested Answers
or
 Sale of shares held by the promoters through the secondary market; or
 Sale of shares to employees under the Employees Stock Option Scheme; or
 Any other method as may be allowed by the Exchange with the approval
of the Commission.
(c) The market price of shares of Titan Limited (TL) during the preceding six months
has remained below par value therefore in case of a right issue at par value:
(i) sixty percent of right issue shall be underwritten by at least two underwriters
and the underwriters shall not be associated companies or associated
undertakings of TL. Sponsors of TL shall not enter into any agreement or
arrangement directly or indirectly with the underwriters with respect to the
purchase of shares taken up by the underwriters.
(ii) the sponsors shall undertake to subscribe forty percent of the right issue and
since the sponsor shareholding is less than forty percent (thirty five percent)
then sponsors shall arrange subscription for the balance which together with
the shareholding held by sponsors will constitute forty per cent, from other
shareholders;
(The End)
Page 8 of 8
SUBJECT SESSION
(CFAP) Examination - Winter 2018
General:
The performance in this paper was very poor as only 16% candidates secured passing
marks. Majority of the students suffered on account of selective studies as they displayed
extremely low level of knowledge in some areas of the syllabus such as NBFC Rules,
2003, Anti-Money Laundering Act, 2010 and chapters related to amalgamation /
liquidation of companies under the Companies Act, 2017.
Question 1
The overall performance in this question was average as 34% candidates secured passing
marks. The question consisted of three parts. The performance in each part is discussed
below:
Question 1(a)
The performance in this part was good and many students scored full marks as well.
Those students who did not know the answer relied on guesswork. Most such students
suggested vigorous follow-up with the financial institution and lodging of complaint with
SBP and SECP.
Question 1(b)
The performance in this part was poor. Many students stated that the director can assign
his office which was incorrect. Majority of the candidates did not read the question
carefully as they failed to realise that they were supposed to mention the other options
available with the Director in the given situation and did not mention anything in this
regard.
Question 1(c)
The performance in this part was average. Though several students scored full marks and
there were a number of good performances but an equal number of students mixed up the
role of SECP and Court. In the given situation SECP’s responsibility was to appoint the
investigator and based on his report SECP is required to decide whether the matter may
be referred to the court and court may take various actions, but these students
misunderstood the law and assumed that SECP could take these actions.
Page 1 of 5
Question 2
This question consisted of two unrelated parts. The overall performance was satisfactory
mainly because of good performance in part (b). The overall passing ratio was 39%.
Performance in each part is discussed below.
Question 2(a)
This part was poorly attempted as majority of the students did not have any idea of the
related rules. A lot of guesswork was noted as answers mostly included irrelevant matters
such as impairment of investment, revised expected date of completion, disclosure in
financial statements, irrelevant project details, etc.
Most of the students could only mention one correct point i.e. about the reasons for
delay.
Question 2(b)
This part was well attempted. A large majority of the students knew the criteria based on
which a director is considered as a non-executive director although the condition relating
to beneficial ownership of the company or any of its associated companies or
undertakings was missed in several cases. Further, the circumstances under which he/she
would be considered liable was attempted in an average manner.
Question 3
This question on postal ballot regulations was the best attempted question of the paper
although the passing ratio at 46% was not very high. Many students were totally
confused and tried to discuss e-voting instead of postal ballot. While discussing the
procedure for voting many candidates mentioned that the members should send the ballot
papers to the company rather than the chairman of the meeting. Moreover, the provisions
related to foreign members, corporate bodies and the federal government were missed.
Further, while discussing the responsibilities of the chairman, many students did not care
to remain restricted to his responsibilities with regard to postal ballot and narrated the
other responsibilities.
Question 4
Only 21% candidates secured passing marks in this question. The common errors were as
follows:
 Majority of the candidates did not clearly specify that separate special resolutions
would be required for approval related to employees of the company and separate
resolution would be required for employees of the subsidiary.
 While mentioning the information to be shared in the statement of facts, many
students appeared quite casual.
 Many students used the words shares to be issued instead of options to be granted.
 Most of the students presumed that exercise period and vesting period represented the
same thing.
 Most of the students mixed up the requirement of part (a) and (b) and inter-changed
the points in the answers.
Page 2 of 5
Question 5
This was a very poorly attempted question as only 4% of the candidates secured passing
marks. It consisted of two parts. The performance in each part is discussed below:
Question 5(a)
According to the scenario in this question an NBFC (IL) wanted to invest in an unlisted
company (ML). Relevant extracts from the financial statements of IL and certain other
information was provided in the question and the candidates were required to determine
the maximum number of shares of ML which IL could purchase while adhering to the
requirements of NBFC Rules, 2003.
The performance remained extremely poor. Most of the candidates were not aware of the
three conditions which were required to be met i.e. (i) Investment in unlisted securities
should not exceed 20% of the equity of the NBFC (ii) Investment in a single unlisted
company should not exceed 10% of the equity of the NBFC and (iii) number of shares in
a particular company shall not 10% of its total number of issued shares. Further, the
students were also not sure about computation of equity of IL for the purpose of this rule.
Almost nobody explained why the preference shares were or were not included in the
equity. Moreover, in many cases revaluation reserve was included in equity which was
incorrect.
Even those students who knew the requirements were not able to apply it in the given
situation.
Question 5(b)
In this part of the question, the candidates were required to mention the condition
applicable to an NBFC for making strategic investment in another NBFC or (Financial
Services Company). The performance remained average as majority of the students gave
partially correct answers.
Question 6
This was also a poorly attempted question as only 11% of the candidates secured passing
marks. It consisted of two parts. The performance in each part is discussed below:
Question 6(a)
In this part the candidates were required to explain how a holding company and its
wholly owned subsidiaries amalgamate without going through the normal amalgamation
process. The performance was very poor. Most of the candidates mentioned about
obtaining court’s approval which clearly showed that they did not have any clarity on the
issue. Those who were aware of the procedure mostly omitted a very important condition
i.e. that the subsidiaries should be wholly owned. Many of them also omitted the
condition of sending notice to secured creditors.
Page 3 of 5
Question 6(b)
This question was about a company under liquidation which had settled all its liabilities
and had received an offer for sale of a part of its remaining assets in lieu of shares of the
buying company. The requirement was to suggest the course of action for the liquidator
where the liquidator intends to accept the proposal but a shareholder holding 10% shares
had raised objection to the said proposal.
The overall performance was average as generally the students knew some but not all the
related requirements.
Question 7
The overall performance in this question was satisfactory as 38% candidates secured
passing marks. The question consisted of two parts. The performance in each part is
discussed below:
Question 7(a)
According to the scenario in this part of the question, a private limited company (RPL)
holding 20% shares in a listed company (BL) wanted to purchase a further 15% of the
shares of BL.
In sub part (i), the candidates were required to explain whether it was necessary to
appoint a manager to the offer and who can be appointed as the Manger to the Offer.
Majority of the students answered in the affirmative which was correct. However, they
lost marks because no reason was given in this regard. Further, while discussing who
could be appointed as the manager to the offer, majority of the students failed to mention
that an associate or a group company of the acquirer or the target company cannot be
appointed as the manager to the offer.
In sub part (ii) the requirement was to discuss how the minimum price to be offered shall
be determined under the Listed Companies (Substantial Acquisition of Voting Shares &
Takeovers) Regulations, 2017.
The Regulations specify 5 different ways of calculating the maximum price and the
highest among them is to be treated as the minimum price. Some of the students did not
state the most important condition of taking the highest price. Moreover, very few of the
candidates could mention all the five methods of determining the price correctly. Most
commonly, there was a lot of confusion between public announcement of intention and
public announcement of offer.
Question 7(b)
In this part, the scenario in part (a) was extended further i.e. it was assumed that RPL had
made the offer to purchase 15% shares but KL who also held 12% shares in BL also
wanted to make an offer of purchasing further shares.
The requirement was to specify the conditions in the light of Securities Act, 2015
applicable to KL for making competitive bid and the course of action available to RPL if
KL makes the bid.
Page 4 of 5
With regard to making of a competitive bid by KL, majority of the students failed to
mention that the offer should be of at least the same number of shares as had been offered
by RPL. Some candidates also mentioned “same number of shares” instead of “at least
the same number of shares”.
With regard to options available with RPL if KL also makes an offer, most of the
candidates failed to mention the implications on RPL if it does not withdraws its offer
and does not make a further offer either.
Question 8
This was another very poorly performed question as only 5% candidates secured passing
marks. The question was based on Anti-Money Laundering Act, 2010. The requirement
was quite simple and therefore it was quite clear that majority of the students had
resorted to selective studies and had not studied this area altogether. A further evidence
of the same was the fact that 23% of the candidates did not attempt this question
altogether.
Question 9
The overall performance in this question was satisfactory as 38% candidates secured
passing marks. The question consisted of two parts. The performance in each part is
discussed below:
Question 9(a)
The requirement in this part was to list the conditions under which a listed company may
be placed under the Default Counter of the Pakistan Stock Exchange. The performance
remained below average as most of the students missed several conditions. Only two
conditions were mentioned correctly in most cases i.e. failure to hold general meeting
and failure to pay listing fee. Another common error was that instead of mentioning
about failure to comply with PSX regulations the candidates mentioned SECP instead of
PSX.
Question 9(b)
This part on requirement of free float was well attempted by majority of the students.
However, many students gave totally irrelevant suggestions such as buy back of shares,
sales of treasury shares, etc.
Question 9(c)
In this part, the candidates were required to discuss those conditions which become
applicable in case of a right issue where price of shares remains below par value during
the preceding six months. The performance remained below average as many students
could not understand the requirement of the question and tried to mention all the
conditions that are required to be fulfilled but did not mention those conditions which
were being referred to in the question.
(THE END)
Page 5 of 5
CORPORATE LAWS

Mark(s)
A.1 (a) Discussion on SHL’s responsibilities regarding intimation to the registrar 1.0
Discussion on the steps that the registrar would take to vacate the charge 1.5
(b) Discussion on the options available regarding assignment of director’s

office 2.0
Conclusion 0.5
(c) Requirement for filing of appeal to SECP 0.5

Discussion on how SECP may refer the matter to the Court 1.5
Up to 01 mark for discussing each possible action/direction that Court
may take/give against HL and its management 4.0
A.2 (a) Discussion on the information that should be provided to members

through a statement 3.0
Requirement of the availability of financial statements at the meeting for
members’ inspection 1.0
(b) Up to 01 mark for discussing each eligibility condition of non-executive

director 3.5
Discussion on circumstances as to when non-executive director would be
liable 1.5
A.3 (a) Discussion on the relevant provisions for:

publication of ballot paper and information that it should cover 2.5
uploading the ballot paper on website 0.5
(b) Procedures to be followed for voting through ballot paper 3.0

Responsibilities of the chairman regarding voting through ballot paper 3.0
A.4 (a) Discussion on the requirement to be followed for issuance of shares to the
employees of a company and to the employees of its subsidiaries 1.5
Up to 0.5 mark for stating each information that should be included in the
statement of facts 3.5
(b) Up to 01 mark for discussing each term and condition of the scheme to be
formulated by the Compensation Committee 6.0
A.5 (a) Determination of:

limit available for further investment 3.0
maximum number of ML’s shares that can be purchased 2.0
additional shares of ML that can be purchased 2.0
(b) 0.75 mark for discussing each condition applicable to strategic investment in
MHFL 3.0
Page 1 of 2
CORPORATE LAWS
Mark(s)
A.6 (a) Discussion on non-applicability of normal amalgamation provisions in
case of wholly owned subsidiaries 1.0
Up to 1.5 marks for discussing the approval requirement of the scheme of
amalgamation for each amalgamating company 2.5
Discussion on issuance of notice to the secured creditors and filing
requirement to the registrar 1.5
(b) Discussion on liquidator’s responsibilities in case of selling assets against

other than cash consideration 1.0
Discussion on course of action available to the liquidator in case of
objection raised by the shareholder 4.0
A.7 (a) (i) Brief discussion on the provisions relating to the appointment of
‘manager to the offer’ 2.0
Brief discussion on the persons who may be appointed as a ‘manager
to the offer’ 2.0
(ii) Identification of public announcement of offer prices under the

regulations 0.5
Up to 02 marks for discussing each of five different pricings to be
considered 5.5
(b) (i) Discussion on time requirement for public announcement of

competitive bid 1.0
Discussion on other relevant conditions of competitive bid 2.0
(ii) Up to 02 marks for discussing each option available to original bidder 4.0
A.8 (a) Up to 02 marks for discussing each type of transactions which are included in
STRs 7.0
(b) Discussion on the requirements relating to reporting of STRs to FMU 2.0

Discussion on the retention of records 1.0
A.9 (a) Up to 01 mark for stating each circumstance under which a listed company may
be placed in the defaulters’ segment 5.0
(b) (i) Discussion on the free float requirement 1.0

Conclusion 1.0
(ii) Up to 01 mark for discussing each mode of enhancing the free float 3.0
(c) Up to 02 marks for specifying each additional condition 3.0
(THE END)
Page 2 of 2

Corporate Laws
Q.1 The board of directors of Propel Limited (PL), a listed company, has taken the following
decisions in its recent meeting:
(i) Sell-off entire investment in Adam Limited (AL), one of PL’s most profitable
associated companies, at a premium of 30% above market value. For the last five
years, AL has consistently been contributing 80% of PL’s total income.
(ii) Purchase 70% stake in Mina Limited (ML), listed on Pakistan Stock Exchange
Limited, which is a direct competitor of AL.
The board is confident that PL is capable of successfully rebranding ML’s product line and
surpassing AL’s market position in no time. During the board meeting, one of the directors
showed his concern that if PL is not able to successfully rebrand the ML’s product line, it
would drastically reduce PL’s own operations. However, the board remained quite
optimistic of ML’s success in view of profit forecasts and management’s competence.
Required:
(a) In the light of Companies Act, 2017 comment whether the directors are exclusively
entitled to take the above strategic decisions. Also, briefly describe further approvals or
requirements, if any, attached to these decisions. (05)
(b) In the light of Listed Companies (Substantial Acquisition of Voting Shares and
Takeovers) Regulations, 2017 discuss any seven obligations of PL, being an acquirer
of substantial stake in ML, in respect of public announcement of offer. (07)
Q.2 XLM Limited (XLM) is desirous of providing a loan of Rs. 300 million at a mark-up of
KIBOR plus 2% per annum to WL Limited (WLL), an associated company, to support its
proposed mega project. During a recent meeting, WLL has offered that instead of charging
fixed mark-up, XLM may opt for sharing the project’s profit or loss in the ratio of 50:50 over
the period of the loan.
The project is expected to commence operations from the fourth month of loan
disbursement. Profit from the first year of operations is estimated at Rs. 40 million and the
same is expected to grow by 10% per annum.
Required:
In the light of Companies (Investment in Associated Companies or Associated
Undertakings) Regulations, 2017:
(a) identify the information which is specifically required to be disclosed in the statement
annexed to the notice of the general meeting at the time of obtaining initial approval
in the context that WLL’s project has not commenced operations. (03)
(b) discuss whether XLM can accept WLL’s offer. (02)
Q.3 Cinifia Limited (CL), a listed company, having a paid-up share capital of Rs. 200 million
comprising of 20 million shares of Rs. 10 each, intends to raise finance for setting up an
additional production facility in order to meet the growing demand for its products. The
directors of the company have resolved to raise finance by issuing a new class of non-voting
ordinary shares.
Required:
In the light of Companies (Further Issue of Shares) Regulations, 2018:
(a) state the prescribed particulars that should be included in the board resolution. (05)
(b) briefly discuss the required approvals which must be taken before issuance of such
shares. (02)
(c) determine the maximum amount of share capital which can be raised by CL in the
given scenario. (02)
Q.4 (a) Sughal Limited (SL) is listed on Pakistan Stock Exchange Limited. SL’s next board
meeting is scheduled to be held on 14 June 2019 at 02:00 p.m. to consider and
approve the financial statements for the year ended 31 March 2019, right after the
conclusion of audit committee meeting which is also scheduled to be held on the same
date at 09:00 a.m.
Required:
In the light of Listed Companies (Code of Corporate Governance) Regulations, 2017:
(i) identify who is entitled to carry out performance appraisal of the board, board
committees and head of internal audit for the year ended 31 March 2019. (03)
(ii) discuss the requirements of circulation of the minutes of audit committee
meeting. (04)
(b) Aslam is in process of designing an orientation course for the board of directors of
Fable Limited, a public sector company.
Required:
Under the Public Sector Companies (Corporate Governance) Rules, 2013 advise
Aslam about the mandatory information which should be included in the orientation
course. (03)
Q.5 Fahad purchased 100,000 shares of Zechill Limited (ZL), an unlisted public company.
Subsequently, on 01 March 2019, he was appointed as a director of the company.
On 01 June 2019, he met with an accident and died on spot.
Required:
(a) Under the Companies Act, 2017 what will be the procedure of transfer of shares to
Fahad’s successors-in-interest? (02)
(b) Assuming it was discovered that prior to Fahad’s death, he had deposited a
nomination with ZL conferring on Shahbaz the right to protect the interest of his legal
heirs in the event of his death.
In the light of Companies Act, 2017 advise whether Shahbaz is eligible to be named as
Fahad’s nominee in case of his death. Also, discuss the rights and responsibilities of an
eligible nominee. (05)
Q.6 (a) Sabira Dairies is a microenterprise, owned and run by Sabira. She has approached an
NBFC for the purpose of obtaining a loan of Rs. 1 million to support her business.
Required:
Under the Non-Banking Finance Companies and Notified Entities Regulations, 2008
explain the terms ‘microenterprise’ and ‘micro entrepreneur’. Also, advise whether
Sabira is eligible to obtain the loan of Rs. 1 million for her business. (04)
(b) Subordinated loans are considered as part of equity for NBFCs.
Required:
Under the Non-Banking Finance Companies (Establishment and Regulation)
Rules, 2003 briefly discuss any six conditions which must be complied with, for a loan
to be classified as subordinated loan. (06)
Q.7 Following is the latest summarised statement of financial position of Duxell Textiles
Limited (DTL), a listed company:
2018 2018
Share capital (Rs. 10 each) 200 Non-current assets 1,000
Accumulated loss (125) Current assets 120
75
Trade creditors 250
Other current liabilities 50
Total equity and liabilities 1,120 Total assets 1,120
A group of creditors with aggregate outstanding balance of Rs. 130 million has applied to
the Commission to appoint an Administrator to manage the affairs of DTL. It is mentioned
in the application that the performance of the company has significantly deteriorated over
the last three years.
The current market price of DTL’s shares is Rs. 2.20 per share.
Required:
Under the provisions of Companies Act, 2017:
(a) advise whether these creditors are eligible to request appointment of Administrator
and discuss the grounds on which such a request can be made by DTL’s creditors. (07)
(b) assuming that creditors are justified in their request, state the procedure which the
Commission may follow in appointment of the Administrator. Also, mention when
such Administrator shall cease to hold the office. (04)
Q.8 (a) Every listed company is required to immediately disseminate to the Pakistan Stock
Exchange Limited (PSX), all price-sensitive information relating to its business and
other affairs that may affect the market price of its shares. Such information must be
communicated to the PSX, prior to its release to any other person or print/electronic
media.
Required:
Give any eight examples of price sensitive information as mentioned in the
PSX Regulations. (08)
(b) Under the Banking Companies Ordinance, 1962 identify the persons who are
prohibited to act as a director of a banking company. (05)
Q.9 (a) Ahmed is a director on the boards of Nazeer Industries Limited (NIL) and King
Limited (KL), which is the subsidiary of NIL. KL is in process of disposing off its land
in Industrial Zone 1 since it wants to shift the production plant to Industrial Zone 2.
Owing to the growing demand of Zone 2, the management of KL has been finding it
difficult to obtain the plot in desired zone. Considering the difficulties of KL, Ahmed
has offered to sell his plot in Zone 2 in consideration of KL’s land in Zone 1.
According to Ahmed, the fair values of both properties are approximately the same.
Required:
Under the Companies Act, 2017 state the conditions which must be met before such
transaction is executed under the arrangement proposed by Ahmed. (04)
(b) The board of directors of Majestic Limited (ML) intends to change the company’s
name. They are of the view that such a change would help in rebranding and
rebuilding the image of the company. In this regard, the board has directed the
company secretary to call a general meeting on priority basis in order to obtain
members’ approval.
Considering the urgency of the matter, company secretary has advised the board that
required approval under the law may be taken from the members by getting the
resolution passed through circulation.
Required:
Under the provisions of Companies Act, 2017:
(i) advise whether ML can get the resolution passed by its members through
circulation. (02)
(ii) specify the pre and post-requisites which must be taken care of, in order to
ensure that the resolution passed through circulation by members of ML is valid.
Also, briefly discuss the requirements related to retention of records in respect of
such resolutions. (05)
Q.10 Bright Limited (BL) is an unlisted public company, which intends to raise funds for
expansion of its business by offering 30 million ordinary shares to the general public in
June 2019 through Initial Public Offer (IPO). Since the incorporation of BL in June 2011,
80% of its paid-up share capital has always been held by Nasim family, who are the main
sponsors of the company whereas remaining share capital is held by three financial
institutions. BL started generating profits from year 2014.
Following is the shareholders’ equity appearing in BL’s latest financial statements:
2018
Rs. in million
Paid-up share capital (Rs. 10 each) 900
Unappropriated profits 200
Required:
In the light of Public Offering Regulations, 2017:
(a) identify the financial and operational conditions which must be satisfied to ascertain
BL’s eligibility for making public offer of shares. Based on these conditions, advise
whether BL is eligible to make public offer of its shares. (Note: Conditions applicable on
regulated persons appointed by the issuer as well as the conditions related to obtaining of
requisite approvals from PSX or the Commission are not required) (04)
(b) calculate the number of shares which should be retained by the Nasim family, after the
public offer of shares is concluded, along with the respective retention period. Further,
identify the conditions subject to which these shares may be sold. (04)
(c) briefly discuss the methods allowed to BL for determining the offer price. (04)
(THE END)
CORPORATE LAWS
Suggested Answers
A.1 (a) Acquisition of substantial stake in ML falls within the powers of the board and
does not require any further approval under the Companies Act, 2017.
However, for selling investment in AL, consent of members in the general meeting
is needed either specifically or by way of an authorisation, since:
 AL is an undertaking which generates more than 20% of PL’s total income
during the previous financial year.
 PL’s main business does not comprise of selling such undertakings.
Secondly, any resolution passed in this regard, if not implemented within one year
from the date of passing, shall stand lapsed.
Thirdly, since PL is a listed company and disposing of AL may lead to drastic
decline in PL’s business operations, risking PL’s own existence, there needs to be a
viable alternate business plan duly authenticated by the board.
(b) Following are the obligations of PL, in respect of public announcement of offer:
(i) PL shall announce its public announcement of offer only after careful and
responsible consideration and the acquirer and its Manager to Offer must
be satisfied that PL can and would continue to be able to implement the
takeover in full.
(ii) A public announcement of offer shall be made by PL through its Manager
to Offer within 180 days of making the public announcement of intention
in the newspapers.
(iii) Within two working days of the public announcement of offer, PL shall
send a copy of the proposed offer letter to ML at its registered office
address, securities exchange and the Commission.
(iv) Within two working days of submission of notice of public announcement
of offer to ML, securities exchange and Commission, the public
announcement of offer shall be published in English and Urdu language, in
atleast two daily newspapers having circulation in all provinces.
(v) PL shall at the time of the public announcement of offer ensure that the
identities of all persons interested in the control of the ML including the
persons who makes arrangement for all the funding requirements
including payments and would exercise ultimate control over ML is
disclosed to the public and ML (target company).
(vi) If any director of PL is faced with a conflict of interest as a result of
proposed acquisition, PL’s board of directors shall establish an
independent committee to assess the proposed public offer.
(vii) All public announcement, brochure, circular, offer letter, advertisement or
publicity material issued to shareholders in connection with a public offer
shall state that the directors accept responsibility for the information
contained in such documents.
A.2 (a) Following information should be disclosed since WLL’s project has not
commenced operations:
(i) Description of the project and its history since conceptualization;

(ii) Starting date and expected date of completion of work;
(iii) Time by which such project shall become commercially operational;
(iv) Expected time by which the project shall start paying return on
investment; and
(v) Funds invested or to be invested by promoters, sponsors, associated
company or associated undertaking distinguishing between cash and non-
cash amounts.
Page 1 of 6
CORPORATE LAWS
Suggested Answers
(b) Regulations require that rate of return on loans to associated company shall not
be less than KIBOR for the relevant period or the borrowing cost of the investing
company, whichever is higher. Therefore, WLL’s offer cannot be accepted, since in
profit and loss sharing arrangement there is a possibility of decreased
profits/incurring of losses risking a fall in the return of loan beyond the
prescribed limits.
A.3 (a) Decision of CL’s board shall clearly state the following:
(i) Quantum of the issue as percentage of existing paid up capital;

(ii) Issue size;
(iii) Issue price;
(iv) Benefits to the company and shareholders and underlying risks, if any;
(v) Justification for issue of shares at par, premium or below par value;
(vi) Description of different kind of shares such as ordinary shares and
preference shares or any other kind as may be notified by the Commission;
(vii) Description of differential rights such as different class in each kind, rights
or privileges attached to each class or kind of capital;
(viii) Shares are being issued as right or other than right;
(ix) Entitled right of holders of such shares to participate in profits or surplus
funds;
(x) Entitled right of holders of such shares to participate in surplus assets and
profits on winding-up which may remain after the ordinary shareholders
has been repaid;
(xi) Any other condition as deem appropriate by the Commission.
(b) After board approval is in place, authorization for issuance shall be taken by a
special resolution passed at the general meeting of the shareholders. Further, CL
shall seek approval of the Commission for issuance of such shares.
(c) Maximum share capital of Rs. 66.66 [(200×0.25)÷0.75] million can be raised since
the shares with differential rights of a listed company shall not exceed 25% of the
total post-issue paid up share capital including shares with differential
kinds/rights issued at any point of time.
A.4 (a) (i) Annual performance appraisal of the board and its committees shall be
carried out by those as decided by the board. In this regard, Board may
decide to undertake the performance evaluation directly by itself or
through board’s HR committee or engage an external independent
consultant to do so.
Performance appraisal of head of internal audit shall be done jointly by the

chairman of the audit committee and chief executive officer.
(ii) Minutes shall be circulated to all members of audit committee, directors,

head of internal audit and where required to chief financial officer prior to
the next board meeting.
Since the board meeting is scheduled right after the audit committee
meeting and circulation of minutes is not practicable in such short time,
the chairman of audit committee shall communicate a synopsis of the
Page 2 of 6
CORPORATE LAWS
Suggested Answers
proceedings to the board and minutes shall be circulated immediately after

the meeting of the board.
(b) Following information should be included in the orientation course:
(i) FL’s aims and objectives;

(ii) Control environment and control activities;
(iii) Key policies and procedures;
(iv) Risk management and internal control framework;
(v) Background of key personnel, including their job descriptions;
(vi) Delegation of financial and administrative powers;
(vii) Board and staff structure; and
(viii) Budgeting, planning and performance evaluation systems.
A.5 (a) Shares shall be transferred on application duly supported by succession certificate
or by lawful award, as the case may be, in favor of the successors to the extent of
their interests and their names shall be entered in the register of members.
(b) Shahbaz can be a nominee of Fahad, if he is father, brother or son of Fahad.
Nominee shall be responsible to facilitate the transfer of shares to the legal heirs of
the deceased subject to Islamic law of inheritance and in case of non-Muslim
member, as per their respective laws.
Shahbaz shall, after Fahad’s death, be deemed as ZL’s member and shall act as
director of ZL till the shares are transferred to the legal heirs.
A.6 (a) Microenterprises means projects or businesses in trading or manufacturing or

services or agriculture that lead to livelihood improvement and income
generation. Micro entrepreneurs are either self-employed or employ few
individuals not exceeding 10(excluding seasonal labour).
Sabira is not eligible to obtain loan of Rs. 1 million as the maximum exposure
allowed to a microenterprise is Rs. 0.5 million only.
(b) A loan may be classified as subordinated loan if it complies with the following
conditions:
(i) Subordinated loan can be raised from any person, preferably from
sponsors;
(ii) Rate of profit on subordinated loan, if any, shall be decided by NBFC
subject to the clearance of the Commission;
(iii) Neither the interest nor the principal shall be paid even at maturity if such
payment would result in non-compliance with the equity or capital
adequacy requirements;
(iv) Subordinated loan shall be un-secured and sub-ordinate to all other
indebtedness including deposits;
(v) Subordinated loan shall be in the form of cash or liquid assets only;
(vi) Auditor’s certificate evidencing injection of funds into NBFC as
subordinated loan should be obtained;
Page 3 of 6
CORPORATE LAWS
Suggested Answers
A.7 (a) The group of creditors are eligible to request the appointment of Administrator
since they have an interest in the company which is equivalent to 65% (130/200)
of paid-up share capital of the company i.e. more than 60% threshold as
prescribed in the Act. Further, DTL’s creditors may request Commission for the
appointment of Administrator on the following grounds:
(i) Accumulated losses are 62.50% of the paid up capital i.e. exceed 60% of
the paid up capital.
(ii) Market value of shares of DTL is 2.20 per share which has fallen by more
than 75% of its par value.
(iii) Debt equity ratio and current ratio of DTL have deteriorated beyond 9:1
and 0.5:1 i.e. 9.9:1 and 0.4:1 respectively.
As creditors’ interest is more than 60% and the factors above have been met as
specified by the Companies Act, 2017, therefore creditors are justified in making
such request.
(b) The Commission may, after giving DTL an opportunity of being heard, by order in
writing appoint an Administrator, within 60 days of the date of receipt of the
representation, from a panel maintained by it on the recommendation of the State
Bank of Pakistan (SBP) to manage the affairs of the company subject to such terms
and conditions as may be specified in the order.
Commission may appoint a person whose name does not appear on the panel after
giving a notice to the SBP.
If at any time it appears to the Commission that the purpose of the order
appointing the Administrator has been fulfilled, it may permit DTL to appoint
directors and the Administrator shall cease to hold office on the appointment of
directors.
A.8 (a) Examples of price sensitive information which should be communicated to PSX are
as follows:
(i) Any material change in the nature of business of company due to technical,
strategic, manufacturing, or marketing related changes, opening of new
line of business or closure of any existing line of business, either partly or
fully;
(ii) Information regarding any joint ventures, merger, demerger,
restructuring, acquisition or any material contract entered into or lost;
(iii) All decisions of the board of directors of the company relating to cash
dividend, bonus issue, right issue or any other entitlement or corporate
action, buy back of securities or voluntary delisting;
(iv) Purchase or sale of significant assets, franchise, brand name, goodwill,
royalty, financial plan, etc.;
(v) Any undisclosed revaluation of assets including impairment of assets due
to any reason;
(vi) Delay or loss of production due to strike, fire, natural calamities, major
breakdown;
(vii) A major change in borrowings including projected gains to accrue to the
company;
(viii) Issue or redemption of securities or any change in terms of issued
securities;
Page 4 of 6
CORPORATE LAWS
Suggested Answers
(b) Following persons are prohibited from becoming director of a banking company:
(i) any person who is a director of any other banking company, except where
permitted by State Bank of Pakistan (SBP);
(ii) any person who is a director of companies which among themselves are
entitled to exercise voting rights in excess of 20% of the total voting rights
of all the shareholders of the banking company, except where permitted by
SBP;
(iii) Federal Minister, a Minister of State or a Provincial Minister;
(iv) a person in the service of Pakistan who is not appointed or nominated by
the Government as a director by virtue of his office.
(v) a person who has not been approved by SBP to hold position of director in a
banking company.
A.9 (a) (i) KL cannot enter into such arrangement unless prior approval for the non-
cash transaction is obtained through a resolution in general meeting;
(ii) Since Ahmed is also the director of KL’s holding company, approval from
shareholders of NIL is also required to be obtained by passing a resolution
in general meeting of the holding company;
(iii) The notice for approval of the resolution by KL and NIL shall include the
particulars of the arrangement along with value of the assets involved in
such arrangement duly calculated by a registered valuer.
(b) (i) Under the Companies Act, 2017 members of a private company or a public
unlisted company (having not more than 50 members), may pass a
resolution (ordinary or special) through circulation. Considering this
provision of law, ML can obtain the members’ approval through circulation
if it is not a listed company and its members are equal to or less than 50.
(ii) Resolution shall be circulated, together with the necessary papers, if any,
to all the members. It shall be signed by all the members for the time being
entitled to receive notice of a meeting. Further, resolution shall be noted at
subsequent meeting of the members and made part of the minutes of such
meeting.
The records must be kept at the registered office of the company from the
date of the resolution and shall be preserved for at least 20 years in
physical form and permanently in electronic form.
A.10 (a) BL, as issuer of the shares, should satisfy the following financial and operational
conditions:
(i) Issuer must be in operations for at least 3 financial years and BL is in
business since 8 years.
(ii) Issuer has profitable track record for at least 2 preceding financial years
from its core business activities and BL has profitable track record of
preceding 6 years.
(iii) Issuer’s book value per share should not be less than face value per share.
Book value per share of BL is Rs. 12.22 which is higher than the face value
of Rs. 10.
Conclusion: Based on the above, BL is eligible to make public offer of its shares.
(b) Nasim family as BL’s sponsors shall have to retain entire shareholding of
72 million shares[90x80%] for at least 12 months from the last date of
Page 5 of 6
CORPORATE LAWS
Suggested Answers
subscription. Further, at least 30 million shares[(90+30)x25%] being 25% of BL’s

paid up capital shall be retained for at least 3 financial years from the last date for
public subscription.
BL’s sponsors may sell their shareholding through block sale to any other person,
with the approval of the securities exchange. The person to whom the shares are
sold shall be deemed sponsor for the purpose of the Regulations.
(c) (i) Fixed Price Method where offer price is set by the issuer in consultation
with the consultant to the issue.
(ii) Book Building Method where bids received are listed in descending order of
price evidencing demand at different price levels at floor price or within the
price band. A strike price is arrived at through Dutch Auction Method.
(The End)
Page 6 of 6
CERTIFIED FINANCE AND ACCOUNTING PROFESSIONAL (CFAP) EXAMINATION
SUBJECT SESSION
Passing %
Question-wise
Overall
1 2 3 4 5 6 7 8 9 10
10% 39% 43% 6% 44% 38% 38% 6% 39% 42% 23%
General comments
The overall performance was slightly better as 23% examinees secured passing marks as
compared to 16% in the previous attempt. Relatively weak performances in Question 1,
Question 4 and Question 8 can be attributed to similar types of issues which examiners
have been highlighting during the past few years i.e. selective studies, failure to address
the exact requirement of the question as well as inability of the examinees to implement
theoretical knowledge to scenario-based questions. Examinees can overcome these
weaknesses by concentrating on syllabus coverage with particular emphasis on
comprehending the concepts underlying in the provisions of law.
Examinees should understand that reproducing all the provisions/contents of the

examined rule or regulation will not result in scoring of extra marks. Further, it has been
noted that a lot of times examinees wasted time in repeating already written provisions
which affected their performance on the other questions due to ineffective time
management. Examinees are therefore strongly advised to focus on giving concise to-the-
point answers and switch to the next question after they have spent reasonable time on a
question. This would help them to attempt all questions of the paper. In this paper,
11.55% examinees were short of 9 or less marks and could have passed had they focused
more on the identified weak areas.
Question-wise common mistakes observed
Question 1(a)
 Most of the examinees failed to conclude that acquisition of substantial stake in ML

fell within the powers of the board under Companies Act, 2017 and did not require
any further approval.
 Regulatory requirement of ensuring that a viable alternate business plan authenticated
by the board should be in place before disposing off the subsidiary/undertaking was
not mentioned.
Page 1 of 5
Question 1(b)
 Examinees were unaware of the general obligations of an acquirer in respect of public

announcement of offer under the Listed Companies (Substantial Acquisition of
Voting Shares & Takeovers) Regulations, 2017.
 Many examinees repeated the same obligations over and over again using different
words and terminologies.
Question 2(a)
Many examinees failed to mention that since WLL’s project had not commenced
operations, the information regarding funds invested or to be invested by promoters,
sponsors, associated company, associated undertaking distinguishing between cash and
non-cash amounts was also required to be disclosed.
Question 2(b)
Examinees directly offered conclusion in this part of the question without providing
adequate reasoning to support or justify their answer. Examinees failed to reason out that
the possibility of decreased profits/incurring of losses may result in a fall in the return of
the loan beyond the prescribed limits rendering it impossible for the company to accept
WLL’s offer.
Question 3(a)
This part of question was performed well.
Question 3(b)
Some of the examinees did not mention that CL was required to seek further approval
from the Commission before issuance of shares.
Question 3(c)
 Most of the examinees were not able to calculate/determine that maximum share
capital of Rs. 66.66 million could only be raised in the given scenario.
 In some cases, the relevant regulation i.e. shares with differential rights of listed
company should not exceed 25% of total post-issue paid-up share capital, was
correctly reproduced, however, practical application of the same was lacking.
 Some of the examinees did not consider that the limit of 25% was to be applied on
post-issue paid-up capital and instead they mentioned that the same is applicable on
existing paid-up capital of the company which was not correct.
Question 4(a)(i)
Most of the examinees mentioned that the performance appraisal of head of internal audit
was solely the responsibility of the audit committee which was incorrect. They failed to
recognize that such performance appraisal was required to be done jointly by the
chairman of the audit committee and chief executive officer of the company.
Page 2 of 5
Question 4(a)(ii)
 Examinees failed to decipher that due to close scheduling of the meetings, the
circulation of audit committee minutes before the board meeting was not possible and
that in the given case it would have sufficed if the chairman of the audit committee
communicated a synopsis of the proceedings to the board.
 Many examinees mentioned that the minutes of the audit committee were required to
be circulated within 14 days of the audit committee meeting, whereas as per
regulatory requirement, such minutes should be circulated prior to the next board
meeting or immediately after the board meeting where prior circulation is not
possible.
Question 4(b)
Only a few examinees were able to identify the information required to be included in the
orientation course to be given to directors under the Public Sector Companies (Corporate
Governance) Rules, 2013.
Question 5(a)
This part of question was performed well by the examinees.
Question 5(b)
Examinees did not mention that the nominee is responsible to facilitate the transfer of
shares to the legal heirs of the deceased subject to Islamic law of inheritance.
Question 6(a)
Generally, the examinees did not have a clear concept of Microenterprise and Micro
entrepreneur as defined under NBFC and Notified Entities Regulations, 2008. In most of
the cases, the given definitions were either very vague or casual due to which examinees
were not able to score marks.
Question 6(b)
Question 7(a)
 In most of the cases, examinees mentioned irrelevant grounds that were not related to
the given scenario.
 Few examinees were able to pinpoint the applicable grounds correctly, however, they
failed to link them further to determine the applicability of the identified grounds in
DTL’s scenario.
 Some of the examinees directly offered conclusions without providing the adequate
reasoning to support or justify their answers.
 Few examinees were not able to calculate current and/or debt equity ratio(s).
Page 3 of 5
Question 7(b)
 Examinees did not mention that Commission may appoint a person as an

Administrator whose name does not appear on the panel after giving a notice to the
SBP.
 Examinees were also ignorant of the circumstances in which Administrator would
cease to hold office.
Question 8(a)
 Examinees were altogether unaware of the price sensitive information which is

required to be communicated to the Pakistan Stock Exchange Limited under the
Pakistan Stock Exchange Regulations.
 Many examinees repeated the same points over and over again using different words
and terminologies.
Question 8(b)
This part was not attempted by most of the examinees. In cases where it was attempted,
only a few examinees were able to correctly identify the persons prohibited to become
director of a banking company under the Banking Companies Ordinance, 1962.
Question 9(a)
Most of the examinees could not decipher that since Ahmed was also the director of the
holding company, prior approval from shareholders of holding company was also
required to be taken before entering into the arrangement.
Question 9(b)(i)
Question 9(b)(ii)
 Examinees were not able to determine that the resolution was required to be
circulated to all members of the company along with necessary papers and was also
required to be signed by all the members.
 Some of the examinees missed that the resolution passed through circulation was
required to be noted at subsequent meeting of the members and was to be made part
of the minutes of such meeting.
Question 10(a)
Examinees mentioned the required conditions correctly, however, they ignored to link the
financial and operational conditions to the given scenario. Accordingly, they did not
continue to determine BL’s eligibility to make public offer of shares which was a specific
requirement of the question.
Page 4 of 5
Question 10(b)
Most of the examinees were unaware of the holding period as well as the holding
requirements which resulted in poor performance in this part of the question.
Question 10(c)
(THE END)
Page 5 of 5
CORPORATE LAWS
Certified Finance and Accounting Professional – Summer 2019

Mark(s)
A.1 (a) Discussion on power of the board to take each of the two decisions as
given in the scenario 2.0
Determination of AL as undertaking of the company and the parameters
for such determination 1.5
Discussion on the requirement of having a viable alternate business plan in
place before disposing off the investment in AL 1.5
(b) 01 mark for discussing each of the PL’s obligation as an acquirer, in respect of
public announcement of offer 7.0
A.2 (a) 0.75 mark for discussing each disclosure to be made in the given scenario 3.0
(b) Reasoning out as to whether WLL’s offer can be accepted or not 1.5
Conclusion 0.5
A.3 (a) 0.5 mark for discussing each type of information required to be included in the
board’s decision 5.0
(b) Discussion on authorization and approvals which must be in place before

company can proceed to issue shares with differential rights 2.0
(c) Determination of maximum amount of share capital which can be raised

through issuance of shares with differential rights 2.0
A.4 (a) (i) Discussion on who is entitled to carry out performance appraisal of:
board and its committees 2.0
head of internal audit 1.0
(ii) Determination of following with respect to circulation of minutes of audit

committee:
recipients of minutes 2.0
time requirements within which minutes must be circulated 1.0
regulatory requirements to be fulfilled in terms of circulation of
minutes where meetings are scheduled very close to each other 1.0
(b) 0.5 mark for discussing each type of information which should be included in
orientation course to be given to directors of public sector companies 3.0
A.5 (a) Discussion on legal requirements for transferring shares to successors-in-interest 2.0
(b) Discussion on:

eligibility criteria to be met for certain persons to be appointed as nominee 0.75
responsibilities of eligible nominee 2.25
rights of eligible nominee 2.0
Page 1 of 2
CORPORATE LAWS
Certified Finance and Accounting Professional – Summer 2019
Mark(s)
A.6 (a) Explanation of terms ‘Microenterprise’ and ‘Micro entrepreneur’ 3.0
Determination of maximum exposure which an NBFC can take on
Sabira’s business 1.0
(b) Discussion on each condition which must be complied with in order to classify
a loan as subordinated loan 6.0
A.7 (a) Determination of creditor’s eligibility to request appointment of

Administrator 2.0
Up to 02 marks for discussing each valid ground on which appointment of
Administrator can be requested by creditors of the company 5.0
(b) Discussion on the following with respect to the Administrator:

time period and other requirements related to the appointment 2.0
appointment to be made from/out of the panel maintained by SBP 1.0
conditions subject to which Administrator shall cease to hold office 1.0
A.8 (a) 01 mark for discussing each example of price sensitive information under the
Pakistan Stock Exchange Regulations 8.0
(b) Up to 1.5 marks for discussing each type of person prohibited from becoming
director of a banking company 5.0
A.9 (a) Discussion on obtaining approvals from shareholders of both KL and NIL 2.0
Determination of information to be included in the respective notices
seeking members' approval 2.0
(b) (i) 01 mark for identification of each condition which company must meet to
get a resolution approved by its members through circulation 2.0
(ii) Discussion on circulating the resolution along with necessary

documents and getting it signed by all members of the company 2.5
Discussion on regulatory requirements for retention of records 2.5
A.10 (a) 01 mark for identifying each applicable financial and operational
condition and advising BL about its eligibility 3.0
Conclusion 1.0
(b) Determination of holding period and holding requirements by sponsors 3.0

Discussion on conditions subject to which sponsors may sell their shares 1.0
(c) Discussion on fixed price method 1.5

Discussion on book building method 2.5
(THE END)
Page 2 of 2

Corporate Laws
Instructions to examinees:
(i) Answer all NINE questions.
(ii) Answer in black pen only.
Q.1 (a) Sarmaya Limited (SL) is considering to seek voluntary de-listing from Pakistan Stock
Exchange Limited (PSX). The decision has been taken primarily on the premise that
trading volumes of SL’s shares has remained very low, as barely fewer than
10,000 shares are traded each month for the past few years. The low-volumes are
mainly attributed to the fact that 90% of SL’s shares are owned by Malik and Family
who hardly engage in any trading activity and as such compliance with excessive
regulatory requirements outweighs the listing benefits.
Malik and Family are contemplating to purchase further 5% shares from SL’s
shareholders whereas, the remaining 5% will be acquired by SL’s CEO.
Required:
In the light of the PSX Regulations, discuss the minimum percentage of shares which
Malik and Family should acquire in order to qualify for de-listing. Also discuss how
the minimum purchase price of shares would be determined under the above
circumstances. (06)
(b) On 25 June 2019, Pakistan Stock Exchange Limited (PSX) placed Outdoor
Technologies Limited (OTL) on Defaulters’ Segment because of OTL’s failure to pay
the annual listing fee for two years. PSX issued a notice to general public in this
regard. It also apprised CDC about OTL’s position and instructed OTL to rectify the
non-compliance. On 23 September 2019, PSX suspended trading of shares of OTL.
Required:
Under the PSX Regulations, advise the directors about the procedures to be followed
for rectifying the non-compliance. Also briefly discuss the consequences, if OTL fails
to rectify the non-compliance within the stipulated time. (05)
Q.2 Respond to each of the following independent situations in the light of the Companies
Act, 2017:
(a) Kismet Limited (KL) has entered into an arrangement with Ahmad Laiq, the CEO of
Bijli (Pvt.) Limited for the purchase of a specialized machinery worth Rs. 2,500,000
used in the manufacture of electric irons. Ahmad Laiq is the brother of one of KL’s
directors and also a director in KL’s holding company. Ahmad Laiq has agreed to
take 20,000 shares in KL in consideration for the payment of machinery. Advise
whether KL can acquire the machinery from Ahmad Laiq. (03)
(b) Mukarram Associates (MA), an association of persons, is engaged in several activities

involving welfare of the general public. It intends to register itself as a public limited
company, without addition of the word ‘Limited’ to its name. Briefly discuss the
condition(s) which MA must satisfy for registration without addition of the word ‘Limited’
to its name. (05)
(c) Tripod Limited (TL), a listed company, intends to change the place of its registered
office from Lahore to Peshawar and for this purpose it has obtained approval of the
general meeting through special resolution. The directors of TL are of the view that in
order to be effective, the special resolution should be filed with the Commission.
However, the company secretary has advised to keep the resolution at the registered
office so that anyone who is interested may inspect it. Briefly discuss the requirement(s)
relating to filing/furnishing of special resolution. (04)
(d) Cellular Limited (CL), a company listed on Pakistan Stock Exchange Limited, intends
to invest its funds in government treasury bills. CL requires a board resolution for this
purpose. However, no board meeting is planned in the near future and some of the
directors are also out of the country. The company secretary has informed that
nothing is mentioned in the CL’s Articles in this regard. Discuss the alternative course of
action, if any, available to CL. (05)
Q.3 Respond to each of the following independent scenarios, in the light of Listed Companies
(Code of Corporate Governance) Regulations, 2017:
(a) Jamal Limited (JL) has recently been converted into a listed company. The board of
directors have submitted a draft directors’ report for the year ended 30 September 2019
for your review. The report is simply an updated version of the last year’s issued
report. During the review process, you have identified that some important
information is missing in the submitted draft of the directors’ report which you
consider must be included in the report.
Required:
Discuss any four mandatory information which must be included in JL’s directors’
report, after its conversion into a listed company. (04)
(b) The Board of Directors of PAL Limited is planning to form a nomination committee.
The matter has been scheduled to be discussed in the upcoming board meeting.
Required:
Draft the terms of reference of the nomination committee for board’s approval. (03)
Note: Confine your answer to the key tasks / responsibilities section only.
Q.4 Mega Limited (ML) wanted to finance its new plant by issuing 300 million ordinary shares
of the face value of Rs. 10 each. It was decided that 75% of the issue would be offered to the
institutional investors and high net-worth individuals through book building process at a
floor price of Rs. 40 per share whereas remaining 25% of the issue would be offered to retail
investors through public offering. The bidding period for book building was fixed from
3 December 2019 to 4 December 2019.
Up to the last date of book building, ML had received bids for only 200 million ordinary
shares. The possible cause, in view of one of the directors, was a fault which developed in
the application receiving the bids. The fault continued for three hours on 3 December 2019.
ML is now considering to extend the bidding period till 6 December 2019.
Required:
Under the Public Offering Regulations, 2017:
(a) discuss whether ML may get extension in the bidding period, if yes, then briefly
explain the procedure for obtaining such extension. (03)
(b) determine the status of ML’s book building process, in case, if the bidding period is
not extended. Also, state the steps which may be required to be taken at the end of the
bidding period, under the circumstances. (05)
(c) highlight the steps which are required to be followed if the bidding period is extended. (03)
Q.5 Gama Textile Mills Limited operates an employees’ provident fund. The trustees of the
provident fund have recently identified three listed companies for equity investment.
Following information is available in this regard:
ALUE BLUE CLUE

----------- Rs. in million -----------
Paid-up capital (Rs. 10 each) 450 200 510
Shares held by directors/sponsors 300 130 450
Net assets as at 30 June 2019 540 190 1,020
Profit/(loss) for the year ended:
30 June 2019 160 80 260
30 June 2018 150 (120) 210
30 June 2017 140 35 280
30 June 2016 (50) 40 150
% of annual profit (if any) distributed to

the shareholders 50% 100% 30%
Required:
Under the Employees Contributory Funds (Investment in Listed Securities)
Regulations, 2018 advise the trustees about the company(ies) which are eligible for
investment under the Regulations. Your advice should include evaluation of all criteria under
the Regulations for each share. (10)
Q.6 Wonder Drugs Limited (WDL) is listed on Pakistan Stock Exchange Limited. Its paid up
capital comprises of 50 million shares of Rs. 10 each.
During the year 2019, following acquisitions / (disposals) were undertaken by three equity
investors i.e. Moosa, Faisal and Noor, in WDL’s shares:
Moosa Faisal Noor

Transaction
dates Shares in Price per Shares in Price per Shares in Price per
million share (Rs.) million share (Rs.) million share (Rs.)
04-Jan-19 1.0 12 0.5 12 2.0 12
12-Mar-19 2.0 13 0.3 13 2.5 13
25-Jul-19 - - 1.0 15 2.0 13
11-Sep-19 *1.0 - - - - -
19-Sep-19 - - 1.5 14 - -
01-Oct-19 - - - - (1.0) 14
07-Nov-19 - - (1.0) 13 1.5 13
* Received through inheritance
On 10 April 2019, Moosa was elected as a director in WDL.
Required:
In the light of the Securities Act, 2015 discuss the responsibilities of Moosa, Faisal and
Noor, if any, in respect of the above transactions. (14)
Q.7 Grand Limited (GL), a listed company, intends to elect new directors in place of the retiring
directors in its upcoming annual general meeting. The existing directors have fixed the
number of directors to be elected in the general meeting at 9 directors.
Required:
Under the provisions of the Companies (Postal Ballot) Regulations, 2018 advise GL about
the steps to be taken for enabling the members to cast their vote through e-voting. Also state
the procedure to be adopted by GL for e-voting. (07)
Q.8 Nadeem Gul, desirous of forming a NBFC, has filed an application to the Commission
seeking permission for the establishment of a listed ‘Lending NBFC’. Nadeem Gul, not
being fully aware of the conditions applicable to NBFCs, had asked his finance manager
Shahzad Akmal to guide him about certain conditions applicable to NBFCs. The synopsis of
the response received from Shahzad Akmal on the inquired conditions is as under:
(i) Appointment of chief accounting officer: only an MBA with major in finance or a
CFA having minimum six years’ experience may be appointed.
(ii) Appointment of directors: any person who holds such office in any other NBFC
licensed for the same form of business may be appointed in accordance with
Schedule III. However, Federal Government shall be the final authority to determine
who may be appointed as a director.
(iii) Appointment of executives: NBFC shall appoint such executives who shall fulfil the
terms and conditions mentioned in fit and proper criteria specified by the Commission
by notification in the official Gazette.
(iv) Preparation of accounts: NBFC shall prepare its accounts in conformity with the
Banking Companies Ordinance, 1962.
(v) Quarterly and annual financial statements: NBFC shall furnish these statements to
the registrar.
(vi) Rating of NBFC: the rating should be obtained from the international rating agencies
and such rating shall be updated after every two years. The rating, on updation, shall
also be published in one English and one Urdu newspaper.
(vii) Disposal of strategic investment: NBFC may sell strategic investment by passing a
resolution in the board meeting.
(viii) Investment in the shares of unlisted company: investment shall not be more than
15% of NBFC’s equity. Investment shall be made through special resolution in a
general meeting after careful analysis of the merits and financial impact of the
investment. The resolution shall be filed with the Federal Government within fourteen
days of passing the resolution. However, the NBFC shall not own shares of any one
unlisted company in excess of 10% of its own equity or the issued capital of the
investee company, whichever is less.
Required:
Under the provisions of the Non-Banking Finance Companies (Establishment and
Regulation) Rules, 2003 comment on the above response submitted by Shahzad Akmal. (10)
Q.9 (a) Under the provisions of the Companies Act, 2017 state who may file a petition for
winding up in the Court. (04)
(b) Naima Limited (NL) has recently passed a special resolution in a general meeting to
wind up the company voluntarily and has appointed Azad as a liquidator to carry out
the winding up.
Required:
Under the provisions of the Companies Act, 2017 state the following:
(i) any five general powers which a liquidator may exercise. (05)
(ii) consequences of winding up with regard to NL and the creditors. (04)
(THE END)
CORPORATE LAWS
Suggested Answers
Ans.1 (a) The Exchange shall determine the minimum percentage of shares to be purchased by
sponsors (Malik and Family) to qualify for de-listing. In case of disagreement of sponsors on
minimum percentage of securities to be purchased as determined by the Exchange, Malik
and Family can file an appeal with the Commission within 10 days of receipt of
communication of such determination under intimation to the Exchange. The decision taken
by the Commission will be final and binding.
Minimum purchase price proposed by the sponsors will be the highest of the benchmark
price based on any of the following:
 Current market price as of the date PSX receives intimation to voluntary de-list;
 Average market price (annualized);
 Intrinsic value per share (estimated net realizable value of SL’s assets);
 Earnings multiplier approach (for profitable companies);
 Maximum price at which Malik and Family had purchased these shares from the open
market in the preceding one year.
The final minimum purchase price of the securities to be de-listed shall be fixed with the
approval of the Exchange.
(b) When the Exchange suspends trading in the shares of any company, it provides further
period not exceeding 90 days to rectify the non-compliance. Considering this, OTL should
make the payment on or before 22 December 2019 in order to rectify the non-compliance.
After making the payment, OTL requires to submit an application with the Exchange for
restoration of trading. The Exchange may restore trading in OTL’s shares, after it is satisfied
that the cause of suspension of trading has been removed.
In case, OTL fails to rectify the non-compliance within the timeframe i.e. up to 22 December
2019, the Exchange shall issue compulsory buy-back directions to the majority
shareholders/sponsors having control of OTL in the manner as provided in the Regulations
and within the time specified by the Exchange, not exceeding 90 days from the date of such
direction or rectify the non-compliance within such period.
Ans.2 (a) Restriction on non-cash transactions involving directors:

KL cannot enter into an arrangement by which it acquires asset(s) for consideration other
than cash, from Ahmad Laiq who is connected with one of KL’s directors’ and is also a
director in HL’s holding company.
The above arrangement can only be entered, if prior approval for the arrangement has been
accorded by a resolution in KL’s general meeting.
Since Ahmad Laiq is also a director in KL’s holding company, approval shall also be required
to be obtained by passing a resolution in general meeting of the holding company.
(b) Licensing of associations with charitable and not for profit objects:
The Commission may, by licence for a period to be specified, allow Mukarram Associates
(MA) to be registered as a public limited company, without addition of the word “Limited”
to its name, provided following conditions are fulfilled:
MA shall prove to the satisfaction of the Commission that

(i) It is to be formed as limited company.
(ii) The company will promote commerce, art, science, religion, health, education,
research, sports, protection of environment, social welfare, charity or any other useful
Page 1 of 6
CORPORATE LAWS
Suggested Answers
object;
(iii) It intends to apply its profits or other income for promoting its objects; and
(iv) It prohibits the payment of dividends to its members; and
(v) Its objects and activities are not and shall not, at any time, be against the laws, public
order, security, sovereignty and national interests of Pakistan.
(c) Filing of resolution:

Every special resolution passed by a company shall, within fifteen days from the passing
thereof, be filed with the registrar duly authenticated by a director or secretary of the
company.
Where articles have been registered, a copy of every special resolution for the time being in
force shall be embodied in or annexed to every copy of the articles issued after the date of
the resolution.
A copy of every special resolution shall be forwarded to any member at his request on
payment of such fee not exceeding the amount as the company may determine.
(d) Alternative course of action available to CL

Since nothing is given in the Articles of Association, the matters described in Table A shall
become applicable. Therefore, resolution in writing signed by all the directors for the time being
entitled to receive notice of a meeting of the directors shall be as valid and effectual as if it had
been passed at a meeting of the directors duly convened and held.
A resolution shall not be deemed to have been duly passed, unless the resolution has been
circulated, together with the necessary papers, if any, to all the directors.
The above resolution shall be noted at a subsequent meeting of the board and made part of the
minutes of such meeting.
A directors‘ agreement to a written resolution, passed by circulation, once signified, may not be
revoked.
Ans.3 (a) Under the regulations, the directors shall disclose the following in their report:
(i) Total number of directors bifurcating into male and female directors;
(ii) Composition of board showing independent, non-executive and executive directors;
(iii) Names of members of board committees;
(iv) Remuneration policy of non-executive directors including independent directors;
(b) Terms of Reference of the Nomination Committee:
Responsibilities
The Committee shall be responsible for:
(i) considering and making recommendations to the board in respect of the board
committees and the chairmanship of the board committees.
(ii) keeping the structure, size and composition of the board under regular review and for
making recommendations to the board with regard to any changes necessary.
Ans.4 (a) ML may get extension in the biding period only under extra ordinary circumstances like
closure of banks, failure of system, etc. Since there was a system failure for three hours on
Day 1 of the bidding, ML may get extension in the bidding period.
Page 2 of 6
CORPORATE LAWS
Suggested Answers
For obtaining extension in the bidding period, the book runner shall apply to the
Commission after obtaining NOC from securities exchange (PSX).
(b) ML’s book building process shall be considered as cancelled since ML has not received bids
for the number of shares allocated under the book building portion. The same shall
immediately be intimated by the book runner and consultant to the issue to the Commission,
the securities exchange, the designated institution and the bankers to an issue.
All the bankers to an issue shall be advised by the book runner for refund / unblocking of
the Bid Money of the bidders. The margin money shall be unblocked / refunded to the
bidders, where required, immediately but not later than 3 working days of the closing of
bidding period.
(c) In case extension is granted, the same shall be disseminated through publication in all those
newspapers where the prospectus was published and the website of ML, consultant to the
issue, book runner, designated institution and the securities exchange.
Ans.5 Eligibility criteria ALUE BLUE CLUE

(i) Investee company should Eligible Not Eligible Eligible
have a minimum profitable
operational record of
immediate 3 preceding years
(ii) Investee company has paid Eligible Eligible Eligible
average dividend of not less
than 15% during two out of 2017: 16% 2017: 18% 2017: 16%
three preceding consecutive 2018: 17% 2018: - 2018: 12%
years 2019: 18% 2019: 40% 2019: 15%
(iii) Minimum free float shall not Not Eligible Not Eligible Not Eligible
be less than 15% or 50
million shares whichever is Free float Free float Free float
higher 15m shares 7m shares 6m shares
(33%) (35%) (12%)
(iv) Investee company has Eligible Not Eligible Eligible
breakup value equivalent or
more than the par value of Breakup value Breakup value Breakup value
the shares of such company. Rs. 12 Rs. 9.50 Rs. 20
(v) Conclusion (eligible for Not Eligible Not Eligible Not Eligible
investment if all the above
conditions are met)
Ans.6 In the case of Moosa

Moosa, on becoming director of WDL, on 10 April 2019, was required to give notice in writing to
WDL of his beneficial ownership in shares of WDL, stating the amount and description of the
WDL’s shares and date of acquisition of beneficial ownership. The notice was required to be issued
on or before 16 April 2019.
On or before 17 September 2019, Moosa was required to give notice in writing to WDL about
change in beneficial ownership because of shares acquired through inheritance and the
notification should state the number, description and amount of securities involved.
On or before 16 April 2019 and 17 September 2019, Moosa was also required to submit
Page 3 of 6
CORPORATE LAWS
Suggested Answers
the following information, to the Commission in the prescribed form:

 a statement of beneficial ownership.
 particulars of any change in the interest aforesaid; and
 any change in his position.
In the case of Faisal

Since Faisal is neither a director nor a substantial shareholder of the company, he does not have
any responsibility regarding reporting of his transactions to WDL or the Commission under the
Securities Act.
In the case of Noor

With the acquisition of 2.0 million shares by Noor on 25 July 2019, his aggregate shareholding
exceeds 10% of WDL’s paid up capital. Therefore, he was required to disclose his shareholding to
WDL, Pakistan Stock Exchange and the Commission within two working days of the acquisition of
voting shares.
On or before 31 July 2019, Noor was also required to give notice in writing to WDL of his beneficial
ownership in shares of WDL, stating the amount and description of shares and date of acquisition
of beneficial ownership. The same information shall also be submitted by Noor to WDL on 7
October 2019 and 14 November 2019.
On or before 31 July 2019, 7 October 2019 and 14 November 2019, Noor shall give notice to
Commission in the manner as stated above in the last para in case of Moosa.
In addition to the above, since Noor made the following gain by purchase/sale and sale/purchase
of beneficially owned listed shares within a period of less than six months, he was required to
make a report to the Commission in the prescribed form before the expiration of a period of seven
days beginning with the day on which the gain accrues:
Shares Difference in price Gain/(loss)

Description
in million Rupees Rs. in million
Purchase and Sale: 25 1.0 14 (SP) – 13 (PP)= 1.0 1.0
Jul and 01 Oct
Sale and Purchase: 01 1.0 14 (SP) – 13 (PP)= 1.0 1.0
Oct and 07 Nov
Noor is required to tender each gain of Rs. 1.0 million to the Commission within six months of
accrual of gain.
Ans.7 Election of directors through e-voting:

Following steps shall be taken by GL for enabling members to cast their vote through e-voting:
GL should provide complete information to the members, not later than seven days before the date
of general meeting, including but not limited to the following, for casting vote in a secured manner
through e-voting:
(i) web address, login details, password, date of casting e-vote and other necessary details
through email; and
(ii) Security codes through SMS from web portal of e-voting service provider; or electronic
signature.
GL shall ensure that agenda items for which poll was demanded are correctly uploaded in the web
portal of e-voting service provider and shall resolve any grievances of members to enable them to
Page 4 of 6
CORPORATE LAWS
Suggested Answers
cast vote through e-voting.
Procedure for e-voting:

(i) The facility for e-voting shall remain open for not less than three days and shall close at 1700
hours (Pakistan Standard Time) on the date preceding the date of the poll.
(ii) Identity of the members intending to cast vote through e-voting shall be authenticated
through electronic signature or authentication for login.
(iii) Members shall cast vote online during the time specified above, provided that once the vote
on a resolution is casted by a member, he shall not be allowed to change it subsequently.
(iv) The e-voting service provider shall be required to keep the result of e-voting confidential
and provide access to the chairman of the general meeting in which poll was demanded to
unblock result of e-voting on the day of poll.
Ans.8 Comments on the response submitted by Shahzad Akmal:

Following adjustment(s) are required in the response provided by Shahzad Akmal:
(i) Appointment of chief accounting officer: NBFC shall appoint an individual, having minimum
three years’ experience, as its financial or chief accounting officer who is a chartered
accountant; or a cost and management accountant; or a member of a recognized foreign
accountancy organization; or a person having master's degree in commerce or business
administration with specialization in finance.
(ii) Appointment of directors: NBFC shall not appoint any person as director who hold such office
in any other NBFC licensed for the same form of business.
The directors are appointed in accordance with Schedule I, provided that the Commission
shall be the final authority to determine the status of a director as independent or otherwise.
(iii) Appointment of executives: He correctly mentioned the requirement.
(iv) Preparation of accounts: the NBFC shall prepare its accounts in conformity with the
International Accounting Standards as specified in the Companies Ordinance, 1984 and
technical releases issued by Institute of Chartered Accountant of Pakistan from time to time.
(v) Quarterly and annual financial statements: shall be furnished to the Commission in
accordance with Schedule I;
(vi) Rating of NBFC: it shall be obtained in accordance with Schedule 1 as and when NBFC
becomes eligible for rating as per the rating criteria of a rating agency registered with the
Commission, and such rating shall be updated at least once every financial year:
NBFC shall publish the rating in its annual report and quarterly reports, annual and quarterly
reports of the collective investment schemes managed by the NBFC, if applicable, and any
advertisement and brochures in relation to promotion of its business.
(vii) Disposal of strategic investment: NBFC shall not sell strategic investment unless it has
obtained prior approval of the Commission in writing to such sale.
(viii) Investment in the shares of unlisted company: NBFC shall not make aggregate investment in
shares of unlisted companies in excess of twenty percent of its equity. Investment in unlisted
company shall be approved in a board meeting after carefully analyzing the merits and
financial impact of the investment and recording the decision in detail in minutes of the
meeting and such decisions shall be communicated to the Commission within fourteen days
of the board meeting along with copy of the minutes.
Page 5 of 6
CORPORATE LAWS
Suggested Answers
Provided that the NBFC shall not own shares of any one unlisted company in excess of 10%
of its own equity or the issued capital of the investee company, whichever is less. (this is the
correct advise)
Ans.9 (a) Who may file a petition for winding up in the Court?
Petition may be presented by any one of the following:
(i) The company may itself by passing a special resolution

(ii) Any creditor or creditors (including any contingent or prospective creditor or
creditors)
(iii) Any contributory or contributories
By all or any of the aforesaid parties, together or separately.

(iv) The Registrar of Companies
(v) Securities and Exchange Commission of Pakistan; or
(vi) A person authorised by the Commission (SECP)
(b) (i) General power of liquidators:

Following are the general powers of the liquidators:
1. to carry on the business of the company so far as may be necessary for the
beneficial winding up of the company.
2. to do all acts and to execute, in the name and on behalf of the company, all deeds,
receipts and other documents, and for that purpose, to use, when necessary, the
company’s seal.
3. to sell the immovable and movable property and actionable claims of the company
by public auction or private contract, with power to transfer such property to any
person or body corporate;
4. to sell whole of the undertaking of the company as a going concern;
5. to institute or defend any suit, action, prosecution or other legal proceeding, civil
or criminal, in the name and on behalf of the company;
(ii) Consequences of winding up:

1) As regards to NL:
Winding up does not mean that the company has ceased to exist. The company
exists as a corporate entity with all the rights of such entity, with only change that
its management and administration is to be carried on through liquidator till the
final dissolution of the company.
2) As regards to the creditors:

 They cannot file or continue suits against NL, except with the leave of the
Court.
 They cannot proceed with the execution, if they have obtained decrees
already.
 They must lodge their claim and prove their debt before the liquidator.
(The End)
Page 6 of 6
SUBJECT SESSION
Corporate Laws Winter 2019
Passing %
Question-wise
Overall
1 2 3 4 5 6 7 8 9
25% 27% 16% 18% 38% 17% 68% 68% 39% 29%
General comments
The overall performance slightly improved as 29% examinees secured passing marks compared to
23% in the previous session. However, it was observed that many examinees wasted their time in
producing full provisions of the law without considering the requirement of the question and as a
result failed to answer all the questions. Examinees are therefore advised to organize their time
effectively, read the question carefully and stick to the requirements of the question as they would
not earn any extra marks by writing irrelevant details.
Question 1(a)
While mentioning the basis for the determination of minimum purchase price:
o examinees correctly stated that current market price should be considered. However, they
failed to appreciate that the market price should be of the date on which PSX received
intimation for voluntary de-listing.
o many examinees incorrectly stated the breakup value of share instead of its intrinsic value.
Many examinees failed to comprehend that:
o minimum percentage of shares to be purchased by sponsors would be determined by the
Exchange.
o in case of disagreement with the decision of the Exchange for the purchase of minimum
number of shares, the sponsors have a right to file an appeal with the Commission within
10 days of receipt of communication from the exchange.
o the decision taken by Commission shall be final and binding regarding price.
o the final minimum purchase price of the securities to be de-listed shall be fixed with the
approval of the Exchange.
Page 1 of 4
Question 1(b)
Exact date by which to rectify the non-compliance was not mentioned.

Examinees failed to appreciate that after rectification (submission of annual fees), OTL would
be required to submit an application for restoration of trading.
Examinees correctly stated that Exchange will issue direction for compulsory buy back of
shares but they did not mention to whom such direction would be issued and the time limit
within which sponsors will have to buy back the shares.
Question 2(a)
The concept that the company cannot enter into an arrangement for acquiring asset(s) for
consideration other than cash was not identified by many examinees.
Examinees also failed to identify that since Ahmad Laiq was a director in HL’s holding
company, approval was also required by passing a special resolution in general meeting of the
holding company.
‘Ordinary’ resolution was to be passed instead of ‘Special’ resolution.
Question 2(b)
Examinees did not mention that the Commission may allow registration of the company for a
period to be specified in the application.
Question 2(c)
Examinees correctly stated the requirement to file the special resolution with the registrar.
However, they failed to mention that such copy of resolution shall be authenticated by a
director or secretary of the company.
Examinees were unable to identify that when articles have been registered, a copy of every
special resolution for the time being in force shall be embodied in or annexed to every copy of
the articles issued after the date of the resolution.
Examinees also ignored the fact that copy of every special resolution shall be provided to any
member upon his request and on payment of prescribed fees.
Few examinees mentioned requirements relating to memorandum of association which was not
required.
Question 2(d)
Examinees failed to appreciate that special resolution was required to be signed by all the
directors for the time being entitled to receive notice of directors’ meeting.
Examinees were ignorant of the fact that matters in Table A becomes applicable if nothing is
mentioned in Articles of Association of the company.
Similarly, they did not mention that a directors’ agreement to a written resolution, passed
through circulation, once signified, may not be revoked.
Page 2 of 4
Question 3(a)
Few examinees were able to identify one or two requirements correctly, whilst most of them
were confused and deliberated on the requirements of directors’ report as specified in the
Companies Act, 2017.
Most of the answers were incomplete and examinees failed to write anything about the
following matters:
o Remuneration policy of non-executive and independent directors.
o The reason for the appointment of an auditor other than the retiring auditor.
o Appointment of external independent consultants and their terms of reference.
Question 3(b)
Examinees did not understand the requirements of the question and confused it with Board’s
Human Resources Committee.
Only few examinees discussed the responsibilities of the Committee in respect of the structure,
size and composition of the board and made recommendations to the board with regard to any
necessary changes.
Question 4(a)
Very few examinees knew that the permission is granted only under extraordinary
circumstances.
Most of the answers were confined to offering only one reason on the basis of which extension
may be granted.
Examinees were unable to state that the company had to apply through the book runner after
obtaining NOC from PSX.
Examinees were ignorant of the fact that NOC should be obtained from the Exchange before
applying to the Commission for extension.
Question 4(b)
Examinees failed to appreciate that book building process would be considered as cancelled if
extension is not granted.
Examinees were aware that margin money would be refunded to the bidders, however they
were ignorant of the time period within which such amount was to be returned.
Question 4(c)
Good performance was noted in this part.
Question 5
In case of average dividend, examinees did not consider the average dividend paid during two
out of three preceding consecutive years.
Percentage of annual profit distributed to the shareholders was taken as percentage of dividend
paid. In fact, they were required to compute the dividend payout percentages from the data
given in the question.
Without regard to the number of shares, only the amount of free float was stated by majority of
the examinees.
Examinees discussed the limit of investment in listed securities which was not required at all.
Page 3 of 4
Question 6
The reporting requirement for Moosa on becoming director and changes in beneficial
ownership was correctly answered. However, the information to be submitted such as details
of shares, date of acquisition of beneficial ownership, was missing in most of the answers.
Examinees also unnecessarily discussed provisions related to the substantial acquisition of
voting shares.
The period within which the gain on sale of shares had to be deposited was ignored.
Majority of the examinees were not aware of the provisions of law relating to the gain on
‘purchase and sale’ and ‘sale and purchase’.
Question 7
Examinees failed to mention the time limit within which GL was required to provide
information to the members relating to e-voting.
Examinees were also ignorant of the fact that once the vote on a resolution is casted by a
member, he shall not be allowed to change it subsequently.
Question 8
Examinees failed to appreciate that the Commission is the final authority in determining the
status of a director as independent or otherwise.
Examinees were ignorant of the fact that decision of investment in unlisted company is
required to be communicated to the Commission within 14 days of board meeting along with
the copy of the minutes.
Question 9(a)
Examinees failed to identify that contingent and prospective creditor may also file the petition and
that petition could be filed by all or any of the parties (i.e. company, creditors and contributory)
together or separately.
Question 9(b)(i)
Good performance was observed in this part of the question.
Question 9(b)(ii)
Examinees ignored the fact that creditors cannot file suit against NL and that they must lodge their
claim with liquidator.
(THE END)
Page 4 of 4
CORPORATE LAWS

Mark(s)
A.1 (a) Discussion on minimum percentage of shares which Malik and Family
should acquire in order to qualify for de-listing 3.0
Discussion on how minimum purchase price of shares would be
determined 3.0
(b) Discussion on the procedures to be followed for rectifying the

non-compliance 3.0
Discussion on the consequences if OTL fails to rectify the non-compliance
within the stipulated time 2.0
A.2 (a) Discussion on the restrictions applicable on the non-cash transactions involving
directors 3.0
(b) Up to 01 mark for each condition which must be satisfied for registration
without addition of the word ‘Limited’ to its name 5.0
(c) Discussion on the requirement of filing of special resolution to the

registrar 2.0
Discussion on the requirement of furnishing of special resolution to any
member 2.0
(d) Discussion on the board resolution by circulation as an alternative course

of action available to CL 2.0
Discussion on circular resolution regarding working papers, minutes and
revocation 3.0
A.3 (a) 01 mark for discussing each mandatory information which must be included in
JL’s directors’ report, after its conversion into a listed company 4.0
(b) Up to 02 marks for stating each responsibility of the Nomination Committee as

given in the Code of Corporate Governance Regulations, 2017 3.0
A.4 (a) Discussing whether ML may get extension in the bidding period 1.5
Mentioning the steps that need to be taken in order to obtain such
extension 1.5
(b) Discussion on the status of the ML’s book building process if the bidding
period is not extended 3.0
List the steps which may be required to be taken at the end of the bidding
period, under the situation 2.0
(c) Identification of steps which are required to be followed if the bidding period is
extended 3.0
Page 1 of 2
CORPORATE LAWS
Mark(s)
A.5 01 mark for identification of each condition required to be considered before
making investment in the equity securities. 4.0
02 marks for application of the above conditions on each of three equity
investments 6.0
A.6 Discussion on the responsibilities of:

Moosa 4.0
Faisal 1.0
Noor 9.0
A.7 Up to 01 mark for each step to be taken for enabling the members to cast their
vote 3.0
Up to 1.5 marks for each procedure to be adopted by GL for e-voting 4.0
A.8 Up to 1.5 marks for each comment on the response submitted by Shahzad Akmal 10.0
A.9 (a) 0.5 mark for each authority/person who can file a petition for winding up in the
Court 4.0
(b) (i) 01 mark for each power of the liquidator 5.0
(ii) Consequences of winding up with regards to NL 2.0

Consequences of winding up with regard to creditors 2.0
(THE END)
Page 2 of 2

Corporate Laws
(i) Answer all EIGHT questions.
Q.1 Nadeem Ghazi is the director of Aitmad Limited (AL) and Sukoon Limited (SL). Both
companies are listed on Pakistan Stock Exchange Limited and have paid-up share capital of
Rs. 500 million and Rs. 800 million respectively.
AL’s board of directors has taken following decisions in its meeting held on
2 December 2020:
(i) To make investment of Rs. 150 million in SL, which is a greenfield project, by
purchasing 15 million shares of Rs. 10 each from its sponsor in the following manner:
 Rs. 85 million shall be invested during the month of January 2021; and
 The remaining amount shall be invested from time to time over the period of
two years.
(ii) To grant a loan of Rs. 5 million to Nadeem Ghazi’s son for higher studies. The loan
will be repayable in 6 equal quarterly instalments. However, one of the directors did
not agree to the grant of the said loan.
Required:
(a) Discuss the impact, if any, of each of the aforesaid decisions on AL due to
directorship of Nadeem Ghazi. (05)
(b) Specify the requirement(s) that need to be followed by AL with reference to aforesaid
decisions. (10)
(Ignore the provisions related to price sensitive information, insider trading, general or specific
disclosures to be made in the notice of meeting related to investments and its
circulation/publication)
Q.2 Ramzan Limited (RL) was incorporated in January 2013 as a non-banking finance company
(NBFC) with a paid-up share capital of Rs. 500 million, divided into 50 million shares of
Rs. 10 each.
In a recent meeting of the board of directors, following questions were raised:

(i) Can Shaista Khalid, the daughter of Khalid Raza who holds 18% shareholding in RL
be appointed as chief executive of RL? The term of the existing Chief Executive will
be completed in February 2021.
(ii) Whether RL is entitled to obtain the license for leasing business?
(iii) Can RL purchase five floors of a ten story office building from surplus fund at a
market value of Rs. 200 million? The first two floors are planned to be used by RL for
its regional office whereas the remaining floors would be let out to one of RL’s
associated undertakings.
Required:
Being a Company Secretary, prepare a briefing note for circulation to the board of directors,
addressing the above questions raised by the board. (08)
Q.3 Behtreen Limited (BL) is engaged in the business of home furnishings and supply of allied
products for the last 30 years. However, due to availability of cheap imported products
together with significant increase in cost of production during the last five years, BL was
unable to sustain its market share. Consequently, BL failed to honour its commitment
towards the creditors.
On the recommendation of the board of directors, BL's shareholders passed a special

resolution on 15 February 2020, to wind up the company by the Court. The petition for
winding up was filed on 1 March 2020. The Court appointed Maroof Agha as an official
liquidator at a remuneration of Rs. 1 million plus 0.5% of the amount realized by him
through disposal of BL’s assets. Winding up expenses other than remuneration of liquidator
was estimated to be Rs. 2 million.
Following information relating to BL as on 1 March 2020 has been gathered by Maroof

Agha:
(i) Shareholders’ equity:
Rs. in million
Ordinary share capital (Rs. 10 each) 580
15% Irredeemable preference shares (Rs. 50 each) 160
Accumulated losses (200)
(ii) Outstanding bank loans:
Loan
Name of bank outstanding Security
(Rs. in million)
Shandar Bank Limited 600 First charge ranking pari passu on all
present and future factory buildings.
Maldar Bank Limited 200 First charge ranking pari passu on all
present and future factory buildings.
Kamdar Bank Limited 298 First charge on plant and machinery and
floating charge on present and future
inventories.
(iii) Unsecured creditors and other liabilities:
Rs. in million
Trade and other creditors 441
Salaries and wages (payable for seven months) 144
Amount payable to funded gratuity 30
Income tax / sales tax payable 23
Legal and professional fee 12
Penalty on non-compliance of the provisions of the Companies Act 5
At the beginning of winding up proceedings, Rs. 10 million was available as cash and bank
balances. During the process of winding up, Maroof Agha realized Rs. 1,200 million by
disposing all assets excluding cash and bank balances. The break-up is as under:
Rs. in million
Factory buildings 650
Plant and machinery 125
Investment 65
Inventories 146
Trade and other receivables 214
1,200
Required:
In the light of Companies Act, 2017:
(a) determine the amount to be paid to each creditor and contributory in the order of their
ranking. (09)
(b) prepare the list of creditors or contributories alongwith amount which may remain
fully or partially unpaid after the payment in (a) above. (03)
Q.4 Virtual Games Limited (VGL), a listed company, has 400 million voting shares of Rs. 10
each. Two of its shareholders intends to acquire further shareholdings in VGL as follows:
(i) Toy Land (Private) Limited (TPL) which owns 60 million shares in VGL, has entered
into an agreement with Abid Ahmed, another shareholder of VGL, to acquire further
100 million shares at an agreed price of Rs. 44 per share. After agreement, TPL made
a public offer on 5 December 2020 to acquire VGL’s shares at the rate of
Rs. 45 per share.
(ii) Yasir who holds 40 million shares of VGL, intends to make a public offer on
18 December 2020 to acquire further 60 million voting shares of VGL.
Required:
In the light of Securities Act, 2015 and Listed Companies (Substantial Acquisition of Voting
Shares & Takeovers) Regulations, 2017 advise on the following matters:
(a) The minimum number of shares that TPL shall mandatorily be required to acquire
through public offer. (02)
(b) The minimum number of shares that Yasir shall mandatorily be required to acquire
through public offer and the conditions which needs to be complied with by Yasir in
this respect. (03)
(c) The ground(s) on which TPL may reject the acceptances received in response to the
public offer. You may assume that TPL has received acceptances for 90 million shares. (03)
(d) Restriction on TPL if, after acquisition of further shares, it intends to dispose of one of
VGL’s main divisions. (02)
Q.5 DS Limited (DSL), an automobile manufacturing company, is listed on Pakistan Stock

Exchange Limited.
Due to identification of COVID-19 cases in its factory, DSL has closed its factory on
5 December 2020. DSL has a plan to implement all Standing Operating Procedures relating
to COVID-19 within its factory and will then resume the factory operation.
Required:
(a) Discuss the disclosure requirement of above information to stakeholders. (05)
Sikander Niaz, the Operation Manager in DSL, sold 25,000 shares of DSL at
Rs. 335 per share two days before the closure of factory. He has a plan to repurchase the
same number of shares before the resumption of operation.
Required:
(b) Discuss whether the transaction made or to be made by Sikander Niaz is permissible
under the law and state the possible consequences of such transactions. (04)
Q.6 (a) The shareholders’ equity as shown in the financial statements of Bari Chemicals
Limited (BCL), a listed company, as at 30 September 2020 was as follows:
Rs. in million
Paid-up ordinary share capital of Rs. 10 each *500
Unappropriated profit 300
800
* 25% shares are free float against the requirement of 10% as specified by
Pakistan Stock Exchange Limited.
BCL has a history of profitable operations and consistent dividend payments since its
incorporation. However, Abdullah Suleman, BCL’s Chief Executive and a key
shareholder, is of the viewpoint that BCL’s current market share price of
Rs. 18 per share does not portray the realistic picture of the company’s successful
operations. He believes that in order to provide realistic value of BCL’s shares, BCL
should buy back its own shares from Pakistan Stock Exchange Limited.
Abdullah Suleman has asked you, being the Company Secretary to determine the
maximum number of shares that BCL can buy back assuming estimated market price
is Rs. 20 per share at that time and cash and cash equivalent available with BCL is
Rs. 55 million.
Required:
Prepare a reply to the question raised by Abdullah Suleman. (06)
(b) In the light of your reply in (a) above, Abdullah Suleman submitted a proposal of buy
back of shares to the board of directors. On 7 December 2020, BCL’s board of
directors approved the proposal and advised to call the general meeting on
4 January 2021 for seeking shareholders’ approval.
Required:
Draft the resolution(s) to be included in the notice of the general meeting regarding
buyback of shares by BCL. (05)
Note:
 You may assume necessary details.
 Do not draft resolutions assigning authority to persons in this regard.
(c) Assume that on the recommendation of the board of directors, the shareholders
approved the buy-back of shares in the general meeting as per (b) above.
Required:
State any four requirements that need to be complied with by BCL after the closing of
the purchase period. (04)
Q.7 (a) You are a Corporate Consultant of Fast Cars Limited (FCL) which is planning to
make a public offer of 200 million ordinary shares having par value of Rs. 10 each.
Required:
In the light of Public Offering Regulations 2017, advise the prerequisites that the book
runner should verify while vetting bid applications under the book building process. (02)
(b) FCL shareholders have approved public offering of Rs. 2,000 million out of which
70% should be offered through book building process and remaining 30% should be
offered to the retail investors. Salman Associates (SA) has been appointed as
‘Consultant to the Issue’ which allows the bidders to place bids for 100% of offer size.
The floor price and the price band set by FCL in consultation with SA were Rs. 50 and
Rs. 70 (i.e. 40% above the floor price) per share respectively. The bidding period for
book building was fixed from 26 November 2020 to 27 November 2020.
At the close of bidding period i.e. 27 November 2020, following bids (sorted in the
descending order of bid price) were received from various bidders:
Number of Cumulative number

Bidder Bid price
shares bid of shares bid for
--------- in million --------- Rs. per share
U 14 14 70.0
T 10 24 69.5
S 12 36 69.0
R 8 44 68.5
Q 14 58 68.0
P 10 68 67.5
O 13 81 67.0
N 12 93 66.5
M 14 107 66.0
L 7 114 65.5
*K 12 126 65.0
J 13 139 64.0
*I 12 151 63.0
H 14 165 62.0
*G 2 167 62.0
F 10 177 60.0
E 12 189 57.0
D 14 203 55.0
C 12 215 55.0
B 13 228 53.0
A 14 242 51.0
*Bidders K (Insurance company), G (Auto part manufacturing company) and
I (Auto service provider) are SA’s associates.
Required:
In the light of Public Offering Regulations, 2017:
(i) advise how strike price is determined at the close of bidding period. (02)
(ii) comment on the legality of the bids received from SA’s associates. (03)
(iii) advise how the shares would be allotted to the bidders. (05)
(iv) discuss the requirements in respect of the leftover/excess amount received
through book building. (02)
(c) Assume that immediately after the book building process as per (b) above, the retail
portion was offered to the public. The offer has been subscribed only by 28% of the
public offer.
Required:
Critically examine the suitability of FCL’s decision of public offer i.e. 70% through
book building and 30% through retail investors in the light of Public Offering
Regulations, 2017. (02)
Q.8 Swat Hotel Limited (SHL) is listed on Pakistan Stock Exchange Limited. Its financial year
ends on 30 June each year.
The minimum number of directors fixed by SHL’s articles of association is eight. As on

1 December 2020, SHL’s board consisted of the following directors:
Category Name of directors

Independent directors  Atif Hussain
 Latif Haider
 Sajid Aslam
Non-executive directors  Mustafa Tariq
 Abbas Haider
 Jamshed Akbar – Nominee (Note 1)
Executive directors  Ahmad Murtaza – Chief Executive
 Imtiaz Ali – Company Secretary &
Chief Financial Officer (Note 2)
Note 1:
Jamshed Akbar is the only nominee of Pakistan Investment Limited (PIL), a wholly owned
government entity. PIL holds 55% shares in SHL. Due to continuous downward trend of
SHL’s profits, PIL’s board of directors has decided to dispose of 20% of its shareholding in
SHL on 31 December 2020.
Note 2:
Imtiaz Ali submitted his resignation which was accepted by the board of directors on
5 December 2020. His last working day in SHL will be 27 February 2021.
Required:
Advise the directors of SHL regarding:
(a) how the nominee director of PIL may be removed before or after the aforesaid
disposal of 20% of its shareholding in SHL. (05)
(b) the changes that may be made in the composition of SHL’s board after disposal of
20% of PIL’s shareholding in SHL. (04)
(c) the requirements of filling the vacancy due to the resignation of Imtiaz Ali. (04)
(d) the disclosures which are required to be made by SHL, at its year-end, related to the
remuneration of directors. (02)
(THE END)
CORPORATE LAWS
Suggested Answers
A.1 (a) Impact of directorship of Nadeem Ghazi:
DECISION NO. (i)

It is necessary to establish whether AL and SL are associated companies or not; that
depends upon the nature of Nadeem’s directorship in these companies.
AL and SL shall be considered as associated companies due to Nadeem’s common

directorship.
However, AL and SL shall not be considered as associated companies if Nadeem is an

independent director or director by virtue of nomination of the Federal Government or
Provincial Government or a financial institution directly or indirectly owned or controlled
by such Government or National Investment Trust.
The impacts of both the decisions on AL are discussed in following paragraph.

 If AL and SL are associated companies then AL should not make any investment in SL
without seeking further approval.
 If AL and SL are not associated companies then the board’s decision may be
implemented.
DECISION NO. (ii)

Impact on the decision of loan will depend on as to whether Nadeem’s son is a minor or
major.
 If Nadeem’s son is minor then the Board’s decision cannot be implemented without
further approval.
 If Nadeem’s son is major then the Board’s decision may immediately be implemented.
(b) Requirements to be followed:

DECISION NO. (i)
If AL and SL are associated companies:
 Investment should be made under the authority of a special resolution.
 AL’s directors while presenting special resolution shall certify to the members that
they have carried out necessary due diligence with reference to the said investment
before recommending for approval.
 The aforesaid recommendations duly signed shall be made available to the members
for inspection in the general meeting called for approval of the special resolution.
 Latest annual audited financial statements of SL along with latest financial
statements, if any, shall be made available for inspections of the members of AL in
the general meeting called for considering investment decisions in SL.
 AL shall file duly authenticated special resolution within 15 days from passing
thereof with the registrar. AL shall ensure that investment should not exceed the
limit approved through special resolution and that it shall stand exhausted upon
reaching that limit on a cumulative basis even on piecemeal basis and shall not be
valid for any recurring investment even after divestment.
 AL shall maintain register of investment in associate in specified form and shall
enter the particulars after making investment.
Page 1 of 10
CORPORATE LAWS
Suggested Answers
Requirements whether AL and SL are associate or not:

 AL shall make and hold the said investment in SL in its own name.
 If the said shares are registered in the name of central depository then AL shall
forthwith enter in a register maintained by it for the purpose at its registered office
the nature, value and other particulars to fully identify such shares.
 AL shall have to disclose such shareholdings in SL, to the SL, the securities exchange
and the Commission as required under the Securities Act, 2015 as it intends to
acquire more than 10% of SL’s share capital i.e. Rs. 85 million. (85 ÷ 800 x 100 =
10.62%)
 The aforesaid disclosure shall be made within two working days of the acquisition of
shares containing prescribed information.
 Further disclosure will be required if AL made investment in SL after a period of
twelve months.
DECISION NO. (ii)
If Nadeem’s son is minor:

 The loan has to be approved by a resolution of AL’s members.
 Moreover, being a listed company, approval of the Commission is also required
before sanctioning of loan.
 AL shall maintain register giving separately the particulars of all arrangements as
specified by the Commission. The said register shall be kept at AL’s registered office
and shall be open for inspection at such office during business hours and extracts
may be taken therefrom.
 The said register shall also be produced at the commencement of every annual
general meeting of the company and shall remain open and accessible during the
continuance of the meeting.
Requirement whether Nadeem’s son is minor or not:

Irrespective of whether Nadeem’s son is minor or major, the Company Secretary /
Chairman shall ensure that one of the directors who did not agree to the grant of the said
loan for higher studies, his dissenting note should be recorded in the minutes of the
meeting as required under the Listed Companies (Code of Corporate Governance)
Regulations, 2019.
A.2 (i) Under the Non-Banking Finance Company (NBFC) Rules or Regulations, there is no
restriction, with regard to the appointment of daughter of a major shareholder, as Chief
Executive, subject to compliance with the following requirement:
 Shaista Khalid must have to fulfil to the fit and proper criteria. Prior approval of the
Commission should also be obtained by RL;
 Shaista is not holding such office in any other company except for an investment
company being managed by RL, provided that prior approval of the Commission has
been obtained in this regard.
(ii) It is not mentioned in the question that whether RL is fund management NBFC or lending
NBFC. Therefore, both aspects are discussed as follows:
 In case RL is fund management NBFC:

A fund management NBFC is not entitled for seeking licence for any form of business
allowed to lending NBFC. So RL shall not be eligible to obtain licence for leasing
services.
Page 2 of 10
CORPORATE LAWS
Suggested Answers
 In case RL is lending NBFC:

A lending NBFC may be entitled to get the license for leasing business by making
separate application in prescribed form alongwith non-refundable processing fee to
SECP for grant of licence for carrying out leasing business, if RL is not part of a group
of companies already holding a license for the same form of business.
However, if RL has licence of investment finance services, then it shall be valid for
undertaking leasing business as well and RL shall not be required to make separate
application as discussed above.
(iii) NBFCs (Establishment & Regulations) Rules, 2003 specifically prohibits NBFCs to hold,
deal or trade in real estate, except for the use of NBFC itself or where specified by the
Commission by notification in the official Gazette.
In light of above, RL can purchase only two floors of the building which would be used by
RL for its regional office and RL should neither purchase nor rent out the remaining floors
of the building unless specified by the Commission as above.
Moreover, the purchase of two floors for regional office shall have to be approved in RL’s
Board of Directors meeting as required by the Companies Act, 2017.
A.3 (a) The distribution of sale proceeds of given assets of Behtreen Limited (BL) would take
place in following order:
Amount Balance
Rs. in million
Balance of cash and bank and amount realized (10 + 1200) 1,210
1. Retention of the amount necessary for the cost and
expenses of winding up i.e. his own remuneration and
other winding up cost of Rs. 9 million
[1 + 6 (1,200 × 0.5%) + 2] 9.0 1,201
2. Preferential payments [i.e. Income tax/ sales tax payable
(23) + penalty (5) + salaries and wages (144) + amount
payable to funded gratuity (30)] 202.0 999
3. Secured debts other than floating charge holders
 Secured against factory buildings
 Shandar Bank Limited (650 × 600 ÷ 800) 487.5
 Maldar Bank Limited (650 × 200 ÷ 800) 162.5
 Secured against plant and machinery
 Kamdar Bank Limited 125.0 224
4. Secured debts against floating charge
 Kamdar Bank Limited [ lower of 146 or (298-125)] 146.0 78
5. Unsecured creditors on proportionate basis:
Actual
Payment
liability
Rs. in million
SBL long term loan (600 – 487.5) 112.5 13.9
MBL long term loan (200 – 162.5) 37.5 4.6
KBL long term loan (298–125–146) 27.0 3.4
Legal and professional fee 12.0 1.5
Unsecured creditors 441.0 54.6
630.0 78 78.0 -
Page 3 of 10
CORPORATE LAWS
Suggested Answers
(b) Following payments to creditors and contributories would remain unpaid:

 SBL (600 – 487.5 – 13.9) 98.6
 MBL (200 – 162.5 – 4.6) 32.9
 KBL (298 – 125 – 146 – 3.4) 23.6
 Legal and professional fee (12 – 1.5) 10.5
 Unsecured creditor (441 – 54.6) 386.4
 15% Irredeemable preference share 160.0
 Ordinary share capital 580.0
A.4 (a) Number of voting shares to be acquired:

Upon acquisition of additional 100 million voting share capital through agreement, TPL’s
shareholdings will be 40% (60+100) ÷ 400 × 100) which means it crosses the threshold
limit of 30% given under the Securities Act, 2015.
Consequently, TPL have made a public announcement of offer. TPL has to acquire at least
50% of the remaining voting shares of VGL i.e. 120 million [(400 – 160) = 240 × 50%].
(b) Since Yasir intends to make public offer of acquiring further shares within 21 days of
TPL's offer, Yasir shall have to make a competitive bid and shall have to ensure that:
 the minimum number of shares that he has to acquire mandatorily through public
announcement of offer, shall at least be the same number of voting shares that TPL
will acquire i.e. 120 million voting shares.
 The offer price shall be at higher purchase price i.e. more than Rs. 45 per share that is
offered by TPL.
Considering the above, Yasir’s intention to acquire 60 million shares through Public Offer
is against the provisions of law and he shall have to revisit his intention in light of
aforesaid requirements.
(c) TPL cannot reject the acceptance made on the basis of public offer unless TPL has made
public offer conditional upon minimum level of acceptance and the acceptance didn’t
reach the minimum level specified by TPL in the public offer.
In the given scenario, TPL has received acceptances for 90 million shares. As per
regulations, the minimum level shall not be more than thirty-five percent of the remaining
voting shares of VGL that is 84 million (400 – 160 = 240 × 35÷100 ) voting shares.
(d) After acquisition of further voting shares, TPL cannot dispose the sizeable part of VGL for
a period of two years from the date of acquisition of the control, unless such intention was
stated in the public announcement or in the offer letter or disposal was made in the
ordinary course of VGL’s business.
A.5 (a) As suspension of DSL operations will directly impact the profitability of the company and
may be improved when the management will resume its operations after implementing all
Standard Operating Procedures. Hence, both the situations will be considered as material
information for investors and falls under price sensitive information under Securities Act,
2015.
Further, as per Pakistan Stock Exchange (PSX) Rules Book, the price sensitive information
includes delay or loss of production due to strike, fire, natural calamities, major
Page 4 of 10
CORPORATE LAWS
Suggested Answers
breakdown, etc.
Therefore, DSL should disclose the following in the light of Securities Act, 2015 and PSX
Rules Book:
 Inform forthwith to the Commission and the Exchange prior to its release to any
other person or print/electronic media.
 Inform to the public about these facts both at the time of suspension of operations
and also when resumes the operations.
 Ensure that information should be disseminated in such way that it equally, timely
and effectively provides access to DSL’s securities holders and investors.
(b) Sikander Niaz being Operation Manager is an executive officer of DSL and according to
Securities Act, 2015 falls under the definition of Insiders. Accordingly, the shares sold by
him two days before the suspension of operation will fall under the definition of insider
trading as he did the same before the dissemination of information to the general public
by DSL, hence this will be considered as an offense.
Further, if Sikander Niaz repurchase the shares within a period of six months he shall:
 make a report to the Commission in the prescribed form before the expiration of a
period of seven days beginning with the day on which the gain accrues and
 tender the amount of such gain to the Commission within the period of six months of
the accrual of gain.
A.6 (a) In order to buy back its own shares, BCL should take into account following requirements
of the Companies Act, 2017:
1. There are following two possibilities for maximum number of shares to be purchased
by BCL, if it wants to:
Possibility No. 1: cancel its shares

BCL could buy-back shares up to maximum amount of distributable profit as per the
provisions of the Companies Act, 2017 i.e. Rs. 300 million as shown in the financial
statements as on 30 September 2020.
Since the buyback is required to be made at the spot / current share price, the
number of shares to be bought back would be 15 million (Rs. 300/20).
Possibility No. 2: hold it as treasury shares

Under the Listed Companies (Buy-Back of Shares) Regulations, 2019 the treasury
shares shall not at any time exceed 20% of the total paid up share capital of the
company. Hence, BCL can buy-back up to Rs. 100 million (Rs. 500×20%).
Since the buyback is required to be made at current market price, the number of
shares that could be bought back are 5 million (Rs. 100/20).
By considering the above, BCL can buy back following number of shares under each
possibility as follows:
No. of shares to Cushion available BCL can buy
Possibility
be purchased in free float No. of shares
No.
(A) (B) (Lower of A and B)
1 15.00 *1 8.33 8.33
2 5.00 *2 7.50 5.00
Page 5 of 10
CORPORATE LAWS
Suggested Answers
*1 10%(50 − 𝑥) = 12.5 − 𝑥 ⟹ 5 − 0.1𝑥 = 12.5 − 𝑥 ⟹ −7.5 = −0.9𝑥 ⟹ 𝑥 = 8.33

*2 50×(25  10)% = 7.5 million shares
2. Purchase of shares shall always be made in cash. As the purchase requires more than
Rs. 55 million, BCL may generate the differential cash either by disposing its assets or
through obtaining loan etc.
(b) Draft special resolutions for buy back of shares by BCL:
Possibility No. 1: cancel its shares

“RESOLVED THAT subject to compliance with the provisions of applicable laws,
regulations and permission required, if any, approval of the members of Bari Chemicals
Limited (the company) be and is hereby accorded, under Section 88 of the Companies Act,
2017 read with Listed Companies (Buy-Back of Shares) Regulations, 2019, to buy-back up
to a maximum of 8.33 million issued ordinary shares of the company having paid up / face
value of Rs. 10 each i.e. 16.67% of the total outstanding shares of the company) at the spot
/ current share price through Pakistan Stock Exchange Limited.”
Possibility No. 2: hold it as treasury shares

“RESOLVED THAT subject to compliance with the provisions of applicable laws,
regulations and permission required, if any, approval of the members of Bari Chemicals
Limited (the company) be and is hereby accorded, under Section 88 of the Companies Act,
2017 read with Listed Companies (Buy-Back of Shares) Regulations, 2019, to buy-back up
to a maximum of 5 million issued ordinary shares of the company having paid up / face
value of Rs. 10 each i.e. 10% of the total outstanding shares of the company) at the spot /
current share price through Pakistan Stock Exchange Limited.”
“FURTHER RESOLVED THAT the ordinary shares buy-backed pursuant to these special
resolution(s) shall be:
Possibility No. 1 cancelled and issued share capital shall accordingly be reduced by the
aggregate paid up / face value of the cancelled shares.
Possibility No. 2 held as treasury shares.”
“FURTHER RESOLVED THAT buy-back shall be made through Pakistan Stock Exchange
Limited and the purchase period shall start from 12 January 2021 (this is the last date) to
3 April 2021 (both days inclusive).”
(c) The requirements that need to be complied with by BCL after the closing of the purchase
period are as follows:
1. intimate to the Commission and the securities exchange on the day of the closing of the
purchase period the number of shares purchased.
2. advertise the number of shares purchased within two days of the closure of purchase
period in the same newspapers in which the public announcement was published.
3. cancel the shares purchased within ten days of the closing of the purchase period under
possibility no. 1 above.
4. submit a final report on the purchase to the Commission and the securities exchange
on the specified format within fifteen days of the closing of the purchase period.
Page 6 of 10
CORPORATE LAWS
Suggested Answers
A.7 (a) Prerequisites that the book runner should verify while vetting bid applications
The book runner shall vet the bid applications and accept only such bid applications that
are duly filled in and supported by a crossed cheque or demand draft or pay order or
confirmation from the Banker to an Issue that Bid Money has been electronically debited
from the bidder account or is blocked in the bidder account.
The book runner shall have to verify while vetting each bid application that the bidder
have not:
 made bid below the Floor Price and above the upper limit of the Price Band;
 made bid for more than 10% of the shares allocated under the Book Building
Portion;
 made bid with price variation of more than 10% of the prevailing indicative strike
price or such other percentage as may be specified by the Commission;
 made consolidated bid;
 made more than one bid either severally or jointly;
 made downward revision both in terms of Bid Price and Bid Volume;
(b) (i) At the close of bidding period, strike price is determined by the designated
institutions which includes securities exchange, central depository and clearing
company on the basis of Dutch Auction 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, by lowering the bid price to the extent that the
total number of securities offered under the Book Building Portion are subscribed.
Accordingly, the strike price in case of FCL is Rs. 55 where 100% of offer size i.e. 200
million shares are subscribed.
(ii) The bids received from the associates i.e. G, I and K were rightly accepted as the
aggregate bids received from G and I is 14 million share i.e. 10% of the book building
which is according to the law.
The bid received from K will not be taken in the aggregate of associates being an
insurance company.
(iii) The shares shall be allotted to the bidders as follows:

 On the highest bid priority i.e. the bids made at the highest price by ‘Bidder U’
to ‘Bidder E’ shall be considered first for allotment of shares. This would
accommodate 189 million shares above the strike price.
 11 million shares are still available for allotment shall be allotted to
‘Bidder C and D’ on proportionate basis as they have made the bids at the Strike
Price hence they will get 5.08 million and 5.92 million shares respectively.
 However, successful bidders would be allotted and issued only seventy percent
of the offer size i.e. 70% of 200 (189+5+6) = 140 million shares.
As the Consultant to the Issue has allowed bidders to place bids for hundred percent
of the offer size, and the bidders must have given an undertaking along with the
application (equivalent to the retail portion i.e. for 60 million ordinary shares) then
unsubscribed shares of retail portion would also be allotted to them on pro-rata
basis.
(iv) Requirement in respect of the leftover/excess amount received through book building
The treatment of the leftover/excess amount of bid money shall be as follows:
 The bidders i.e. A & B who have made bids below the strike price shall not
qualify for allotment of shares and the book runner shall intimate their
respective banks for unblocking their bid money within one working day of the
Page 7 of 10
CORPORATE LAWS
Suggested Answers
close of the bidding period.

 The bid money of bidders who have undertaken to subscribe the unsubscribed
retail portion shall remain deposited or blocked till allotment of unsubscribed
retail portion, if any, to them on pro rata basis.
(c) According to the aforesaid Regulations maximum seventy-five percent of the offer size
could be allocated to book building portion and the remaining minimum twenty-five
percent shall have to be allocated to the retail investors.
Hence if FCL in the offer size have allowed the book building portion up to maximum of
75% and the retail portion to the minimum level i.e. 25%, then it could have avoided the
undersubscribed situation.
A.8 (a) Removal of nominee directors before disposal of 20% of PIL’s shareholding in SHL on
31 December 2020:
SHL falls under the Public Sector Company as defined under the Companies Act, 2017
because of PIL’s 55% shareholdings in SHL.
Being the public sector company in accordance with Public Sector Companies (Corporate
Governance) Rules, 2013 (PSC-CGR, 2013), SHL may remove the nominee director of PIL,
only if:
 the director has not performed up to a standard, determined through a performance
evaluation;
 the director is found to be in non-compliance with the provisions of the Act or these
rules;
 the director fails to fulfil his duties and responsibilities under these rules;
 the director fails to comply with or deliberately ignores policy directives of the
Government;
 the Government decides to withdraw the nomination due to any administrative
reasons such as posting, transfer, retirement, etc.; and
 the director is involved in misconduct.
Removal of nominee directors after disposal of 20% of PIL’s shareholding in SHL on

31 December 2020:
After the disposal of 20% of PIL’s shareholding in SHL, the status of SHL after 31
December 2020 would not be as Public Sector Company; hence the procedure for removal
of director shall have to be followed in accordance with the provisions of the Companies
Act, 2017.
According to the Companies Act, 2017 a nominee director can only be replaced by the
nominating body and shall hold office during the pleasure of the nominating body. Hence,
PIL’s nominee director cannot be removed.
(b) As discussed in (a) above, after disposal of shares by PIL the status of SHL after 31
December 2020 would not remain as Public Sector Company; hence SHL shall then only be
required to follow the requirements of Listed Companies (Code of Corporate Governance)
Regulations, 2019 (CCG Regulations, 2019).
Under the CCG Regulations, 2019 the composition will be as follows:
Page 8 of 10
CORPORATE LAWS
Suggested Answers
Independent director:
A listed company shall have at least two or one third members of the board, whichever is
higher, as independent directors.
Hence, SHL may continue with the same number of independent directors or may opt to
remove one of the independent director. However, in case SHL opt to remove one director,
it would have to explain the reason in the compliance report why the fraction is not
rounded up as one.
Further, in case of removal of one director, in order to maintain the minimum level of
directors i.e. eight either a non-executive or an executive director be appointed.
Female director
At present SHL has no female director on its board of directors. It is mandatory that the
board shall have at least one female director. However, this appointment can be made
when the board is reconstituted after the expiry of current term.
Executive director
At present, SHL has two executive directors. After resignation of Mr. Imtiaz Ali SHL will
have only one executive director on its board, however, SHL may continue as CCG
Regulations, 2019 requires that executive directors including the chief executive shall not
be more than one third of the board.
(c) Vacancy in the office of the executive director:

Since Imtiaz Ali is holding the position of an executive director, hence, SHL shall have to
ensure that the requirements of minimum eight number of director shall be maintained in
accordance with the requirement of its articles of association.
If such appointment could not be made till the last working day of Imtiaz Ali then a casual
vacancy will arise in the office of director that shall have to be filled by SHL board within
90 days from Imtiaz Ali’s last working day.
It is to ensure that the person so appointed shall hold office for the reminder of the term of
office and shall give his consent in writing to SHL for such appointment and SHL shall file
the same with register within 15 days.
It is pertinent to note that SHL’s board of directors may appoint a non-executive director
to fill the vacancy rather appointing an executive director.
Moreover, at this point in time SHL may consider appointing a female director as
discussed in (b) above.
Vacancy in the office of chief financial officer and company secretary:

Furthermore, as discussed in (a), prior to disposal of shares by PIL, SHL was required to
make compliance of PSC-CGR, 2013 also that empowers a person to hold both the
positions of chief financial officer and company secretary. However, according to CCG
Regulations, 2019 the same person shall not be eligible to simultaneously hold office of
chief financial officer and the company secretary of a listed company; hence SHL’s board
shall have to appoint separate person to fill the vacancy of chief financial officer and
company secretary.
SHL have to ensure that chief financial officer shall have managerial experience in fields of
audit or accounting or in managing financial or corporate affairs functions of a company
with:
 at least three years’ experience and is a member of the Institute of Chartered
Accountants of Pakistan or Institute of Cost and Management Accountants of Pakistan;
or
Page 9 of 10
CORPORATE LAWS
Suggested Answers
 at least five years’ experience and is either a member of professional body of

accountants whose qualification is recognized as equivalent to post graduate degree
by Higher Education Commission of Pakistan or has a postgraduate degree in finance
from a university in Pakistan or equivalent recognized and approved by the Higher
Education Commission of Pakistan; or
 at least seven years’ experience and has a suitable degree from a university in Pakistan
or abroad equivalent to graduate degree, recognized and approved by the Higher
Education Commission of Pakistan.
(d) SHL directors in their report to members shall state the remuneration policy of non-
executive directors including independent directors, as approved by the Board, which
shall also include disclosing the significant features and elements thereof.
Moreover, SHL’s Annual Report shall also contain details of aggregate amount of
remuneration separately of executive and non-executive directors, including salary/fee,
perquisites, benefits and performance-linked incentives etc. SHL may provide aforesaid
details of remuneration of individual directors in its annual report.
(The End)
Page 10 of 10
SUBJECT SESSION
Corporate Laws Winter 2020
Passing %
Question-wise Overall
1 2 3 4 5 6 7 8
2% 41% 47% 37% 29% 16% 44% 9% 14%
General comments
This is the first paper of Corporate Laws held under open book environment. Overall performance
was not satisfactory. One of the main reasons of this poor performance was those questions where
no reference of law(s) was given in the requirement section; examinees were unable to
comprehend that under that situation they have to make cross-linking the various laws. Another
reason was that they answered the areas which were specifically required to be ignored; resultantly
they were unable to complete the paper. It is therefore advised to all examinees to read the
questions carefully and restrict their answers to the requirements of the questions only.
Question 1(a)
 Although many examinees correctly identify that AL and SL are associated companies, they
did not consider that whether Nadeem is an independent director or a director by virtue of
nomination, as it will not create the relationship between these companies.
 Very few candidates were able to identify that decision may be different if Nadeem’s son is a
major or minor.
Question 1(b)
 For decision no. (i), following requirements were not covered:

o Requirements given under Securities Act, 2015 and under Listed Companies (Substantial
Acquisition of Voting Shares & Takeovers) Regulations, 2017.
o Requirements of holding investment in SL in AL’s own name and entering in register
maintained for that purpose.
 For decision no. (ii), following requirements were not covered:
o Requirements that dissenting note should be recorded in the minutes as required under the
Listed Companies (Code of Corporate Governance) Regulations, 2019.
o Requirement of maintaining register and that it shall be produced at the commencement of
every annual general meeting and should be accessible.
Page 1 of 4
Question 2
Examinees were not able to identify whether RL is fund management or lending NBFC; hence,
they could not cover the requirements that are different for both types.
Question 3
 Examinees also distributed the amount realized from the factory building and plant and
machinery among the creditors instead of distributing solely to the banks having floating
charge over these assets.
 Examinees did not distribute the balance/remaining amount amongst the unsecured creditors
on proportionate basis.
Question 4(a)
Although examinees correctly identify that TPL would cross the threshold limit of 30% by
entering into the agreement and they have to buy at least 50% shares, they did not apply it on the
correct number of shares.
Question 4(b)
Examinees failed to understand that Yasir shall have to make a competitive bid and resultantly
they were not able to write the conditions which Yasir has to consider while making a competitive
bid.
Question 4(c)
Examinees failed to appreciate that unless public offer was made conditional upon minimum level
of acceptance, TPL cannot reject the acceptance. Moreover, they failed to compare the acceptances
received with the minimum level in the given scenario and that TPL cannot reject the acceptances
for 90 million shares.
Question 4(d)
Many examinees stated that TPL cannot dispose the sizable part of VGL but they failed to mention
the conditions associated with it.
Question 5(a)
Many examinees failed to identify that both suspension and resumption of operations will be
considered as material information and therefore should be disclosed.
Question 5(b)
Examinees have not mentioned the effects if Sikander Niaz repurchases the shares within a period
of six months.
Page 2 of 4
Question 6(a)
 Examinees did not know that there are two options for the treatment of buy-back of shares i.e.
cancel the shares or hold it as treasury shares.
 Examinees were not able to calculate the correct number of shares that BCL can buy with its
available fund under either option.
 Examinees did not consider the treatment of free float shares while calculating number of
shares to be bought in either option.
 Examinees were not aware of the fact that cash may be generated for buy-back either by
disposing BCL’s assets, through obtaining loan, etc.
Question 6(b)
Examinees failed to draft the resolutions properly and ignored to cover that members of BCL gave
approval under the requirement of relevant laws and the maximum number of shares to be bought
back.
Question 6(c)
Question 7(a)
Question 7(b)(i)
Examinees failed to advise that strike price will be determined based on 100% of the offer size i.e.
200 million.
Question 7(b)(ii)
Examinees did not comment that bidder K being insurance company will not be taken in the
aggregate of associates.
Question 7(b)(iii)
Examinees failed to advise that successful bidder would be allotted and issued only 70% of the
offer size.
Question 7(b)(iv)
 Examinees failed to discuss that bidders A and B shall not qualify for allotment of shares as
they have made bids below the strike price.
 Examinees failed to discuss the treatment of bid money related to unsubscribed portion.
Question 7(c)
Examinees failed to examine how FCL could have avoided the undersubscribed situation.
Page 3 of 4
Question 8(a)
Examinees failed to discuss that on disposal of 20% shareholdings in SHL by PIL, SHL’s status
would not be as public sector company; hence, the Code of Corporate Governance for Listed
Companies would be applicable on it instead of Code for Public sector companies. Consequently,
examinees were not able to understand the impact on the removal of directors before and after the
disposal of shares.
Question 8(b)
Examinees did not discuss that after disposal, SHL shall have to follow the requirements of Code
of Corporate Governance for Listed Companies and therefore it would not be able to suggest
changes in the composition of the board.
Question 8(c)
 Examinees did not mention that if a person is not appointed as a director in place of Imtiaz Ali
till last working day then a casual vacancy will arise that shall have to be filled within 90 days
and that appointed director shall hold office for the reminder of the term.
 Examinees failed to appreciate that Code for Public Sector Companies permits that a person
may hold both the positions of Company Secretary as well as Chief Financial Officer;
however, under the Listed Companies (Code of Corporate Governance) Regulations, 2019
separate persons shall be required to hold these positions.
Question 8(d)
(THE END)
Page 4 of 4
CORPORATE LAWS

Mark(s)
A.1 (a) Determination of relationship between company and director 2.5
Discussion on impact of decision no. 1 1.0
Discussion on impact of decision no. 2 1.5
(b) Up to 01 mark for identifying each requirement to be complied by AL:

related to decision no. 1 7.0
related to decision no. 2 3.0
A.2 Discussion on each of the following matter:

(i) whether Shaista Khalid can become chief executive 2.5
(ii) whether RL is entitled to obtain licence 3.0
(iii) whether RL can purchase movable property 2.5
A.3 (a) Identifying order of distribution of:

winding up expenses 1.5
preferential payments 2.0
secured debts other than floating charge 2.5
secured debts against floating charge 1.0
unsecured creditors 2.0
(b) Up to 0.5 mark for identifying unpaid amount to creditors and contributories 3.0
A.4 (a) Impact on TPL’s shareholdings on acquisition of additional shares 1.0

Identifying TPL’s obligation when it crosses threshold limit 1.0
(b) Identifying Yasir’s intention to be considered a competitive bid 1.0

01 mark for identifying each condition 2.0
(c) Up to 0.75 mark for each condition against which TPL can reject
acceptances 1.5
Determining the minimum level of acceptances 1.5
(d) 0.5 mark for each restriction applicable on TPL 2.0
A.5 (a) 01 mark each for identifying impact of suspension and applicability of
price sensitive information 2.0
01 mark for stating each disclosure requirement 3.0
(b) Establishing that Sikander Niaz is an insider and the transaction falls
under insider trading which is an offense 2.0
Discussion on possible consequences of repurchase 2.0
Page 1 of 2
CORPORATE LAWS
Mark(s)
A.6 (a) Determining maximum number of shares if BCL:
− cancels the shares 2.0
− holds it as treasury shares 3.0
Discussing purchase to be made in cash and ways of generating cash 1.0
(b) Preparation of draft resolution covering the following:

approval of shareholders, number of shares and purchase price 2.5
treatment of shares bought back 1.5
buy back of shares through PSX and time limit 1.0
(c) 01 mark for discussing each requirement 4.0
A.7 (a) Up to 0.5 mark for each prerequisite 2.0
(b) (i) Discussion on method used for determining strike price 1.0
Establishing strike price 1.0
(ii) Discussion on acceptance of G and I’s bids 2.0

Discussion on acceptance of bid received from K 1.0
(iii) Establishing the highest bidder up to E 1.0

Allocating 11 million shares to bidder C and D 1.0
Stating successful bidder to be allotted only 70% 1.0
Establishing requirement of undertaking 1.0
Allocating unsubscribed portion on pro-rata basis 1.0
(iv) Discussing bidders A & B shall not qualify for allotment of shares 1.0
Discussing treatment of bid money related to unsubscribed portion 1.0
(c) Stating requirement of allocation to book building and retail investors 1.0
Suggesting how undersubscribed situation be avoided 1.0
A.8 (a) Establishing current status of SHL 1.0

Up to 0.5 mark for each point by which nominee director may be removed 2.0
01 mark each on establishing SHL’s status after disposal and the
requirement to be followed 2.0
(b) Establishing Listed Companies Code to be followed after disposal 1.0

Up to 01 mark each on identifying various composition of directors 3.0
(c) Discussion on filling vacancy of executive director 2.0

Discussion on filling vacancy of chief financial officer and company
secretary 2.0
(d) 01 mark each on identifying disclosures in directors and annual report 2.0
(THE END)
Page 2 of 2

Corporate Laws
Q.1 Adil Saeed, a renowned industrialist and a high net worth individual, holds 10 million
ordinary shares of Rs. 10 each, in each of the following companies:
(i) Violet Limited (VL) with a paid-up capital of Rs. 550 million
VL is listed on Pakistan Stock Exchange. Adil Saeed who is also an executive director
on VL’s board, has entered into an agreement to sell his entire shareholdings in VL to
Adnan, his creditor, at a discounted price. In the recent past, VL has suffered
substantial operational losses and consequently its key financial ratios have become
adverse. VL’s statutory auditors have expressed an adverse opinion on the going
concern assumption.
(ii) Marigold Leasing Limited (MLL) with a paid-up capital of Rs. 700 million
MLL is a public listed non-banking finance company incorporated in August 2017.
Adil Saeed is one of the promoters who is currently serving as a non-executive director
on the board of MLL. He has applied for transfer of all of his shares in MLL to his
spouse, Amina Adil.
(iii) Saffron Supreme Limited (SSL) with a paid-up capital of Rs. 350 million
SSL was incorporated in June 2017 with an initial paid-up capital of Rs. 240 million
which was fully subscribed by Saeed Group including Adil Saeed. SSL incurred losses
during the first two years of its operations. However, during the year ended
30 June 2020, earnings per share of Rs. 15 was recorded. In September 2020, SSL got
listed on Pakistan Stock Exchange. There is no change in Saeed Group’s holdings since
incorporation.
In May 2021, Adil Saeed agreed to sell his shares to his friend Aqeel at a market price
of Rs. 17 per share.
(iv) Acacia Waste Power Limited (AWPL) with a paid-up capital of Rs. 400 million
AWPL is a greenfield project sponsored by Adil Saeed, which got listed in July 2018.
AWPL imported the waste power plant from Korea and started commercial production
immediately. Project was a success and AWPL announced 20% and 30% cash dividend
for the years ended 30 June 2019 and 2020 respectively. In June 2021, Adil Saeed
agreed to sell his entire shareholdings in AWPL to another industrialist.
Adil Saeed has lodged transfer requests of above shares which are held in book entry form.
Required:
Discuss any eight distinct and most relevant circumstances in which above share transfer
requests made by Adil Saeed may either be refused or delayed beyond prescribed period. (10)
(Note: Each of the above cases should cover at least one circumstance)
(Ignore the circumstances under which share transfers are delayed/refused due to book closure or
placement of company in defaulters’ segment)
Q.2 (a) Hibiscus Limited (HL), incorporated on 10 July 2017, is a listed entity engaged in the
business of information technology.
Abid was appointed as HL’s company secretary on 31 May 2021. He is planning to

arrange next board meeting(s) and shareholders’ general meeting(s) to discuss annual
financial statements for the year ending 30 June 2021 and other matters. He obtained
the following information from HL’s records:
 First annual general meeting (AGM) of HL was held on 31 August 2018, where
seven directors were also elected. Subsequent AGMs were held on 26 August 2019
and 21 August 2020 respectively.
 Since incorporation, HL announced final dividend of 10% in each year.
 During the year, there have been no changes in HL’s share capital, memorandum
of association or articles of association.
Required:
(i) Advise, with justification, the most efficient timelines for holding the meetings of
the board and the shareholders. (04)
(ii) Prepare a list covering statutory communications, submissions and filings
mandatorily required to be made before and after the respective meetings along
with time frame(s). (14)
(Ignore the requirements prescribed under Securities Act 2015, Central Depositories Act
1997 and Listed Companies (Code of Corporate Governance) Regulations, 2019)
(b) Assume that the date today is 5 November 2021.

HL’s AGM for the year ended 30 June 2021 was held on 28 September 2021 and
subsequently Abid submitted HL’s annual return with the registrar. Afterwards, Abid
received an objection letter from the registrar followed by refusal to accept filing of the
annual return.
Required:
Discuss possible ground(s) on which the filing request of annual return may be refused
by the registrar and advise recourse(s) available to Abid, if any, in this regard. (03)
Q.3 On 25 May 2021, the members of Rose Products Limited (RPL), a listed company, in its
annual general meeting approved the issue of specie dividend for every 1,000 shares of RPL
as follows:
 250 shares of Tulip Plastic Limited (TPL) - a listed company
 100 shares of Daisy Plastic Limited (DPL) - an unlisted company
The paid-up share capital and RPL’s shareholdings in each company are as follows:
Company Paid-up share capital of Rs. 10 each RPL’s holdings %

RPL Rs. 30,000,000 -
TPL Rs. 20,000,000 55%
DPL *Rs. 10,000,000 40%
*TPL also holds 25% shareholdings in DPL.
Shares of RPL and TPL are in book entry form only whereas DPL’s shares are in physical
form.
Required:
(a) Advise RPL regarding its responsibilities towards its members relating to distribution
of specie dividend. (04)
(b) State the consequence(s) if RPL fails to comply with its responsibilities after distribution
of specie dividend. (06)
(Ignore the provisions of Foreign Exchange Manual)
Q.4 (a) Robinia Limited (RL), a public unlisted company, is engaged in the business of
manufacturing consumer healthcare products. RL has been facing difficulties in
meeting its financial obligations and consequently, RL’s term finance certificate (TFC)
holders aggrieved by non-payment of last three installments including profit, have
threatened to apply to the Court.
List of RL’s shareholders and TFC holders as at 30 April 2021 is as follows:

Ordinary shares 15% TFC
Name (Rs. 10 each) (Rs. 50 each)
------ Number in '000 ------
Bluebell Limited (BL)* 345,000 -
Dandelion Limited (DL) 300,000 230,000
Ali Bakhsh Associates (ABA) 300,000 -
Ahsan Raza & Co. (AR) 250,000 -
Water Lily Limited 245,000 55,000
Oleander Limited (OL)* 200,000 -
Carnation Pharma Limited (CPL) 190,000 -
Floral Bank Limited (FBL) 74,000 -
Nemesia Travels Limited (NTL) 60,000 20,000
Areeba Saleem (AS) 15,000 -
Asad Nasir 10,000 -
Azad Mahmood 5,000 -
Aashir Khan 4,000 -
Ahmed Farhan 2,000 -
Iris Limited - 225,000
Aster Limited - 40,000
Sage Limited - 30,000
Total 2,000,000 600,000
*BL is an associated company of CPL whereas OL is a subsidiary company of CPL.
RL’s management intends to resolve the issue in order to avoid litigations. In this
regard, an application was submitted to the Commission. In response, the Commission
has ordered RL to hold a meeting with TFC holders. In compliance with the
Commission’s order, RL has sent the notice of meeting to all the TFC holders with the
proposal to pay 50% of the outstanding amount as final settlement.
Required:
Determine the quorum of the meeting and discuss the condition(s) to be met for settling
the outstanding amount as proposed by RL’s management. Also discuss the
information required to be provided to the concerned regulator(s) in this regard. (04)
(b) Assume that the dispute with the TFC holders mentioned in (a) above was settled on
2 May 2021 and there is no change in shareholding structure as mentioned above.
On 4 May 2021, CPL, a public unlisted company engaged in the manufacturing of

pharmaceutical products decided to acquire entire shareholdings of RL. On
14 May 2021, share transfer scheme was forwarded by CPL to RL’s shareholders
according to which RL’s shareholders will get one share of CPL against every two
shares of RL.
FBL and NTL out rightly refused to avail the scheme as both were of the opinion that
it is not fair value of their investment in RL while BL, DL, ABA, AR and AS had
already shared their assent with the scheme by 31 May 2021.
Required:
(i) Discuss whether the share transfer scheme offered by CPL can be implemented. (04)
(ii) Advise the course of action to be taken by CPL in order to settle the matter with
FBL and NTL. (04)
(Ignore the provisions of the Competition Act, 2010)
Q.5 Jasmine Limited (JL), a public unlisted company, in order to complete their mega investment
project in Sialkot wants to acquire a running production plant, operating on latest technology,
from Bella Associates (BA) who is willing to sell it for Rs. 350 million.
The details of JL’s authorised and paid-up share capitals carrying equal voting rights are as
follows:
Share Capital
Authorised Paid-up
--- Rs. in million ---
Ordinary shares of Class A of Rs. 10 each 500 480
Ordinary shares of Class B of Rs. 5 each 200 120
Redeemable cumulative preference shares of Rs. 20 each* 200 200
*Preference shares are due to be redeemed on 20 June 2021.
JL’s management intends to acquire the plant from BA as soon as possible for timely
completion of its mega project.
Required:
In the light of relevant corporate laws:
(a) identify the options available to JL for financing the plant through further issuance of
shares and under each option calculate the number of shares to be issued. (Assume that
new shares can only be issued at face value) (05)
(b) perform comparative analysis of the options identified in (a) above in terms of legal
requirements to be followed and advise the most time efficient option to JL. (10)
(Ignore the option of issuing shares through initial public offer and requirements of Foreign
Exchange Manual)
Q.6 Orchid Cars Limited (OCL) was incorporated on 10 July 2017 as public unlisted company,
with an authorized capital of 100 million ordinary shares of Rs. 10 each. Since inception
following shares are held by Aslam Najam and his family members:
No. of shares
Name of shareholders %
(in millions)
Aslam Najam 7.50 30.00
Ameen Aslam 2.50 10.00
Arif Aslam (Note) 7.50 30.00
Atif Aslam (Note) 7.40 29.60
Ali Arif 0.07 0.28
Alvi Atif 0.02 0.08
Arsalan Atif 0.01 0.04
25.00 100.00
Note: Arif Aslam and Atif Aslam are also successfully managing Tulip Limited (TL), a car
manufacturing company, as Chief Executive Officer and Chief Operating Officer respectively
for the last three years. TL is paying cash dividend regularly. OCL acquired 52% shares in TL
in June 2018.
OCL has recently changed its principle line of business from trading to manufacturing of cars
and has approved the plan to install new plant for manufacturing of cars. In line with decision
of the board, the management has selected the site for the plant and is considering to acquire
land on rental basis. They have also hired a Korean firm XanoTanino Engineers for
procurement and installation of the plant. The commercial production is expected to start in
December 2022.
In order to finance the above project, OCL:

 has a plan to make its initial public offering (IPO) of 30 million shares in the month of
July 2021.
 is negotiating a long-term loan of Rs. 200 million with Crocus Bank Limited (CBL).
OCL intends to allocate minimum number of shares to each of the following categories:
No. of shares
(in million)
Resident Pakistanis 15.0
Non-resident Pakistanis 9.0
Employees of OCL 3.0
Employees of TL 1.5
Financial institutions 1.5
30.0
Required:
In the light of provisions of the Public Offering Regulations, 2017 and the Pakistan Stock
Exchange Rule Book:
(a) discuss the conditions to be fulfilled by OCL prior to the announcement of IPO. (12)
(b) discuss the appropriateness of the intended allocation of shares offering through IPO. (04)
(Ignore the provisions related to Consultant to the Issue, Book Runner, Underwriter, Balloter, Share
Registrar, Banker to an Issue, Prospectus, Expert and Securities Broker)
Q.7 While reviewing the advances and deposits, the internal audit department of Daffodil Bank
Limited (DBL), listed on Pakistan Stock Exchange (PSX), have made the following
comments in its report:
Exposure
Name of borrower/ outstanding/
Comments of the internal audit department
account holder credit balance
as at 31 May 2021
Adil Textiles Rs. 65 million The amount is secured against:
Limited (ATL) fund based (i) pledge of 1.0 million shares of Dost
Pharma Limited, listed on PSX, having
market value of Rs. 40 per share.
(ii) pledge of 0.5 million shares of DBL having
market value of Rs. 35 per share.
(iii) mortgage of ATL’s plant and machinery
having fair value of Rs. 20 million
Observation: Security is inadequate.

Mr. Aamir Malik Rs. 0.2 million  10 May 2021: Rs. 20 million were
(AM) (a customer credit balance transferred from a foreign bank account.
with credit balance The amount was declared to be remitted by
in current account) AM’s friend.
 15 May 2021: The entire amount was
transferred to various account holders of
DBL.
 20 May 2021: All transferred amounts
were withdrawn in cash.
Observation: Transactions are unusual.
Required:
In the light of provisions of the Banking Companies Ordinance 1962, Prudential Regulations
for Corporate / Commercial Banking and Anti Money Laundering Act 2010, advise the board
of directors regarding:
(a) the validity of the comments made by the internal audit department. (04)
(b) DBL’s responsibility relating to (a) above. (04)
Q.8 Peony Insurance Limited (PIL) is listed on the Pakistan Stock Exchange. Following
information has been extracted from PIL’s records and board’s minutes:
(i) As on 31 December 2020, PIL had deposited securities worth Rs. 30 million with State
Bank of Pakistan (SBP) to fulfil minimum mandatory deposit requirement.
(ii) Presently, following unencumbered listed securities are available with PIL. Each
investment costed Rs. 1.0 million:
Market value as
Name of the security on 9 June 2021
Rs. in million
Investment Bonds issued by Johi-Electric Limited 1.1
Chambali Bonds issued by Federal Government 1.1
Term Finance Certificates issued by Mogra Foods Limited
(AAA Rated security) 1.2
Gulab Dam Bonds issued by Provincial Government 1.1
Nargis Airlines Corporation – Class A ordinary share capital 1.3
Debentures issued by Port Trust under the authority of
Federal Legislature 1.0
Securities issued under the act of parliament for Payara Ghar 1.0
Lotus Oil Limited – Ordinary shares 1.2
(iii) On 15 May 2021, in order to meet its growing financial needs, PIL had raised finance
through issuance of 5 million right shares of Rs. 10 each. PIL intends to use the above
investments for mandatory deposit with SBP.
(iv) PIL is negotiating a long term loan of Rs. 25 million from Bluebell Bank Limited (BBL)
against which PIL would have to give security of Rs. 28 million. PIL intends to use the
above deposit with SBP and remaining investments, if any, as collaterals for BBL’s
loan.
Required:
In the light of provisions of the Insurance Ordinance, 2000 and Prudential Regulations for
Corporate / Commercial Banking:
(a) discuss PIL’s intentions for complying with SBP’s mandatory deposit requirement after
the increase in its paid-up capital. (04)
(b) discuss PIL’s intention of using the above investments and deposit with SBP as
collateral against the loan. (04)
(THE END)
CORPORATE LAWS
Suggested Answer
A.1 Adil Saeed’s share transfer request(s) may be refused or delayed beyond prescribed
period in the following circumstances:
VL MLL SSL AWPL
(i) (ii) (iii) (iv)
(1) Where the Commission, in connection with an √ √ √ √
investigation has imposed a restriction on share
transfer.
In this case, share transfer may be delayed for a

period up to one year from the date of imposition
of such restriction.
(2) Where the Commission has reasonable grounds to √ √ √ √
believe that the transfer of shares is likely to result
in change of directors and the Commission is of
opinion that such change will be prejudicial to the
public interest.
In this case, share transfer may be delayed for a

period up to one year from the date of imposition
of such restriction.
(3) Where Adil Saeed has pledged any of his shares in √ √
the company.
In this case, such shares shall be blocked and

central depository system shall not allow transfer
of pledged shares until the pledge is removed by
the pledgee.
(4) Where shares of MLL’s promoters and directors √
were deposited with CDC in a blocked account at
the time of applying for NBFC license, and Adil
Saeed being MLL’s promoter and director, gave an
undertaking that he shall not enter into any
agreement for sale or transfer of his shares without
prior approval of the Commission.
In this case, Adil Saeed will have to obtain approval
of the Commission for transfer of his shares.
(5) Adil Saeed, being non-executive director in MLL, is √
required to hold qualification shares.
In this case, he will not be able to transfer his entire

shareholding and shall have to retain such number
of shares as fixed by MLL’s articles of association as
qualification shares until he resigns or ceases to
hold office of director
(6) Saeed Group, being sponsors of SSL, is required to √
retain entire shareholding for 12 months from the
last date for public subscription.
In this case, Adil Saeed cannot sell his shares till

August 2021, since SSL went public in September
2020.
Page 1 of 11
CORPORATE LAWS
Suggested Answer
VL MLL SSL AWPL

(i) (ii) (iii) (iv)
(7) Saeed Group, being sponsors of SSL, are required to √
retain 51% of the post issue paid-up capital till the
company reports net profit after tax for 2
consecutive financial years including profit from its
core business activities.
In this case, Adil Saeed cannot sell its entire

shareholding till announcement of profitable
results for two consecutive years. However, he can
sell now maximum of 6.15 million [i.e.10–
{(35×51%)–14}] of his shares.
(8) Adil Saeed, being sponsor of AWPL, is required to √
retain 25% of paid up capital for 3 financial years
from commencement of commercial production.
In this case, he cannot sell the shares in June 2021.
A.2 (a) Hibiscus Limited (HL)

(i) Most efficient timelines for holding meetings of the board and shareholders:
In order to be most efficient, HL should plan to hold Annual General Meeting
(AGM) on 31 August 2021 in which HL can also hold election of its directors
whose term of three years’ office will be expired on that date.
HL should hold its board meeting (or through circular resolution) to get
approval of agenda for AGM and fix the number of directors for the next term.
Since the fixation of directors should be done at least 35 days before the date
of elections, the board meeting should be held on or before 26 July 2021.
If HL could not hold its AGM on that date then it shall have to call an EOGM to
conduct the elections on 31 August 2021 and then will have to hold its AGM
separately for the purpose of adoption of annual financial statements and
other matters latest by 28 October 2021 (i.e. within 120 days of close of
financial year).
In this case, HL shall also have to hold separate board meetings for the
purpose of election as discussed above by 26 July 2021 and for AGM by 6
October 2021.
(ii) Communication(s) and filing(s) along with timeframe(s)
Before HL’s board meeting

 Send notification to Pakistan Stock Exchange (PSX) intimating the date,
time and place of board meeting one week in advance.
 HL shall determine a closed period and send notification of the same to
directors and PSX at the time of circulating agenda and working papers
for the board meeting.
After HL’s board meeting

 Send notice to the Commission and PSX about all the board decisions
Page 2 of 11
CORPORATE LAWS
Suggested Answer
relating to cash dividend and price-sensitive matters (financial results)

that may affect the market price of HL’s shares, immediately after board
meeting and prior to its release to any other person or media.
 Furnish copy of draft minutes of the board meeting to directors within
14 days.
Before the shareholders’ meeting

 Intimate to PSX the date and time of holding of AGM.
 Send notice of AGM along with proxy form and draft resolution in case
of special resolution (if any) to the members, directors, auditors,
Commission, PSX, and any person entitled to a share in consequence of
the death / bankruptcy of a member where HL has been notified of his
entitlement, 21 days before AGM. Also publish notice of AGM in
newspapers.
 Send audited financial statements along with auditors’/ directors’/
chairman’s review report in the manner stated above and post the same
on HL’s website. Further, send by post three copies and also an
electronic copy to PSX, Commission and registrar.
 Submit to PSX along with the annual audited accounts an annual free-
float certificate duly verified by the auditor.
 Send intimation of cash dividend to the Commission and PSX 14 days
prior to commencement of the book closure.
 Where HL decides to close its share transfer books for any purpose, HL
shall give a minimum of 7 days’ notice to PSX prior to closure of share
transfer books and publish the same in newspapers.
 In case of e-voting for election of directors (if number of persons
offering themselves to be elected is more than number of directors
fixed by HL’s board), send web address, login details, password, date of
casting e-vote and other necessary details through email / security
codes through SMS / electronic signature to members 7 days before
AGM.
 In case of voting through postal ballot for election of directors (if
number of persons offering themselves to be elected is more than
number of directors fixed by HL’s board), publish ballot paper and
detailed procedure for ballot papers submission in newspapers and on
its website 7 days before AGM.
 Transmit to PSX all notices as well as resolutions prior to their
publication and dispatch to the shareholders.
 Transmit the notices received from members seeking to contest
election to the office of director to all the members 7 days before AGM
and publish the same in newspapers.
Page 3 of 11
CORPORATE LAWS
Suggested Answer
After the shareholders’ meeting

 Publish result of poll relating to election of directors on the website
within 24 hours from conclusion of AGM.
 File prescribed particulars of directors and auditors with the registrar
in specified form within 15 days of AGM.
 Where special resolution has been passed in AGM, the same shall be
filed with registrar within 15 days of the meeting.
 File the consent in writing from proposed directors with the registrar
within 15 days of receipt of consent.
 Send intimation to PSX immediately as soon as all the dividends have
been credited in the respective bank accounts of the shareholders.
 File a copy of duly signed financial statements and reports with the
registrar within 30 days of AGM in which audited financial statements
were adopted.
 File annual return and statement of beneficial ownership in foreign
companies (if any) with registrar within 30 days from AGM.
 Furnish certified true copies of minutes of AGM to PSX within 60 days
of meeting.
 Transmit to PSX certified copies of all resolutions as soon as these have
been adopted and become effective.
(b) Possible grounds of registrars’ refusal to accept filing of HL’s annual return
Registrar can refuse to accept HL’s annual return if in his opinion:

(i) contained any matter contrary to law;
(ii) did not comply with the requirements of law;
(iii) was not complete owing to any defect, error or omission;
(iv) was insufficiently legible;
(v) was written upon a non-durable paper (in case of physical submission only);
(vi) was not properly authenticated.
Registrar in his objection letter may have required HL to file a revised document
due to any of the abovementioned grounds within the period specified in the letter.
Recourse available to Abid

The only recourse available to Abid on account of refusal is that he has to submit the
revised documents in the form acceptable to the registrar within such time, or such
extended time, as the registrar may specify in this behalf.
Page 4 of 11
CORPORATE LAWS
Suggested Answer
A.3 (a) Following are RPL’s responsibilities relating to distribution of specie dividend:
Dividend must be paid within such period and in such manner as may be specified.
1. In respect of TPL’s shares:

Advise Central Depository Company (CDC) to transfer TPL’s shares from its
account to the account-holders and sub-account holders.
2. In respect of DPL’s shares:

 Dispatch DPL’s share certificates along with duly executed transfer deed to
its shareholders (based on the list of the account holders and sub-account
holders obtained from CDC).
 Get DPL listed on the Pakistan Stock Exchange (PSX) within a period of one
hundred twenty days from the date of approval of specie dividend to its
shareholders i.e. by 21 September, 2021, since DPL is a subsidiary of RPL; as
RPL together with TPL has total shareholding of 65% in DPL i.e. (40 % +
25% = 65%).
(b) Consequences if RPL fails to comply with its responsibilities after distribution of specie
dividend:
1. In respect of TPL’s share, after distribution of specie dividend there is no

additional responsibility, hence the question of failure does not arise.
2. In respect of DPL’s share, if RPL fails to apply for listing of DPL’s shares or PSX
refused such listing on account of insufficient public interest, or for any other
reason whatsoever, RPL shall purchase the shares of DPL at the option of the
recipients at a price not less than the current breakup value or face value of DPL,
whichever is higher, within thirty days from the expiry of one hundred and twenty
days i.e. by 20 October 2021 or from the date of refusal of listing whichever is
earlier. Failure shall be considered as default and in consequence PSX may either
suspend the trading in the share of RPL or delist RPL. If RPL is delisted it may also
be wound up by the Court.
A.4 (a) Robinia Limited (RL)

Quorum:
Although the law has not specifically mentioned the requirement of quorum for the
meeting held for purpose of compromise called at Commission’s order, the Commission
may give necessary direction for the quorum.
Conditions:
Compromise needs to be approved by majority in number representing three-fourths in
value of the creditors. In case of RL, a minimum of four TFC holders representing at
least three-fourths in value (i.e. Rs. 22,500 million) need to be present in order to make
the meeting effective.
Although DL and IL hold Rs. 22,750 million combined which exceeds three-fourth in
value, the condition of majority of TFC holders is not met. Therefore, in order for the
proposed settlement to be binding on RL and TFC holders, the same needs to be agreed
by DL, IL along with any 2 more TFC holders.
Once the proposed settlement is approved by TFC holders in the manner mentioned
above, the same will need to be sanctioned by the Commission.
Information to be provided to the regulator(s):
Page 5 of 11
CORPORATE LAWS
Suggested Answer
 RL, through an affidavit or otherwise, need to disclose all material facts i.e. RL’s
financial position, auditor’s report on the latest accounts and pendency of any
investigation proceedings to the Commission.
 Copy of Commission’s order sanctioning the compromise duly certified by an
authorized officer of the Commission shall be forwarded to the registrar within 7
days from the date of the order.
(b) (i) The proposed share transfer scheme offered by CPL cannot be implemented
unless following requirements are met by 12 September 2021 i.e. within 120 days
from date of offer:
1. The scheme needs to be approved by atleast nine-tenth in value of the shares
of RL’s shareholders (other than CPL and OL) i.e. Rs. 14,490 million. Since the
shareholders holding shares worth Rs. 12,100 million have already shared
their assent to the scheme, CPL will only be able to implement the scheme if
Water Lily Limited (WLL) having shares of Rs. 2,450 million also agrees to
the scheme.
2. Since the shares already held by CPL and OL exceed one-tenths of the
aggregate of the value of shares in RL i.e. 390 million (200+190),
shareholders who approve the scheme besides holding nine-tenth in value of
the shares (other than CPL and OL), should not be less than three-fourth in
number of the holders of those shares i.e. nine. Since only five shareholders
have shown their intention to consent to the transfer scheme, CPL needs to
convince four additional shareholders (including WLL).
(ii) In order to settle the matter with FBL and NTL, CPL has to first get approval from
the shareholders in the manner discussed in (i) above and then give notice to FBL
and NTL not later than 11 November 2021 (i.e. within 60 days after the expiry of
120 days from date of offer) and be bound to acquire those share by issuing
67,000 shares [i.e. (74,000+60,000)/2)] if FBL and NTL do not proceed to file
application with the Commission.
On the expiration of 30 days from the date of notice, CPL shall send copy of the
notice to RL together with an instrument of transfer executed on behalf of RL’s
shareholder(s) by any person appointed by CPL on its own behalf and issue
67,000 shares of CPL to RL.
If FBL and NTL apply to the Commission, in such case the decision of the
Commission shall be followed by both the parties.
A.5 (a) Options available to Jasmine Limited (JL) for financing the plant through issuance of
shares:
JL may issue right shares or other than right shares for cash or consideration other
than cash in the following manner:
(1) Ordinary shares: 28 million of Class A and 14 million of Class B.
(2) Ordinary shares: 35 million of Class A only or 70 million of Class B only.
(3) Preference shares: 17.5 million; after redemption of existing preference
shares.
(4) Ordinary shares of class C with different rights at existing face value (i.e. 35
million shares of Rs. 10 each or 70 million shares of Rs. 5 each).
(5) Ordinary shares of class C with same rights at a face value other than existing
face value. (Assuming at Rs. 25 per share, JL will have to issue 14 million
shares).
Page 6 of 11
CORPORATE LAWS
Suggested Answer
(b) Requirements to be followed for further issuance of shares for financing the plant
For all options discussed in (a) above, JL will have to undertake the following steps
for issuance of shares:
 Hold board meeting to propose members to approve increase in authorized
capital.
 Get the authorized capital of JL increased / approved from general meeting
through special resolution and alter JL’s memorandum / articles of association.
 Hold board meeting for approval of issuance of further shares.
 Submit copy of special resolution along with altered memorandum / articles
with registrar within 15 days of general meeting.
 Send allotment letters to all members.
 After receipt of consideration, issue share certificates if in physical form
otherwise advise CDC to transfer shares to the account holders and sub-
account holders.
JL will be required to perform following additional procedures for issuance of:
Right shares
 Send the offer letter to members.
 Send copy of offer letter to the registrar.
However, in case of under subscription or non-subscription by existing members
the directors of JL may allot the shares at their own discretion within 30 days from
the close of the offer in such manner as they deem fit.
Shares other than right issue

 Get detailed board proposal approval for issuance of shares as required under
the Companies (Further Issue of Shares) Regulations, 2020.
 Get special resolution of members passed for issuance of shares.
 Obtain approval from the Commission.
 Obtain pre-consent of BA / potential investors to subscribe shares.
If the issuance of shares affects the substantive rights of class of members as per
option (2) discussed in (a) above, then approval of three-fourths of such affected
class of members shall have to be obtained.
Shares by creating a new class

 Get the rights and privileges of new class defined in the articles of association
and get the same approved through special resolution. The copy of altered
articles of association is to be filed with the registrar in 30 days.
In any of the above option, if the shares are to be issued for consideration other
than cash then JL will also be required to get the plant valuation carried out by a
valuer registered with the Commission.
Conclusion:
From the above analysis, the most efficient option available to JL is right issue in
existing class of ordinary shares.
Page 7 of 11
CORPORATE LAWS
Suggested Answer
A.6 (a) Since Orchid Cars Limited (OCL) decided to make public offer of its shares to install
new plant for manufacturing of cars, it will fall under the definition of “Green Field
Project” and related provisions will be applicable on it. Hence, following conditions are
to be fulfilled by OCL prior to the announcement of IPO:
(i) OCL has to obtain approval from the board of directors for IPO of its shares and
that it should be in accordance with the approved financial plan.
(ii) The post IPO equity of sponsors shall not be less than 51 % of the post issue
paid-up capital. However, the current equity of sponsors in line with the financial
plan is 45.45% [25/(25+30)%]. Hence, the sponsors shall either have to
increase their equity before IPO or make IPO below their existing holding of 25
million shares in order to meet the above requirement.
(iii) OCL have to do financial close i.e. OCL must finalize the long term loan of Rs. 200
million with CBC.
(iv) OCL must have sponsors who have successful business track record preferably
running a listed company, manufacturing/industrial units etc., considering
various parameters such as operational profitability, operating cash flows, EPS
and dividend payout etc. This condition is fulfilled as Arif Aslam and Atif Aslam
being sponsor are successfully managing the business of Tulip Limited for the
last three years, a subsidiary of OCL.
(v) OCL should have management team who has adequate experience and skills to
run the proposed project.
(vi) Engineering, Procurement and Construction contract shall be in place. For
procurement and installation OCL has hired Xano Tanino Engineers, a Korean
firm, hence this condition is fulfilled. OCL has to enter into a contract for the
construction of the factory, if not yet executed.
(vii) Land for the project, should be acquired by OCL and the same should be in its
own name. Hence, acquiring land on rental basis, does not fulfill the mandatory
requirement.
(viii) OCL shall have to file an application along with an undertaking in prescribed
form with PSX for listing of its shares.
(ix) OCL should finalize the arrangement of Centralized E-PO System for the general
public, OCL, if not yet entered.
(x) OCL shall have to ensure that its securities shall be issued in the book-entry form
only.
(xi) OCL shall also have to ensure that OCL itself and none of:
 its sponsors, promoters, substantial shareholders and directors have over
dues or defaults, irrespective of the amount, appearing in the report
obtained from the credit information bureau.
 its directors, sponsors or substantial shareholders have been holding the
office of the directors, or have been sponsors or substantial shareholders in
any of the following company:
 which had been declared defaulter by PSX or features exchange; or
 whose TRE certificate has been cancelled or forfeited by PSX; or
 which has been de-listed by PSX due to non-compliance of its
regulations.
(b) As per the provisions of PSX Rule Book, OCL’s intended allocation is not
appropriate as PSX Rule Book does not specify the minimum limit for allocation of
shares. Rather, it specifies the maximum limit of allocation in respect of non-
resident Pakistan at 20% and for its own employees at 5%. Hence the intended
allocation of 30% and 10% respectively is incorrect. As regards minimum
allocation to TL’s employees and to financial institutions, PSX Rule Book has not
authorized any such minimum allocation, however, they may participate in IPO
under general public quota. The allocation as per PSX Rule Book is as follows:
Page 8 of 11
CORPORATE LAWS
Suggested Answer
No. of shares
%
(in million)
Resident Pakistanis General Public 75 22.5
Non-resident Pakistanis 20 6.0
Employees of OCL 5 1.5
30.0
A.7 (a) Adil Textiles Limited (ATL):

In the light of the provisions of the Prudential Regulations for Corporate /
Commercial Banking, the security obtained by Daffodil Bank Limited (DBL) against
the loan is Rs. 60.25 million computed as follows:
Security
Market/fair value value
---------- Rs. in million ----------
DPL 1.0 million shares @ Rs 40 per share 40.00 28.00*
DBL 0.5 million shares @ Rs.35 per share 17.50 12.25*
Mortgage of ATL’s plant and machinery 20.00 20.00
60.25
*Minimum margin requirement i.e. 30%
However, in the light of the provisions of the Banking Companies Ordinance, 1962
DBL is not allowed to accept its own shares as security. Hence, by excluding DBL’s
shares, total security against ATL will be reduced to Rs. 48 million (60.25-12.25).
Based on above, it is concluded that the observation of the internal audit

department is valid as to inadequacy of security.
Aamir Malik (AM):

The observation of the internal audit department is valid as unusual transactions
made by AM give rise to suspicious that the funds may have been used for money
laundering in the light of provisions of Anti Money Laundering Act, 2010 (AML).
(b) DBL’s responsibilities in case of:

Adil Textiles Limited (ATL):
According to Prudential Regulations, DBL shall have adequate securities against all
its exposures. Therefore, DBL shall ask ATL to provide additional security of Rs. 17
million (65  48) at the earliest.
Aamir Malik (AM):

According to AML, DBL being a reporting entity shall conduct customer due
diligence (CDD) as there is suspicion of money laundering.
If DBL is unable to complete CDD requirements, it shall terminate the business
relationship with Aamir Malik and shall promptly consider filing a Suspicious
Transaction Report (STR) in relation to Aamir Malik.
If DBL forms a suspicion of money laundering and reasonably believes that
performing the CDD process will tip off Aamir Malik, DBL shall not pursue the CDD
process and shall file an STR with Financial Monitoring Unit (FMU).
Page 9 of 11
CORPORATE LAWS
Suggested Answer
DBL shall file currency transactions report (CTR) to the extent and in the manner
prescribed by the FMU immediately, but not later than seven working days, after
the currency transaction.
DBL shall keep and maintain all records related to STR and CTR filed by it for a
period of at least ten years.
A.8 (a) PIL’s intention of using its investments for mandatory deposit with State Bank of
Pakistan (SBP) need to be evaluated in accordance with the provisions of the
Insurance Ordinance, 2000 which specifies that:
 deposit should be increased by 10% of PIL’s increased paid-up capital i.e. by
Rs. 5 million [(5 million shares x Rs. 10 each) x 10%]
 such deposit may be made either in cash or in approved securities estimated at
the market value of the securities on the day of the deposit or partly in cash
and partly in approved securities so estimated
 such approved securities should be unencumbered
In the light of aforesaid conditions, PIL could use following approved securities
presently available with it for complying with SBP’s mandatory deposit
requirement:
Rs. in million
(i) Chambali Bonds issued by Federal Government 1.1
(ii) Gulab Dam Bonds issued by Provincial Government 1.1
(iii) Debentures issued by Port Trust under the authority of
1.0
Federal Legislature.
(iv) Securities issued under the act of parliament for Payara
1.0
Ghar
4.2
The above securities if deposited on 9 June 2021 with SBP will be equivalent to
Rs. 4.2 million or as determined by SBP. Hence for the balance amount, PIL may
either further purchase approved securities or may deposit equivalent amount in
cash.
(b) PIL’s intention of using its remaining investments as collateral against BBL’s loan is
permitted in accordance with the provisions of the Prudential Regulations for
Corporate/Commercial Banking (PR). The market value of the said four
investments as on 9 June 2021 is Rs. 4.8 million; however, after adjusting margin
requirement as specified in PR (unless higher margin is fixed by BBL) its value for
the purpose of collateral will be Rs. 3.59 million as follows:
Market value Margin Collateral value

Rs. in million % Rs. in million
(i) Investment Bond issued by Johi-
Electric Limited 1.1 20 0.88
(ii) Term Finance certificates issued by
Mogra Foods Limited (AAA Rated
security) 1.2 20 0.96
(iii) Nargis Airlines Corporation – Class A
ordinary share capital 1.3 30 0.91
(iv) Lotus Oil Limited – Ordinary shares 1.2 30 0.84
4.8 3.59
Page 10 of 11
CORPORATE LAWS
Suggested Answer
As regards PIL’s intention to use the securities worth Rs. 30 million, already
deposited with SBP as collateral for BBL’s loan, consideration should be given to the
provisions of the Insurance Ordinance, 2000 that specifically requires that such
deposit shall have to be unencumbered. Hence the said mandatory deposit along
with further deposit as discussed in (a) above could not be offered as collaterals for
BBL’s loan.
(The End)
Page 11 of 11
SUBJECT SESSION
Professional (CFAP) Examination
Summer 2021
Passing %
1 2 3 4 5 6 7 8
14% 11% 77% 29% 18% 60% 25% 7% 20%
General comments
The overall performance was slightly better as 20% examinees secured passing marks as
compared to 14% in the previous session. Below average performances were observed in
questions 1, 2, 5 and 8 which seems to be on account of selective studies, failure to address the
exact requirement of the question, inability to identify and cross-link the applicable laws.
Moreover, areas specifically required in the question to be ignored were answered by the
examinees and consequently many of them were not able to attempt the complete paper.
Question 1
 Covered those circumstances specifically required to be ignored as mentioned in the

requirement section of the question.
 Instead of analyzing the specific scenarios given for SSL and AWPL, gave generalized
answers by reproducing all the related provisions from the Public Offering Regulations, 2017
and did not evaluate the most relevant circumstances applicable in the given scenario.
 Very few examinees were able to identify that Adil Saeed will not be able to transfer shares if
the shares have been pledged until the pledge is removed by the pledgee.
Question 2(a)(i)
Examinees were not able to identify that since the term of directors was expiring and election of
directors was due to take place, it would have been efficient to cover the agenda item related to
election of directors and related to annual general meeting together on 31 August 2021.
Page 1 of 3
Question 2(a)(ii)
 Examinees did not address the statutory requirements prescribed under the Companies (Postal
Ballot) Regulations, 2018 about election of directors.
 Examinees did not mention most of the information/documents as required to be
communicated/submitted to Pakistan Stock Exchange Limited such as:
o communication of determined closed period with reference to board meeting;
o immediate disclosure of price sensitive information after conclusion of board meeting;
o furnishing certified true copies of minutes of AGM within 60 days;
o transmission of certified copies of resolutions after adoption by shareholders;
o submission of duly verified annual free float certificate along with audited financial
statements.
Question 2(b)
Examinees were not able to identify possible grounds on which the filing request of annual return
may be refused by the registrar as mentioned under section 464 of the Companies Act, 2017.
Question 3
Good performance was noted in this question.
Question 4(a)
Question 4(b)(i)
Examinees were not able to demonstrate that since CPL along with OL held more than one-tenth
of the aggregate of the value of shares in RL, shareholders who approved the scheme besides
holding nine-tenth in value of the shares (other than CPL and OL) should not be less than three-
fourth in number of the holders of those shares i.e. nine. As per the given scenario, only five
shareholders had shown their intention to consent to the transfer scheme so far and therefore CPL
needed to convince four additional shareholders (including WLL) to fulfill both requirements.
Question 4(b)(ii)
 Examinees were not able to identify the period within which CPL was required to give notice
to FBL and NTL (being dissenting shareholders) regarding its intention to acquire their shares
i.e. maximum by 11 November 2021.
 Examinees also failed to mention that on expiration of 30 days from the date of the notice,
CPL was required to send copy of the notice to RL, unless the dissenting shareholders filed an
application with the Commission.
Question 5(a)
Most of the answers were restricted to only one or two options. Issuance of bonus shares was
incorrectly mentioned. Possibility of raising funds from general public was also covered which
was specifically required to be ignored in requirement section of the question.
Page 2 of 3
Question 5(b)
 Most evident requirement of increasing JL’s authorized share capital was not covered while
analyzing the possible options.
 The possibility of issuing shares for consideration other than cash (i.e. the plant itself) was
ignored and consequently the related requirements were not analyzed.
 Some of the examinees reproduced even those requirements for issuance of right shares that
are applicable to listed companies as prescribed under the Companies (Further Issue of Shares)
Regulations, 2020 ignoring the fact that JL was a public unlisted company.
 Some of the examinees analyzed the conditions for issuance of shares under Employee Stock
Option Scheme without considering the fact that JL needed to acquire the plant immediately
for timely completion of its project.
Question 6
Question 7(a)
Examinees failed to identify that the security held against ATL’s exposure was inadequate mainly
due to the following:
 DBL’s own shares were not allowed to be accepted as valid security;
 Minimum margin of 30% was required to be maintained against shares of DPL due to which
the security value reduced to Rs. 28 million as against the market value of Rs. 40 million.
Question 7(b)
With reference to the internal audit observation related to Amir Malik, examinees did not identify
the responsibilities of DBL related to customer due diligence, reporting and record maintenance as
prescribed under the Anti Money Laundering Act, 2010.
Question 8(a)
Examinees were not able to identify that only approved securities as defined in Insurance
Ordinance, 2000 could be placed with the State Bank of Pakistan (SBP) to comply with the
increase in mandatory deposit requirement.
Question 8(b)
Examinees failed to mention that securities deposited with SBP shall have to be unencumbered;
hence, these securities cannot be used as collateral against the loan. Moreover, examinees failed to
apply the margin requirements while determining the collateral value of securities to be placed
with BBL against the long-term loan.
(THE END)
Page 3 of 3
CORPORATE LAWS

Mark(s)
A.1 01 mark for identifying each circumstance 8.0
0.25 mark for determining the time period of share transfer restriction
applicable in each of the identified circumstances 2.0
A.2 (a) (i) Advising most efficient date for holding board meeting with
justification 1.5
Advising most efficient date for holding shareholders’ meeting with
justification 2.5
(ii) Up to 01 mark for identifying each regulatory requirement to be complied

with by HL:
before and after holding of board meeting 2.5
before and after holding meeting of shareholders 11.5
(b) 0.5 mark for identifying each possible ground of refusal 2.5
Advising recourse available to Abid 0.5
A.3 (a) Advising responsibilities of RPL in respect of issuing TPL’s shares 1.0
Establishing that before specie dividend distribution DPL was RPL’s
subsidiary 1.0
Advising responsibilities of RPL in respect of issuing DPL’s shares 2.0
(b) Identifying that RPL has no further responsibility in respect of TPL 0.5
Stating the consequences resulting from failure to get DPL listed on PSX
after distribution of DPL’s shares as specie dividend 5.5
A.4 (a) Identifying the quorum of the meeting 1.0

Discussing the conditions to be met for implementation of RL’s proposal 1.5
Stating the information required to be submitted to the regulators 1.5
(b) (i) Identifying the conditions required to be met for implementation of

scheme 2.0
Determining whether identified conditions are met in given scenario 2.0
(ii) Advising the course of action to be followed by CPL in order to settle

the matter with FBL and NTL 3.0
Identifying CPL’s obligation to follow the Commission’s direction if
dissenting shareholders file application with the Commission 1.0
A.5 (a) 0.5 mark for identification of each option for further issuance of shares 2.5
0.5 mark for calculating number of shares under each identified option 2.5
Page 1 of 2
CORPORATE LAWS
Mark(s)
(b) Identifying regulatory requirements to be fulfilled in respect of:
− increasing JL’s authorised capital 2.5
− making right issue of shares 3.5
− issuing shares other than right for cash/consideration other than cash 3.5
Advising the most time efficient option to JL 0.5
A.6 (a) Establishing that OCL falls under the definition of green field project 1.0
Up to 01 mark for discussing each condition required to be fulfilled prior
to the announcement of IPO 11.0
(b) Discussing the appropriateness of intended share allocation by OCL in each of

the following categories:
Resident Pakistanis 1.0
Non-resident Pakistanis 1.0
Employees of OCL 1.0
Employees of TL 0.5
Financial institutions 0.5
A.7 (a) Determining validity of each observation notified by the internal audit
department:
in respect of ATL’s exposure:
− identifying that shares of DBL are not allowed as security 1.0
− determining security value for shares of DPL 1.0
− considering mortgage of ATL’s plant and machinery as valid security 1.0
in respect of unusual transactions in AM’s current account 1.0
(b) Identifying responsibilities of DBL in respect of:

inadequacy of available security against loan disbursed to ATL 1.0
unusual transactions carried out in the current account of AM 3.0
A.8 (a) Evaluating permissibility of PIL’s intentions under the provisions of Insurance
Ordinance, 2000:
calculating additional deposit required due to increase in paid-up capital 1.0
identifying approved securities in given scenario 2.0
identifying that approved securities are not enough to meet deposit
requirement 1.0
(b) Identifying securities which can be offered to BBL against loan and
calculating their collateral value after adjusting margin requirement 3.0
Evaluating permissibility of PIL’s intentions to use deposit with SBP as
collaterals for BBL’s loan under the provisions of Insurance Ordinance,
2000 1.0
(THE END)
Page 2 of 2

Corporate Laws
Q.1 Green Chemicals Limited (GCL) has issued and paid-up capital of Rs. 50 million comprising
of 4 million class A ordinary shares of Rs. 10 each and 1 million class B ordinary shares of
Rs. 10 each. Each share of class A and class B has one and four voting rights respectively.
Nehal Hyder (NH) and his family have been actively involved in the trading of shares
including GCL’s shares, on Pakistan Stock Exchange (PSX). Their investments in
GCL’s shares as on 30 June 2021 are as follows:
Purchase price
Shareholders Purchase date No. of shares
per share (Rs.)
Class A shares
NH 4 Nov 2020 225,000 80
Salman - NH’s son aged 15 years 24 Nov 2020 25,000 81
Rabia - NH’s wife 1 Feb 2021 50,000 84
Erum - NH’s daughter aged 19 years 18 Feb 2021 40,000 86
Class B shares
NH 19 Dec 2020 90,000 190
Moreover, NH also holds 8% ordinary shares of Azure Oils Limited (AOL), a listed company
and 25% ordinary shares of Navy Chemicals (Private) Limited (NCPL).
AOL and NCPL hold 200,000 and 400,000 class A ordinary shares of GCL that were
purchased on 2 April 2021 and 28 April 2021 at Rs. 84 per share and Rs. 88 per share
respectively.
Since 1 July 2021, details of NH’s transactions made in GCL’s shares are as follows:
Date of Class of No. of shares Purchase / sale price

S. No.
transaction shares purchased / (sold) per share (Rs.)
1. 1 Jul 2021 A 110,000 95
2. 30 Aug 2021 A (250,000) 120
3. 30 Sep 2021 B 70,000 225
4. 20 Oct 2021 A (20,000) 70
Required:
In the light of the provisions of the Securities Act, 2015, discuss the responsibilities of
Nehal Hyder after each transaction made in the shares of GCL since 1 July 2021. (18)
Q.2 Golden Apparels Limited (GAL) was incorporated as a public unlisted company on
15 July 2016, with paid-up capital of 15 million ordinary shares of Rs. 10 each. Since
incorporation, all the shares of GAL are held by Adnan Shahid and his four brothers who are
also GAL’s directors and actively involved in the business.
In a recent meeting of the board of directors, Noman Shahid, one of the brothers who is CEO,
has proposed the following to the board:
(i) Expand GAL’s operations by introducing the company’s products in European

countries. To cater the demand of the new segment of the business, he believes to
expand the production capacity to three times of the existing capacity.
(ii) In order to finance the new production capacity, raise the funds using the following
sources:
 Issue 1.5 million shares through private placement at a premium of
Rs. 175 per share by 22 December 2021.
 Issue 1.0 million shares through PSX at a premium of Rs. 195 per share. The
proposed date of commencement of public subscription is 15 April 2022.
(iii) Suggest to give him additional charge for looking after the overseas operations so that
he can aggressively work on introducing GAL’s products in European market and the
remaining brothers would continue to work on their existing positions.
(iv) Suggest to allocate 35% of shares issued through PSX to persons resident outside
Pakistan including foreign entities who are interested in GAL’s products.
After deliberation, GAL’s board has agreed in principle with all the proposals. The board has
asked you to evaluate the above proposals in the light of requirements of corporate laws.
Required:
Advise GAL’s board regarding the shortcomings and necessary changes to be made in the
proposals. (15)
(Ignore the provisions of the Companies Act, 2017)
Q.3 Peach Bank Limited (PBL) is a public unlisted company having 900 million shares of
Rs. 20 each. The Federal Government through Ministry of Finance owns 500 million shares
of PBL.
Subsequent to election of PBL’s board of directors held on 30 November 2021, one of the
independent directors, Zubair Saleem, having rich experience in the banking sector was
appointed as chairman on 6 December 2021. In his initial speech to the board, Zubair Saleem
thanked the board members and expressed that as PBL’s chairman, he will attend and chair
all board meetings and general meetings to be held during his tenure.
Zubair Saleem wants to make himself fully aware of his responsibilities in order to serve as
PBL’s chairman.
Required:
Under the applicable corporate laws, prepare a checklist listing statutory duties and
responsibilities of Zubair Saleem, as PBL’s chairman. (07)
Note:  Duties and responsibilities of Zubair Saleem as PBL’s director is not required.
 Ignore the provisions of the Companies Act, 2017.
Q.4 The external audit team of Beige Bank Limited (BBL) has submitted observations on non-
performing loans to the bank’s management which are summarized as under:
(i) Antique White Limited (AWL)

On 1 July 2017, Rs. 40 million was sanctioned to AWL for five years, repayable in
equal quarterly instalments. The principal amount outstanding as on
30 September 2021 was Rs. 20 million.
The said facility is secured against charge on plant and machinery having fair value of
Rs. 20 million and pledge of 2 million shares of Indigo Limited, listed on PSX, having
market value of Rs. 11 per share on 30 September 2021.
External audit team’s observation:

 AWL has not made any payment of principal and mark-up since January 2020.
 A provision of Rs. 2 million has been made against AWL’s facility as on
30 September 2021. However, on the basis of time based criteria, 100% provision
is required.
(ii) Fuchsia Limited (FL)

On 1 January 2019, Rs. 80 million was sanctioned to FL for four years, repayable in
equal bi-annual instalments. The principal amount outstanding as of
30 September 2021 was Rs. 50 million.
The said facility is secured against mortgage over factory building having fair value of
Rs. 25 million and charge on plant and machinery having fair value of Rs. 50 million.

 FL has not made any payment of principal and mark-up since July 2020.
 A provision of Rs. 12 million has been made against FL’s facility as on
is required.
(iii) Khaki (Private) Limited (KPL)

On 1 July 2020, Rs. 36 million was sanctioned to KPL for three years, repayable in
equal monthly instalments. The principal amount outstanding as of 30 September 2021
was Rs. 29 million.
The said facility is secured against charge on plant and machinery having fair value of
Rs. 25 million and pledge of stock-in-trade having fair value of Rs. 15 million.

 KPL has not made any payment of principal and mark-up since February 2021.
 A provision of Rs. 3 million has been made against KPL’s facility as on
is required.
Required:
In the light of the Prudential Regulations for Corporate / Commercial Banking, advise BBL’s
management about adequacy of provisions made against each of the above parties as on
30 September 2021. (09)
Q.5 (a) The shareholders’ equity as shown in the financial statements of Indigo Fabrics Limited
(IFL), a public unlisted company, as on 30 September 2021 is as follows:
Rs. in million
Paid-up ordinary share capital of Rs. 10 each 500,000
Accumulated loss (350,000)
Total shareholders’ equity 150,000
IFL has been incurring net losses for the last five years. Moreover, since the outbreak
of the COVID-19 pandemic in March 2020, IFL’s sales has significantly declined.
Considering this situation, Fahad Karim, IFL’s CEO, initiated a discussion in the
board meeting to consider winding up of IFL. He informed the board that Green
Fabrics Limited has shown its interest in purchasing IFL’s plant and equipment. He
also proposed that Ahmed Amin, IFL’s CFO, can be appointed as a liquidator and
since he is well conversant with IFL’s affairs, he would be able to wind up the
operations efficiently.
Required:
Under the provisions of the Companies Act, 2017, advise the steps to be taken by IFL
before commencement of winding up if both proposals of Fahad Karim are agreed by
the board. (08)
(b) Assume that Ahmed Amin has been appointed as liquidator and the date today is
31 March 2022.
On 31 March 2022, Ahmed Amin has determined that Rs. 3,500 million can be
collected by disposing of IFL’s remaining assets whereas IFL’s outstanding liabilities
on that date are Rs. 4,000 million.
Required:
Under the provisions of the Companies Act, 2017, explain the responsibilities of
Ahmed Amin in the given situation. Also identify the effect(s) of his determination on
IFL’s stakeholders. (07)
Q.6 Crimson Investments Limited (CIL) is a public unlisted company having NBFC licence to
provide asset management services. CIL manages various collective investment schemes. It
has paid-up share capital of Rs. 600 million comprising 60 million shares of Rs. 10 each.
On 30 June 2019, Zahid Abbas and Shahid Malik were elected as directors by securing
40 million and 30 million votes respectively whereas the remaining seven directors were
elected each by securing 50 million votes. After election, Zahid Abbas was appointed as CEO.
On 31 August 2019, Zahid Abbas resigned from the board and Benjamin Brady, a foreign
national, was appointed as CEO and director in his place. As Benjamin had to relocate to
Pakistan for his role as CEO, CIL’s board agreed to insert a clause in his appointment letter
prohibiting his termination before expiry of the contract term.
On 4 December 2021, Shahid Malik resigned from the board due to serious illness and his
position is still vacant.
Benjamin has not been able to achieve the performance benchmarks and CIL reported net
losses for two consecutive years. Further, there is news circulating in the market that he has
grossly misused his position by sharing price sensitive information with unauthorised persons.
Required:
Discuss how Benjamin Brady may immediately be removed from CIL. (06)
Q.7 Bronze Cement Limited (BCL) is a listed company engaged in the manufacturing and
marketing of cement. BCL has issued 80 million ordinary shares of Rs. 15 each.
Shareholdings details and board composition of BCL as at 30 September 2021 are as follows:
Shareholding details:
Shareholders Rs. in '000
Teal Bank Limited (TBL) 300,000
Peach Limited (PL) 250,500
Olive (SMC-Private) Limited (OL) 235,000
Magenta Associates 113,000
Ruby & Co. 95,000
Coral & Sons 70,500
Grey Textiles Limited 50,500
Individuals 85,500
Total 1,200,000
Board composition:
Non-executive directors Executive directors Independent directors
Fahad Noor Tariq Ali Aurangzeb Khan
Safdar Kamran Saad Naeem Saima Arif
Rahim Zain Ahmed Sultan
Arham Ghafoor
Information related to each member of BCL’s board is as follows:

(i) Fahad Noor, a financial expert, represents TBL which is owned by the Government of
Sindh.
(ii) Safdar Kamran is a director since December 2020, nominated by White Bank Limited
which has provided a loan of Rs. 500 million to BCL for enhancing the production
facilities. The loan is to be re-paid on 30 June 2022.
(iii) Rahim Zain, finance director at PL, represents PL.
(iv) Arham Ghafoor has been elected on the board with the support of some individual
shareholders. He ensures that their interests remain protected.
(v) Tariq Ali has been appointed as CEO on 10 January 2019 by the directors from
amongst themselves. Saad Naeem is the head of operations at BCL.
(vi) Aurangzeb Khan, a renowned lawyer, has been appointed as director on 30 November
2019, due to demise of Zahid Shah who was elected unopposed on 31 December 2018.
(vii) Saima Arif and Ahmed Sultan are technology and cement production experts. They
have been elected members of the BCL’s board since December 2012 and
December 2015 respectively.
Next election shall be held in the extraordinary general meeting scheduled to be held on
30 December 2021. Number of directors fixed for the next election is the same as was elected
in the previous election. BCL has no plan to change the composition of the board.
All directors intend to continue to serve on BCL’s board.
Required:
(a) Discuss the course of actions required to be taken by each of BCL’s directors to contest
upcoming election. (05)
(b) Calculate the number of votes available to TBL, PL and OL in respect of upcoming
election of directors. (04)
Assume that the date today is 31 January 2022.
Sikandar Niaz, a non-resident Pakistani and business tycoon, has been appointed as
non-executive director of BCL to fill a casual vacancy.
(c) Advise Sikandar Niaz regarding information to be submitted to BCL within 30 days of
becoming the director. (05)
Q.8 Following are the extracts from the latest statement of financial position of Scarlet
Investments Limited (SIL), an unlisted non-deposit taking NBFC:
Rs. in Rs. in
Equity and liabilities Assets
million million
Ordinary shares (Rs. 10 each) 900 Property and equipment 830
Preference shares class A (Rs. 10 each) 150 Intangible assets 80
Preference shares class B (Rs. 20 each) 500 Investments at cost:
General reserves 280 Mauve Steel Limited 120
Share premium 550 Umber Limited 350
Unappropriated profit 700 Cash and bank 950
Current liabilities 200
All shares issued by SIL carry equal voting rights. Preference shares of class A are
irredeemable whereas each preference share of class B shall be converted into two ordinary
shares on 31 July 2022.
Following proposals are under discussion in SIL’s investment committee:

(i) Sell entire shareholdings in Umber Limited (UL):
SIL purchased shares of UL in September 2019 from PSX with intention to hold them
till June 2030. However, since acquisition, UL’s performance has significantly
deteriorated and therefore, SIL should consider selling entire shareholdings in UL.
(ii) Purchase 10 million shares in each of the following companies:
Paid-up Other Face Market

Name of companies capital reserves value value
--- Rs. in million --- --- Rs. per share ---
Unlisted companies:
Mauve Steel Limited (MSL) 1,200 30 20 -
Jade Textile Limited (JTL) 3,820 50 15 -
Listed companies:
Neon Fertilizer Limited 4,200 650 10 25
Scarlet Bank Limited (SBL) (Note) 6,000 2,000 15 30
Note: SBL holds 80 million ordinary shares in SIL and 60 million shares in JTL.
Required:
(a) Advise the steps to be taken to divest shares held in UL. (03)
(b) Determine feasibility of investment in each of the proposed companies and summarize
requisite conditions to be fulfilled before making the purchase. (Assume that shares of
MSL and JTL may be purchased at face value) (13)
(The End)
CORPORATE LAWS
Suggested Answers
A.1 Transaction wise responsibilities of Nehal Hyder (NH), after each transaction made in the
shares of GCL since 1 July 2021 are as under:
Transaction dated 1 July 2021

On purchase of 110,000 class A ordinary shares, NH’s interest in GCL’s shares increased to
more than ten percent i.e. 10.5% (W-1) of its issued share capital, by virtue of which he
became a substantial shareholder.
On acquiring 10% or more shares in GCL, NH had to fulfill the following responsibilities
under the Securities Act, 2015:
1. As a substantial shareholder, NH had to give a notice in writing to GCL before the
expiration of seven days i.e. by 7 July 2021 regarding following matters:
(i) his beneficial ownership in GCL.
(ii) the amount and description of the securities of GCL.
(iii) date of acquisition of beneficial ownership.
(iv) any change in beneficial ownership along with the number, amount and
description of securities involved.
(v) any gain made on sale / purchase of GCL’s securities.
2. After becoming a substantial shareholder, NH had to submit to the Commission
before the expiration of seven days i.e. by 7 July 2021 in the prescribed form, a
statement of beneficial ownership, the particulars of any change in the interest and
any change in his position.
3. The provisions of insider trading also became applicable on him; hence he should not
indulge in insider trading with reference to GCL’s shares.
W-1: NH’s shareholdings % in GCL

Shares held as on 30 June 2021
Class A shares 225,000
Class B shares 90,000
Through NCPL (400,000×25%) 100,000
Through AOL -
Through Salman - NH’s son aged 15 years -
Through Rabia - NH’s wife -
Through Erum - NH’s daughter aged 19 years -
415,000
Further purchased class A shares on 1 July 2021 110,000
Total number of shares 525,000
% of holding in GCL (525,000/5,000,000) 10.5%
Transaction dated 30 August 2021

NH sold 250,000 class A ordinary shares out of which 110,000 shares were purchased
within 6 months and had made a gain. Accordingly, NH had to make a report to the
Commission in the prescribed form before the expiration of a period of seven days
beginning with the day on which the gain accrued. All such gain had to be tendered to the
Commission within six months of the accrual of gain for onward credit to the Federal
Consolidated Fund. The tendered amount could be Rs. 2,750,000 [110,000 × Rs. 25 (120 –
95)]. However, gain on remaining 140,000 class A ordinary shares had not to be tendered
as these were purchased before six months period.
Page 1 of 11
CORPORATE LAWS
Suggested Answers
Further, NH had to give notice to GCL as stated in 1(iv) and 1(v) with reference to
transaction dated 1 July 2021.
However, after sale of above GCL’s class A ordinary shares, NH ceased to be a substantial
shareholder of GCL as his shareholding had reduced below 10%.
Transaction dated 30 September 2021

On purchase of 70,000 class B ordinary shares, although NH’s interest in GCL’s shares was
less than ten percent of its issued share capital, his voting rights in GCL (i.e. 10.3%) (W-2)
enabled him to exercise significant control at its general meeting.
Accordingly, in addition to the responsibilities stated with reference to transaction dated

1 July 2021, the provisions of takeover also became applicable on NH, hence he had to
disclose the aggregate of his shareholding in GCL to GCL, PSX and the Commission
within two working days from the date of acquisition i.e. by 4 October 2021.
W-2: NH’s voting right % in GCL

Shares held as on 30 August 2021
Class A shares (85,000 × 1) [225,000+110,000–250,000] 85,000
Class B shares (90,000 × 4) 360,000
Through NCPL (400,000 × 25%) 100,000
Through AOL -
Through Salman - NH’s son aged 15 years -
Through Rabia - NH’s wife -
Through Erum - NH’s daughter aged 19 years -
545,000
Further purchased class B shares on 30 Sep 2021 (70,000 × 4) 280,000
Total voting rights 825,000
% of voting right in GCL (825,000/8,000,000) [(4,000,000×1)+(1,000,000×4)] 10.3%

Transaction dated 20 October 2021
NH sold 20,000 class A ordinary shares that were purchased before six months period.
Since he was a substantial shareholder, he had to give notice to GCL and to the
Commission within prescribed time period.
Page 2 of 11
CORPORATE LAWS
Suggested Answers
A.2 The proposals submitted by Noman Shahid for raising funds have shortcomings that need
to be addressed in the light of the provisions of relevant corporate laws. Following changes
are mandatorily required to be considered in the said proposals:
(1) Minimum capital requirement:

The proposed post issued capital of GAL would be 17.5 million shares (15+1.5+1.0)
whereas PSX Rule Book requires minimum Rs. 200 million ‘post issued paid up
capital’ (PIPC). In order to meet the minimum limit, GAL’s PIPC should be atleast
20 million shares.
The proposal for issuance of one million shares through IPO is also not in
accordance with PSX Rule Book both in terms of total quantum of PIPC as well as
the percentage of allocation to the general public. PSX Rules require that at least 10%
of minimum PIPC i.e. 2 million shares shall be allocated to the general public .
Hence, GAL shall have to issue further 2.5 million shares (20 – 17.5) to meet the
requirement of PIPC out of which minimum of 1 million shares should be issued to
general public. Since as per PSX Rule Book GAL has to enhance the quantum of
public shareholding to 25% within next three years of its listing, it may consider
issuing 3.5 million shares (2.5+1.0) through IPO .
(2) Limit on charging premium:

It is proposed to issue shares at a premium of Rs. 175 and Rs. 195 per share through
private placement and IPO respectively within a period of less than six months,
which is against the provisions of Public Offering Regulations, 2017 that requires that
shares to the general public shall not be issued at price higher than the price at which
the shares were issued to investors during six months prior to the date of public
subscription. Hence, GAL has to either increase the amount of premium to Rs. 195
per share on private placement or reduce the IPO premium to Rs. 175 per share.
(3) Requirement with reference to Board

The proposal that all brothers would continue to work on their existing positions
with additional charge to CEO needs to be considered in the light of the
requirements of Listed Companies (Code of Corporate Governance) Regulations,
2019 (CCG):
 Limit on number of executive directors:

By virtue of CCG, they (all brothers) will fall under the definition of executive
directors whereas CCG requires that executive directors should not be more
than one third of the board. Hence, if GAL opts to have minimum number of
directors on their board i.e. seven then it could have maximum two executive
directors or three executive directors with necessary explanation in the statement
of compliance for rounding up of one third of seven directors. Alternatively,
GAL’s board shall have to fix higher number of directors to meet the said
requirement.
 Composition of board:
CCG also requires that the board shall comprise of at least two or one third of
the board, whichever is higher, as independent directors and at least one female
director.
(4) Limit on allocation of shares to persons resident outside Pakistan and foreign
entities:
It is proposed to allocate 35% of IPO to persons resident outside Pakistan including
foreign entities that is against the provisions of PSX Rule Book. As per PSX Rule
Book, GAL may allocate up to 20% of IPO only to overseas Pakistanis.
Page 3 of 11
CORPORATE LAWS
Suggested Answers
However, GAL may, with prior approval of the Commission and subject to
compliance of Foreign Exchange Manual, issue shares to persons resident outside
Pakistan including foreign entities.
A.3 Peach Bank Limited (PBL)

Since Federal Government holds 500 million shares in PBL which constitutes 55.56% (500
million shares ÷ 900 million shares) voting power, it is a public sector bank.
Following is the checklist listing statutory duties and responsibilities of Zubair Saleem as
PBL’s chairman:
S. no. Description Status
Public Sector Companies (Corporate Governance) Rules, 2013

(i) Lead PBL’s board and ensure its effective functioning and continuous
development
(ii) Ensure that PBL’s board is properly working
(iii) Fix agenda for PBL’s board meetings and ensure that all matters relevant
to PBL’s governance are placed on the agenda of board meetings
(iv) Conduct PBL’s board meetings
(v) Ensure that all the directors are enabled and encouraged to fully
participate in the deliberations and decisions of the board
(vi) Sign minutes of board meeting and ensure that they are appropriately
recorded
(vii) Ensure that he does not get involved in day to day operations of PBL
Banking Companies Ordinance, 1962

(i) Furnish to State Bank of Pakistan (SBP) through PBL’s returns full
particulars of the extent and value of his holding of shares
directly/indirectly held in PBL, and of any change in the extent of such
holding or any variation in the rights attaching thereto and such other
information relating to those shares as the SBP may, by order, require in
prescribed form
(ii) Make a declaration of fidelity and secrecy in prescribed form before
entering upon chairman’s office
Companies (Postal Ballot) Regulations, 2018*

Where a poll is taken in PBL’s general meeting, Zubair Saleem shall have to:
(i) record time and date of receipt of ballot papers
(ii) keep ballot papers in safe custody
(iii) ensure confidentiality of the polling result till formal announcement
made after the conclusion of the voting in the meeting
(iv) take final decision regarding validity of votes (if any dispute arises)
(v) immediately after the conclusion of poll, count votes cast during time of
poll in person, through proxy, video-link and post; unblock e-voting
result in presence of representative of members demanding poll
(vi) announce result of poll in the meeting
(vii) send execution poll report on specified format to PBL
*Since Zubair Saleem intends to chair all general meetings of PBL as well, therefore he will have such
duties and responsibilities as those assigned to chairman of general meeting as listed in the Companies
(Postal Ballot) Regulations, 2018.
Page 4 of 11
CORPORATE LAWS
Suggested Answers
A.4 While making the provision BBL may take the benefit of forced sales value (FSV) of
collateral / securities held by it. Different rate is allowed for different years for FSV that
need to be calculated from the date of classification of the said loan. Accordingly, BBL shall
have to make provision as on 30 September 2021 as follows:
(Excess) /
Security FSV Provision
short
Customer’s name and security held Rate value amount required
provision
-------------- Rs. in million --------------
(i) Antique White Limited (AWT)
As mentioned, 100% provision is required
on outstanding amount of loan on the basis
of time based criteria 20.0
Less: FSV of Plant & machinery - Charge 20%a 20 4.0

Less: Shares of Indigo Ltd - Pledge (2m×Rs. 11)
(exclusive of margin) 70%b 22 15.4
19.4 19.4
Provision required as on 30 September 2021 0.6
Provision available as on 30 September 2021 2.0
Excess provision made (1.4)
a
2 year rate is applicable
nd
b
Minimum 30% margin required
(ii) Fuchsia Limited (FL)
As mentioned, 100% provision is required
on outstanding amount of loan on the basis
of time based criteria 50.0
Less: FSV of securities:
Factory building - Mortgage 60%c 25 15.0
Plant & machinery - Charge 20%d 50 10.0
25.0 25.0
Provision required as on 30 September 2021 25.0
Provision available as on 30 September 2021 12.0
Further provision is required 13.0
c
2 year rate is applicable
nd
d
2nd year rate is applicable
(iii) Khaki (Private) Limited (KPL)
Outstanding amount of loan 29.0
Less: FSV of securities:
Plant & machinery - Charge 30%e 25 7.5
Stock in trade - Pledge 40%f 15 6.0
13.5 13.5
Net exposure 15.5
As mentioned, 50% provision is required to
be applied on net exposure
(Rs. 15.5 million × 50%) 7.75
Provision available as 30 September 2021 3.0
Further provision is required 4.75
e
1st year rate is applicable
f
40% rate is applicable upto 3rd year
Page 5 of 11
CORPORATE LAWS
Suggested Answers
A.5 (a) If Fahad Karim’s proposals are agreed by the board, it implies that the process of
members’ voluntary winding up needs to be initiated. Therefore, before
commencement of winding up, following steps need to be taken by Indigo Fabrics
Limited (IFL):
(i) The directors being agent of the company will have to make full inquiry into
the affairs of IFL, if IFL has more than three directors, then, majority of its
directors (including Fahad Karim being CEO), otherwise all directors opine
that it will be able to pay all its debts in full from the proceeds of assets within
maximum period of one year from the commencement of the winding up (or a
shorter period may be specified in the declaration).
(ii) Such number of directors as specified in (i) above, in board meeting held
within five weeks immediately preceding the date of the passing of the
resolution for winding up IFL, shall have to make a declaration of solvency
duly verified by an affidavit with respect to the matters specified above
wherein they will also have to agree and declare that IFL is not being wound
up to defraud any person. Such declaration of solvency shall be delivered to
the registrar for registration.
(iii) Declaration of solvency has to be accompanied with a copy of IFL’s auditors’

report, prepared in accordance with the provisions of Companies Act, 2017
on the statement of financial position and profit or loss account from the date
up to which the last such accounts were prepared till the latest practicable date
immediately before the making of the declaration.
(iv) Subsequent to the above, IFL’s board need to resolve to propose the members
to wind up IFL and to consider appointing Ahmed Amin, IFL’s CFO as
liquidator (if he gives written consent for the same) which is permissible in
case of members voluntary winding up. Therefore, to get approval of
members, an extra-ordinary general meeting (EGM) shall be called.
(v) Notice of EGM shall be sent along with proxy form to the members,
directors, auditors, and any person entitled to a share in consequence of the
death/bankruptcy of a member.
(vi) A special resolution is required to be passed. Since the matter to be transacted

is special business, there shall be annexed to the notice of the meeting draft
resolution as well as statement setting out all material facts concerning such
business, including, in particular, the nature and extent of the interest, if any,
therein of every director, whether directly or indirectly.
(b) Ahmed Amin’s responsibilities as IFL’s liquidator
Ahmed Amin, being IFL’s liquidator, has determined that IFL will not be able to pay
its debts in full within the period stated in directors’ declaration of solvency as there
will be a shortfall of Rs. 500 million (Rs. 4,000 million – Rs. 3,500 million). He shall
forthwith summon a meeting of creditors and present statement of IFL’s assets and
liabilities and other specified particulars to the creditors.
Ahmed Amin will also have to ensure that a return of convening the creditors
meeting along with copy of the notice thereof, statement of IFL’s assets and liabilities
and minutes of the meeting shall be filed with the registrar within ten days of the
meeting.
Page 6 of 11
CORPORATE LAWS
Suggested Answers
Effect(s) of Ahmed Amin’s determination on IFL’s stakeholders
Since IFL has now turned out to be insolvent, it shall have the following effects on
IFL’s stakeholders:
(i) IFL’s creditors will not be able to get their amount in full.
(ii) IFL’s contributories will not be able to get any share since there will be no
surplus.
(iii) IFL’s creditors may decide to continue with the existing liquidator i.e. Ahmed
Amin or appoint a different liquidator who has consented to act as such.
(iv) IFL’s directors shall be presumed, until the contrary is shown, to have no
reasonable grounds to support their opinion of solvency and such directors
shall become liable to penalized under the Companies Act, 2017.
A.6 Benjamin Brady may immediately be removed from Crimson Investments Limited (CIL)
from the position of CEO, notwithstanding anything contained in his appointment letter
prohibiting his termination before expiry of the contract term, on following grounds:
(i) By the board of CIL through resolution passed by 6 or more directors (i.e. 3/4th of
total number of directors for time being), on any basis over which such number of
directors agree.
Board of CIL shall immediately after passing the above resolution inform the
Commission along with reasons for the same.
(ii) By the members of CIL through special resolution, on any basis over which such
number of members agree.
Benjamin Brady was also an appointed director of CIL, therefore, in (i) above, a
resolution shall also have to be passed in general meeting to remove him from the
position of director. However, the said resolution and the special resolution
mentioned in (ii) above shall not be deemed to have been passed if number of votes
cast against such resolution is equal to or exceeds 67.5 million votes (60 million
shares × 9 directors = 540 million votes ÷ 8 directors).
(iii) By the Commission, through an order , if satisfied that:

 continued association of Benjamin Brady, as CEO or director, is or is likely to be
detrimental to the interests of CIL; or
 the public interest so demands; or
 removal is necessary to prevent CIL’s affairs from being conducted in a manner
detrimental or prejudicial to the interests of CIL, its shareholders; or
 to secure proper management of CIL it is necessary so to do.
Moreover, the Commission may pass an order disqualifying Benjamin Brady from
holding directors’ office of CIL if it is proved that he is convicted of market
manipulation practices. In such case, he shall also become ineligible to hold the
position of chief executive.
Page 7 of 11
CORPORATE LAWS
Suggested Answers
A.7 (a) In order to contest upcoming election of directors, following course of actions will be
required to be taken by each of BCL’s directors:
 Since Fahad Noor represents TBL which is owned by the Government of Sindh,
his office term shall not expire and he shall hold office till the pleasure of the
Government of Sindh unless TBL divest its investment in BCL or nominates
another person in his place. Accordingly, no action required from him.
 Since Safdar Kamran is nominated by White Bank Limited a creditor, his office
term shall not expire on the date of upcoming elections i.e. 30 December 2021
and he shall hold office by virtue of contractual arrangements or WBL nominates
another person. Accordingly, no action required from him.
 Rahim Zain, Arham Ghafoor, Tariq Ali, Saeed Naeem, Aurangzeb Khan, Ahmed
Sultan, being retiring directors shall file with BCL a notice of intention to offer
themselves for election as a director by 16 December 2021 (i.e. at least 14 days
before meeting date).
 Since Arham Ghafoor was elected with the support of minority shareholders, he
shall have to submit a statement and his profile to BCL which will be annexed
with the notice of extra ordinary general meeting to be issued by BCL for election
under the Companies Act, 2017.
 Aurangzeb Khan and Ahmed Sultan shall also have to submit a declaration that
they qualify independence criteria notified under the Companies Act, 2017.
 Saima Arif cannot contest the election of BCL’s directors as an independent
director because she has already served three consecutive terms since her joining
in 2012. However, she can contest for other positions. In that case, she will have
to file a notice of intention to offer herself for election as a director, with BCL.
(b) The number of votes available to TBL, PL and OL in respect of upcoming election of
directors is equal to the product of number of voting shares held by them and the
number of directors to be elected. As mentioned, the number of directors fixed for the
next election is the same as was elected in the previous election i.e. eight, except
Safdar Kamran who is nominated by creditors rest of the persons are elected or
deemed to be elected.
No. fixed Deduction for
No. of Total no. of No. of votes
for nomination
shares votes available
election already made
TBL 20,000,000 8 160,000,000 80,000,000* 80,000,000
(300 million ÷15)
PL 16,700,000 8 133,600,000 - 133,600,000

(250.5 million ÷15)
OL 15,666,666 8 125,333,333 - 125,333,333

(235 million ÷15)
*By virtue of Fahad Noor’s nomination on BCL’s board 80,000,000 votes (640,000,000 votes ÷
8 directors) shall stand excluded from the total number of votes available with TBL.
Page 8 of 11
CORPORATE LAWS
Suggested Answers
(c) Sikandar Niaz shall be required to submit following information to BCL within 30
days of becoming the director:
(i) Give notice in writing of his beneficial ownership in the listed equity securities
of BCL and of the amount and description of the securities of the company and
date of acquisition of beneficial ownership within seven days of his
appointment. Also give notice in writing of any change in beneficial ownership
in securities of BCL and any gain made on sale / purchase of BCL’s securities.
(ii) Furnish such particulars as are required to be entered in the “register of its
directors and officers”, as may be specified by the Commission, within ten days
of his appointment.
(iii) Disclose the nature of his concern or interest at a meeting of the board, if
Sikandar Niaz is directly or indirectly, concerned or interested in any contract
or arrangement entered into, or to be entered into, by or on behalf of BCL.
(iv) If Sikandar Niaz or his spouse sell, buy or take beneficial position, whether
directly or indirectly, in shares of BCL he shall immediately notify in writing to
Company Secretary and shall deliver written record of the price, number of
shares, form of share certificates, (i.e. whether physical or electronic into
Central Depository System), and nature of transaction to the Company
Secretary within two days of effecting the transaction.
(v) Disclose particulars relating to his concern or interest in the other associations
which are required to be included in the “register of contracts or arrangements”
in which he is interested within 30 days of his appointment.
(vi) If Sikandar Niaz has shareholding in a foreign company, he shall report his
shareholding or any other interest as may be notified by the Commission, on a
specified form within thirty days of holding such position or interest.
A.8 (a) Investment of Scarlet Investment Limited (SIL) in UL falls under the definition of
‘strategic investment’ because at the time of purchase it was intended to be held for
more than 5 years and its acquisition cost of Rs. 350 million is more than 10% of
SIL’s equity (i.e. Rs. 300 million). (W-1)
Hence, SIL can only divest UL’s shares after it has obtained written approval of the
Commission in this regard.
W-1: SIL’s equity Rs. in million

Ordinary shares (Rs. 10 each) 900
Preference shares class A (Rs. 10 each) 150
Preference shares class B (Rs. 20 each) 500
Share premium 550
Unappropriated profit 700
Sub-total 3,080
Less: Intangible assets (80)
Total Equity 3,000
Page 9 of 11
CORPORATE LAWS
Suggested Answers
(b) The feasibility of investment in each of the proposed companies and requisite
conditions to be fulfilled before making the purchase are as follows:
 Mauve Steel Limited (MSL)

Since SIL already holds shares worth Rs. 120 million in MSL, it cannot invest further
as it cannot own shares of any one unlisted company in excess of 10% of SIL’s equity
i.e. Rs. 300 million or MSL’s issued capital Rs. 120 million, whichever is less
i.e. Rs. 120 million . Hence, proposal to purchase additional 10 million shares is not
feasible.
 Jade Textile Limited (JTL)

The proposal to purchase 10 million shares of JTL needs investment of Rs. 150
million (i.e. 10 million shares of Rs. 15 each) that is within investment limit i.e. lower
of Rs. 300 million or 10% of JTL’s issued capital. Moreover, the aggregate
investment in shares of unlisted companies i.e. MSL and JTL will be within 20% of
SIL’s equity. Since SBL holds more than 20% voting power of JTL and SIL, JTL
would be an associated company of SIL. Hence, SIL can make investment subject to
following pre-requisite conditions:
(i) Investment in JTL is approved in a board meeting after carefully analyzing the
merits and financial impact of the investment and recording the decision in
detail in minutes of the meeting;
(ii) Board shall certify to members of SIL that they have carried out necessary due
diligence for investment before recommending it for members’ approval;
(iii) Duly signed recommendations of the due diligence report and latest annual
audited financial statements of JTL along with the latest interim financial
statements, if any, shall be made available for inspection of members of SIL in
the general meeting ;
(iv) SIL shall disclose the following details in statement attached to notice of
general meeting:
– Name of JTL and basis of relationship with SIL;
– Maximum amount of investment to be made i.e. Rs. 150 million (10
million shares at Rs. 15 per share) along with maximum price;
– Earnings per share for last three years;
– Break-up value per share, based on latest audited financial statements of
JTL;
– Financial position on the basis of latest financial statements;
– Purpose, benefits likely to accrue to SIL and its members and period of
investment;
– Salient features of agreement(s), if any, with JTL for share purchase;
– Direct or indirect interest of directors, sponsors, majority shareholders and
their relatives, if any, in JTL or in the purchase of JTL shares;
– Number of securities and percentage held before and after purchase;
– Fair value determined by registered valuer and if it is lower than Rs. 15
per share, justification thereof;
– Fair value of JTL’s shares shall be determined by a person having such
qualifications and experience and registered as a valuer in such manner
and on such terms and conditions as may be specified by the Commission.
(v) Board approval/recommendation shall be communicated to the Commission
within fourteen days of board meeting along with copy of minutes;
Page 10 of 11
CORPORATE LAWS
Suggested Answers
(vi) Investment in JTL shall be approved by members through special resolution

indicating nature, period, amount of investment and terms and conditions
attached thereto which shall be valid for twelve months unless otherwise
specifically authorized by SIL’s members in the general meeting.
 Neon Fertilizer Limited (NFL)

SIL can purchase shares of NFL since Rs. 250 million (10 million × Rs. 25 per share)
is below threshold limit i.e. 10% of SIL’s equity Rs. 300 million or 10% of NFL’s
issued capital Rs. 420 million (Rs. 4,200 × 10%) whichever is less i.e. Rs. 300 million.
Hence, proposal is feasible. However, approval of board shall be required before
making the purchase.
 Scarlet Bank Limited (SBL)

SBL holds 80 million ordinary shares in SIL which allows it to exercise more than
one half of SIL’s voting power i.e. 51.6% [{80 ÷ (90+15+50)}×100]. Since SIL is
subsidiary of SBL, SIL cannot hold shares in its holding company. Hence, this
proposal is not feasible.
(The End)
Page 11 of 11
SUBJECT SESSION
Winter 2021
Passing %
1 2 3 4 5 6 7 8
28% 12% 64% 31% 67% 40% 32% 13% 27%
General comments
The overall result showed significant improvement from previous session result of 20%. Below
average performances were observed in questions 2 and 8 which seems to be on account of failure
to address the exact requirement of the question as well as inability to identify and cross-link the
applicable laws.
Question 1
 Examinees failed to establish that:

o NH became GCL’s substantial shareholder on 1 July being beneficial owner of 10.50%
shares;
o NH subsequently ceased to be GCL’s substantial shareholder on 30 August when he sold
250,000 ordinary shares of class A; and
o NH once again became a substantial shareholder on 30 September, being beneficial owner
of 10.30% voting rights in GCL.
 Examinees were not able to identify various reporting requirements to be complied with by
NH after each transaction made by him in the shares of GCL since 1 July 2021.
 Examinees did not mention that NH was liable to tender gain of Rs. 2.75 million to the
Commission within six months of 30 August 2021.
Page 1 of 3
Question 2
Examinees were not able to establish that proposals given by Noman Saeed were not in
compliance with the applicable corporate laws mainly because:
 post issue paid-up capital (PIPC) of GAL should be atleast Rs. 200 million;
 minimum 10% of PIPC should be allocated to the general public;
 maximum 20% of IPO can be allocated to overseas Pakistanis;
 applicable restrictions should be adhered to while determining premium amount for IPO; and
 board composition should be in accordance with the Listed Companies (Code of Corporate
Governance) Regulations.
Question 3
Question 4
Examinees were not able to accurately determine the:

 FSV benefit of collaterals/securities held by BBL against loans given to AWL, FL and KPL;
 margin requirement in respect of pledged shares of Indigo Limited against loan given to AWL;
 adequacy of provision(s) maintained by BBL against each non-performing loan.
Question 5
Good performance was noted in both parts of this question.
Question 6
 Examinees were not able to identify that notwithstanding any clause contained in the
appointment letter prohibiting termination before expiry of the contract term, Benjamin Brady
may be removed from the position of CIL’s chief executive either by the board of CIL,
shareholders or the Commission.
 Examinees were also failed to mention that Benjamin Brady may also be removed from the
position of CIL’s director either by the shareholders or the Commission.
Question 7(a)
 Examinees were not able to identify the information/documents required to be submitted to

BCL in order to contest the next election.
 Few examinees were not able to establish that Saima Arif cannot contest the next election as
an independent director because she had already served three consecutive terms on the board
since her joining in 2012.
Question 7(b)
Good performance was noted in this part of the question.
Page 2 of 3
Question 7(c)
Examinees were not able to identify that Sikandar Niaz should disclose the following to BCL:
 details of beneficial ownership in BCL and any change therein;
 details of shareholding in foreign companies / other interest as notified by the Commission;
 information required to be entered in registers maintained by BCL under the Companies Act.
Question 8(a)
Examinees were not able to identify that since SIL held strategic investment in UL, SIL can only
divest the shares held in UL after obtaining written approval of the Commission in this regard.
Question 8(b)
 Examinees failed to identify JTL as an associated company of SIL and therefore were not able
to establish that purchasing shares in JTL also required compliance of all the pre-requisite
conditions prescribed under the Companies Act and Companies (Investment in Associated
Companies) Regulations besides NBFC Rules.
 Examinees were not able to conclude that SIL cannot buy shares in its holding company SBL
since making such investment is prohibited under the Companies Act.
(THE END)
Page 3 of 3
CORPORATE LAWS

Mark(s)
A.1 Establishing that NH became GCL’s substantial shareholder on 1 July 2021 5.0
Identifying that NH ceased to be GCL’s substantial shareholder on
30 August 2021 and that he was liable to tender gain of Rs. 2.75 million to the
Commission 2.5
Establishing that on 30 September 2021, NH again became GCL’s substantial
shareholder being beneficial owner of 10.30% voting rights in GCL 5.5
Identifying whether all reporting requirements to be complied with by NH 5.0
A.2 Identifying that:

− post issue paid-up capital (PIPC) of GAL should be atleast Rs. 200 million 2.0
− minimum 10% of PIPC should be allocated to the general public 2.0
− maximum 20% of IPO can be allocated to overseas Pakistanis 2.0
− foreign investors can be issued shares with prior approval of Commission 1.0
Explaining restriction on determination of premium amount for IPO 2.5
Commenting on adequacy of proposed board composition for GAL 2.5
Concluding that proposals are not in compliance with applicable corporate laws 3.0
A.3 Identifying PBL as public sector entity and listing responsibilities of Chairman
under the Public Sector Companies (Corporate Governance) Rules 3.5
Identifying Chairman’s responsibilities under Banking Companies Ordinance
and Companies (Postal Ballot) Regulations 3.5
A.4 Identifying FSV benefit for each non-performing loan 6.5

Identifying margin requirement in respect of shares of Indigo Limited 1.0
Advising on adequacy of provision maintained by BBL 1.5
A.5 (a) Discussing the requirements related to declaration of solvency 3.5

Identifying the requirement of obtaining auditor’s report 1.5
Discussing shareholders’ approval will be required and identifying the
pre-requisites for calling general meeting of IFL in this regard 3.0
(b) Explaining that meeting of creditors will be summoned and discussing the
reporting responsibilities of Ahmed Amin 3.0
Identifying effects of Ahmed Amin’s determination on IFL’s stakeholders 4.0
A.6 Discussing that irrespective of any restrictive clause, Benjamin Brady may still be
removed from the position of CIL’s:
CEO; either by the board, shareholders or the Commission 4.0
director; either by the shareholders or the Commission 2.0
Page 1 of 2
CORPORATE LAWS
Mark(s)
A.7 (a) Discussing that all retiring directors can contest election of directors except
nominee directors namely Fahad Noor and Safdar Kamran 2.0
Identifying information/documents to be submitted to contest election 2.0
Discussing that Saima Arif cannot contest again as an independent director 1.0
(b) Determining number of directors fixed for upcoming election 1.5

Calculating number of votes available to TBL, PL and OL for election 2.5
(c) Identifying that Sikandar Niaz should disclose the following to BCL:
Details of beneficial ownership in BCL and any change therein 2.0
Details of shareholding or any other interest in foreign companies 1.0
Particulars required to be entered in company’s registers 2.0
A.8 (a) Calculating SIL’s equity under NBFC (Establishment & Regulation) Rules 1.5
Identifying that pre-approval of Commission will be required to divest the
strategic investment in UL 1.5
(b) Determining that further investment in MSL is not feasible 1.5

Identifying that SIL can invest in its associated company JTL 2.0
Discussing pre-requisite conditions to be fulfilled before investing in JTL 7.0
Determining that SIL’s board approval will be required to invest in NFL 1.5
Concluding that SIL cannot buy shares in its holding company SBL 1.0
(THE END)
Page 2 of 2

Advanced Corporate Laws and Practices

Q.1 (a) Golden-Oak Textile Limited (GTL) is a public unlisted company engaged in the
business of manufacturing and export of textile products. An extract from GTL’s
audited statement of financial position as on 31 December 2021 is as follows:
Rs. in million
Authorized share capital
*Preference shares (Rs. 15 each) 450
Paid-up share capital

*Preference shares (Rs. 15 each) 210
12% long-term loan (Note-1) 390

13% short-term running finance (Note-2) 200
*These shares do not carry voting rights.
Note-1: The long-term loan facility was obtained in July 2019 from Mulberry Bank
Limited (MBL). The loan was to be repaid in 10 equal semi-annual
instalments.
Note-2: The short-term running finance was obtained in February 2021 from MBL.
In July 2021, GTL for the first time defaulted in making payment of its long-term loan
instalment and mark-up on short-term running finance. Thereafter, GTL has not
made any payment to MBL.
Observations highlighted in the auditor’s report of GTL for the year ended
31 December 2021
The auditor highlighted in its audit report that various fake sale invoices and falsified
transactions were recorded in previous years due to which opening balances of
receivables, inventories and payables were materially misstated. Consequently,
unappropriated profit of Rs. 2,000 million reported up to 31 December 2020 has been
restated to accumulated loss of Rs. 4,500 million.
Required:
Under the provisions of the Companies Act, 2017, identify any five actions which
MBL may take against GTL and its officers. (10)
(b) Under the applicable corporate laws, discuss the situations in which the
memorandum or articles of association of a public unlisted company are considered
to have been altered/modified without approval of company’s shareholders. (05)
Advanced Corporate Laws and Practices Page 2 of 6
Q.2 Deodar Limited (DL) is a listed company engaged in the business of manufacturing and
marketing of chemicals. DL holds investments in following unlisted companies for last
many years:
% of DL’s
Name Paid-up capital
shareholdings
Oak Limited (OL) Rs. 750 million 100%
Cedar (Private) Limited (CPL) Rs. 250 million 45%
Mahogany Limited (ML) Rs. 550 million 40%
OL also holds 30% shares in CPL and 60% shares in ML.
During the month of May 2022, following decisions were taken in DL’s board meeting:
 Approved the terms of contract under which CPL will supply raw materials to DL at
a special discount of 40% on the prevailing price and an exceptionally favorable credit
period of 180 days. The contract shall be for the period of three years effective from
the signing date.
 Principally approved to amalgamate OL and ML with and into DL to achieve
economies of scale and an efficient operational structure.
Required:
Under the applicable corporate laws:
(a) discuss the statutory compliances to be made by DL in respect of the contract with
CPL and subsequent transactions made thereunder. Assume that the contract with
CPL is signed on 8 June 2022. (04)
(b) discuss the course of action to be followed to give effect to the proposed amalgamation
of OL and ML with and into DL. Also discuss the impact, if any, in case ML’s
creditors file a dissent with regards to its amalgamation. (06)
Q.3 Mahoe (Private) Limited (MPL) has a paid-up share capital of 50 million shares of
Rs. 10 each. MPL has adopted all the regulations of Table A of the First Schedule of the
Companies Act, 2017 so far as those are applicable to a private company.
Following is the list of MPL’s shareholders along with their respective shareholdings:
Shareholder Number of shares

Farhan Ali (Note-1) 20 million
Bilal Karim 10 million
Shamim Hussain and Amina Zahid (Note-2) 8 million
Waheed Rehan 7 million
Maria Sultan 5 million
Note-1: Farhan Ali intends to transfer his shareholdings in MPL as follows:

 20% shares to his daughter Saima Ali and 15% shares to his son-in-law
Mohsin Malik through gift deeds;
 40% shares to Maria Sultan at Rs. 60 per share so that her shareholdings in
MPL increases to 26%;
 20% shares to his business partner Amir Abbas at Rs. 50 per share to settle a
debt of Rs. 200 million which Farhan Ali had borrowed from him.
Note-2: Shamim Hussain and her friend Amina Zahid jointly holds these shares. Amina
Zahid recently died in an accident and her son Rehan Zahid has lodged a request
with MPL to transfer his mother’s share entitlement to his name.
Required:
(a) discuss whether the above shares will be transferred/transmitted as desired/requested
by Farhan Ali and Rehan Zahid. (09)
(b) Bilal Karim, after becoming a director in MPL, has deposited a nomination with MPL
in favour of his brother Zia Karim.
Discuss the rights and responsibilities of Zia Karim, in event of Bilal Karim’s death. (03)
Q.4 The board of directors of Olive Leasing Limited (OLL) and Maple Housing Finance
Limited (MHF) decided to merge OLL with and into MHF. As per the scheme, MHF will
issue 100 shares of Rs. 10 each for every 250 shares of Rs. 10 each held in OLL. All the
creditors of both companies have agreed with the terms and conditions of repayments
included in the scheme.
An extraordinary general meeting (EGM) of OLL is planned to be held on 9 June 2022 at

9:30 AM in which scheme of merger will be presented before the shareholders for their
approval. The complete list of OLL’s shareholders along with their shareholdings is as
follows:
No. of shares
S.No. Shareholder
in ‘000
(i) Bashir Hasan (BH) 700
(ii) Ismail Sweets Limited (ISL) 700
(iii) Waseem Ahmed (WA) 500
(iv) Najma - WA’s wife 500
(v) Akhtar - WA’s son 500
(vi) Marium - WA’s daughter 500
(vii) Jamil (Pvt) Limited (JPL) 500
(viii) Areeba Ahsan 350
(ix) Hina Laiq (HL) 300
(x) Manzoor Limited (ML) 200
(xi) Kamal & Co. (KC) 200
(xii) Sikandar Ali (SA) 10
(xiii) Dainyal Ahmed (DA) 10
(xiv) Essa Saeed (ES) 10
(xv) Farhan Badar (FB) 10
(xvi) Ghazal Basit 10
5,000
Following information is available with respect to OLL’s aforesaid EGM:

(i) BH and HL submitted their proxy forms on 7 and 8 June 2022 respectively and are
expected to cast votes in favour of the scheme.
(ii) It is expected that JPL, ML, SA and FB will not attend the meeting.
(iii) On 7 June 2022, ISL and KC gave notice to OLL that they do not agree to the scheme
as the value of their investments is not fairly determined.
(iv) It is expected that DA and ES will cast votes against the scheme.
(v) All the remaining shareholders who will attend the meeting, are expected to cast the
votes in favour of the scheme.
Required:
(a) briefly explain whether the scheme will be considered approved by requisite majority
of OLL’s shareholders in EGM. (05)
(b) state the effect of such approval on OLL, MHF and their shareholders assuming that
the scheme is sanctioned by the Commission. (04)
(Ignore the provisions of the Competition Act, 2010)
Q.5 (a) In a recent board of directors meeting of Blackwood Pharma (Private) Limited (BPL),
a concern was raised regarding continuous downward selling trend in one of its main
products namely ‘Standsill’. CEO explained to the board that the downward selling
trend of Standsill is due to recent decisions of Oak Pharma Limited (OPL) regarding
its product ‘Clearsill’ which compete Standsill in the market. The summary of OPL’s
decisions is as follows:
 Removed the medicinal components from Clearsill and got it de-registered as a
drug.
 Reduced its selling price by 20%.
CEO also informed the board that despite removing the medicinal components from
Clearsill, OPL is still marketing this product by using the same phrases and packaging
as it was used when Clearsill was medicinal.
Required:
Under the applicable corporate laws, advise BPL’s management the course of action
to mitigate the negative effect of OPL’s marketing strategy. (04)
(b) Bayri Investment Limited (BIL) is considering to establish a ‘payment system’

through which various services such as clearing, transfer, payment settlement,
supervision etc. will be provided to its customers. The system will be operational once
it will be designated by the State Bank of Pakistan (SBP).
While discussing the features and requirements of the payment system, the board has
asked the management to clarify the following matters:
(i) Who is eligible to operate the SBP designated payment system?

(ii) Under what situations, SBP may revoke the designation of the above mentioned
payment system?
Required:
Under the applicable corporate laws, write a memo to BIL’s company secretary
clarifying the matters raised by the board. (04)
(c) Kentia Beverages Limited (KBL), a public unlisted company, is engaged in the
business of manufacturing and marketing of soft drinks. KBL holds 20% market share
of soft drinks in Sindh. Details of KBL’s shareholdings as of today is as follows:
Number of shares
in ‘000
Diar Corporation Limited (DCL) 29,000
Directors, banks and financial institutions 16,000
45,000
On 1 June 2022, Neem Beverages (Private) Limited (NBL), another manufacturer of

soft drinks, has offered DCL to acquire 29 million shares of KBL at a premium of
15%. NBL holds around 25% market share of soft drinks in Sindh.
Required:
Under the applicable corporate laws, discuss the condition(s) that NBL should comply
with, before the proposed acquisition of shares from DCL. (03)
Q.6 (a) Fern Limited (FL), a listed company, is engaged in the business of trading and supply
of medical equipment. In November 2021, it raised finance of Rs. 900 million from
general public by issuing 90 million ordinary shares of Rs. 10 each. The purpose of
raising finance was to establish a fully automated factory in Multan for the production
of medical equipment.
Subsequently, FL has faced a major and unanticipated hurdle in building the factory
in Multan which makes it impossible for FL to establish the factory. FL’s board in its
meeting held on 8 June 2022 has approved the abandonment of the factory
establishment plan and has asked the management to evaluate the possibility of
utilizing the amount in importing specialized medical equipment.
Required:
Under the applicable corporate laws, advise statutory compliances required to be
made if, on the basis of management’s evaluation, FL decides to use Rs. 900 million
for importing the specialized medical equipment. (07)
(b) Pine Limited (PL) is an unlisted company, incorporated in July 2008. PL’s board
plans to raise finance of Rs. 600 million through issuance of Sukuk certificates to
general public. In this regard, PL and Silver Birch Associates (SBA) are under
negotiation to sign an agreement by which SBA would subscribe all such Sukuk
certificates which would remain unsubscribed at the close of subscription date.
Required:
Under the Public Offering Regulations, 2017 discuss the impact on PL’s plan if SBA
refuses to sign the agreement. (04)
Q.7 (a) Chinar Holding Limited (CHL) is a well-established group having direct and indirect
investments in the shares of textile, automobile, food and various other sectors.
CHL is considering to form an insurance company to further diversify the group

business. One of the directors presents the following proposal:
(i) Its principal line of business will be to manage direct and facultative reinsurance
business and pension fund business.
(ii) Initial paid-up capital of the insurance company will be Rs. 50 million which
will be increased to Rs. 100 million and Rs. 200 million at the end of the third
year and sixth year of operations respectively.
(iii) Beobab Limited (BL) and Palm (Private) Limited (PPL) will be the promotors
of new insurance company with 49% and 51% shareholdings respectively. Both
BL and PPL are subsidiaries of CHL as it holds 80% and 95% shares of these
companies respectively.
Required:
Advise whether the above proposal is in accordance with the provisions of the
Insurance Ordinance, 2000. (06)
(b) Brazilwood Limited (BL) is a public listed company. Abdullah Khan, who holds
55% shares in BL, was approached by Frangipani (Private) Limited (FPL) with an
offer to purchase his entire shareholding at face value. Abdullah Khan accepted the
offer and shares were transferred in FPL’s name on 6 June 2022. FPL is a growing
company in which Federal Government indirectly holds 90% shares.
Required:
Under the applicable rules and regulations of code of corporate governance, advise
BL regarding the disclosures to be made in BL’s annual report and statement of
compliance for the year ending 30 June 2022. (07)
Q.8 (a) Ornas Limited (OL), a listed company, is engaged in the business of manufacturing
parts used in split air conditioners. In order to expand its current facilities, OL is
considering to borrow Rs. 1 billion for five years. Following financing proposals are
under consideration:
Name of bank Tagha Bank Ltd (TBL), a local Khona Bank, a US bank
bank
Disbursement Pak Rupees US Dollar
currency
Borrowing cost 6 months KIBOR plus 1.5% 500 basis points
Security Mortgage of OL’s factory  Mortgage of OL’s factory
building, plant & machinery building, plant & machinery
 Pledge of OL’s 20% shares
registered in the name of
directors
Repayment terms 20 equal quarterly instalments 20 equal quarterly instalments
Other condition In case of default, outstanding
(if any) amount may be converted into
equity at the breakup value per
share
One of OL’s directors, Azam Munir, is also serving as a non-executive director on

TBL’s board. Due to Azam Munir’s relationship, TBL has offered special terms to
OL.
Required:
Under the applicable corporate laws, discuss the matters that should be considered by
OL with reference to obtaining borrowing either from Tagha Bank Ltd or Khona
Bank. (13)
(Ignore the provisions of the Companies Act, 2017 and Pakistan Stock Exchange Rule
Book)
(b) Lignum Real Estate Agency (LRE) is a partnership business duly registered with
relevant authorities. LRE signed an agreement with Palm Housing Societies that has
launched a new housing scheme to sell the residential houses to general public.
Adnan Zafar, one of LRE’s sales agents, delightedly informed the partners that
yesterday he booked 35 bungalows and provided the following details:
(i) Zaid Khalid, a leading business man, who is also an old customer of LRE, has
booked 15 bungalows and has given a cheque equivalent to the amount required
for initial booking. However, he has requested to book the said bungalows in
the name of his accountant.
(ii) Shaheer Azam, a retired government official, has booked 20 bungalows. He has
paid full amount for all the bungalows in order to avail full payment discount.
However, he has not yet provided his CNIC for fulfilling LRE’s mandatory
record keeping requirements.
Required:
Under the applicable corporate laws, advise LRE on the legality and reporting
responsibility in respect of the above transactions. (06)
(The End)
ADVANCED CORPORATE LAWS AND PRACTICES
Suggested Answers
A.1 (a) The provisions of the Companies Act, 2017 shall apply to the banking companies except
in so far as the said provisions are inconsistent with the provisions of the Banking
Companies Ordinance, 1962. Hence the actions that MBL may take against GTL and
its officers, are as under:
(i) MBL, in terms of the long-term loan facility, may obtain an order for the
appointment of a receiver/manager to ensure enforcement of security of GTL’s
property.
(ii) MBL may, by written consent, directly refer the claim, for resolution, to any
individuals enlisted on the mediation and conciliation panel maintained by the
Commission before taking recourse to formal dispute resolution. The same may
also be referred by MBL to the arbitrator(s) under arbitration agreement, if any.
(iii) MBL having an interest (receivable) higher than 10% of GTL’s paid-up capital i.e.
Rs. 66 million [(450+210)×10%] may file a complaint to the Court that the affairs
of GTL are being conducted in an unlawful or fraudulent manner by petition for
an order to be issued in respect of oppression of MBL and mismanagement of
GTL’s affairs.
(iv) MBL having an interest (receivable) higher than 60% of GTL’s issued share-
capital i.e. Rs. 396 million [(450+210)×60%], may make a representation to the
Commission and request for appointment of an administrator on the grounds that
that the affairs or business of GTL have been conducted/managed with intent to
defraud its creditors or that accumulated losses of GTL exceed 60% of its paid-up
capital.
(v) GTL has defaulted in making payment to MBL since July 2021. If MBL has
served on GTL a demand requiring to pay the sum due and GTL has neglected to
pay, then it is deemed that GTL is unable to pay its debts. In such situation, MBL
is entitled to make an application to the Court by way of a petition for the winding
up of GTL.
(b) The memorandum or articles of association of a public unlisted company will be

considered to have been altered/modified without approval of company’s shareholders
in following cases:
(i) where a company is registered by a name in contravention of the provisions of the

Companies Act, 2017 or its name was obtained by furnishing false or incorrect
information and if the registrar so directs; and the company fails to comply with
direction, then the registrar may assign a new name for the company and the
memorandum of association shall be modified accordingly.
(ii) where in pursuance of any obligation of the company to issue shares to the
Government, a scheduled bank or financial institution and the authorized capital
of a company is fully subscribed, or the un-subscribed capital is insufficient, the
same shall be deemed to have been increased to the extent necessary for issue of
such shares.
(iii) where a complaint is made to the Court by way of petition for an order for
prevention of oppression and mismanagement by member(s) holding at least 10%
of issued share capital of the company; or the creditor(s) having interest equivalent
in amount to at least 10% of the paid-up capital of the company; or the
Commission or registrar, and the Court is of the opinion that the company’s affairs
are being conducted as aforesaid and that to wind-up the company will unfairly
Page 1 of 10
Suggested Answers
prejudice its members or creditors, then the Court may make such order including
alteration in or addition to the company’s memorandum or articles of association.
(iv) where the company is a public sector company which is facing financial or
operational problems and is declared as a sick company by the concerned
Minister-in-Charge of the Federal Government; and a rehabilitation plan is drawn
up by any institution, authority, committee or person authorized by the concerned
Minister-in-Charge of the Federal Government in this behalf. Such plan may
provide for alteration of the memorandum or articles of association. Once the said
plan is approved by the concerned Minister-in-Charge of the Federal Government,
such alteration shall be valid, binding and enforceable in all respect.
A.2 (a) CPL is a subsidiary of DL (45% shares held directly by DL and 30% shares held through
OL); hence, both are related parties. Since transactions to be undertaken under the
contract are on non-arms’ length basis, the statutory compliances to be made by DL in
respect of the contract with CPL and subsequent transactions made thereunder are as
follows:
(i) DL shall refer the contract with CPL in its directors’ report to the shareholders
along with the justification for entering into such contract.
(ii) DL shall disseminate prescribed information to PSX about related party
transaction(s), if such transaction(s) individually or taken together with previous
transactions with CPL during a financial year, is of a value equal to or more than
10% of total assets or annual total turnover as per last year’s audited financial
statements of DL, immediately upon entering into such transaction.
(iii) Maintain such record as may be specified by the Commission with regards to said
transactions.
(iv) Details of all related party transactions shall be placed periodically before the audit
committee of DL and upon recommendations of the audit committee, the same
shall be placed before the DL’s board for review and approval.
(b) OL is a wholly owned subsidiary of DL. ML is also wholly owned subsidiary of DL as

it holds 40% shares directly and 60% shares indirectly through OL. Accordingly, both
these wholly owned subsidiary companies may be amalgamated with DL in order to
continue as a single company i.e. DL without the involvement of creditors and
Commission as required otherwise under the Companies Act, 2017.
The course of action to be followed to give effect to proposed amalgamation are as

follows:
(i) Board of DL, OL and ML shall approve the scheme of amalgamation through
passing board resolution.
(ii) Board of DL, OL and ML shall, not less than twenty days before the
amalgamation is proposed to take effect, give written notice of proposed
amalgamation to every secured creditor of the respective companies.
(iii) Shares of OL and ML shall be cancelled without payment or other consideration.
(iv) Board of DL, OL and ML shall be satisfied that DL will be able to pay its debts
as they fall due during the period of one year immediately after the date on which
amalgamation is to become effective and a declaration verified by an affidavit to
the effect has been filed with the registrar.
Page 2 of 10
Suggested Answers
(v) Board of DL, OL and ML shall designate persons who will be DL’s directors after
the amalgamation.
(vi) DL shall file a copy of the scheme so approved in the specified manner, with the
registrar where its registered office is situated.
(vii) Since DL is listed, it shall disseminate to PSX the material information regarding
amalgamation of OL and ML into DL from time to time, as required under PSX
Rule Book.
In case ML’s creditors file a dissent with regards to its amalgamation with and into DL,
it will have no impact, since amalgamation of wholly owned subsidiaries can be
proceeded with, despite of any dissent filed by creditor(s) of the subsidiary company.
A.3 (a) Farhan Ali’s intention to transfer part of his shareholdings in MPL to various persons
shall have to be in accordance with the provisions of the Companies Act, 2017 and
Companies (General Provisions and Forms) Regulations, 2018. The requirements under
each case for transfer of shares are as follows:
Saima Ali, being the daughter of Farhan Ali, is included in the definition of family as
provided in the Companies (General Provisions and Forms) Regulations, 2018.
Therefore, 4 million (20 million×20%) shares can be gifted to her.
Mohsin Malik, being the son-in-law of Farhan Ali, is not included in the definition of
family as provided in the Companies (General Provisions and Forms) Regulations,
2018. Therefore, shares cannot be gifted to him. However, Farhan Ali may sell/transfer
his shares to Mohsin Malik by following the procedure specified under the Companies
Act, 2017 discussed below.
Maria Sultan and Amir Abbas

Maria Sultan is an existing member whereas Amir Abbas is a non-member. The
Companies Act, 2017 has specified few requirements that need to be complied with,
which are as follows:
(i) Farhan Ali shall send a notice to MPL’s board intimating his intention to sell
12 million shares [i.e. 20 million shares × 60% (40%+20%)].
(ii) On receipt of such notice, MPL’s board shall, within a period of ten days, offer
those shares for sale to other members of MPL in proportion to their existing
shareholdings as follows:
Number of shares
Name of shareholders Percentage
to be offered
Bilal Karim (W-1)33% (W-2)4.0 million
Shamim Hussain and Amina Zahid 27% 3.2 million
Waheed Rehan 23% 2.8 million
Maria Sultan 17% 2.0 million
W-1: 33% = [10 million ÷ 30 million (50 million – 20 million)]

W-2: 4 million = (12 million × 33%)
(iii) The said offer should be made through letter of offer specifying the number of
shares to which the member is entitled, price per share and specifying the time
limit, within which the offer, if not accepted, be deemed as declined. The letter of
offer shall be dispatched to the members through registered post or courier or
through electronic mode.
Page 3 of 10
Suggested Answers
(iv) If the whole or any part of the shares offered is declined or is not taken, the board
may offer such shares to other members in proportion to their shareholdings and
in such case, Maria Sultan may be able to purchase 8 million shares
(20 million×40%) i.e. more than 2 million shares, as computed above.
(v) If all the members decline to accept the offer or if any shares are left over, then
shares may be sold to Amir Abbas or Mohsin Malik as desired by Farhan Ali.
(vi) However, if Farhan Ali offered his shares to Maria Sultan at Rs. 60 per share then
subsequently he will not be able to sell shares to Amir Abbas or Mohsin Malik at
a lower price.
Request for transmission of shares:

The shares cannot be transmitted to Rehan Zahid because in case of shares registered in
the names of two or more joint holders, the survivor i.e. Shamim Hussain shall be the
only person recognized by MPL to deal with the shares in accordance with the
provisions of the Companies Act, 2017.
(b) As Zia Karim is brother of Bilal Karim, he shall be entitled for following rights after the
death of Bilal Karim:
(i) Zia will be deemed to be the member of MPL till the shares are transferred to the
legal heirs of Bilal Karim.
(ii) Zia shall also act as director of MPL for protecting the interest of the legal heirs of
Bilal Karim.
Zia will be responsible to facilitate the transfer of shares to the legal heirs of the deceased
subject to succession to be determined under the Islamic law of inheritance.
A.4 (a) OLL and MHF falls under the definition of non-banking finance companies, hence, the
provisions of the Companies Ordinance, 1984 shall apply to the scheme of merger.
In order to determine whether the scheme of merger is approved by OLL’s shareholders

in EGM, we have to analyze whether it is approved by the requisite majority of the
shareholders. Following are the details of shareholders who are expected to cast their
votes in favour and against the scheme:
Number of Shares held
shareholders in '000
Total 16 5,000
HL’s proxy will be rejected (Note 1) (01) (300)
JPL, ML, SA and FB will not attend (500+200+10+10) (04) (720)
Dissenting shareholders (Note 2) (02) (900)
DA and ES will cast votes against the scheme (10+10) (02) (20)
Shareholders expected to be in favour of the scheme 07 3,060
% of shareholders expected to approve the scheme (W-1)63.64% (W-2)76.88%
W-1: 63.64% = [7 ÷ 11(16–1–4)]

W-2: 76.88% = [3,060 ÷ 3,980(5,000–300–720)]
The resolution is expected to be approved by majority in number i.e. 63.64% who

represent more than two thirds in value of shareholders of OLL i.e. 76.88% expected to
be present either in person or by proxy at the EGM called for the purpose.
Note 1:
Proxy submitted by HL is not valid as it is lodged on 8 June 2022 means later than 48
Page 4 of 10
Suggested Answers
hours before the time of the EGM. It is assumed that BH has lodged the proxy on or
before 9:30 AM on 7 June 2022. However, if BH has lodged the proxy after 9:30 AM on
7 June 2022 then it is not valid. Even in that case the resolution is expected to be
approved by majority in number i.e. 60% members who represent more than two thirds
in value of shareholders of OLL i.e. 71.95% as shown below:
Number of Shares held

shareholders in '000
Shareholders expected to be in favour of the
07 3,060
scheme
BH’s proxy will be rejected (01) (700)
% of shareholders expected to approve the scheme 06 2,360
(W-3)60% (W-4)71.95%
W-3: 60% = [6 ÷ 10(16–2–4)]

W-4: 71.95% = [2,360 ÷ 3,280(5,000–300–720–700)]
Note 2:
ISL and KC gave notice on 7 June 2022 that they do not agree to the scheme hence
considered as dissenting shareholders.
(b) Once the scheme is sanctioned by the Commission, its effect will be that it will be binding
on OLL, MHF and their shareholders except ISL, KC, DA and ES.
ISL, KC, DA and ES being dissenting shareholders, shall be entitled to claim from OLL
in respect of shares held by them in OLL at value determined by the Commission while
sanctioning the scheme. Such determination by the Commission as to value of shares to
be paid to them shall be final for all purposes.
Moreover, the registrar shall, on receipt of Commission’s order of sanction strike off the
name of OLL as OLL by reason of merger cease to function.
The property and liabilities of OLL shall by virtue of the order of sanction be transferred
to and vest in and become the liabilities of MHF respectively.
A.5 (a) Under the provisions of the Competition Act, 2010 both BPL and OPL are undertakings
as they are limited companies.
OPL has removed the medicinal component from its product ‘Clearsill’ and de-
registered it as a drug. It means that Clearsill is no more a medicine but OPL is still
marketing it by using the same phrases and packaging as were used when it was
medicinal.
Therefore, it can be said that the consumers are being misled by the omission of
information, which gives them an impression that it is the same product having
medicinal ingredient. Consequently, OPL’s marketing strategy can be viewed as capable
of harming and damaging the business interests of BPL’s product Standsill which has
medicinal ingredient.
On the basis of above facts, BPL can raise the matter before the Competition
Commission of Pakistan with the claim that OPL’s marketing falls under the ambit of
deceptive marketing practices that is prohibited.
Page 5 of 10
Suggested Answers
(b) MEMO
To: The Company Secretary
Bayri Investment Limited (BIL)
Date: 8 June 2022
Subject: Requirements of the SBP designated payment system
Dear Sir,
As desired, we are pleased to provide the information with respect to the requirements
of the SBP designated payment system as follows:
(i) Under the provisions of the Payment Systems and Electronic Fund Transfers Act,
2007, following are eligible to provide / operate the SBP Designated Payment
System:
1. a financial or other institution; or
2. a legal person or a body of person whether incorporated or not; or
3. any other Electronic Fund Transfer Service Provider.
(ii) Moreover, SBP may revoke the designation of the above mentioned payment
system under any of the following situations:
1. the Designated Payment System has ceased to operate effectively as a
Payment System.
2. BIL being the operator of the designated system has knowingly furnished
information or documents to SBP in connection with the designation of the
Payment System which is or are false or misleading in any material
particular.
3. BIL or settlement institution of the Designated Payment System is in the
course of being wound up or otherwise dissolved, whether in Pakistan or
elsewhere.
4. Any of the terms and conditions of the designation or requirements of the
Payment Systems and Electronic Fund Transfers Act, 2007 has been
contravened.
5. SBP considers that it is in the public interest to revoke the designation.
Hope the above information will meet your requirement. Should you need any further
information please do not hesitate to contact us.
(c) NBL’s offer to DCL for purchase of 29 million shares of KBL will fall under the
definition of merger under the provisions of the Competition Act, 2010. After the
proposed acquisition of shares of KBL, NBL will enjoy a dominant position in the
relevant market i.e. Sindh as its market share will exceed 40% (i.e. 20% + 25%) which
substantially lessens competition in Sindh.
Accordingly, NBL shall have to apply to the Competition Commission of Pakistan for
clearance for the acquisition of KBL’s shares from DCL and submit a pre-merger
application in prescribed form along with processing fee as soon as they agree in
principal or sign a non-binding letter of intent to proceed with the merger.
Page 6 of 10
Suggested Answers
A.6 (a) FL may change principal purpose of the issue as disclosed in the prospectus subject
to passing of special resolution and offering an exit opportunity to dissenting
shareholders who have not agreed to such change.
FL shall immediately disseminate to the Commission and PSX all price-sensitive
information, as and when applicable, which may affect the market price of its shares in
the manner prescribed by PSX from time to time as required under PSX Rule Book.
Accordingly, FL shall have to undertake the following necessary compliances as

provided in the Public Offering Regulations, 2017:
(i) give extraordinary general meeting (EGM) notice in respect of change in the
principal purpose of the issue as disclosed in the prospectus with draft special
resolution;
(ii) subject to approval of special resolution, the shareholders who have dissented
against the special resolution and conveyed their dissent to FL’s company
secretary under intimation to PSX, provide an opportunity to exit by offering a
price per share, by the sponsors of FL, that shall be highest of:
 intrinsic value based on the latest available audited accounts;
 weighted average closing price for last six preceding months;
 offer price at which the shares were subscribed through IPO i.e. Rs. 10.
Exit offer shall be provided within thirty days from the date of passing of special
resolution to the dissenting shareholders. For this purpose, FL shall close Share
Transfer Books and give a minimum of seven days’ notice to PSX prior to its
closure.
(iii) In case FL is quoted on the Futures Market, intimate to PSX the dates of its book
closure and corporate actions on or before 20th day of the month with a notice
period of at least 21 days after the said 20th day for commencement of book
closure.
(iv) Issue transfer receipts immediately on receiving the shares for transfer.
(v) Furnish certified true copies of minutes of its EGM to PSX within 60 days of such
meeting as required under PSX Rule Book.
(b) PL’s proposed agreement with SBA is for underwriting the issue of Sukuk certificates.
Under the Public Offering Regulations, 2017, there would be no impact in the following
situations on PL’s plan to issue the Sukuk certificates if SBA refuses to sign the
underwriting agreement:
(i) Issue the Sukuk certificates for the purpose of debt repayment or for meeting the
working capital requirements.
(ii) Has alternative funding arrangements in place for meeting the shortfall in the
event of undersubscription of the issue.
A.7 (a) The proposal presented by one of CHL’s directors to form new insurance company (new
company) is not in accordance with the provisions of the Insurance Ordinance, 2000.
Following changes are required to make it compliant:
(i) The proposed principal line of business to manage direct and facultative
reinsurance business falls under the class of business that could only be carried out
by non-life insurance company, whereas pension fund business falls under the
class of business that could only be carried out by an insurance company entitled
Page 7 of 10
Suggested Answers
to do ‘life business’.
An eligible person may carry on either life insurance business or non-life insurance
business. Since the proposed businesses cannot be carried out by one single
insurance company, either the new company shall have to restrict to one class of
business or CHL should consider forming two separate insurance companies.
(ii) The minimum paid up capital required for life and non-life insurance business is:
Rs.150 million For life insurance
Rs. 80 million For non-life insurance
As mentioned earlier the new company can carry out either life or non-life
insurance business, accordingly, the initial paid up capital needs to be increased
to the required level mentioned above.
(iii) As per the proposal, PPL will hold 51% shares; hence, it will become holding
company of new company. Under the Insurance Ordinance, 2000, a private
limited company cannot be the holding company of an insurance company;
hence, the new company shall not be eligible to carry any insurance business if it
is subsidiary of PPL.
This can be addressed if BL has more than one-half of voting securities of new
company and PPL has less than one-half voting securities.
Moreover, only public company is classified as eligible person; hence, the new
company shall have to have at least three promoters instead of two.
(b) After the transfer of 55% shares of BL on 6 June 2022 in FPL name, in which Federal
Government indirectly holds 90% shares, BL shall be classified as Public Sector
Company; accordingly the Listed Companies (Code of Corporate Governance)
Regulations, 2019 (CCG, 2019) along with the Public Sector Companies (Corporate
Governance) Rules, 2013 (PSC, 2013) shall be applicable on BL. Therefore, BL shall
disclose the following in its annual report and statement of compliance for the year
ending 30 June 2022:
In its statement of compliance report:

(i) It is mandatory to have at least two or one third independent directors. It should
explain the reasons in the compliance report, if any fraction in one-third number
is not rounded up as one as required under CCG, 2019.
(ii) It is mandatory that executive directors, including the chief executive officer, shall
not be more than one third of the Board. It should explain the reasons if any
fraction in one-third number is rounded up as one as required under CCG, 2019.
In its annual report:

(i) Disclose names of the non-executive, executive and independent directors as
required under PSC, 2013.
(ii) Disclose a statement on the remuneration policy and details of the remuneration
of the members of the Board. Separate figures need to be shown for salary, fees,
other benefits and other performance-related element as required under PSC,
2013.
(iii) Provide details of aggregate amount of remuneration separately of executive and
non-executive directors, including salary/fee, perquisites, benefits and
performance-linked incentives etc. as requirement under CCG, 2019. It is
Page 8 of 10
Suggested Answers
encouraged to provide aforesaid details of remuneration of individual directors.
(iv) Disclose the names of members of the audit committee as requirement under PSC,
2013.
A.8 (a) OL by virtue of common directorship of Azam becomes an associated undertaking of

TBL. Further, TBL has offered special terms due to Azam Munir’s relationship. Under
the provisions of the Companies (Related Party Transactions & Maintenance of Related
Records) Regulations, 2018 (CRPT, 2018) a transaction shall be characterized as an
arm’s length transaction only if it is carried out as if the parties to the transactions were
unrelated in any way, hence, borrowing from TBL shall be classified as non-arm’s
length.
By virtue of above facts, following matters should be considered by OL with reference
to borrowing from TBL:
(i) OL should have a policy of related party transactions approved by the board
that should cover the required minimum conditions.
(ii) OL’s board shall approve related party transactions that require its approval and
the required minimum information shall be circulated and disclosed to the
directors along with agenda for board’s meeting called for approval of related
party transactions.
Following matters should be considered by OL with reference to borrowing from KB, to
which the provisions of Chapter 19 of the Foreign Exchange Manual (FEM) shall apply
and the said borrowing shall be classified as Private Sector Borrowings from Abroad
(PSBA). FEM empowers project financing under PSBA subject to compliance of
(i) OL needs to ensure that long term credit rating of OL or their sponsors must not
be lower than BB- issued by a recognized local/international credit rating agency.
(ii) OL needs to ensure that KB comply with international standards i.e. Financial
Action Task Force Guidelines of Anti Money Laundering & Combating
Financing of Terrorism.
(iii) The pledge of shares in favour of person residing outside Pakistan is prohibited,
hence, OL cannot pledge it in favour of KB without taking prior permission of
SBP as per the regulations contained in Chapter 20 of FEM and other
relevant instructions issued by SBP from time to time.
(iv) OL needs to get the loan registered with its banker i.e. authorized dealer.
(v) In case of prepayments of loan, OL should obtain approval of Exchange Policy
Department.
(vi) Borrowing all-in-cost ceiling for five years loan could be made maximum at 350
basis point excluding benchmark rate that need to be considered by OL.
(vii) Conversion of PSBA into equity would be allowed either after completion of the
project or after 3 years whichever is later and not with reference to default in
making payment. The said conversion is subject to prior approval of Exchange
Policy Department.
(viii) Since OL is a listed company, the loan would be converted at the average market
value of previous six months. The exchange rate used to convert foreign currency
Page 9 of 10
Suggested Answers
loan into PKR in latest audited financial statements will be used to establish the
rupee liability of the loan.
In case, OL intends to obtain waiver from the above requirements, then approval of
Exchange Policy Department shall be required.
(b) LRE falls under the definition of Designated non-financial businesses and professions
(DNFBPs) under the Anti-Money Laundering Act, 2010 (AML) and classified as a
reporting entity. Therefore the transactions need to be evaluated under the provisions of
AML.
The legality and responsibility of reporting by LRE with regard to the said transactions
under AML are as follows:
(i) Booking made by Zaid Khalid is legal as he is an old customer of LRE, and does
not fall under the ambit of occasional transactions; however, his request to book
the said transaction in his accountant’s name raise a doubt of Suspicious
Transaction. Hence, being a reporting entity, LRE shall promptly file ‘Suspicious
Transaction Report’ (STR) as prescribed by Financial Monitoring Unit (FMU).
(ii) LRE, being a reporting entity, is required to conduct customers due diligence
(CDD) in the prescribed manner while entering into a business relationship. Due
to the fact that Shaheer Azam is an unknown person for LRE who has not even
provided his CNIC; hence, this may be classified as anonymous business
relationships and transactions. Under the provisions of AML, LRE shall not enter
into a business relationship or conduct any transaction with a customer who is
anonymous or provides a fictitious name. Hence, being a reporting entity, LRE
shall promptly file STR as prescribed by FMU.
(The End)
Page 10 of 10
SUBJECT SESSION
Advanced Corporate Laws and Practices Certified Finance and Accounting
Summer 2022
Passing %
1 2 3 4 5 6 7 8
14% 45% 41% 30% 56% 39% 6% 8% 22%
General comments
Overall passing percentage has declined from 27% in the previous session to 22%. Below average
performances were observed in questions 1, 7 and 8 which seems to be on account of failure to
address the exact requirement of the question and inability to identify and cross-link the
applicable laws.
Question 1(a)
 Examinees were not able to identify that MBL can complain to the Commission that business
of GTL was conducted to defraud its creditors, in response to which, the Commission may
pass disqualification order against directors of GTL.
 Examinees did not mention that MBL may obtain an order for appointment of a
receiver/manager to ensure enforcement of security of GTL’s property, in terms of the long-
term loan facility.
Question 1(b)
Examinees were not able to identify all the situations in which memorandum or articles of
association of a public unlisted company are considered to have been altered/modified without
approval of company’s shareholders. Most of the answers covered only one or two such
situations.
Question 2(a)
Examinees failed to establish that DL and CPL are related parties and that transactions made
under the contract seems to be on non-arms’ length basis. Consequently, they failed to discuss the
statutory compliance.
Page 1 of 3
Examiners’ Comments on Advanced Corporate Laws and Practices – CFAP Examination
Summer 2022
Question 2(b)
 Examinees were not able to establish that OL and ML being wholly owned subsidiaries of DL
can be amalgamated with and into DL, irrespective of creditors’ dissent (if any).
 Examinees did not mention that the shares of OL and ML shall have to be cancelled without
payment or other consideration.
Question 3(a)
 Examinees were not able to identify the procedure required to be followed for
selling/transferring the shares as desired by Farhan Ali.
 Few examinees were not able to comprehend that in the light of regulations of Table A of the
First Schedule of the Companies Act, 2017, after the death of Amina Zahid, only Shamim
Hussain can deal with the jointly held shares.
Question 3(b)
Question 4(a)
Examinees failed to establish that OLL and MHF, being NBFCs, will be merged in accordance
with the provisions of the Companies Ordinance, 1984 and that the resolution is expected to be
approved in OLL’s EGM.
Question 4(b)
Examinees were not able to identify that such scheme will be binding on NBFCs and their
shareholders except dissenting shareholders who shall be entitled to claim from OLL such value
as determined by the Commission while sanctioning the scheme.
Question 5(a)
Examinees were not able to determine that OPL’s marking strategy can be viewed as capable of
harming and damaging the business interests of BPL and that BPL can raise the matter before the
Competition Commission of Pakistan.
Question 5(b)
Question 5(c)
Examinees failed to establish that NBL will hold a dominant position in the market if it acquires
29 million shares of KBL from DCL.
Page 2 of 3
Summer 2022
Question 6(a)
Examinees were not able to identify that:

 FL’s decision will constitute change in the principal purpose of the issue due to which a
special resolution will be required.
 FL’s dissenting shareholders will be provided an exit opportunity within 30 days from passing
of the special resolution.
Question 6(b)
Examinees were not able to identify that there would be no impact on PL’s plan due to non-
signing of underwriting agreement by SBA, if the Sukuk certificates were being issued for the
purpose of debt repayment or for meeting the working capital requirements.
Question 7(a)
Examinees were not able to identify the following in respect of CHL’s proposal:
 Proposed principal line of business is not possible due to the regulatory restriction;
 Proposed paid-up share capital requirement is not sufficient;
 Shareholding/ownership structure is not in compliance with the Insurance Ordinance.
Question 7(b)
Examinees were not able to identify the disclosures required to be made in the:
 statement of compliance as required under the Listed Co. (Code of Corporate Governance)
Regulations, 2019;
 annual report as required under the Public Sector Co. (Corporate Governance) Rules, 2013
related to name(s) of board members and audit committee members.
Question 8(a)
 Examinees did not identify the approvals required if loan is taken from TBL considering that
OL and TBL are associated undertakings and intends to enter in a non-arm’s length
transaction.
 Examinees did not discuss the prescribed conditions in accordance with the Foreign Exchange
Manual, required to be complied with in order to take loan from KB since borrowing from KB
shall be classified as Public Sector Borrowing from Abroad.
Question 8(b)
Examinees failed to identify that LRE being a reporting entity under the Anti-Money Laundering
Act, 2010 will have to report both suspicious transactions to FMU and that LRE cannot enter in
anonymous business relationship with Shaheer Azam.
(THE END)
Page 3 of 3

Mark(s)
A.1 (a) 02 marks for identifying each action 10.0
(b) Up to 1.5 marks for identifying each situation 5.0
A.2 (a)  Identify that DL and CPL are related parties 1.0
 Identify that transactions made under the contract would be on non-arms’
length basis 0.5
 Discuss the statutory compliances to be made by DL 2.5
(b)  Discuss that OL and ML being wholly owned subsidiaries of DL can be

amalgamated irrespective of creditors’ dissent (if any) 2.0
 Up to 0.75 mark for discussing each action required to be taken 4.0
A.3 (a)  Discuss that:

– Farhan Ali can gift 4 million shares to his daughter 1.0
– Farhan Ali cannot gift any shares to his son-in-law 1.0
– after the death of Amina Zahid, only Shamim Hussain can deal with
the jointly held shares 1.0
 Identify the procedure to be followed for selling the shares 6.0
(b) Discuss the:

 rights of Zia Karim, in the event of Bilal Karim’s death 2.0
 responsibilities of Zia Karim, in the event of Bilal Karim’s death 1.0
A.4 (a)  Identify that OLL and MHF, being NBFCs, will be merged in accordance
with the provisions of the Companies Ordinance, 1984 0.5
 Determine percentage of shareholders expected to approve the scheme in
number and in value 3.5
 Conclude that the resolution is expected to be approved 1.0
(b)  Identify that scheme will be binding on NBFCs and their shareholders except
dissenting shareholders who shall be entitled to claim from OLL 2.0
 State that OLL shall cease to function due to merger 1.0
 Discuss that property and liabilities of OLL will be transferred to MHF 1.0
A.5 (a)  Identify that OPL and BPL are undertakings under the Competition Act 1.0
 Determine that OPL is damaging business interests of BPL through adoption
of deceptive marketing practices 2.0
 State that BPL can raise the matter before the Competition Commission 1.0
(b)  Identify who is eligible to operate the SBP designated payment system 1.5
 Up to 0.75 mark for each situation in which designation may be revoked by
SBP 2.5
Page 1 of 2
Mark(s)
(c)  Identify that NBL’s offer for purchase of shares will be considered as merger
under Competition Act, 2010 and NBL will hold a dominant position in the
market after said purchase 2.0
 Discuss that NBL will have to submit pre-merger application to the
Competition Commission of Pakistan 1.0
A.6 (a)  Identify that:

– FL’s decision will constitute change in the principal purpose of the
issue due to which special resolution will be required 1.0
– dissenting shareholders will be provided an exit opportunity within
30 days from passing of special resolution 1.0
 Up to 01 mark for identifying each statutory compliance 5.0
(b)  Identify that the agreement relates to underwriting of securities 1.0

 01 mark for identifying each situation in which SBA’s refusal will not impact
PL’s plan 3.0
A.7 (a) 02 marks for evaluating CHL’s proposal and advising on each situation 6.0
(b)  Identify that BL will become public sector company and will have to comply
with the Listed Co. (Code of Corporate Governance) Regulations, 2019 as
well as Public Sector Co. (Corporate Governance) Rules, 2013 1.0
 1.5 marks for identifying each disclosure requirement 6.0
A.8 (a)  Identify that OL and TBL are associated undertakings, considering to enter
in a non-arm’s length transaction 2.0
 Discussing the approvals required in order to take loan from TBL 2.0
 Up to 1.5 marks for discussing each condition, prescribed by Foreign
Exchange Manual, required to be complied in order to take loan from KB 9.0
(b)  Identify that LRE:

– is a reporting entity under the Anti-Money Laundering Act, 2010 1.0
– will have to report both suspicious transactions to FMU 1.5
 Conclude that:
– booking by Zaid Khalid is not an occasional transaction 1.0
– LRE cannot enter in anonymous business relationship with Shaheer
Azam 2.5
(THE END)
Page 2 of 2

Advanced Corporate Laws and Practices

Q.1 Radiator Limited (RL) is a public unlisted company which owns 70% shares in a listed
company, Chandelier Limited (CL).
On 23 November 2022, RL’s board approved the acquisition of the remaining shares of CL at
the prevailing market price for making it a wholly owned subsidiary and intimated its intention
to CL’s board.
In a meeting held on 6 December 2022, CL’s board considered RL’s intention of purchasing
further 30% shares and resolved to get shares of CL de-listed from the Pakistan Stock
Exchange (PSX).
Additional information:
(i) CL’s financial information for the last five years:
2022 2021 2020 2019 2018

------------ Rs. in million ------------
Paid-up share capital of Rs. 10 each 300 300 300 200 200
Profit after tax for the year ended 30 September 142 135 185 192 168
Dividends for the year 90 75 105 80 60
Retained earnings as at 30 September 504 452 392 312 200
(ii) Details of CL’s shares purchased by RL from open market during the last two years:
21 Jan 2021 6 Oct 2021 3 Jun 2022 7 Jul 2022

No. of shares purchased by RL 3,000 1,500 1,000 3,500
Purchase price per share (Rs.) 75 70 63 59
(iii) Market price of CL’s shares as on 23 November 2022 and 6 December 2022 was
Rs. 65 and Rs. 61.5 per share respectively, whereas annualized average market price for
the last three years is Rs. 62 per share.
(iv) The revalued amount of the CL’s assets as on 30 November 2022, determined by the
professional valuers, duly certified by a firm of chartered accountants, was
Rs. 1,900 million.
Required:
(a) determine the minimum purchase price which should be notified to PSX for purchase
of CL’s shares. (08)
(b) identify the process of determining the final purchase price to acquire CL’s shares. (07)
Q.2 Headset Resorts Limited (HRL), a public unlisted company established in 2019, operates
various resort hotels in the northern regions of Pakistan. At the time of commencement of the
business, the entire operation was financed in the debt equity ratio of 60:40.
In August 2022, HRL had to stop its operations as majority of HRL’s resorts were completely
destroyed due to massive landslides caused by floods. Consequently, HRL failed to pay
monthly instalments of loans obtained from the financial institutions.
Following information were extracted from HRL’s records as on 31 October 2022 and sent to
all the creditors:
2022 2022
Assets Liabilities
Fixed assets 900 Clock Bank Ltd. (CBL) 990
Other assets 1,500 Safe Investment Ltd. (SIL) 900
Piano Bank Ltd. (PBL) 800
Fan Bank Ltd. (FBL) 750
Grill Finance Ltd. (GFL) 300
Other liabilities 200
Total assets 2,400 Total liabilities 3,940
Considering the situation, one of the above creditors, SIL approached HRL with a proposal
to restructure the loan terms which would enable HRL to re-start its operations. SIL has
extensive experience in reviving various companies and is confident that its proposal will
improve HRL’s financial position. HRL disagreed to some of the proposal terms which SIL
deemed necessary for HRL’s long-term sustainability.
Subsequently, SIL met with the representatives of CBL, PBL, FBL and GFL to discuss its
proposal and suggested to appoint a mediator to resolve the matter with HRL. FBL agreed to
the proposal, however, PBL and GFL refused to agree as they intended to recover the
outstanding amount by selling pledged securities. CBL agreed to the proposal with the
condition that CBL’s representative Zain Ali should be appointed as the mediator.
Required:
(a) advise the course of action available to SIL in respect of its proposal. Also state SIL’s
responsibilities in this regard. (06)
(b) discuss whether Zain Ali can be appointed as the mediator. Also explain how the
remuneration of mediator would be determined in the above scenario. (05)
Q.3 Lift (Private) Limited (LPL) was incorporated in 2019. Its principal line of business is to
promote internationally renowned brands of clothes in Pakistan. In this respect, LPL has
signed agreements with various foreign entities for which it has to perform inward and
outward foreign exchange transactions on regular basis using the sources permitted by the
State Bank of Pakistan (SBP). However, sometimes due to the urgency of the transactions,
LPL remits the amounts to the beneficiaries using the sources not permitted by the SBP.
On 5 December 2022, LPL was informed through reliable sources that some of the remittances
it made through unauthorized sources have come to the knowledge of the regulators and
consequently they have referred the matter to the prosecuting agency. The agency is
considering to appoint an officer for the investigation of LPL’s affairs who would also make
sure that LPL does not transfer any of its properties, whether located within or outside
Pakistan, till further notice.
Required:
Under the provisions of the relevant corporate laws, advise LPL’s management about the risks
related to LPL’s properties. (07)
Q.4 Following are the latest shareholding details of four companies:
Paid-up Shareholders
Name of companies capital* SFL TPL VPL Others
------------------ Rs. in million ------------------
Scanner Farms Limited (SFL) 1,200 - 20 850 330
Television (Private) Limited (TPL) 900 90 - 50 760
Vacuum (Private) Limited (VPL) 300 - 50 - 250
Webcam Foods Limited (WFL) 1,500 320 60 450 670
*All shares have a face value of Rs. 10 each and carry equal voting rights.
Following decisions were taken by the board of directors of the above companies in their
respective meetings held on 6 December 2022:
(i) SFL’s board resolved to sell its entire shareholdings in WFL.
(ii) TPL’s board approved the purchase of its own 40 million shares from the shareholders.
(iii) VPL’s board resolved to sell its entire shareholdings in WFL.
The market price of WFL’s shares as on 6 December 2022 was Rs. 45 per share.
Required:
Under the applicable corporate laws, identify the steps required to be taken by SFL, TPL and
VPL for executing the above resolutions of their boards. (10)
Q.5 The share capital of Dryer Limited (DL), a public unlisted company, comprises of 75 million
shares of Rs. 10 each, out of which the Federal Government through Ministry of Finance
owns 58 million shares.
The composition of DL’s board of directors is as follows:
Category Name of directors

Independent directors Anees Bilal, Khalil Ahmed, Murad Khan, Zainab Ali
Non-executive directors Asim Taha (Chairman), Rehan Gill, Wajid Nasim
Executive directors Farooq Khan, Rafique Shah (CEO), Rashid Noman
Summary details of DL’s board committees are as follows:
Board committees Members of the board committees

Audit committee Anees Bilal, Murad Khan, Rehan Gill, Wajid Nasim
Risk management committee Rehan Gill, Zainab Ali
Procurement committee Murad Khan, Rashid Noman
Nomination committee Asim Taha, Khalil Ahmed
Human resources committee Anees Bilal, Rashid Noman, Zainab Ali
On 29 November 2022, the Federal Government decided to make an offer for sale of
21 million shares in DL to the general public at Rs. 73 per share. It is expected that the sale of
shares by the Federal Government and listing of shares on the Pakistan Stock Exchange (PSX)
is to be concluded on or before 31 March 2023.
DL’s board is concerned about the changes in the board committees and governance after
listing of DL’s shares on PSX.
Required:
Under the applicable code of corporate governance, considering the concerns of DL’s board:
(a) discuss whether the existing board committees would continue to operate. (03)
(b) advise what would be the key changes to be made in the composition and conduct of
the audit committee. (06)
(c) discuss the changes in the qualification criteria of DL’s chief financial officer. (04)
Q.6 (a) Oven Bank Limited (OBL) is considering to borrow Rs. 2,500 million at KIBOR + 1.5%,
from Kettle Bank Ltd (KBL) repayable in six equal semi-annual installments starting
from June 2024. The loan will be secured against the pledge of 45 million securities of
Bulb Limited (BL).
Following information has been extracted from OBL’s records as of 30 November 2022:
(i) Investments in securities:

No. of Market
Cost
securities value
in million --- Rs. in million ---
BL – held-for-trading 45 2,800 2,000
Clock Limited (CL) – held-to-maturity 55 2,400 2,200
Drill Limited (DL) – available-for-sale 90 2,500 3,000
(ii) Balances in current account with: Rs. in million

State Bank of Pakistan (SBP) 445
Other banks 400
(iii) Cash in hand:

Local currency 300
Foreign currencies 240
(iv) Deposits placed by customers in:

Pak rupees – current deposits 9,400
Foreign currency – current deposits 4,500
Savings deposits with – two years maturity 4,200
– three years maturity 2,300
(v) Deposits placed by financial institutions in:

Pak rupees – current deposits 5,500
Savings deposits with two years maturity 3,500
(vi) Long term loan:

Rs. 3,000 million is outstanding in respect of a loan obtained by OBL from Juicer
Bank Limited against the pledge of 55 million and 45 million securities of CL and
DL respectively. The loan is repayable in three equal annual installments starting
from September 2023.
Required:
Under the provisions of the Banking Companies Ordinance, 1962 establish whether
OBL’s liquid assets are sufficient to support borrowing from KBL on the proposed terms. (08)
Note: SBP has issued a directive to all the banks to maintain liquid assets at the rate of 19%
of its demand liabilities.
(b) Ali Saeed, an equity investor, frequently trades in the shares of banking companies. His
shareholdings as on 7 December 2022 in Blender Bank Limited (BBL) and Oven Bank
Limited (OBL) are as follows:
No. of securities Cost

Name % of shares held
in million Rs. in million
BBL 4.1% 120 1,824
OBL 4.4% 102 1,255
In anticipation of the announcements of right shares from BBL and bonus shares from
OBL, Ali Saeed intends to purchase further 0.5% and 1.2% shares of BBL and OBL
respectively in December 2022.
Required:
Under the provisions of the Banking Companies Ordinance, 1962 advise Ali Saeed
regarding the requirement(s), if any, to be fulfilled in the above situation. Also state the
consequences if Ali Saeed does not meet the relevant requirements. (07)
Q.7 You are an executive director of a renowned corporate consultancy firm engaged in providing
corporate secretarial services to multiple clients. The following independent matters are under
your consideration:
(a) Steamer Limited (SL) is the large exporter of electronic equipment in the Indonesian
market.
SL is currently considering to separate its manufacturing and marketing functions for

the purpose of better control and management. In this regard, SL intends to establish a
company under the Companies Act, 2017 as its subsidiary under the name ‘Pakistan
Indonesia Development Chamber’ (PIDC) to look after the marketing functions. SL
intends to hold 60% shareholdings in PIDC whereas the remaining shares would be
issued to the general public.
Required:
Under the applicable corporate laws, discuss the suitability of the name proposed for the
new company. (04)
(b) Grinder Limited (GL) is a public unlisted company which commenced business on
1 July 2018. However, due to global economic recession caused by COVID-19
pandemic, GL could not achieve the desired operating results.
Following information has been extracted from GL’s records:
2022 2021
----- Rs. in million -----
Paid-up share capital (Rs. 10 each) 400 400
Accumulated loss as on 30 June (120) (100)
Loss after tax for the year ended 30 June (20) (80)
In November 2022, GL received a huge export order to supply 500,000 industrial

torches each month to a US based company, for one year commencing from
1 March 2023.
In order to manage the working capital requirements in respect of the export order, GL
needs to raise finance of Rs. 100 million for which GL is considering to issue shares to
Plotter Limited (PL), a listed company, against total cash consideration of
Rs. 8 per share.
Required:
Under the applicable corporate laws, advise statutory requirements, which GL must
comply before and after issuance of shares to PL. (11)
(Ignore the provisions of the Companies (Further Issue of Shares) Regulations, 2020)
Q.8 Safe Exports Limited (SEL) was incorporated on 1 July 2017. The principal line of business
of SEL is the export of hosiery products.
On 29 September 2022, the CEO informed the board of directors that export sales to European
countries, that constitutes the major part of the total sales, have significantly decreased,
specially during the last two years. SEL’s total export sales during the last four years were as
follows:
Average exchange Amount in '000
Year
rate for USD 1 Rupees USD
2019 Rs. 120 720,000 6,000
2020 Rs. 140 910,000 6,500
2021 Rs. 160 880,000 5,500
2022 Rs. 220 660,000 3,000
Considering the decline in export sales, SEL’s board advised the CEO to explore alternate
workable arrangements for mitigating the alarming situation.
On 1 December 2022, the CEO presented a proposal to the board suggesting to open SEL’s
branch office in London where there is a huge potential for SEL’s products. Following
estimates were presented to the board in this regard:
Amount in '000
PKR *USD
Investment required for the establishment of branch 132,000 600
Export earnings 2,640,000 12,000
Operational expenses to be incurred by the branch **396,000 **1,800
* 1 USD = PKR 220
** It includes the amount of Rs. 176,000,000 (USD 800,000) which SEL would remit to its
branch for meeting the operational expenses.
The board after deliberation advised the CEO to get the proposal vetted by SEL’s banker for
proposed remittances and to submit a comprehensive plan for the final consideration and
approval of the board.
Other information as on 30 November 2022:

Rs. in '000
Paid-up share capital (Rs. 10 each) 100,000
Reserves 15,000
Unappropriated profit 10,000
Provision for deferred taxation 4,000
Due from related parties 25,000
Investments in unlisted shares of subsidiaries 7,000
Investments in listed shares of associated company 6,000
Provision for doubtful debts in respect of export sales 10,000
Required:
Under the provisions of the Foreign Exchange Manual, advise the CEO in the light of board’s
directives:
(a) whether SEL’s banker will allow the above proposed remittances. (12)
(b) the alternative(s) available to SEL. Assume that SEL’s banker has shown its inability to
remit the amount. (02)
(The End)
Suggested Answer
A.1 (a) CL’s board has resolved to get shares of CL de-listed from PSX. It means that the board
has resolved for voluntary delisting of CL’s shares.
The minimum purchase price which should be notified to PSX for purchase of CL’s shares
is Rs. 64.22 per share, which is the highest of the following prices per share, as required
under the PSX Rule Book:
Rupees
(i) Market price as of date of notification i.e. 6 December 2022 61.50
(ii) Average market price (annualized) for last three years 62.00
(iii) Intrinsic value per share (W-1) 63.33
(iv) Earnings multiplier approach (W-2) 64.22
(v) Maximum price at which RL had purchased the shares in the
preceding one year from the open market 63.00
W-1:
Rs. 63.33 per share (Rs. 1,900 million ÷ 30 million shares) is the intrinsic value calculated on the
basis of the revalued amount of the CL’s assets as on 30 November 2022, determined by
the professional valuers, duly certified by a firm of chartered accountants, which is issued
within a period of three months.
W-2:
Rs. 64.22 per share [4.94(2.13+1.58+1.23)(W-3) (being higher than 4.73) × 13(W-4)] calculated
on the basis of earnings multiplier approach based on adjusted EPS of CL’s after tax profit
of last three years preceding the date of the notice given to PSX i.e. 6 December 2022 as
reported in its annual audited financial statements multiplied by current P/E ratio.
W-3: 2022 2021 2020

Profit after tax for the year (Rs. in million) 142 135 185
No. of shares issued (in million) 30 30 30
Earnings per share (Rs.) 4.73 4.50 6.17
Weightage (%) 45% 35% 20%
Earnings per share - adjusted (Rs.) 2.13 1.58 1.23
W-4: P/E ratio = current price ÷ actual EPS of the year 2022 = 61.5 ÷ 4.73 = 13
(b) The process of determining the final purchase price to acquire CL’s shares is as follows:
(i) CL shall notify PSX, immediately when board resolved to get shares of CL de-listed
from PSX along with the reasons thereof and minimum price at which the shares
are proposed to be purchased i.e. Rs. 64.22 per share [as determined in (a) above].
(ii) A formal application to PSX shall be made by CL for de-listing supported by
reasons thereof and the proposed purchase price i.e. Rs. 64.22 per share [as
determined in (a) above] along with non-refundable application fee of Rs. 500,000
to be paid by RL.
(iii) Final purchase price of shares to be de-listed shall be fixed with the approval of PSX
and will be determined/approved by the PSX’s board on its own or on the basis of
recommendations of PSX’s Voluntary Delisting Committee.
(iv) The decision of the PSX’s board will be communicated to RL, CL and shall also be
notified and announced immediately.
(v) RL will be required to convey acceptance/refusal to the purchase price approved
by the PSX’s board within 7 days of conveying of the relevant decision to them.
Page 1 of 10
Suggested Answer
(vi) If RL prefers to appeal to the Commission on PSX decision, it must do so within

10 days of the decision.
(vii) Once the purchase price has been finalized either by the determination of the
Commission in appeal; or by RL accepting the price stipulated by PSX, CL shall
call a general meeting of its shareholders and pass a special resolution approved by
not less than ¾ of their number present at such meeting resolving that shares be de-
listed on terms stipulated by PSX.
(viii) The purchase agent will maintain a live bid in the System during initial period of
60 days of trades, at the minimum purchase price approved by PSX. The actual
purchase price shall be based on market forces, subject to minimum purchase price
determined by PSX.
A.2 (a) Course of action available to SIL in respect of its proposal:

SIL and FBL are qualifying creditors since their outstanding debt cumulatively amounts
to Rs. 1,650 million (900 + 750) which is more than two-third of the value of HRL’s assets
i.e. Rs. 1,600 million (2,400 × 2 ÷ 3).
SIL together with FBL shall have to file a petition in the Court for an order of mediation
against HRL, if they could make a prima facie case in this respect.
SIL’s responsibilities:
SIL together with FBL shall have to submit a plan of rehabilitation of HRL in the Court,
within thirty days after submission of the statement of affairs by HRL, upon the Court’s
directions.
SIL must ensure that rehabilitation plan submitted by it specifies following matters in
relation to HRL:
 Claims and classes of claims against HRL;
 Interests and classes of interests in HRL;
 Claims and interests belonging to HRL;
 Claims or interests that will or will not be impaired under the plan of rehabilitation;
 Places of business of HRL, details of its assets and any security interests created over
such assets;
 Particulars of HRL’s shareholders, directors and key management;
 Scheme of implementation of the plan of rehabilitation of HRL.
On receiving the order from the Court, SIL and FBL shall provide the notice of the order
of mediation to all interested parties within three days through:
 registered post, acknowledgement due or courier service; and
 publication in one English language and one Urdu language daily newspaper of
wide circulation in the country.
SIL and FBL shall ensure that the notice of the order of mediation specifies the
appointment of mediator and mentions that any claims against, and interests in HRL,
must be filed with mediator within a period of fourteen days of publication of notice of
the order of mediation.
SIL shall provide necessary funds to allow the mediator to perform the functions under
the Corporate Rehabilitation Act, 2018.
Page 2 of 10
Suggested Answer
(b) The Court has the power to appoint an insolvency expert to act as sole or joint mediator(s).
The Court may consider appointing Zain Ali as mediator if he fulfills all of the following
conditions:
 He is an insolvency expert having sound knowledge of insolvency practices of
Pakistan;
 He is a professional having minimum experience of fifteen years in the field of
accountancy, banking, finance, law, management;
 His name appears on the panel of insolvency experts maintained by the Commission
in consultation with the State Bank of Pakistan.
Determination of remuneration:
In the given scenario as the petition for an order of mediation is to be filed by SIL and
FBL being the qualifying creditors as discussed in (a) above, hence the remuneration of
mediator would be determined by HRL, SIL and FBL with mutual consent.
However, in case of disagreement between HRL, SIL and FBL remuneration of mediator
shall be determined by the Court.
A.3 The outward remittance of foreign exchange by LPL using the sources not permitted by the SBP,
raises the doubt that LPL may indulge in transfer of its property (i.e. its funds) out of proceeds
of crime that will lead to the offence of money laundering under the Anti-Money Laundering
Act, 2010 (AML).
Accordingly, if the prosecuting agency will appoint an officer for the investigation of LPL’s
affairs who would also make sure that LPL does not transfer any of its properties, whether
located within or outside Pakistan, till further notice, then under the AML, following would be
the risks related to LPL’s properties:
(i) Risk of attachment of local properties:

LPL’s properties may provisionally be attached for a maximum period of 180 days by an
order in writing, and with prior permission of the Court.
(ii) Risk of losing possession on confirmation of attachment of local properties:

LPL shall lose possession of the attached property after the aforesaid provisional
attachment is confirmed by the Court, based on the determination that LPL’s property is
involved in money laundering, which shall continue during the pendency of the
proceedings before a Court, relating to money laundering, unless LPL is acquitted.
However, where the property seized is perishable in nature or subject to speedy and
natural decay, or when the expense of keeping it in custody is likely to exceed its value,
the Court may, on the application of the investigating officer, order immediate sale of the
property in any manner deemed appropriate in the circumstances.
(iii) Risk of forfeiture of local properties:

If it is proved to the Court that LPL’s property is involved in money laundering, then by
the Court’s order it shall be forfeited and all the rights and title in such property shall vest
absolutely in the Federal Government free from all encumbrances.
(iv) Risk on properties located outside Pakistan:

LPL’s properties located outside Pakistan may have the same impact as that of properties
located within Pakistan as discussed above, if those other countries are contracting state.
Page 3 of 10
Suggested Answer
A.4 VPL holds 70.83% (850 ÷ 1,200) shares in SFL; therefore, VPL is holding company of SFL.
Further, VPL and SFL together holds 51.33% shares [30% (450 ÷ 1,500) + 21.33% (320 ÷ 1,500)] in
WFL which make WFL a subsidiary of VPL.
As per the decisions taken in the board meetings of VPL and its subsidiary SFL, it is established
that VPL wants to dispose of its subsidiary company i.e. WFL which is listed on PSX.
Steps required to be taken by VPL:

 In order to dispose of the subsidiary, VPL shall have to obtain consent of the general
meeting under an ordinary resolution either specifically or by way of an authorization.
 Notice of general meeting should be sent 21 days before the date of general meeting along
with proxy form and a statement setting out all material facts concerning such business.
 VPL being a private company may pass the resolution through circulation that need to be
signed by all the members for the time being entitled to receive notice of meeting.
Steps required to be taken by SFL:

Since SFL holds 21.33% shares of WFL, there are no additional steps required under any
corporate laws that need to be taken for executing its board’s decision. Nevertheless, since VPL
has to obtain the consent of general meeting, being a subsidiary, SFL may wait for the outcome
of VPL general meeting’s decision.
Steps required to be taken by TPL:

 Board of TPL shall recommend to the members purchase of the shares. The decision of the
board shall clearly specify the number of shares proposed to be purchased, the purchase
price, period within which the purchase shall be made, source of funds, justification for the
purchase and effect on TPL’s financial position.
 Purchase of shares shall be made under authority of a special resolution for which a general
meeting shall be held; and after purchase of shares it shall be cancelled.
 TPL being a private company may pass the resolution through circulation that need to be
signed by all the members for the time being entitled to receive notice of meeting.
 TPL shall make the purchase within such period and have to comply with such
requirements as may be specified in the regulations.
 TPL shall purchase the shares against cash consideration and out of the distributable profits
or reserves specifically maintained for the purpose.
A.5 (a) Continuity of existing board committees:

At present, DL falls under the definition of “public sector company” under the provisions
of the Public Sector Companies (Corporate Governance) Rules, 2013 (PSCCG) as its
77.33% (58 ÷ 75 × 100) shares are held by the Federal Government (FG), accordingly it
would be complying with the requirements of PSCCG.
However, after sale of DL’s 21 million shares by the FG to the general public, FG’s
shareholding will be reduced to 49.33% (37 [= 58 – 21] ÷ 75 × 100), accordingly, after
listing, instead of PSCCG, it shall have to follow the requirements of the Listed
Companies (Code of Corporate Governance) Regulations, 2019 (CCG).
At present, DL has five board committees that are mandatory under the PSCCG.
Under CCG, it would be mandatory for DL to have the following committees:

 Audit Committee;
 Human Resource and Remuneration Committee.
Page 4 of 10
Suggested Answer
Further, following committees are recommended under CCG:

 Nomination Committee;
 Risk Management Committee.
However, CCG does not require or recommend the formation of a procurement

committee.
Hence, after getting listed, DL may or may not continue to have the committees except
the Audit Committee and Human Resource Committee. Moreover, the Human Resource
Committee shall be captioned as Human Resource and Remuneration Committee as
required under CCG.
(b) Key changes to be made in the composition of the audit committee

Under CCG, at least one member of audit committee shall be financially literate, who
must fulfill the following criteria i.e. a person who:
 is a member of a recognized body of professional accountants; or
 has a post graduate degree in finance from a university or equivalent institution,
either in Pakistan or abroad, recognized by the Higher Education Commission of
Pakistan; or
 has at least ten years of experience as audit committee member; or
 has at least twenty years of senior management experience in overseeing of financial,
audit related matters.
PSCCG requires that all members should be financially literate, however, no criteria of
literacy is prescribed. Hence, if any one out of four existing audit committee members
meets the above requirement, DL can continue with them, otherwise, DL shall have to
appoint at least one person fulfilling the above criteria.
Key changes to be made in the conduct of the audit committee

(i) Under CCG, the Secretary to the audit committee shall either be a company
secretary or head of internal audit (HIA) while no such restriction exists under
PSCCG.
(ii) Under CCG, a meeting of the audit committee shall also be held, if requested by
the external auditors, head of internal audit or by chairman of the audit committee;
while no such requirement exists under PSCCG.
(iii) Under CCG, the minutes of audit committee shall be circulated to HIA and where
required to the CFO. Whereas PSCCG requires its circulation to CFO instead of
HIA.
Moreover, under CCG, minutes shall be circulated prior to the next meeting of the
board, whereas, under PSCCG, the minutes shall be circulated within 14 days of
the meeting.
However, under CCG where it is not practicable to circulate the audit committee’s
minutes prior to the next meeting of the board, the chairman of the audit committee
shall communicate a synopsis of the proceedings to the board and the audit
committee’s minutes shall be circulated along with the minutes of the meeting of
the board.
Page 5 of 10
Suggested Answer
(c) Changes in qualification criteria of CFO

As per PSCCG, if total assets of DL are less than Rs. 5 billion, a person holding a master
degree in finance from a university recognized by the HEC with at least ten years relevant
experience, can be appointed as CFO; otherwise should be a member of a recognized
body of professional accountants with at least five years relevant experience.
However, relevant experience has not been defined by PSCCG.
After the applicability of CCG, DL shall appoint a person as CFO who meets any of the
following criteria:
(i) He/she has at least three years of managerial experience in the fields of audit or
accounting or in managing financial or corporate affairs functions of a company
and is a member of ICAP or ICMAP;
(ii) He/she has at least five years of managerial experience in the fields of audit or
and is either a member of professional body of accountants whose qualification is
recognized as equivalent to post graduate degree by HEC of Pakistan or has a
postgraduate degree in finance from a university in Pakistan or equivalent
recognized and approved by the HEC of Pakistan;
(iii) He/she has at least seven years of managerial experience in the fields of audit or
and has a suitable degree from a university in Pakistan or abroad equivalent to
graduate degree, recognized and approved by the HEC of Pakistan.
A.6 (a) Under the provisions of the Banking Companies Ordinance, 1962 OBL’s liquid assets are
not sufficient to support borrowing from KBL on the proposed terms since its available
liquid assets are less than required 19% of demand liabilities. The position of OBL’s liquid
assets after proposed borrowing from KBL would be as follows:
Rs. in million
Total liquid assets as at 30 November 2022 (W-1) 2,635
Liquid assets required to be maintained @ 19% of demand liabilities
(19,400 (W-2) × 19%) 3,686
Liquid assets - shortfall (1,051)
W-1: Liquid assets of OBL as at 30 Nov 2022 Market Liquid

Cost
value assets
Investments: ----------- Rs. in million -----------
45 million securities of BL - held-for-trading 2,000 2,800 *-
45 million securities of DL - available-for-sale 1,500 1,250 1,250
(3,000/2) (2,500/2) (2,500/2)
Balances in current accounts with:
State Bank of Pakistan 445
Other banks 400
Cash in hand:
Local currency 300
Foreign currencies 240
2,635
*Not considered as OBL intends to pledge these shares with KBL
Page 6 of 10
Suggested Answer
W-2: Demand liabilities of OBL as at 30 November 2022 Rs. in million

(i) Deposits placed by customers in:
Pak rupees - current deposits 9,400
Foreign currency - current deposits 4,500
(ii) Deposits placed by financial institutions in:

Pak rupees - current deposits 5,500
19,400
(b) Under the provisions of the Banking Companies Ordinance, 1962 a person who holds five
percent or more shares of a banking company, should obtain prior approval of the State
Bank of Pakistan (SBP) and should meet and continue to meet the fit and proper test of
the SBP.
Considering the above, the requirement to be fulfilled by Ali Saeed in respect of further
purchase of shares of BBL and OBL are as follows:
Requirement before purchasing BBL’s shares:

No requirement is to be fulfilled by Ali Saeed with respect to proposed purchase of further
0.5% shares of BBL, as even after the said purchase his percentage of shareholding will
still be less than five percent (4.1 + 0.5 = 4.6%) i.e. the threshold specified under the
Banking Companies Ordinance, 1962.
Requirements before purchasing OBL’s shares:

As regards proposed purchase of further 1.2% shares of OBL, Ali Saeed shall have to take
prior approval of SBP as after the proposed purchase his shareholdings in OBL will be
5.6% (= 4.4 + 1.2) i.e. it will exceed the threshold of five percent shares. Moreover, he
will also have to meet fit and proper test as may be required by SBP.
Consequences of failure to meet the relevant requirements:

If Ali Saeed fails to meet the aforesaid requirements then he may have to face following
consequences, as SBP may give order due to such failure:
(i) To reduce, divest or transfer to a fit and proper person his shareholding within such
reasonable period, if Ali Saeed subsequently fails to meet the fit and proper test even
though he had purchased the shares with SBP’s prior approval.
(ii) To divest his shareholding to a fit and proper person, if in the opinion of SBP, he is
or is likely to be detrimental to the interest of OBL or its depositors.
(iii) To prohibit Ali Saeed (through an interim order):
 to transfer of, or carry out of the agreement or arrangement to transfer OBL’s
shares;
 to exercise voting rights.
In case of noncompliance of (i) or (ii), SBP may dispose of Ali Saeed’s shares of OBL
either through PSX or public auction.
SBP’s aforesaid interim order may also deprive Ali Saeed during continuance of aforesaid
interim order from his following entitlements, if during that period OBL announce:
 cash or stock dividends;
 issue of further shares.
Page 7 of 10
Suggested Answer
A.7 (a) The name proposed for the new company i.e. “Pakistan Indonesia Development
Chamber” (PIDC) is not suitable, as consideration has not been given to the following
provisions of the Companies Act, 2017 and the Companies (Incorporation) Regulations,
2017:
(i) PIDC’s principal line of business i.e. marketing functions of various electronic
equipment, does not commensurate with its name, whereas it is mandatory that it
shall always commensurate with the name.
(ii) The word Chamber is allowed for those companies that is to be established as a
Trade Organization under the Trade Organizations Act, 2013. Since it is not the
intention to form a trade organization, the word ‘Chamber’ cannot be used in the
name.
(iii) New company’s name cannot contain name of two countries i.e. Pakistan and
Indonesia, since there is no indication that it is a Joint Venture of two governments
or companies or individuals of two relevant countries. Permission for registration
with such words may only be extended subject to submission of documentary
evidence to the satisfaction of the registrar to support the fact.
(iv) Since SL intends to issue new company’s 40% shares to the general public, it means
it will be incorporated as a public limited company. Hence, the name must contain
the word “Limited” as the last word of the name of the company.
(b) GL intends to issue shares to PL at Rs. 8 per share i.e. at a discount of Rs. 2 per share, in
that case it has to meet the following statutory compliances before issuance of shares:
 Call board of directors meeting to get the approval for further issue of shares to PL
at a discount.
 Send notice of general meeting along with proxy form and draft of special
resolution, 21 days before the date of general meeting.
 Get the approval of members under special resolution to be passed in GL’s general
meeting for issue of shares at discount to PL, by specifying number of shares to be
issued (i.e. 12.5 million [= 100 million ÷ 8]), rate of discount (i.e. 20%), and
proposed price per share (i.e. Rs. 8 per share).
 GL may get the special resolution passed by circulation signed by all the members
for the time being entitled to receive notice of a meeting, if its number of members
are not more than fifty.
 After GL has passed a special resolution authorising the issue of shares to PL at 20%
discount, apply to the Commission for an order sanctioning the issue.
 File the duly authenticated special resolution with the registrar within fifteen days
from passing thereof. The resolution shall be embodied in or annexed to every copy
of the articles issued after that date, if articles have been registered and shall keep
the record of copy of the resolution.
 Obtain certification of statutory auditors confirming breakup value per share based
on assets (revalued not later than 3 years) or per share value based on discounted
cash flow is not more than Rs. 8 per share.
 Issue shares within sixty days after the date on which issue is sanctioned by the
Commission or within such extended time as the Commission may allow.
 Issue share certificates in physical form within thirty days after the allotment of
shares under the signature of GL’s authorized officer, in such manner and form as
may be specified.
Page 8 of 10
Suggested Answer
 The share certificates shall be issued in the following manner, namely:

– in pursuance of a resolution passed by GL’s board; and
– on surrender of letter of allotment to GL.
 Make compliance of other terms and conditions deemed fit by the Commission.
 GL being an unlisted company, if proposes to offer its shares to PL by way of private
placement, then it shall have to ensure that:
– During the current financial year, it has not made two private placements;
– Shares are offered through information memorandum which contain minimum
information as specified in Schedule-I of the Private Placement of Securities
Rules, 2017;
– It should receive the amount from PL through cheque or demand draft or other
banking channels but not in cash.
Following are statutory compliances to be met by GL after issuance of shares:

 File with the registrar a return of the allotment within 45 days after the date of
allotment stating the following:
– number of the shares (12.5 million shares);
– nominal amount (Rs. 125 million) of the shares comprised in the allotment;
– such particulars as may be specified of PL; and
– amount paid on each share (Rs. 8 per share).
 Accompany the following with the said return of allotments:
– report from its auditor to the effect that the amount of consideration Rs. 100
million has been received in full by GL and shares have been issued to PL;
– copy of the resolution passed by the company authorising such issue; and
– copy of the order of the Commission permitting the issue at higher than 10%
discount.
 If GL had passed the resolution by circulation then it shall have to be noted at
subsequent meeting of the members and made part of the minutes of such meeting.
 Contain particulars of the discount allowed on the issue of the shares to PL in every
prospectus relating to the issue of shares, and every statement of financial position
issued by GL subsequent to the issue of shares.
 Ensure that proceeds of the issue are utilized in the form and manner as disclosed
in the information memorandum, if the shares are issued by way of private
placement.
A.8 (a) Under the Foreign Exchange Manual (FEM), SEL’s banker would only be able to allow
the proposed remittances, once the banker gets the assurance that SEL complies with all
the terms and conditions specified in the FEM which are as follows:
(i) It is an export oriented Pakistani company.

(ii) It has designated it (i.e. one branch of the banker) to exclusively handle the
transaction.
(iii) Profits, dividends and capital of London branch would be repatriated.
(iv) Proposed funds for investment is legitimate and taxes have been paid.
(v) It has a clean record of loan repayments.
(vi) No money laundering and terrorism financing related investigation is pending
against SEL or its beneficial owner / key management personnel under Anti Money
Laundering Act, 2010 or Anti-Terrorism Act, 1997.
(vii) It has made an application to banker.
Page 9 of 10
Suggested Answer
(viii) The application should be accompanied by the following relevant information:

 The proposed branch office shall be involved in selling the hosiery products
i.e. the business in which SEL is already engaged in Pakistan.
 Copies of SEL’s last three years audited financial statements.
 Such documents through which it could be established that:
– SEL is a bona fide entity; and
– the transactions to be entered into by SEL is genuine.
 The performance of previous investments abroad, if any, in terms of profit
repatriation, increase in exports etc.
Even after getting affirmative reply on all the above matters, SEL’s banker would still not
be able to approve the proposed remittances as the proposed remittances are beyond its
permitted limits that should have to be in line with the terms and conditions of “general
permission” specified under FEM which are as follows:
(i) Limit on investment required for the establishment of branch:

SEL’s proposed investment exceeds the permitted limit of 80% of SEL’s equity i.e.
Rs. 69,600,000 [= 87,000,000 (W-1) × 80%].
(ii) Limit on remittance to the branch for meeting the operational expenses:
SEL would be able to remit maximum USD 500,000 i.e. higher of USD 100,000 or
10% of its average annual export earnings of last three years i.e. USD 500,000
(=*USD 5,000,000 × 10%).
*USD 5,000,000 (=3,000,000 + 5,500,000 + 6,500,000 = 15,000,000 ÷ 3)
(iii) Limit on export overdue:

Provision for doubtful debts in respect of export sales as at 30 November 2022 was
Rs. 10,000,000 which is 1.52 % (= 10,000,000 ÷ 660,000,000 × 100) of SEL’s
previous year’s export sales. If the export overdue at the time of application is more
than Rs. 6,600,000 (660,000,000 × 1%) i.e. beyond the permitted limit then the
banker will not be able to allow the remittance.
W-1: Rs. in '000

Paid-up share capital 100,000
Reserves 15,000
Unappropriated profit 10,000
125,000
Less:
Due from related parties 25,000
Investment in unlisted shares of subsidiaries 7,000
Investment in listed shares of associated company 6,000
38,000
Adjusted Equity 87,000
(b) Alternative(s) available to SEL:

If SEL’s banker has shown its inability to remit the amount, then alternative available to
SEL is to get permission from State Bank of Pakistan for remitting the proposed amount
to its London branch.
(The End)
Page 10 of 10
SUBJECT SESSION
Advanced Corporate Laws and Practices Certified Finance and Accounting

Winter 2022
Passing %
1 2 3 4 5 6 7 8
28%
36% 50% 52% 8% 54% 43% 13% 15%
General comments
The overall result in this session has improved as compared to 22% in the previous session. However,
there were still some poor performances in questions 4, 7 and 8 which seems to be on account of
selected studies, failure to address the exact requirement of the question, and inability to identify and
cross-link the applicable corporate laws.
Question 1(a)
 Examinees did not identify that the CL’s board has resolved for voluntary de-listing; therefore,
the minimum purchase price would be determined under the PSX Rule Book.
 Examinees were not able to calculate the minimum purchase price to acquire CL’s shares through
the earnings multiplier approach.
Question 1(b)
Examinees did not discuss that PSX would approve the purchase price, however, RL may appeal to
the Commission in respect of the decision taken by PSX. Most of the answers mentioned that the
approval of CL’s shareholders would be required only.
Question 2(a)
 Examinees failed to establish that SIL and FBL, being qualifying creditors, may file a petition in
the Court for an order of mediation against HRL, since their outstanding debt cumulatively
exceeded two-thirds of the value of HRL’s assets.
 Examinees did not discuss that SIL would be responsible to submit a rehabilitation plan to the
Court; and that SIL shall provide necessary funds to allow the mediator to perform the required
functions.
Winter 2022
Question 2(b)
 Examinees did not discuss that Court may appoint Zain Ali only if he fulfils prescribed criteria.
 Examinees did not mention that the remuneration of the mediator would be determined by HRL,
SIL and FBL with mutual consent. However, in case of any disagreement, the remuneration would
be determined by the Court.
Question 3
Examinees failed to establish that LPL may have been involved in money laundering activities and
that the following would be the risks related to LPL’s properties located within Pakistan:
 Risk of provisional attachment for a maximum of 180 days;
 Risk of losing possession in specified circumstances;
 Risk of forfeiture.
Question 4
 Examinees were not able to determine that VPL would require the approval of its shareholders to
sell WFL’s shares since WFL is a subsidiary of VPL.
 Examinees did not mention that TPL shall purchase its own shares against cash consideration and
out of the distributable profits or reserves specifically maintained for the purpose.
Question 5(a)
Examinees did not identify that DL is a public sector company that currently complies with Public
Sector Companies (Corporate Governance) Rules; however, after the sale of shares by the Federal
Government, DL would only comply with the Code of Corporate Governance Regulations (CCG)
applicable on listed companies.
Question 5(b)
Examinees did not identify the key changes, under CCG, with respect to the prescribed:
 criteria of financial literacy which must be fulfilled by at least one member of the committee;
 requirements related to the minutes of the audit committee meeting.
Question 5(c)
Good performance was noted in this part of the question.
Question 6(a)
Examinees were not able to distinguish between the demand and time liabilities of OBL. Further, few
examinees correctly determined the liquid assets maintained by OBL; thereby concluding that OBL’s
liquid assets are not sufficient to support borrowing from KBL on the proposed terms.
Winter 2022
Question 6(b)
Examinees were not able to identify the following consequences:

 SBP may dispose of shares of OBL held by Ali Saeed through PSX or public auction;
 SBP may prohibit Ali Saeed to exercise voting rights in respect of shares held by him;
 SBP may deprive Ali Saeed of the dividend entitlements.
Question 7(a)
Examinees were not able to identify that the proposed name is not suitable due to the following
reasons:
 Principal line of business does not commensurate with the proposed name;
 Names of two countries cannot be used except in specified circumstances;
 Name must contain the word ‘Limited’.
Question 7(b)
Examinees were not able to identify the statutory compliances which needed to be met by GL:
 before issuance of shares to PL at a discount of Rs. 2 per share;
 before and after issuance of shares through private placement e.g., issuance and compliance of
information memorandum, etc.
Question 8(a)
 Examinees did not discuss the prescribed terms and conditions to be met by SEL as specified in
the Foreign Exchange Manual, in order to make the proposed remittances.
 Examinees did not determine that the proposed remittances as well as export overdue exceeded
permitted limits.
Question 8(b)
Examinees failed to identify that the alternative available to SEL is to get permission from the State
Bank of Pakistan for remitting the proposed amount to its London branch.
(THE END)

Mark(s)
A.1 (a)  Identify that CL’s board has resolved for voluntary de-listing 1.0
 Identify the criteria of determining minimum purchase price 3.0
 Calculate the minimum purchase price 4.0
(b)  Identify that PSX shall approve the purchase price 3.0
 Discuss that RL may appeal to the Commission in respect of PSX decision 2.5
 Identify that approval of CL’s shareholders shall be taken 1.5
A.2 (a)  Determine that petition in the Court may be filed by the qualifying
creditors 2.0
 Up to 01 mark for identification of each responsibility 4.0
(b)  Identify that Court may appoint Zain Ali if he fulfils the prescribed criteria 3.0
 Discuss that remuneration is determined by mutual consent or by the Court 2.0
A.3  Discuss that LPL may have been involved in money laundering activities 1.0
 Up to 02 marks for each risk related to LPL’s properties within Pakistan 5.0
 Identify risks related to LPL’s properties located outside Pakistan 1.0
A.4  Determine that WFL is a subsidiary of VPL 2.0

 Identify that VPL requires approval of its shareholders to sell WFL’s shares and
SFL being VPL’s subsidiary would wait for the aforesaid approval 3.0
 Identify approvals required to be taken before TPL can purchase its own shares 4.0
 Discuss that TPL shall purchase its own shares against cash consideration 1.0
A.5 (a)  Identify that DL is a public sector company 1.0

 Discuss that after sale of shares by FG, DL needs to comply with the Code
of Corporate Governance Regulations (CCG) applicable on listed
companies 1.0
 Determine board committees required under CCG 1.0
(b)  Identify financial literacy criteria to be fulfilled by at least one member 2.5
 Discuss the eligibility criteria of audit committee’s secretary 1.0
 Discuss the requirements related to minutes of meeting 1.5
 Identify that under CCG, meeting shall be held if requested by certain
prescribed persons 1.0
(c)  Discuss CFO’s qualification criteria for a public sector company 1.0
 Discuss CFO’s qualification criteria for a listed company 3.0
A.6 (a)  Calculate demand liabilities of OBL 3.0

 Determine the liquid assets maintained by OBL 3.0
 Conclusion 2.0
Page 1 of 2
Mark(s)
(b)  Identify that BBL’s shares can be purchased being less than 5% 1.0
 Discuss that Ali Saeed must meet fit and proper criteria; and should obtain
prior approval of the State Bank of Pakistan for purchasing OBL’s shares 1.5
 Up to 01 mark for identification of each consequence 4.5
A.7 (a) 01 mark for each reason related to non-suitability of the proposed name 4.0
(b)  Identify that GL intends to issue shares at a discount 0.5

 Advise statutory compliances to be met by GL:
– before issuance of shares to PL 4.5
– after issuance of shares to PL 4.5
 Discuss statutory compliances in case of private placement of shares 1.5
A.8 (a)  Identify the terms and conditions needed to be complied with as per the
Foreign Exchange Manual 5.5
 Discuss whether the proposed remittances are within permitted limits 5.0
 Identify that export overdues exceed the maximum prescribed limit 1.5
(b) Determine that SEL may remit the amount with approval of the State Bank of
Pakistan 2.0
(THE END)
Page 2 of 2

Aclp PP

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Aclp PP

Uploaded by

Copyright:

Available Formats

2023

(UPDATED TILL WINTER-2022 ATTEMPT)

By the Grace of Almighty Allah, I am pleased to present the

suggested answers of past ICAP examinations.

commenting or printing of these answers is strictly prohibited.

PROFESSIONAL EXAMINATIONS SUMMER 2001

June 09, 2001

CORPORATE LAWS AND SECRETARIAL PRACTICES (M ARKS 100)

Q.(a) A public listed company A is merging into a private limited company B.

Q.2 Write short note on the following:

a) Transmission of Shares. (02)

b) Doctrine of ‘ultra vires’ in relation to companies. (04)

c) Impact of Central Depository Company on rights of members to receive

d) Venture Capital Company (02)

i) Proxy of a normal share holder

ii) Representative of a corporate member

ii) Proxy of a CDC account holder

iv) Member of a professional institute (08)

PROFESSIONAL EXAMINATIONS WINTER 2001

December 06, 2001

CORPORATE LAWS & SECRETARIAL PRACTICES (M ARKS 100)

(a) Restriction on investment in associated company. (03)

Which other institutions are similar in concept to investment companies? (05)

Professional Examinations Summer 2002

June 06, 2002

CORPORATE LAWS & SECRETARIAL PRACTICES (MARKS 100)

Q.2 Explain the following concepts:

a) Order in which payments should be made to creditors etc. in case of winding up

i. Inclusion of a new business/objects clause not originally envisaged (no

ii. Change in the Modaraba’s Chief Operating Officer. (02)

b. Explain how a modaraba can be wound up. (10)

d. What do you understand by the term “proxy”? (04)

Q.7 a. A group of institutional sponsors want to set up one or more companies/

(iii) Investment in equity of listed companies. (06)

b. Explain the difference in mutual funds governed by the Asset Management

Professional / Final Examinations Winter 2002

December 14, 2002

CORPORATE LAWS & SECRETARIAL PRACTICES / CORPORATE LAWS (MARKS 100)

Final/Professional Examination Summer 2003

June 04, 2003

CORPORATE LAWS AND

(b) (i) A company listed on Karachi Stock Exchange made alterations in

(ii) A company having two classes of shareholders namely Ordinary and

Ordinary Shareholders 61%

The resolution proposing the variation was passed by the majority of

(d) Whether an employed chief executive of a listed company (not being an

(i) Certificate of Investment

(a) filling of casual vacancy in Board of Directors

Final and Professional Examinations Winter 2003

December 03, 2003

CORPORATE LAWS AND

Q.7 Under the Code of Corporate Governance:

Final Examinations Summer 2004

June 08, 2004

CORPORATE LAWS (MARKS 100)

Q.3 Answer the following in the context of a listed company:

(a) Under the Companies Ordinance, 1984:

Final Examinations Winter 2004

December 08, 2004

CORPORATE LAWS (MARKS 100)

(b) A company was incorporated in December 2003. Due to an error, regulations

(c) A company incorporated abroad wishes to set up a branch office in Pakistan.

Final Examinations Summer 2005