Management and administration Directors

Recap Who is a director Manners in which a person becomes a director Minimum number of directors (Sec-174) First directors and subsequent directors Election of directors The declaration on Oath shall be filed Fresh elections of directors( sec 178 A) Circumstances under which Elections declared invalid Ineligibility to become a Director Vacation of office by the dir ectors

Restriction on directors remuneration [sec 191] 1.The remuneration of a director for performing extra services including the holding of the office of the chairman shall be determined by the directors of members in general meeting according to the provisions of the articles. 2.No remuneration for attending the meeting of the directors shall exceed the scale approved by the company or by the directors according to the provisions of the articles.

Restriction on assignment of office by directors (section 192) A director of a company cannot assign his office to another person unless it is approved by a special resolution in general meeting even if its allowed by the articles. The appointment by a director with the approval of the directors, of an alternate or substitute director during his absence from Pakistan of not less than three months shall not be deemed to be an assignment of office.

Proceedings of Directors (section 193) The quorum of the directors’ meeting of a listed company shall not be less than one third of their number or four whichever is greater. The directors of a public company shall meet at least once in each quarter of the year.

Attendance of directors in the board meeting through tele/video conference (SECP circular no.18/2005 and circular no.20/2005) SECP has allowed all the Companies to hold their board meetings through tele/video conferencing. Where it is not possible for directors to be physically present at the venue of the meeting. Such meetings shall only be valid if the minutes have been approved and signed by all the directors who have participated in such meetings.

Attendance of directors in the board meeting through tele/video conference (SECP circular no.18/2005 and circular no.20/2005) Listed companies are advised to avail this facility only in emergent situation. It would also be responsibility of a company’s secretary or in case of his non existence The chief executive of the company to secure the tele/video recording of the proceedings of the meeting and keep it in his custody.

Loans to directors (section 195) Public company or a private company which is a subsidiary of a public company shall not make any loan or give guarantee or provide security: – To the director of the company, – To a partner or relative (spouse and minor children) of such director, – To a firm in which such director or relative is a partner, – To a private company in which director or relative is a partner, – To a private company in which such director is director or a member, – To a body corporate whose 25% voting powers may be exercised by one or more such directors or their relative, or – To a body corporate whose chief executive or directors act in accordance with directors/instructions of lending company’s chief executive or director.

Powers of Directors of a company (section 196) The directors may exercise all such powers of the company as are not by the ordinance, or by the articles, or by special resolution required to be exercised by the company in general meeting. However following powers are exercisable by the directors and these powers shall be exercised by means of a resolution passed at their meeting: – to make calls on unpaid capital, – To issue shares and debentures, – To borrow money, – To invest funds, – To make loans, – To approve accounts and bonus to employees, – To incur capital expenditure

Powers of directors To sell any fixed assets in accordance with the limits prescribed by the commission. To appoint chief executive To approve a contract for sale, purchase or supply of goods or rendering of services in which director is interested. To under take obligations under leasing contracts exceeding one million Rs. To declare interim dividend.

Acts done by director through consent in General meeting Acts done by the Directors of a public or subsidiary of a public company only through consent in General meeting.. Sell, lease or disposing of the undertaking This provision shall not apply to a company whose main business is selling or leasing Remit, give any relief or extension of time for the repayment of debt out standing against any person specified in subsection1

Contravention of sec 196 In case of contravention the person shall be punishable with a fine which may extend to one hundred thousand rupees and shall be individually and severally liable for the losses or damages arising out of such loan.

Liabilities of Directors: The companies ordinance 1984 requires the director to do or refrain from doing various acts on behalf of the company. The ordinance also require them to file various forms with the registrar and make them responsible for various documents issued by the company.

Liabilities of Directors: If the directors do not perform their duties they are liable to certain penal actions which may result in disqualification from being a director of that company or any company. Some of the acts of directors which may entail penalties are as follows: – Any false statement (sec492), – Wrongful withholding of property (section 493), – Allotment of shares for inadequate consideration (section 494), – Carrying on ultra vires business (section 496), and – Refusal to transfer shares of a public limited company or failure to give notice of refusal. (section 78)

Disclosure of interest Every director shall disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholdings, in such manner as may be prescribed. Such disclosure shall be made on three particular point of time: (i) At the first meeting of the Board in which he participates as a director; (ii) At the first meeting of the Board in every financial year; and (iii) Whenever there is any change in the disclosures already made, then at the first Board meeting held after such change.

Disclosure of Interest by Directors and other officers: (Sec ) At a meeting of directors, a director of a company shall disclose the nature of his concern or interest, direct or indirect, regarding any contract or arrangement in which: – He is entered into, or to be entered into, by or on behalf of the company, and – He is concerned or interested in any way, whether directly or indirectly.

Time for disclosure: In the case of a contract or agreement to be entered into: – At the meeting of directors at which the question of entering into the contract or arrangement is first taken into consideration, or – Where the director was not concerned or interested in the contract or agreement on the date of meeting at which the question of entering into a contract or agreement is first taken into consideration, at the first meeting of the directors held after he becomes so concerned or interested.

Continued… In the case of any other contract or arrangement at the first meeting of directors held after the director becomes concerned or interested in the contract or agreement. For the purpose of above provision, a general notice given to the directors to the effect that a director is a director or a member of a specified body corporate and is interested in any contract or agreement which may, after the date of the notice, be entered into with that body corporate or firm, shall be deemed to be a sufficient disclosure of concern or interest in relation to any contract or arrangement so made..

Interested Director not to participate or vote (section 216) Such director shall not be allowed to participate or vote in the proceeding of directors, however the above restriction shall not apply to: – A private company which is neither a subsidiary nor a holding company of a public company – Any contract of indemnity against any loss which the directors or any one or more of the, may suffer by reason of becoming or being sureties or society for the company – In case of directorship contract with a public company if interest is only due reason that he is a nominee director and does not hold enough number of shares to qualify him for the appointment as a director..

Directors lacking fiduciary behavior: (section 217) The court may declare a director to be lacking fiduciary behavior if: – The director does not disclose his interest or concern regarding any contract or arrangement in which: he is entered into, or to be entered into by or on behalf of the company, And; he is concerned or interested in any way whether directly or indirectly

Disclosure of Directors’ interest to members in certain cases (section 218) The company shall make out and attach to the directors’ report an abstract of the term of the appointment or contract or variation, together with a variation, together with a memorandum clearly specifying the nature of the concern or interest of the director, where; – The company appoints or enters into a contract for the appointment of: Chief executive, Managing agent, Whole time director,or Secretory of the company OR – The company varies any contract already in existence.

Register of contacts, Arrangements and appointments in which Directors are interested (sec 219) Every company shall make a register in which it will enter particulars of all contracts, arrangements or appointments to which section 214, or 215, or 216, or 217, or 218 apply including the following particulars: – The date of the contract, arrangement or appointment, – The names of the parties thereto, – The principal terms and conditions thereof, – The date on which it was placed before the directors, – The names of the directors for and against the contract, arrangement or appointment and the names of those remaining neutral, – The name of director or officer concerned or interested in the contract, arrangement or appointment and the nature of his interest therein.

Register of Directors’ shareholdings etc. (section 220) Every listed company shall keep a register as respects each director, each office and every other person holding not less than ten percent of the beneficial interest in the company, number, description and amount of any shares in the company or any other body corporate, being the company’s subsidiary or holding company..

Directors’ duty to disclose shareholdings (section 221) A director, officer, and a person holding not less than 10% of the beneficial interest in a company shall inform the company about his shareholdings within 15 days of his appointment as director, officer etc or acquisition of shareholding

Submission of statement of beneficial owners of listed securities (sec 222) Every director, chief executive, chief accountant, managing agent, secretory or auditor of a listed company who is or has been the beneficial owner of any of its equity securities and every person who is directly or indirectly the beneficial owner of any of its equity securities, shall submit to the registrar and the commission the prescribed form (form 31) containing the particulars pertaining to the beneficial ownership of such securities and notify the particulars of any change in the interest aforesaid (form 32). Time limit prescribed by law for these two returns in thirty days for form 31 and fifteen days for form 32 respectively

Prohibition of short selling (sec 223) Directors, chief executives, managing agent, chief accountant, secretory or auditor of a listed company and persons who are directly or indirectly beneficial owners of not less than 10% of the listed equity securities of such company are prohibited from short selling.

Trading by Directors, Officers and Principal Shareholders (sec 224) Where any of the above mentioned persons: – Directors, – Chief executive, – Managing agent, – Chief accountant, – Secretory, or – Auditor of a listed company, or – Persons directly or indirectly, owning more than 10% of equity securities of the company makes any gain, on the purchase of sale, or sale purchase of any equity securities of a listed company

(Continued..) within a period of less than six months, such persons shall make a report and tender the amount of such gain to the company. Simultaneously he shall send an intimation to this effect to the Registrar and Commission. Where the above mentioned persons fail to tender, or the company fails to recover, any such gain within six months after its accrual, or within sixty days of a demand thereafter, whichever is later, such gain shall vest in SECP. Such gains shall be deposited in the prescribed manner. In case of default SECP may direct its recovery as arrears of land revenue. However these provisions shall not apply to a security acquired in good faith in satisfaction of a debt previously contracted.

(Continued..) Where contravenes the provision of sections 222, 223, or 224 shall be liable to a fine upto Rs.30,000 and a further fine upto Rs.1000 for each day of default.

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