KARACHI (April 24 2004): The Securities and Exchange Commission of Pakistan (SECP) has imposed penalties amounting to Rs 40,000 on the chief executives of two listed companies, Al-Jadeed Textile Mills Ltd and Climax Engineering Ltd, for failure to annex the statement of material facts to the notices of their Annual General Meeting (AGM)/Extraordinary General Meeting (EOGM) as required under the Companies Ordinance, 1984.
The companies ordinance makes its mandatory for companies to annex a statement of material facts to the notice of AGM/EOGM where any special business, ie business other than the consideration of accounts, the declaration of dividend, the appointment and fixation of remuneration of auditors, and the election or appointment of directors, is to be transacted at a general meeting.
The objective is to apprise the members of the company about the exact nature of the business to be transacted at the meeting so that they can consider the nature of the business and make a conscious decision by using their rights effectively.
Al-Jadeed Textile Mills issued a notice on August 23, 2003, for its EOGM which was held on September 15, 2003, for consideration and approval of special resolution regarding “different options available for the settlement of outstanding liabilities towards bank loans”.
On examination it was observed that the proposed business was a “special business” in terms of Section 160 of the Companies Ordinance and hence statement of material facts was required to be annexed to the aforesaid notice.
As the company failed to annex an explanatory statement to the notice of the EOGM, the notice of meeting, prima facie, was defective and suffered from legal infirmities.
Moreover, the proposal was discussed and approved by the shareholders present in the said meeting; yet the shareholders who were not present in the meeting were not aware of the special business.
Upon issuance of a notice to show cause from the SECP, the default was established and admitted by the chief executive of the company.
Therefore, taking a lenient view of the default, a fine of Rs 20,000 was imposed on the chief executive with a warning to other directors to be careful in future.
Climax Engineering Ltd issued notice of its AGM on October 6, 2003, which was held on October 31, 2003, for consideration and approval of special resolution for disposal of surplus land, building, plant and machinery of the company for repayment for banks' liabilities as well as to fetch funds for smooth working of the company.
The SECP examined the resolution and observed that the sale of assets was a “special business” in terms of Section 160 of the Companies Ordinance and, therefore, statement of material facts was required to be annexed to the notice of AGM, but the company failed to comply with the provisions of aforesaid Section.
Upon issuance of a show-cause notice the chief executive of the company admitted the default and, therefore, a fine of Rs 20,000 was imposed on him.