The Securities and Exchange Commission of Pakistan (SECP) has imposed an aggregate fine of Rs 300,000 on five directors of a leasing company, which failed to hold the AGM of the company for the year ended June 30, 2015 within the stipulated time period. According to order of the SECP issued here on Wednesday, the order has disposed of the proceedings initiated against the directors and the chief executive (CEO) of the said leasing company.
The SECP has analysed the facts of the case, relevant provisions of the Companies Ordinance, written and verbal submissions made by the company. The law on non-holding of AGM is explicit and sets out definite time limits to be followed whereby a Company is required to hold its AGM once at least in every calendar year within a period of four months following the close of its financial year, and not more than 15 months after the holding of its last preceding annual general meeting. Non-compliance of any provisions of sub-section 1 of section 158 of the Ordinance would be considered as omission on the part of the Company viz a viz its directors which would be liable to fine as enshrined in sub-section 4 of section 158 of the Ordinance. Therefore, as per SECP opinion, the preliminary objection by some of the Directors is not tenable under the law, the SECP said.
Holding of the AGM is a very important statutory event and provides an opportunity to the shareholders including those in minority, to participate in discussion and voting on agenda items of the AGM that include consideration and approval of a company's financial statements. The financial statements not only show the financial position and performance of a company but also show the results of management's stewardship of resources entrusted to it. In order to ensure minority participation and transparency, all the Companies must meticulously follow the procedure prescribed by the Ordinance for holding an AGM. In the current case, an important reason for delay in holding AGM was the disputes and rift going on between the directors and the management including the CEO_ Being a public listed entity with outstanding deposits on its books, such an attitude of the directors as well as the CEO is disappointing.
It is a settled principle of law that a company is artificial company and those who manage its affairs are under a legal as well as fiduciary obligation, to run the affairs of the Company as the law requires. Furthermore, in addition to the responsibility of overseeing and managing affairs of the Company, the Directors also have fiduciary duties towards the Company and its shareholders. They are, therefore, liable to a higher level of accountability which requires them to be vigilant and perform their duties with care and prudence. It is Directors' responsibility to oversee the functioning of the Company, to keep it appropriately staffed and organised to ensure due compliance of law, Directors of a listed company while filing their consents to act as directors, inter alia, give an undertaking that they are aware of their duties under the Ordinance and that they have read the relevant provisions contained therein. It is mandatory for the Directors of a listed company to have knowledge of provisions of the applicable laws and in terms of the Ordinance the Directors are primarily responsible for holding the AGM. In this context, the Director and the CEO cannot absolve themselves of their statutory duties regarding holding of AGMs and preparing and filing of annual and quarterly accounts. Moreover, the CEO, being the top tier of management, is responsible that the affairs of the Company should not be conducted in a manner prejudicial to the interest of the Company and its stakeholders, the SECP maintained.
It is concluded that the provisions of the law have been violated by the Respondents as they have failed to hold the AGM of the company for the year ended June 30, 2015 within the stipulated time period, Therefore, in exercise of powers conferred under sub-section (4) of section 158 of the Ordinance, the SECP hereby impose an aggregate fine of Rs 300,000 on the directors of the company, the SECP added.
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