The Securities and Exchange Commission of Pakistan (SECP) has declared that the commission is not the bystander obliged to grant approval to all the companies' requests approval by special resolutions. This has been submitted by the Commissioner Company Law Division SECP before an Appellate Bench of the SECP during hearing of the case in the appeal number 37 of 2015 filed by a private hospital of Islamabad against the order of the commission.
The Commissioner Company Law Division SECP informed the bench that the fundamental importance and duty of the commission is the protection of minority shareholders. The commission is not a bystander obliged to grant approval to all the requests approval by special resolutions. The commission can review the issue of further shares even if the issue is approved by special resolution, in a situation where the majority shareholders of the company had voted in a manner coercive or oppressive to the minority or where the majority shareholders had not voted in the interest of shareholders as a class. The resolution was merely passed by 46.6 percent shareholders therein prima facie included 36 percent shares which are alone held by directors/associated companies, Commissioner added.
The SECP Appellate Bench added that the hospital (appellant) has argued that circumstances of the hospital were such that it was not possible to raise the capital by way of right issue and to cater to the special circumstances, the hospital has been granted power under the first proviso to section 86(1) of the Ordinance to raise further share capital other than right provided this proposal is approved through a special resolution. Once the resolution is passed, the respondent (Commissioner Company Law Division) does not have the power to disapprove the proposal.
The respondent (Commissioner Company Law Division) has rebutted the hospital's argument by stating that the hospital cannot proceed with issue of further share capital other than right without approval of the SECP. The basis for declining the application was higher trading price than the price approved in EOGM at which further issue was proposed to be made.
In accordance with section 86, the hospital cannot proceed with issue of further share capital other than right without approval of SECP. We therefore concur with the Respondent that the issue of further share capital once was approved by a special resolution cannot be made unless the same is approved by the Respondent. The proviso to section 860) of the Companies Ordinance states that, "on an application made by any public company on the basis of special resolution passed by it, allow such company to raise its further capital without issue of right shares". Therefore, the Commission has to "allow" the company to raise its further capital without issue of right shares and the Appellant's argument that since this was approved by a special resolution, the waiver of pre-emption rights of the shareholders cannot be questioned by the Commission holds no merit.
It is also very important that the resolution was merely passed by 46.6% shareholders which prima facie included 36% shares which are alone held by directors/associated companies. So the special resolution does not have support from the minority share holders.
Further, in relation to compliance with the Capital Issue Rules, the Appellant could apply to the Commission for relaxation from compliance of any requirement under Section 10 of the Capital Issue Rules which the Commission could have granted if it was satisfied that it was not practicable to comply with any requirement of the Capital Issue Rules. The Appellant has not been able to give reference of any prudential regulations of the State Bank of Pakistan which are applicable to the Appellant as a non-banking financial institution, whereby, debt to equity ratio of 80:20 had to be maintained.
Therefore, the Appellant has not been able to satisfactorily convince the Bench why the shares were not offered as right to existing shareholders who have the first right to participate in the benefits accruing from increase in the share value. The bench does not agree with the Appellant that there were special circumstances under which the shares could only be offered to invited private investors.
In view of the foregoing, bench see no reason to interfere with the Impugned Order. The Impugned Order is upheld with no order as to costs, appellate bench added.
Brief facts of the case are that an Extra Ordinary General Meeting (EOGM) of hospital (Appellant) was held on 25/06/15 to seek approval of shareholders for issuance of 4,024,100 new ordinary shares, other than by way of right issue, to certain private investors. The Appellant applied for approval of further issue of shares other than by way of right issues under Section 86 of the Companies Ordinance 1984 (Ordinance), however approval was denied by the Respondent. It was communicated to the Appellant that share price of the Appellant as on 18/08/15 was Rs 285.05 per share while the Appellant intends to issue shares at a much lower price ie Rs 240 per share, which appears to be an attractive price for existing shareholders. Therefore, all the shareholders should be given equal right to participate in the proposed further issue of capital.
In view of the above, the Respondent being dissatisfied with the reasons given by the Appellant to issue further shares as otherwise than right and to safeguard the pre-emptive right of existing shareholders, advised the Appellant to comply with the provisions of Section 86 of the Ordinance in respect of further issue of capital by offering the shares to the existing members in proportion to the existing shares held by them, it added.
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