Related-party deals, record: training of directors, employees to be mandatory: SECP

The Securities and Exchange Commission of Pakistan (SECP) has decided to make it mandatory for the board of directors of companies to educate and train their directors and relevant employees to identify and report the related party transactions to the board. Through SRO 768(I)/2018 issued here on Saturday, the SECP has issued draft Companies (Related Party Transactions and Maintenance of Related Records) Regulations, 2018.
According to the regulations, board of directors shall ensure to educate and train directors and relevant employees so that they can identify and report the related party transactions to the board or other authorized persons; to provide direction as to whom a director or employee can consult; should they be uncertain if a transaction is a related party transaction; for setting general criteria to approve transactions or arrangement with related parties at various levels; for identifying and determining whether a related party transaction requires members' approval; to ensure that any related party transactions that require board's approval are put before the board; to ensure that any related party transactions that require members' approval are put before members; to fix the responsibility for identification and disclosure of related party transactions; and to ensure the company meets its legal and regulatory obligations in relation to related party transactions.
Under the Companies (Related Party Transactions and Maintenance of Related Records) Regulations, 2018, the policy approved by the board shall have following minimum parameters namely:- maximum limits for related party transactions for a year for each class of transactions as defined; minimum information required for the related parties with whom transactions are to be made including nature of related party relationship at the time of approval in board's meeting or general meeting; limitations or conditions that may be applicable in case of certain/particular related party transactions; potential risks of related party transactions and mitigating measures; procedure to be followed for reporting failure to place related party transactions for approval by the appropriate forum within prescribed time and pricing policy.
The board shall approve related party transactions that require its approval and the following minimum information shall be circulated and disclosed to the directors along with agenda item for board's meeting called for approval of related party transactions- name of related party; names of the interested or concerned persons or directors; nature of relationship, interest or concern along with complete information of financial or other interest or concern of directors, managers or key managerial personnel in the related party; details, description, terms and conditions of transactions; amount of transactions; timeframe or duration of the transactions or contracts or arrangements; pricing policy; recommendations of the audit committee, where applicable; and any other relevant and material information that is necessary for the board to make a well informed decision regarding the approval of related party transactions.
In case approval of members is required for related party transactions, the information provided shall be provided to the member in the statement of material facts in terms of section 134 of the Act attached to the notice of the general meeting called for approval of the members for approval of related party transactions.
The SECP has also explained the record to be maintained of related party transactions and contracts or arrangements in which directors are interested.
Every company shall maintain at its registered office, one or more registers with regards to transactions undertaken with related parties and contracts or arrangements in which directors are interested, in the forms specified in annexure - I to these regulations, and shall enter therein the particulars of -contracts or arrangements, in which any director is, directly or indirectly, concerned or interested, as mentioned under section 205 of the Act; and contracts or arrangements with a related party with respect to transactions to which section 208 of the Act applies.
The entries in the register shall be made in chronological order and shall be authenticated through signatures by the company secretary or by any other person authorised by the board in this behalf. The company shall keep all the contracts, agreements, instruments, etc, in respect of transactions or arrangements with related parties at its registered office.
The register and record shall be kept in the custody of the company secretary or any other person authorised by the board in this behalf and it shall be preserved in good order. The company shall provide extracts from such register to a member of the company on his request, within seven days from the date on which such request is made upon the payment of such fee as may be specified in the articles of the company but not exceeding ten rupees per page, the SECP added.