ISLAMABAD, Oct 26: The Securities and Exchange Commission of Pakistan (SECP) has appointed an inspector to look into the financial affairs of Sunshine Cotton Mills Limited of Sheikhupura, a listed public limited company.

The inspector will also verify and determine the causes for heavy losses in 1995-2000 as reported by the company, says a press release issued by the SECP here on Friday.

During scrutiny of the balance sheets of the company, the Enforcement Division of the Commission came out with the conclusion that the company’s precarious financial health was mainly due to mismanagement, which has jeopardized the interest of the minority shareholders.

The Executive Director of the Enforcement Division of the SECP, Rashid Sadiq, in his detailed order observed that the company was given adequate time to show improvement. However, its performance continued to deteriorate with no chance for its revival.

The company could not provide any tangible material/evidence in support of its contention that the performance of the company would improve in future.

The capital raised through right issue was not utilized for the purpose it was meant for. It can safely be termed as an act of mismanagement of the affairs of the company.

The circumstances suggest that the affairs of the company have been so conducted and managed as to deprive the members thereof of a reasonable return.

Moreover, it appears that the affairs of the company, prima facie, was not managed in accordance with sound business principles and prudent commercial practices.

It was observed in the order that the power of investigation available to the Commission under the law is to and act as a safeguard to protect the interest of the shareholders, creditors and other persons interested in public companies.

As it is not possible for the minority shareholders to act jointly to protect their interest, and they are also not able to collect evidence where management is acting prejudicial to their interest to bring the same before the appropriate forums for appropriate action.

It was because of this difficulty that the legislators have enacted Section 265 to prevent the managements of companies from acting in a manner prejudicial to the interest of the minority shareholders.

The Provisions of this Section give powers to initiate a fact-finding exercise to reach at the truth of the matter.

Identifying the areas of probe for the inspector, M. Zabta Ali Mehar, FCA of Z. A. Mehar & Co Chartered Accountants of Karachi, the order said, without in anyway limiting the scope of investigation, the inspector would conduct investigation on all aspects of the operations of the Company and, after scrutiny of the entire record and books of accounts, would furnish report, inter alia, on the following matters;

a) Reasons of heavy losses specially gross loss in the years 1995 to 2000. Whether these losses were due to mismanagement, imprudent policies or some other reasons.

b) Whether funds raised through right issues were utilized in the manner as undertaken.

c) Whether the Company has kept proper records as required by Section 230 of the Ordinance.

d) Misappropriation and misapplications of funds and assets of the Company. Whether the disposal of fixed assets (30,066 spindles) was undertaken in accordance with the relevant provisions of the Ordinance, proceeds were adequate and why proceeds were adjusted against liabilities instead of taking cash to improve the liquidity position.

e) Diversion of funds to unauthorized objects. f) Investigation of sales/revenues of the company with particular reference to a sales model based upon market prices and prices disclosed by the comparable units.—APP