ISLAMABAD, Oct 8: A set of 17 amendments in the Companies Ordinance 1984, approved by the Federal Cabinet last week, are designed to bring about far-reaching improvements in the corporate sector at par with the developed world.

The amendments in the Companies (Amendment) Ordinance, 2002, await approval by the President, the commissioner (Enforcement) of Securities and Exchange Commission of Pakistan, Abdul Rehman Qureshi told this Correspondent, would further facilitate corporate sector in operations. They would bring greater efficiency in regulation of companies, he said.

Describing the history of companies law in Pakistan, he said originally the Companies Act, 1913 governed the companies. It was replaced by Companies Ordinance, 1984. Amendments, however, continued to be effected in it from time to time. The Ordinance was reviewed twice comprehensively, that is, in April 1991 and 1999.

The latest amendments were drawn up by a committee set up by the SEC in October 2001 after elaborate consultations with the professional accounting bodies, trade organisations, stock exchanges, associations and legal exports for improvement of the Ordinance.

The new law provides for registration of single member companies (SMC) for the first time in Pakistan. The system is already in vogue in UK and ECC with good results. At present, Mr. Qureshi pointed out, at least two persons are needed for the formation of a private company. The new concept would not only be beneficial to the investors but also go a long way in the expansion of a disciplined corporate sector.

The SEC, he said, might suggest to the government to exempt SMCs from tax to encourage their establishment because ultimately it would accelerate documentation of economy.

Other provisions of the Ordinance are as follows:

* The period for presentation before shareholders of audited accounts and statement of income and expenditure has been reduced from six months to four months after the close of accounts.

* The private companies that would convert into public companies after one year of their incorporation have been exempted from holding their statutory meetings.

* A holding company was bound to limit its investment in its associated undertakings to 30pc of the paid-up capital plus free reserves of the investing company. This restriction has now been removed. Members of a company would now be able to make final decision through special resolution after having full disclosure as stipulated in law. Besides, the regulator’s power to grant waiver to certain companies, too, has been done away with.

* The minimum number of directors of a board has been reduced from 7 to 3.

* A person who has been declared defaulter in repayment of loan to a financial institution exceeding such amount as may be notified by the Commission from time to time has been disqualified to become director of a listed company. Likewise, a member of a stock exchange or his spouse would not be able to become director of a listed company.

* In order to solve the problem of liquidators delaying finalization of winding-up proceedings beyond the prescribed period of one year, a provision has been inserted whereby no individual may be assigned the liquidation of more than 3 companies at a time and their remuneration may be stopped on the expiry of the prescribed period.

* Although the companies are bound to register transfer of shares within 45 days, the directors can refuse to transfer shares within 30 days on some valid grounds. An amendment in the law provides the right of appeal before the Commission in such cases.

* The law authorises the SEC to grant extension in time for the registration, modifications and satisfaction of a mortgage or charge created by companies in favour of banks and financial institutions in cases of delay in filing of documents with the registrar.

* Keeping in view numerous complaints from members of the Board of Directors of companies, suitable amendments have been incorporated requiring that copies of minutes of meetings of the board would be provided to every director within 14 days of the date of such meetings.

* An elaborate procedure of election of directors of companies having share capital is provided in the Companies Ordinance, 1984 but no procedure and system exists for the election of directors of companies such as NGOs not having share capital. Now a specific procedure for election of director of the companies not having capital is required to be provided in the articles of such companies.

* Appointment of a fulltime qualified company secretary by a listed company has been made mandatory for efficient corporate compliance. This provision is also made applicable to a single member company.

* Whether auditors can be removed in mid-term remains a matter of dispute. Under the new law, an auditor can be removed during the period of one AGM to the next through a special resolution (by the majority of 3/4th majority). However, appointment of new auditors would require the SEC’s approval.

* The quantum of penalty for non-compliance with the provisions relating to audit has been increased from Rs2000 to Rs100,000.

* Quorum of a general meeting of a public listed company has been increased from 3 members to 10 members present in person representing not less than 25pc of total voting power.

* Since the subsidiary companies of listed companies are equally important for the shareholders of listed companies and public interest is involved indirectly therein, the private and non- listed companies, which are subsidiaries of listed company has also been made liable to prepare their accounts in accordance with the Fourth Schedule to the Companies Ordinance.

* The existing provision of Companies Ordinance, 1984 provides that holding company shall annex accounts of its subsidiaries with its accounts and no provision exists about consolidation of accounts of holding and subsidiary companies. However, relevant International Accounting Standards provides for consolidation of such accounts, which has been accordingly inserted in the Ordinance.