SECP issued 53 licenses to non-profit associations in FY11

RECORDER REPORT

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued 53 licenses to non-profit associations from July 1, 2010 to June 30, 2011 as compared to 22 licenses issued during the year ending June 30, 2010.

Sources told Business Recorder here on Saturday that the SECP has compiled its performance and landmark achievements during July 1, 2010 to June 30, 2011 which would be issued in the form of an annual report. The remarkable performance of the SECP is evident from the enforcement and legal actions against the non-compliant companies, auditors and violators of the Companies Ordinance 1984 during July 1, 2010 to June 30, 2011. The inspections carried out by the commission and imposition of penalty on the non-compliant companies also speaks about the excellent performance of the commission during this period.

Under the regulatory actions, the SECP has processed application for grant of license to non-profit associations.

As per SECP data, the auditors have a significant responsibility towards the shareholders of companies. It is essential that auditors discharge their responsibilities with due care, integrity and professional skepticism to give an independent opinion on financial statements. During the year, 14 cases of negligence by auditors were concluded with penalties and warnings where they had failed to act in conformity with the statutory requirements and the relevant audit reports failed to disclose material facts about the affairs of companies.

During the year in response to the SECP’s oral and written representations, the courts approved the amalgamation in respect of seven cases.

The commission has granted approval to two companies for issuance of shares other than right to existing shareholders in terms of proviso of sub-section (1) of Section B6 of the Companies Ordinance 1984. One of the companies issued 80.327 million shares of Rs.10 each.

In case of preference shares as other than right, the approval was granted to two companies was granted in terms of proviso of sub-section (1) of Section 86 of the Ordinance and Rule 5(1) of the Companies Share Capital Variation in Rights and Privileges) Rules, 2000. One of the companies was allowed to issue 197.6 million (5% non-voting, cumulative, participatory and convertible) preference shares of Rs.10 each.

About the issue of shares with varied rights and privileges, three companies were granted approval in terms of Rule 5(1) of the Companies Share Capital (Variation in Rights and Privileges) Rules, 2000. One of the three companies was allowed to issue 30 million cumulative, convertible redeemable and non-participatory preference shares of Rs.10 each.

Under the Companies Ordinance, applications seeking regulatory approvals were received and after due consideration necessary approvals were granted by the SECP or the Registrar.

Within the area of monitoring, compliance and enforcement actions, the SECP processed 10 applications under Section 263 of the Ordinance for investigation of affairs of the companies that were allegedly not being managed in accordance with the law. Further, two orders were passed or appointment of inspectors to conduct the special audit of companies, under Section 234 A of the Ordinance.

Two orders were passed under Section 231 of the Ordinance for inspection of books of account and other books and papers of the companies. One of these inspections was concluded based on the findings and regulatory actions were taken by the Companies Registration Offices (CROs), sources said.

The Registrar of Companies and the officers at the CROs adjudicated 1,279 cases of violation of various provisions of the Ordinance and punitive actions wee taken against non-complaint companies.

Sources said that the SECP disposed of 284 cases of dissolution of companies. Of these, 42 companies wound up voluntarily, two companies compulsorily liquidated under court orders and 240 companies were struck off from the register under Section 439 of the Ordinance. The dissolved companies had a cumulative paid-up capital of Rs.1.05 billion.

The SECP received 233 complaints from different stakeholders and 222 of them were disposed of during the year while 11 complaints were in process at the close of the year. The commission received 37 appeals under the Ordinance. Of these, 28 were disposed of while nine appeals were pending at the end of the period.

During the period of July 1 2010 to June 30, 2011, the SECP has carried out a number of developmental activities.

1. Amendments to the Companies (Registration Offices Regulations, 2003: The SECP vide its SRO No.599(I)/2011 dated June 13, 2011, amended the companies (Registration Offices) Regulations, 2003 and placed it on its website. The amendments have been made to ensure effective and smooth functioning of CROs, under the online submission environment and to include the functioning of CROs beyond their territorial jurisdictions. The timings for dealing/transaction of business with the public were increased and now are form 9 a.m. to 3 p.m. with break from 1 to 2pm. The companies have been facilitated in the duplicate certificates in case of loss destruction, defacement or mutilation etc, of the original certificate. Previously issued by the Registrars. Moreover, a foreign company shall also be issued a certificate of registration of documents.

2. Deferral of the applicability of the Companies Cost Accounting Records (General Order) 2008: The SECP vide its SRO 371(I)/2011 dated May 9, 2011, deferred the applicability of the Companies Cost Accounting Records (General Order) 2008, to companies engaged in fertiliser, thermal energy, petroleum, refining, natural gas, and polyester fibre industries. This decision has been taken in view of the practical difficulties being faced by the relevant companies. Subsequent to the year-end, this has now been withdrawn and would be replaced by sector-specific orders.

3. Amendment to the format of Statement in Lieu of Prospectus: The SECP vide SRO 289(1)/2011 dated April 4, 2011 and SRO No.677(I)/2011 dated July 8, 2011 amended the Statement in lieu of Prospectus format contained in Parts II and III of the Second Schedule of the Ordinance required to be filed by unlisted public companies for obtaining Commencement of Business Certificate and by a private company converting into a public company respectively.

The main purpose of this revision is to make Statement in Lieu of Prospectus more compatible with the SECP’s eServices regime and lucid for the companies. The previous format contained some cumbersome and difficult information. The amended formal is much easier to be filed and best suited for online submission environment.

4. Amendments to the Sixth Schedule: The Sixth Schedule to the Ordinance, containing the table of lees paid to the SECP was amended to give relief to the stakeholders utilising the eServices. Further, to encourage registration of the small and medium enterprises, the registration fee for physical submission of documents for incorporating a company, with nominal capital up to Rs.10.million

5. Enhancing disclosures under Group Companies Registration Regulations, 2008: The SECP promulgated the Group Companies Registration Regulations 2008, on December 31, 2008 to provide a regulatory framework for the formation of group companies in order to further enhance the public disclosure of intra-group shareholding and financial position of the group companies. SRO No.640(I)/2011 was issued on June 22.2011, mandating all the holding companies registered under the regulations to maintain their websites and placed thereon the annual audited financial statements of their group companies along with their directors report and the auditors’ report.

Following are the other key achievements of the SECP during this period:

1. ISO 9001: 2008 certification for the CROs in Karachi, Lahore and Islamabad has been successfully achieved. The certification will assist the SECP in enhancing its image for service delivery, improving the quality of existing processes and services to the public and increasing public satisfaction through removal of deficiencies/gaps in service delivery.

2. Assistance to the Federal Government on restructuring program for designated state-owned enterprises (SOEs): The Federal Government initiated a restructuring program to undertake reforms in eight major SOEs. The Economic Reforms Unit (ERU) of the Ministry of Finance is spearheading the said program. At their request, the SECP has provided technical support to the ERU on the restructuring program, including that for the restructuring of BODs of designated SOEs appointment of competent CEOs on their boards, and legal issues incidental and ancillary to the changes made in the boards of the SOEs.

3. Liaison with international organisations: Being the charter member of Corporate Registers. Forum (CRF), an international organisation for administrators of corporate and securities registers, the SECP regularly interacts with the registrars of other jurisdictions through the discussion forum and participates in global surveys on various matters. The SECP also participated in the World Rank Group Entrepreneurship Survey, 2010” and Starting a Business Survey 2011” Updates on The SECP reforms in starting a business activity were provided.

Under the facilitation measures, the SECP has taken a number of actions during July 1 2010 to June 30, 2011: To increase the compliance rate, the SECP launched an extensive campaign in February 2011 to activate defaulting companies and to strike off defunct companies. In the first phase, two separate lists were prepared one or defaulting companies and the other of defunct companies. Apart from other non-compliances, these companies had not filed their annual returns for the last 5 years or more. Accordingly, the Registrars issued demand notices to these companies to take cognizance of their defaults, advising them to comply with the statutory provisions of the law.

In the second phase, action under Section 439 of the Ordinance was initiated against 3,263 defunct companies, while show-cause notices are being issued to 5.553 defaulting companies, sources said.

In order to facilitate companies to file their returns and to promote corporate compliance, the SECP facilitate companies on the due dates of filing of annual returns and annual accounts. The facilitation desks were set up at CROs and an officer was assigned to answer public queries on the schemes. The consultants and auditors were requested to persuade their clients companies to take advantage of the schemes. Extensive advertising awareness campaigns were run to create public awareness before last dates of fling of annual returns.

The Chambers of Commerce and industry were engaged to extend facilitation to the corporate sector, raise awareness and disseminate information to members. The SECP help desks were established at the chambers to provide the facility of collection of annual returns. The bank branches were also requested to facilitate filing. The CROs remained open late on the closing dates and last dates for filing were also extended to extend maximum facilitation for collection of these documents.

The SECP vide SRO 280(1)/2011, dated April 4, 2011 and SRO No 677(1)/2011, dared July 8, 2011, amended the Statement in Lieu of Prospectus format contained in parts II and III of the Second Schedule of the Ordinance required to be filed by unlisted public companies for obtaining Commencement of Business Certificate and by a private company converting into a public company respectively.

Sources said that the Standardised Memorandum of Association for 40 additional sectors have been developed and placed on the SECP website. These include sectors relating to services, trading, energy, agriculture, investment and capital markets etc. Jacket folder containing post incorporation statutory requirements for presentation of Certificates of Incorporation to the companies, has been developed.

Moreover, a comprehensive schedule of filing of statutory returns has been placed on the SECP website.

The facilitation measures also revealed that the promoters guide was translated into the German language to facilitate foreign companies and investors. Some of all existing guides were revised to incorporate new developments. These include Promoters Guide, availability of Company Name Guide, Change of Company Name Guide, Mortgages and Charges Guide, Directors and Secretaries Guide, Foreign Companies Guide, Conversion of Status Guide and Appointment of Statutory Auditors Guide.

Sources said that a guide explaining the procedure for filing of statutory returns, submission process, late filing and related fees, and description of regular statutory returns was developed end placed on the SECP website. In addition, change in Object Clause of Memorandum Guide has prepared to provide basic information about the alteration to the object clause of the Memorandum of Association of a company and to file a petition to the SECP for confirmation of the alteration.

Regular meetings with corporate consultants/intermediaries were held at the CROs to obtain their feedback for improvement in various areas pertaining to operational working of CROs. Different issues regarding online and off line filing were discussed and some useful suggestions were received. The SECP efforts and initiatives aimed at extending facilitation to the corporate sector were much appreciated.

Awareness seminars and workshops on benefits of corporatisation eService, and corporate compliance were conducted in a number of cities. These events were very well attended and an overwhelming response was received. An online survey titled Survey on Services provided by the CROs was developed and placed on the SECP website. It is aimed at obtaining feedback and suggestions from companies.

The SECP in collaboration with the State Bank of Pakistan (SBP) also issued public warnings against illegal/fraudulent/unauthorised business activities in case of specific companies, sources added.

The Enforcement Department is responsible for the regulation and enforcement of companies listed on stock exchanges, public unlisted and private companies having paid-up capital of Rs.7.5 million and above and companies formed under Section 42 of the Ordinance (except insurance companies non-banking finance companies and modarabas) with relevant laws and applicable accounting standards through review of accounts, investigation, and prosecution. In case of non-compliances, necessary actions are taken against erring companies, their directors, management and auditors, as appropriate.

Sources said that the Companies can issue different types of shares, on a par,  at a premium/discount and otherwise  than right shares or by conversion of loans/advances/credits, to raise their capital subject to the requirements of the Ordinance including tine Companies  (Issue of Capital) Rules, 1996 (Rules) and prior approval of the SECP.

1. Raising Capital by issuance of shares by way of other than right:

Twenty applications for issue of shares by way of other than right were processed. Fifteen companies were permitted to raise capital, hence resulting in fresh injection of funds amounting to Rs24.459 billion (including 7 million shares at $1 per share to a US-based company). Two applications were not approved on account of non-compliance with relevant legal requirements white further information was sought from companies in three cases.

2. Issuance of preference shares: One company submitted an application seeking approval for issuance of preference shares amounting to Rs 1.127 billion against conversion of loan from sponsors and certain shareholders. The case is being processed.

3. Relaxation of Rules 5 of the Rules, 1996: Keeping in view the circumstances and facts enumerated by applicant companies, the SECP gave relaxation from the requirements of the rules to seven companies in order to enable them to proceed with their proposed right offer.

4. Applications under Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002: Two companies requested extension in public announcement for offer after acquisition of companies, which were subsequently granted.

Sources said that the SECP has granted extension in time to hold annual general meetings to 19 listed companies. Five companies were allowed to hold their AGMs in towns away from their registered offices. Requests of five fisted companies were approved granting them exempt on from requirements of attaching consolidated financial statements with their stand-alone financial statements.

Currently, 235 listed companies have obtained approval from the SECP to place their quarterly accounts on their websites instead of transmitting these by post in order to ensure that material information is available to shareholders enabling them to make informed decisions. During the year, nine more companies were permitted to place their quarterly accounts on their website and six companies were allowed to change the addresses of their respective websites.

In respect of vegetable ghee and cooking oil sugar and cement industries, the appointment of 54 cost auditors was approved under the Companies (Audit of Cost Accounts) Rules 1998 during the period under review.

The SECP issued certificate of registration as a group to three companies and one of the groups was designated for relief under Group companies Registration Regulations, 2008, sources added.

The SECP ensures efficient monitoring of companies with respect to conformity with relevant laws regulations, the international Financial Reporting Standards (IFRS) and Accounting and Financial Reporting Standards for Medium Sized Enterprises (MSEs) as well as Small Sized Enterprises (SSEs) issued by the Institute of Chartered Accountants of Pakistan (ICAP). The review of financial statements paves the way for transparency and accountability. Hence effective enforcement through identification and adjudication of various offences committed by the companies, their directors, officers and auditors is an integral part of the regulatory process. The ultimately helps build as well as maintain investors trust and confidence in the system.

The SECP ensures efficient monitoring of companies with respect to compliance and conformity with relevant laws, regulations, the international Financial Reporting Standards (IFRS) and Accounting and Financial Reporting Standards for Medium Sized Enterprises (MSEs) as well as Small Sized Enterprises (SSEs) issued by the Institute of Chartered Accountants of Pakistan (ICAP). The review of financial statements paves the way for transparency and accountability. Hence effective enforcement through identification and adjudication of various offences committed by the companies, their directors, officers and auditors is an integral part of the regulatory process. The ultimately helps build as well as maintain investors trust and confidence in the system, sources said.

As per SECP data, the law empowers the SECP to initiate investigations by appointing inspectors to look into tie affairs of the companies, if it so deems appropriate. Three investigation proceedings were initiated and are still under process. Details of these investigations are as under:

i. Upon receipt of application from three shareholders of a company an investigation was initiated vis-à-vis its financial statements, which showed losses for three consecutive years.

ii. Investigation was launched against a company on the bass of inspection report, indicating inappropriate calculation of swap ratio and suspicious outstanding intra-group balances.

iii. An investigation was initiated against a company that had negative equity and was suffering losses while its current liabilities substantiality exceeded its current assets as per the financial statements for the year ending June 30, 2009.

An investigation proceeding initiated previously against a company with a specific focus on suspicions regarding relinquishment of government of Pakistan control and resultant takeover by private investors, subsequent unusual movement in its share once and the issues affecting the fairness of accounts is still being finalised.

The SECP also concluded an investigation, initiated in the previous period on account of misstatements in the financial statements and contravention of certain provisions of the law by imposing a penalty of Rs1.5 million on the directors of the company, sources added.

For listed companies appointment of an independent share registrar is mandatory for facilitation to shareholders. Taking cohesive measures against the violation of the aforesaid mandatory requirement, proceedings wore finalised against officers of 15 defaulting companies, the SECP data added.