ISLAMABAD: The Corporate Restructuring Companies Amendment Bill of the Securities and Exchange Commission of Pakistan (SECP) would revive the distressed economic assets of Pakistan and enable the Corporate Restructuring Companies (CRC) to smoothly carry out their operations.
The SECP-related three bills have been passed by the joint session on Wednesday at the Parliament House, i.e., Companies Amendment Bill; Secure Transactions Act (amendment) Bill, and the Corporate Restructuring Companies Amendment Bill.
Under the Corporate Restructuring Companies Amendment Bill, the existing institutional arrangements and legal processes for revival and rehabilitation of distressed entities are time consuming and inadequate, which make the rehabilitation of distressed entities challenging.
Moreover, the existing Corporate Restructuring Companies Act 2016 does not have provisions to facilitate Corporate Restructuring Companies (CRC) to carry out their operations, smoothly.
The Corporate Restructuring Companies Bill 2020, inter alia, will make the CRCs operate efficiently, acquire the non-performing assets (NPAs) from the financial institutions easily, raise funding for acquisition of NPAs through segregation risks rewards and extend financing facilities for carrying out the purposes of the Act.
The bill, considering the government’s objective of reviving the distressed economic assets of the country, will also enable the CRCs to reach compromise with the distressed entities, promptly.
The Companies Amendment Bill, 2021 of the SECP has introduced concept of “Start Up companies” to promote startup of new business relating innovation and technology for removing anomalies/ ambiguities for the corporate sector.
The Companies Amendment Bill, 2021 primarily to promote startups, business innovation, entrepreneurship, and improve general business climate and promote ease of doing business.
The bill will now be tabled in the Senate of Pakistan.
A new definition is proposed to the definition clause of Companies Act and also in the Third Schedule to allow special privileges to be granted to startup companies engaged in technology-enabled products and services and are estimated to be the backbone of the economy going forward.
The proposed definition of a “startup company” means a company that: (a) is in existence for not more than 10 years from the date of its incorporation or such other period or periods as may be specified; and (b) has a turnover for any of the financial years since incorporation that is not greater than 500 million rupees or such other amount or amounts as may be specified; and (c) is working towards the innovation, development or improvement of products or processes or services or is a scalable business model with a high potential of employment generation or wealth creation or for such other purposes as may be specified; or (d) such other companies or classes of companies as may be notified by the Commission, provided that a company formed by the splitting up or reconstruction of an existing company shall not be considered as a startup company.
Moreover, private companies allowed to issue share as other than right and other than cash, while all companies allowed to issue employees stock option schemes and buyback their shares- earlier it was restricted to public and public-listed companies respectively. In addition, private companies having paid-up capital up to Rs1 million are exempted from filling of un-audited financial statements.
To meet benchmarks of the World Bank’s Ease of Doing Business Report, the requirement of common seal of a company is proposed to be abolished. Also, to protect minority shareholder’s rights discovery of any documents from the defendant during court proceedings is allowed, the threshold for member resolution proposed to be reduced from 10 percent to five percent, disclosure of individual directors’ remuneration. Court may declare those contracts void that are prejudicial to the interest of members or suffers from conflict of interest on the part of any director or board.
Other important amendments include board resolution through circulation is required to be signed by all directors. Proposed amendment allows that board resolution through circulation approved by all directors shall be valid. However, keeping in view recommendation of the BoI (PRMI) and similar practice in other jurisdiction, it is proposed that board resolution approved by majority of directors may be considered valid.
Moreover, requirement to deposit subscription money in bank account within 30 days of incorporation and reporting the same to registrar along with certificate from practicing CA or CMA verifying receipt of money so subscribed is cumbersome for companies.
This requirement needs to be simplified to facilitate startups.
Moreover, the existing Corporate Restructuring Companies Act 2016, does not have provisions to facilitate Corporate Restructuring Companies (CRC) to carry out their operations smoothly.
Under the Secure Transactions Act (amendment) Bill, the functions of the Secured Transactions Registry for unincorporated entities, established under the Act were outsourced to the SECP in March 2019 as it was already maintaining a similar registry for companies.
The SECP has made the registry operational w.e.f. April 30. For smooth functioning of the registry and avoid any unnecessary administrative issues, it is imperative that the administrative powers of the federal government under the act may be assigned to the SECP.
Provisions of the Act with respect to types of movable assets, security interests and obligations covered under the Act and key features of the Secured Transactions Registry also need to be aligned with best practice of secured transactions laws and modern collateral registries.
Moreover, the existing law does not provide absolute priority to secured creditors in case the borrower defaults, which is considered a best practice for promotion of secured lending activity as such absolute priority improves recovery rate and lowers the risk of secured creditors.
The bill, inter alia, will bring the existing legal framework in line with international best practices for secured transactions laws besides ensuring efficient functioning of the Secured Transactions Registry established under the Act.
The bill is in line with the government’s objective to promote access to finance for small businesses and improve global rankings in order to create a positive image of the country, internationally.
Copyright Business Recorder, 2021
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