Issued by unlisted public, private cos: SECP issues procedure for purchase of shares

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Thursday issued a detailed procedure for purchase of shares issued by unlisted public and private companies.

In this regard, the SECP has issued approved the draft, “Unlisted Companies (Buy-Back of Shares) Regulations, 2022” to facilitate startups, and boost investor confidence by providing an easy exit option to the shareholders.

The draft regulations provide eligibility criteria, procedure and mechanism to be adopted by unlisted companies to buy-back their issued shares. The unlisted companies will also have to cancel the number of bought-back shares from total issued shares. The regulations also require submission of final report to the registrar after completion of the process of buy-back of shares.

The purchasing company” means a public unlisted or a private limited company that intends to purchase its own shares, as per new regulations.

The draft regulations propose the board of directors of a purchasing company to make a declaration to the effect that the company is capable of meeting its liabilities and will not be rendered insolvent for twelve (12) months from the date of declaration.

The Companies (Amendment) Act, 2021 has enabled all companies including unlisted public and private companies to buy-back their shares. Previously only the listed companies were allowed to buy-back their issued shares.

Under the regulations, the SECP has also notified the eligibility requirements for the purchase of shares by the public unlisted or a private company.

The board of directors of the purchasing company shall recommend and approve the purchase of shares specifying the number of shares proposed to be purchased, purpose of the purchase, purchase price, period within which the purchase shall be made, source of funds, justification for the purchase and effect on the financial position of the company.

The general meeting in which the special resolution is to be passed shall be held not later than forty-five days of the date of the meeting of the board of directors in which the purchase is approved.

The SECP stated that all shares that have been purchased shall be deemed to be cancelled immediately after completion of the purchase, however following procedure shall be followed by the purchasing company: (a) where the shares purchased are in physical form, these shall be marked as cancelled within seven days of the completion of purchase; (b) where the shares purchased are in book entry form, it shall follow the procedure prescribed by the relevant depository for cancellation of such shares.

The regulations added that the purchasing company shall not apply for voluntary winding up within a period of 12 months of the close of the purchase period and make a purchase before the expiry of six months from the last date of subscription by shareholders in respect of any further issue of capital. Provided that the purchasing company shall follow all the requirements prescribed for conversion of status of the company under the relevant laws.

The draft Regulations have been issued vide SRO 2066 (I)/2022, have been placed on SECP’s website at https://www.secp.gov.pk/document/sro-2066-i-2022-draft-unlisted-companies-buy-back-of-shares-regulations 2022/ ?wpdmdl=46234. Any suggestions or objections, if any, received within a period of fourteen (14) days from the date of publication, shall be taken into consideration by SECP.

Copyright Business Recorder, 2022