Practice Note on the requisition of Shareholders for an Extraordinary General Meeting (Pakistani Company Law) , in the presence of possible objections by investment advisors.
The applicable law here is the Companies Ordinance, 1984 and the Investment Companies and Investment Advisors Rules, 1971.In advising on such a question care should be taken to see any adverse provisions in the Investment Advisor’s contract as well as the Memorandum of Association and Articles of Association of the company.
Notice of Requisitioning an Extraordinary General Meeting
There is absolutely no legal flaw in requisitioning of the extraordinary general meetings by the members/shareholders representing more than one-tenth of the total voting power of all the members/shareholders U/S 159(2) of the Companies Ordinance, 1984. As per Section 159(2), such an extraordinary general meeting of the Company may be called by the Directors and also “shall be on requisition of members representing not less than one-tenth of the voting power on the date of deposit of the requisition…” If the Director shall not convene the said meeting, the required number of shareholders themselves can convene it. If the meeting is not allowed to be held in the head-office of the Company, the same can be convened elsewhere.
If the imperatives/provisions of the Section 159(2) are ignored, then in that event every officer of the Company who knowingly and willfully fails to comply with such mandatory steps shall be liable to penalty as per Section 159(8)(a) as under: –
“If the default relates to a listed company, to a fine not less than ten thousand rupees and not exceeding twenty thousand rupees and in the case of continuing default to a further fine which may extend to two thousand rupees for every day after the first during which the default continues.”
Such penalty clause comes into operation when any of the requisitioners in the instant case makes a written complaint to the Corporate Law Authority.
Meeting of Board of Directors
Unless indicated expressly otherwise (in the contracts or company documents) there is also no legal bar on holding the meeting of the Board of Director for resolving to persuade the shareholders for postponing the process of winding up the Company, yet the Board of Directors of the Company cannot place legal hurdles in the way of shareholders to hold the extraordinary general meeting and from voting on the proposed resolution. An extraordinary general meeting properly convened by the shareholders cannot be deferred/postponed by the Directors, but on the other hand, the extraordinary general meeting lawfully convened by the shareholders can nullify such a decision of the Directors.
Opinion of any Investment Advisor employed by the company
While the Investment Companies and Investment Advisors Rules govern the contractual arrangement with any such advisors, 1971, the latter is not over and above the Companies Ordinance, 1984. Even otherwise, there is no legal provision in the Investment Companies and Investment Advisors Rules, 1971, which prohibits the shareholders from winding up of the Company. A common and standard clause 6(1) in general Investment Advisor’s Contracts often reads: “ that the Investment Advisor shall implement, carry out and manage the affairs and conduct the business connected with the investment policy of the Investment Company as clearly and concisely stated in its Memorandum and Articles of Associate and the public offer for the sale of its security”. The effect of this clause is that the Investment Advisor is required to carry out and implement the policy of the Investment Company. When the Advisor has to carry out only the policy of the Investment Company, it is perhaps not correct to suggest, “The Advisor has the sole discretion in all investment and disinvestment decisions”. If such decisions conform to the Memorandum of the Company, right, otherwise the Advisor has to go by the same. So far as the opinion of the Investment Advisor about the proper time to liquidate the equities portfolio is concerned, it is not binding on the shareholders who are out to wind up their Company as per rules. Such an opinion can be utilized to merely persuade the shareholders to avoid the winding up of the company at a particular time or forever if they agree that it is not in their/or Company’s interest to do so. Thus when the process of winding up of the Company starts, the Advisor’s Contract (if any in place) with the Investment Company shall stand ended. Even during the continuation of the said Contract, the Investment Advisor has no powers/discretion to come in the way of winding-up proceedings by the shareholders/members.
Common or potential objections which can be utilized as a lever/dilatory tactic against the winding-up of the Company: –
i. The shareholders/members who have requisitioned the EGM do not represent the required strength of voting/shares.
ii. The shareholders / members have not got with them the share certificates as per Form A.
iii. Proxies are defective, therefore the proxies appointment by the shareholder do not fulfill the requisites of their mutual contract to this effect.
iv. The provisions of section 159 (7) have not been fulfilled, though inadvertently, so far. Notice in the newspaper, as required by the law, has not been published.
v. Voting strength does not fulfill the imperatives of section 2(36) of the Companies Ordinance, 1984.