Practice Note on the Requisition of Shareholders for an Extraordinary General Meeting (EGM) under Pakistani Company Law

I. Requisition of Shareholders for an EGM

Pursuant to Section 133 of the Companies Act, 2017, shareholders holding not less than one-tenth of the total voting power in the case of a company having share capital, or not less than one-tenth of the total members in the case of a company not having share capital, may requisition an extraordinary general meeting (EGM). The requisition must clearly state the objectives of the meeting and be signed by the requisitionists, then deposited at the company’s registered office. If the board of directors does not proceed to call a meeting within 21 days from the deposit of such requisition, the requisitionists may themselves call the meeting, which must be held within 90 days from the date of the requisition deposit .

II. Meeting of the Board of Directors

The board of directors, upon receipt of a valid requisition, is obligated to call an EGM. Failure to do so within the stipulated 21 days allows the requisitionists to convene the meeting themselves. Directors who fail to call the meeting are liable for any reasonable expenses incurred by the requisitionists in calling the meeting, which may be reimbursed by the company and deducted from any fees or remuneration payable to those directors .

III. Opinion of any Investment Advisor Employed by the Company

While the Companies Act, 2017 does not explicitly require the board to consult with investment advisors before calling an EGM, it is prudent for the board to seek their opinion, especially if the matters to be discussed involve financial or strategic decisions. The advice of an investment advisor can provide valuable insights and help mitigate potential risks associated with the decisions to be made at the EGM.

IV. Common or Potential Objections as Dilatory Tactics

Investment advisors or other stakeholders may raise objections or employ tactics to delay the winding-up of the company or other significant resolutions. Common objections include:

1. Questioning the Validity of the Requisition: Arguing that the requisition does not meet the legal requirements, such as the threshold of voting power or the number of members necessary to call an EGM.
2. Insufficient Notice: Claiming that the notice period for the meeting was insufficient or improperly served, thus invalidating the meeting proceedings .
3. Quorum Issues: Ensuring that the meeting is not quorate, thereby preventing any resolutions from being passed. If a quorum is not present within half an hour from the time appointed for the meeting, the meeting stands adjourned, and if a quorum is still not present at the adjourned meeting, those present shall constitute a quorum .
4. Challenging the Chairmanship: Disputing the appointment of the chairman of the meeting can lead to delays. The chairman of the board of directors usually presides, but if unavailable or unwilling, another director or a member chosen by those present may take the role .
5. Procedural Delays: Raising procedural issues during the meeting, such as demanding polls on resolutions rather than a show of hands, can cause significant delays. Polls are allowed and the manner of conducting them is regulated by the chairman of the meeting .

V. Shareholders have a clear right to requisition an EGM, and the board must comply with such a requisition promptly. While investment advisors’ opinions are not legally mandated, they are crucial for informed decision-making. Anticipating and addressing common objections can prevent dilatory tactics and ensure that the EGM proceedings are smooth and effective.

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VI. Legal Framework and Compliance

The Companies Act, 2017, provides a structured legal framework to ensure that the requisition of an EGM by shareholders is conducted in a transparent and orderly manner. Compliance with statutory requirements is essential to uphold the validity of the meeting and the resolutions passed therein. Shareholders and directors must adhere to the following provisions:

1. Filing and Recording: The requisition must be properly filed and recorded with the company’s registered office. It should include the signatures of the requisitionists, clearly state the objectives of the meeting, and be addressed to the board of directors .
2. Notice of Meeting: The company must issue a notice of the EGM to all shareholders. The notice period, agenda, date, time, and venue of the meeting must comply with the company’s articles of association and the Companies Act, 2017. The notice should be issued within 21 days of the requisition being deposited .
3. Conduct of Meeting: The EGM must be conducted in accordance with the company’s articles of association and the provisions of the Companies Act. This includes ensuring a quorum is present, managing voting procedures, and recording minutes of the meeting .

VII. Role of Investment Advisors

Investment advisors play a crucial role in providing financial and strategic insights that can impact the decisions made during an EGM. Their analysis can address various aspects, including:

1. Financial Health: Evaluating the company’s financial position and the potential impact of proposed resolutions on its stability and growth prospects.
2. Strategic Direction: Assessing how the resolutions align with the company’s long-term strategy and business goals.
3. Risk Management: Identifying potential risks associated with the resolutions and suggesting mitigation strategies to safeguard the company’s interests.

While the opinion of investment advisors is not legally binding, it can significantly influence the shareholders’ decisions and provide a robust basis for informed voting .

VIII. Mitigating Dilatory Tactics

To counteract potential dilatory tactics, it is essential for the requisitionists and the board of directors to be prepared and proactive. Strategies to mitigate such tactics include:

1. Thorough Documentation: Ensuring that all documentation related to the requisition and the EGM is complete, accurate, and compliant with legal requirements. This includes maintaining proper records of the requisition, notices, and meeting minutes .
2. Legal Counsel: Engaging legal counsel to provide guidance on procedural matters and to address any legal challenges that may arise during the process.
3. Clear Communication: Providing clear and transparent communication to all shareholders about the objectives and importance of the EGM. This helps to garner support and minimize resistance from dissenting members.
4. Anticipating Objections: Identifying potential objections in advance and preparing counterarguments to address them effectively during the meeting.

IX. Importance of Good Governance

Upholding principles of good governance is fundamental to the success of an EGM. This involves:

1. Transparency: Ensuring that all processes are transparent and that shareholders have access to relevant information to make informed decisions.
2. Fairness: Treating all shareholders equitably and ensuring that their rights are respected throughout the process.
3. Accountability: Holding the board of directors accountable for their actions and decisions, particularly in responding to the requisition and convening the EGM.
4. Responsiveness: Being responsive to the concerns and inputs of shareholders, including addressing their queries and objections in a constructive manner.

X. Conclusion

The requisition of an EGM by shareholders is a critical mechanism for ensuring that their voices are heard and that significant corporate decisions are made democratically. Adhering to the legal framework, leveraging the expertise of investment advisors, and proactively addressing potential objections are key to conducting a successful EGM. Upholding good governance practices further ensures that the company’s interests are protected and that shareholders’ rights are respected.