THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKSITAN

EXAMINERS’ COMMENTS

SUBJECT SESSION
Corporate Laws Final Examination Summer 2014

General:

The performance in this attempt was much below the performance witnessed in the last
two attempts. One of the major reasons for poor performance seemed to be selective
studies because generally the students could not do well in questions based on those areas
which are less frequently tested such as questions # 1 and 5. Moreover, many students did
well in some of the questions but relied on guesswork in the other questions.

Question-wise comments are as under:

Question 1

This question was based on Regulations 6, 7 and 8 of (Investment in Associated

Companies or Associated Undertakings) Regulations 2012. The question required
candidates to advise the directors of a parent company regarding the conditions to be
complied with while investing in a subsidiary by way of (i) equity investment (ii)
providing funded and non-funded facilities. The performance was quite poor as most of
the candidates did not know the exact requirements. Since it is common knowledge that in
such situations a special resolution is required, most students wrote detailed answers
highlighting each and every aspect of a special resolution, stressing on the requirement to
give 21 days notice and the information that is to be provided along with the notice. They
knew very little about the other conditions that are required to be complied with in such
situations.

Question 2

This question was based on Section 271 of the Companies Ordinance 1984 and required
the candidates to name the authority to which complaint regarding mismanagement in a
company may be lodged and what action that authority might take and the possible
consequences for such a company. Generally the question was well attempted. The
commonly observed errors were as follows:

(i) A number of students did not know that on the report of the investigator the
Commission may refer the matter to the court. Rather many candidates mixed up
the functions of SECP and Court.

(ii) Many candidates incorrectly mentioned that the investigator appointed by the
Commission shall have the authority to appoint administrators.

Question 3

This question pertained to the change in auditors, the procedure to be followed by a

shareholder who wants a change in the auditor and the company’s responsibility in this
regard.

Page 1 of 4
 Examiners’ Comments on Corporate Laws – Final Examination Summer 2014

This was a favourite question of the students and most of them performed well. Some of
the errors that were observed were as follows:

 The proposal was to be sent at least 14 days before the AGM; however, many students
mentioned 21 days, 15 days etc.

 Reference to Audit Committee/Board was not required as the question was about the
change of auditors in the AGM.

 Some of the students were of the opinion that change can only be proposed by
shareholders having a specific percentage of shareholding.

 Responsibility to send notice to the retiring auditor was not mentioned by most of the
students.

Question 4

This was a straightforward question requiring candidates to name the authorities who can
file a petition for winding up of a company and also to narrate conditions required to be
complied with in this regard as required under Section 309 of the Companies Ordinance
1984. Majority of the candidates attempted it well but only a few could secure full marks
as many important conditions were missed. A common mistake was that many candidates
did not know that a contingent or prospective creditor may also file such a petition.

Question 5

The question related to Regulations 15A, 15C and 15E of the Securities and Exchange
Ordinance, 1969. This question was hardly answered well by any of the students, which in
our opinion was due to selective study.

Question 5(a)

In this part the students were required to evaluate whether the situation narrated in the
question falls within the ambit of insider trading. However, instead of evaluating the
situation most of the students explained the meaning of insider trading.

Question 5(b)

In this part also most of the students had very little idea of the relevant provisions and
tried to guess the answers with little success.

Question 6(a)

This question was based on Section 192 of the Companies Ordinance, 1984 and pertained
to assignment of office by a director. The performance remained average. The most
common mistake was that students mixed-up assignment of office by a director with
appointment of an alternate director or substitute director.

Page 2 of 4
 Examiners’ Comments on Corporate Laws – Final Examination Summer 2014

Question 6(b)

This question based on Section 195 of the Companies Ordinance 1984 relating to loan to
director etc. was one of the most well attempted question and a large number of students
scored full marks also. Some students wasted their time by giving additional irrelevant
details such as the persons to whom loan cannot be given. The most common mistake was
that many students did not state that prior permission of SECP is also required.

Question 7

This was a straight question requiring the candidates to identify the persons (responsible
officers) who may file a petition for alteration of the memorandum of association and the
documents which are to be provided to the Commission in this regard.

It was an easy question in the sense that passing marks were easily obtained even by those
who seemed to rely on guesswork. However, only few could obtain high marks as most
students missed the following:

 “Responsible officer” also include an administrator, a liquidator and any other officer
of the company declared by the Commission for such purposes.

 Documents to be provided to the Commission also include particulars of dissenting

shareholders, pattern of holding and names and addresses of persons likely to be
affected along with their consent for alteration.

Question 8

This was again a straight question where the candidates were required to list the relevant
provisions of Companies Ordinance, 1984 and Listing Regulations as regards
announcement and payment of dividend and issuance of dividend warrants.

Question 8(a)

Most of the students secured low marks in this part of the question as they narrated the
provisions regarding payment of dividend instead of announcement of dividend.

Question 8(b)

This part was well attempted. Those who failed to score high marks generally made the
following mistakes:

 Failed to mention that the Chief Executive is responsible for payment of dividend.

 It was stated that dividend is to be paid within 45 days whereas the requirement is that
dividend warrant is to be issued within 30 days. Further, it was not mentioned as from
when the period of 30 days shall be counted i.e. from the date of announcement or
book closures or AGM.

Page 3 of 4
 Examiners’ Comments on Corporate Laws – Final Examination Summer 2014

Question 9(a)

According to the given situation, a shareholder who intended to contest the election of
directors, wanted to inspect the register of director’s shareholdings. The requirement was
to explain his right of inspection. Majority of the candidates performed well but somehow
quite a few candidates got mixed up and mentioned the requirements to contest the
elections of directors.

Question 9(b)

The requirement was to mention the provisions of Companies Ordinance, 1984 whereby a
member may give notice of a resolution and the procedure which such member has to
follow in this regard. The question was based on Section 164 of the Companies Ordinance
1984 and generally the candidates performed well. However, there were some students
who instead of giving the steps for filing a notice of a resolution to be considered in the
shareholders meeting, gave the procedures for calling a general meeting.

Question 10

This question was a small case study whereby certain information was provided about a
company which was planning to register as a non-banking finance company. Students
were required to evaluate the information in the light of relevant provisions and assess
whether the company could apply for a license to operate as an NBFC.

In a large number of cases students lost marks because they simply reproduced the legal
requirements but did not give any opinion with reference to the given information.
However, generally the performance was good. The major issues in the answers were as
follows:

 Very few candidates could identify that the company cannot enter into all the
businesses and explain the choices that were available to the company.

 The company was required to start business within one year from date of issuance of
license; however, some students mentioned the period as 6 months.

Question 11

In this question the candidates were required to quote the conditions required to be
complied with for issuance of right shares at a premium of 20% under Rule 5 of the
Companies (Issue of Capital) Rules 1996. Generally the performance was good. However,
some students restricted themselves to providing the requirement relating to issuance of
right shares at a premium. All other provisions were ignored. Interestingly, a mistake in
the Ordinance where ‘quality for right entitlement’ has been written instead of ‘qualify for
right entitlement’ was repeated by many candidates which indicated rote learning and lack
of conceptual understanding.

(THE END)

Page 4 of 4