Post on 03-Apr-2018
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MISMANAGEMENTOF A COMPANY
PRESENTATION BY
SHAHZAIB RAFIQUE
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WHAT IS MISMANAGEMENT Managing ineffectively, incompetently, carelessly, or
wrongly.
Mismanagement ranges from making poor decisions tobreaking rules for personal gain.
In some cases, it could involve criminal behavior such as
theft, fraud, breach of trust, and conspiracy.
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REASONS FOR MISMANAGEMENT
Absence of basic records of the company
Drawing considerable expenses for personal purposes by directors/management of the
company.
Not filing documents with The Registrar of Companies relating to compliances under
The Companies Ordinance 1984
Misuse of companies finances/funds
Sale of assets at very low prices
Violation of provisions of law and memorandum or article of association of the company.
Making Secret Profits
Diverting company funds for personal use of directors
Directors using powers beyond its limits.
http://en.wikipedia.org/wiki/The_Companies_Act,_1956http://en.wikipedia.org/wiki/The_Companies_Act,_19567/28/2019 mismanagement of company
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When there is serious infighting between directors.
When Board of Directors is not legal and the illegality is being
continued.
When bank account(s) was/were operated by unauthorized
person(s).
When directors take no serious action to recover amounts
embezzled.
Continuation in office after expiry of term of directors.
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Under the Companies Ordinance, 1984,the
minimum threshold for seeking a remedy fromthe Court against mismanagement and
oppression requires that at least twenty percent
of the shareholders initiate a complaint.
Shareholders representing at least ten percentbut less than twenty percent of the companys
shares can apply to the SECP to appoint an
inspector to investigate the companys affairs.
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PREVENTION OF MISMANAGEMENT UNDER
COMPANY ORDINANCE 1984
Application to Court 207
Powers of Court under section 290 208
Interim order 208
Claim for damages inadmissible 208
Management by Administrator 209
Rehabilitation of companies owing sick industrial units
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APPLICATION TO COURT
If any member or members holding not less than twenty per cent of
the issued share capital of a company, complains, or the registrar
is of the opinion, that the affairs
of the company are being conducted, or are likely to be conducted,in an unlawful or fraudulent manner, or in a manner not provided
for in its memorandum, or in a manner oppressive to the members
or the creditors or are being conducted in a manner prejudicial to
the public interest, such member(s) or creditor(s),or registrar may
make an application to the Court .
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The Court may, with a view to bringing to an end the matters
complained of, make such order as it think fit,
whether for regulating the conduct of the company's affairs infuture.
Where an order under this section makes any alteration in, or
addition to, a company's memorandum or articles, then, not with
standing anything in any other provision of this Ordinance, thecompany shall not have power without the leave of the Court to
make any further alteration or addition to the memorandum or
articles inconsistent with the provisions of the order.
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A copy of any order under this section altering or adding to, or
giving leave to alter or add to, a company's memorandum or
articles shall, within fourteen days after the making thereof, be
delivered by the company to the registrar for registration.
if the company makes default in complying with this sub-section,
the company and every officer of the company who is knowingly
and willfully in default shall be liable to fine which may extend to
five thousand rupees and to a further fine not exceeding onehundred rupees for every day after the first during which the
default continues.
The provisions shall not prejudice(injustice) the right of any
person to any other remedy or action.
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POWERS OF COURT UNDER SECTION
290
(a) the termination, setting aside or modification of any agreement, however
arrived at between the company and any director, including the chief
Executive or managing agent or other officer,.
(b) setting aside of any transfer, delivery of goods, payment, execution or
other transactions not relating to property made or done by or against the
company within three months before the date of the application which
would, if made or done by or against an individual, be deemed in his
insolvency to be a fraudulent preference; and
(c) any other matter, including a change in management, for which in the
opinion of the Court it is just and equitable that provision should be made.
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INTERIM ORDER
Pending the making by it of a final order under section
290 the Court may, on the application of any party to
the proceedings, make such interim order as it thinks fit
for regulating the conduct of the company's affairs,upon such terms and conditions as appear to it to be
just and equitable.
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CLAIM FOR DAMAGES IS PROHIBITED. Where an order of the Court made under section 290
terminates, sets aside, or modifies an arrangement, the
order shall not give rise to any claim whatever against
the company by any person for damages or forcompensation for loss of office or in any other respect,
either in pursuance of the agreement or otherwise.
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MANAGEMENT BY ADMINISTRATOR
Creditors having interest equivalent in amount to not less than sixtyper cent, of the paid up capital of a company can request the court toappoint an administrator
The commission will appoint an Administrator within sixty days of thedate of receipt of the request, from a panel maintained by it on the
recommendation of the State Bank of Pakistan to manage the affairsof the company.
The administrator appointed can continue for a maximum of threeyears.
During the suspension period of the management all powers and
duties of the board of directors are performed by the administrator.
The remuneration of the administrator is decided by the commission.
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SECP may appoint an administrator if at any time the commission is
convinced, that the affairs of the company are being managed in a way which
may damage the interests of the company or with the intent to defraud itsshareholders or creditors.
SECP can be convinced by representation from creditor(s) having an interest
not less than 60% of the paid up capital of a company that the affairs of the
company:
i) are not being managed in a bona fide manner
ii) are managed with the intent to defraud its stakeholders
iii) are managed as to deprive the shareholders from a reasonable return
iv) have deteriorated financial position due to non commencement of
operations or if the companys accumulated losses are exceeding 60% of itsequity.
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REHABILITATION OF COMPANY
Once the company is declared sick by the federal government
The federal government can draw up the plan for rehabilitation,
reconstruction and reorganization of such company by
alteration of share capital and variation in the rights and obligations of
shareholders or any class of shareholders.
alteration of loan structure, debt rescheduling or conversion into shares
carrying special rights or other relief and modification in the terms and
conditions in respect of outstanding debts and liabilities of the company
issue of further capital including shares carrying special rights andobligations relating to voting powers, dividend, redemption or treatment on
winding up
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removal and appointment of directors(including the chief
executive) or other officers of the company
Amendment, modification or cancellation of any existing contract
alteration of the memorandum or articles or changes in the
accounting policy and procedure
The rehabilitation plan shall be submitted for approval to the
Federal Government which shall cause it to be published in theofficial Gazette for ascertaining the views of the shareholders
creditors and other persons concerned within a specified period.
Before approving the rehabilitation plan, the Federal
Government shall take into consideration the views relatingthereto received from any quarter within the specified period.
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On the approval of the rehabilitation plan by the Federal
Government, its provisions, with such modification as may be
directed by the Federal Government, shall become final and
take effect and be implemented
Any provision contained in the memorandum, articles,
agreements, documents or resolutions shall, to the extent to
which it is repugnant to the provisions of this Ordinance or the
rehabilitation plan, become void.
No compensation or damages shall be payable to any one for
any matter
The Federal Government may vary or rescind rehabilitation planfrom time to time and issue such directions as to its
implementation and matters ancillary thereto as it may deem
expedient.
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The Federal Government or any authority or other person
authorized by the Federal Government in this behalf shall
supervise the implementation of the rehabilitation plan Whosoever fails to give effect, to carry out or implement the
rehabilitation Plan shall be liable to imprisonment of either
description for a term which may extend to two years and fine not
exceeding one million rupees and, in case of a continuing failure,to a further fine not exceeding five thousand rupees for every day
after the first during which the failure or default continues.
Until rehabilitation plan is approved by federal govt and in
operation, the share holder or creditor can make any arrangementor settlement in any manner authorized by company ordinance
1984
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THANK YOU