mismanagement of company

7/28/2019 mismanagement of company

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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,_1956


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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

mismanagement of company

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