May 17 , 2017
Companies Act 2017 passed by Senate: Pakistanis living abroad bound to disclose assets
ISLAMABAD: The Senate has approved the draft of Companies Act 2017, replacing 33-year-old Companies Ordinance 1984. The new act is far better than the Ziaul Haq-era ordinance — it is simple and truly in accordance with the international financial practices.
The ambiguous and unclear clauses of the ordinance have been replaced with clear and unambiguous clauses of the Companies Act 2017, passed by the Senate. Also, three new slabs have been introduced in the new Act for awarding any penalty to law violators. The discretionary powers of the Security Exchange Commission of Pakistan (SECP) have been reduced to a large extent. An effort has been made through the new Act that the corporate managers could conduct their affairs with more ease, e.g. holding of swift meetings of the Board of Directors General. Also merger of companies and de-registration of banned companies have also been made easy. Corporate managers’ working has been simplified a lot in the new Act.
Besides, completely new responsibilities have been assigned to the SECP under the new Act, including authentication of the Sharia sector, certification of real estate, approval of merger of companies. Also, the SECP has been assigned the task of providing conciliation services and mediation between shareholders and the companies in the face of any conflict. Another responsibility assigned to the SECP is getting information about global interests of the companies’ directors, maintaining their record, preparation of record of director shareholders of international companies, forcing companies to fulfil their social responsibilities, making at least one woman director and allocating two per cent job quota for the disabled persons.
There is nothing ideal in the world. However, the new law would enable the companies to do their business in Pakistan with more ease, and implement the law strictly, like in other countries of the world, where company laws and corporate governance are implemented in letter and spirit.
In the new Act, every shareholder, who has a mentionable number of shares in a company, or any official of the company, like its secretary, who is a Pakistani citizen, but also enjoys citizenship of any other country, whether living in Pakistan or abroad, has been bound legally to report to his/her company in this regard. He/she will have to provide all details if he has shares or financial interests in any company in any part of the world, or has any share in any property, which have been notified by the SECP.
After implementation of this Act, every shareholder or company official will have to report all this information to his/her company immediately, and the company is bound to report this information to the registrar of companies within 60 days by filing special returns. After that, any information provided by the shareholders or company officials would be reported to the registrar of the companies through annual returns.
It has been made a binding on the SECP to bring on record all such information, maintain the Global Register of Beneficial Owners as a centralised record, and provide copies of the record to the FBR and other agencies concerned.
After implementation of this Act, it will be a binding on every official of a company to check money-laundering, under the Anti-Money Laundering Act 2017. The most daring step of this legislation is provision of the watchdog status to the SECP, so that it could play a crucial role in investigations. It has been empowered to block the businesses of fake real estate agents, safeguard the interests of investors, and help promote the legal real estate projects. It would provide protection to common people’s investment in the real estate sector.
Pakistan’s famous lawyer Nadeem Ahmad Advocate has declared the new Companies Act 2017 the best piece of legislation during the past 15 years, as dozens of conferences were held in Karachi, Lahore, Islamabad, Quetta, and Peshawar to share its draft with all stakeholders including accountants, businessmen, lawyers, and stock brokers etc.
The upper house of the parliament introduced necessary amendments to the law and passed it with consensus. The National Assembly will also approve it on Friday. The president of Pakistan, on the advice of prime minister, will sign it into the law next week, and it will become active immediately.
Nadeem Ahmad Advocate said that a good piece of legislation should be made after consultation with all stakeholders. He said the role of the SECP is really commendable, which put in real hard work to improve this law. The SECP held seminars and conferences in all big cities again and again for almost two years and discussed the draft law with business people, lawyers, chartered accountants, stock brokers etc. It asked all stakeholders what were lacunae in the old law and how those could be removed in the new law. The SECP considered all the suggestions and recommendations and incorporated them in the draft law where it was possible.
When the draft law reached the parliament, the Senate Finance Committee gave its consent to each and every amendment to the law and, of course, it was its prerogative. The parliament is the real institution for making any law. The SECP gave reasons for each and every amendment to the old law. Then the Senate committee, especially Chairman Saleem Mandviwala introduced some very good amendments, and most important of them was that the big companies should fulfil their social responsibilities. Now big companies are bound to have at least one woman director, which will bring about women empowerment. Also, these companies will have to allocate two per cent job quota for the disabled persons.
According to Nadeem Ahmed, the Bill, which would now possibly sail through the National Assembly on Friday after being passed unanimously by the Senate, would result in better legislation that had not been witnessed during the last 15 years.
The passage of this Act is also important in the sense that there would be no problem for our government, parliament and bureaucracy if they sincerely want to find a solution to any problem.
There could not have been a law better than the upcoming Companies Act 2017 in which facilities have been provided to the public companies, private companies, for their board or management. A director would be able to attend the board meeting through phone, participate via video conference, cast vote even if he is not in the city or the country.
It would also not be necessary for a shareholder to attend the shareholders’ meeting. A shareholder can cast his vote by participating via video conference.
The working has been eased for the entire corporate sector and many of its demands have been accepted. The smaller companies, whose shareholders are the same, could merge only on the basis of the board’s approval.
This law, by ensuring ease of doing business, will give confidence and boost to Pakistan’s corporate sector.
Declaring all of their interests in the US, Europe, Gulf or any foreign country before the SECP and the registrar of companies would be compulsory for all Pakistani living abroad — nationality holders or residents — before the new Companies Act 2017. The real estate sector has been handed over to the SECP. After the passage of the new Act by the National Assembly, the real estate companies would not be able to advertise new projects without the SECP approval. Even booking of plots will require approval.
According to Nadeem Ahmed, there are thousands of real estate projects around the country. The owner constructed Moon Garden flats on the Railway’s land and the Supreme Court is now facing the question of whether to demolish the structure or not.
The SECP is now standing between a project and the people through this Act, which would first define the standards.
Previously, the merger of two companies wasn’t possible without the high court’s consent which took years. However, the matter would now be decided by the SECP within a month and half or two months. It would become the merger authority.
Moreover, no company would be allowed to practice Islamic banking without following the new rules of SECP.
They said during the Panama case hearing, 1.1 million documents were presented, and it was all dirty linen that embarrassed the regulators. Now, all the European countries and the United States have agreed to poll the information like Panama. All the countries, are willing to share information with each other, and would bring in new law in their countries in this regard. Britain, Hong Kong and Malaysia will have this law. Pakistan is the first country in the world to pass a new Companies Act 2017. Under this Act, a Pakistani having dual nationality, a person with Pakistani passport living in any country of the world, having shares of a Pakistani company or company of any other country or he is a director of a company will have to submit shares report, He will have to give information on shares and assets to the SECP and even to FBR and all the concerned agencies.
In Pakistan, all the politicians, wealthy people, businessmen, leaders of the political parties and big traders will have to give global access to their shares. The SECP will maintain their record. The Federal Minister for Finance, Revenue, Economic Affairs and Statistics Ishaq Dar has brought in a revolutionary change in the new Companies Act. The Parliament, for the first time, will ask the big companies to have necessarily at least one female director at their board as a social obligation. The big companies will have to give two percent jobs to the handicapped. There are lakhs of companies in Pakistan. Thus, more than a million handicapped will get gob and earn their living respectably.
The powers of SECP have been enhanced significantly in the SECP-introduced new Companies Bill that has the approval of the Senate. Under this new law, all the Pakistanis who are holding major shares in a local company, or holding any position in a local company and have shares in a foreign company simultaneously will have to provide these information to the SECP The required articles to ensure financial transparency and standard have been included in the new law.
In the new law, the fine for violation of rules and regulations has been made reasonable. Apart from this, ideas of several news companies have been floated. These are sharia-compliant companies, agriculture companies and inactive companies. The law and conditions for the single-member and private limited companies have been made very simple, and the use of technology has been encouraged. In the new law, the procedure for merger of companies has also been made easy. The companies intending to wrap up will have a simple exit.
The companies and the business institutions would go for an alternative system to seek solution to the issues arising between them. The steps have been taken to improve the corporate governance in the companies and to make social responsibility effective and to protect the investors. The handicapped have two percent necessary quota in the private companies’ jobs. The women will have significant representation in the board of directors of the companies. In the new law, the company registration process has been made simple, and the disciplinary conditions after the registration are also made simple.
The rules and regulations for the advance collected by the real estate companies are also mentioned in the new law but their implementation has been deferred.
The process to reforming the Companies Act 1984 started in 2005 with the formation of Company Law Review Commission (CLRC) comprising prominent personalities. The CRLC had envisaged the sketch for new legislation.
The current SECP administration started the review of Companies Act 1984 in April 2015 when the chairman, Zafar Hijazi, established a committee with the senior SECP officials as its members. The first draft presented to the SECP chairman in December 2015 was later made public for consultations.
All the business sectors were consulted on the law before being tabled in the parliament. The government issued the Companies Ordinance 2016 in November last year but was rejected by the Senate on December 16.
As such, the government introduced the draft law for parliament’s approval. The sub-committee of National Assembly Standing Committee on Finance, Revenue, Statistics and Economic Affairs started debate on the draft in January this year, which was followed its passage by the National Assembly on February 6.
Later, the draft was also discussed in the Senate’s relevant standing committee where most of the suggestions were given for improvement. After this, the committee chairman, Saleem Mandviwala, presented the draft law with amendments in the Senate which gave its approval on May 15.