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Test 6 - Suggested Solution

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8 views3 pages

Test 6 - Suggested Solution

Uploaded by

Aaseeranesukhan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CAF 07: Company Law

Suggested Solution – Test # 6

Suggested Solution # 1

MCQ # Correct Option

(i) d
(ii) b
(iii) b
(iv) d
(v) a

Suggested Solution # 2

Exceptions to the Requirement of Submitting a Prospectus under the Securities Act, 2015
1. Private Offering or Private Placement
Securities offered privately to a select group of investors are exempt from the prospectus
requirement.

2. Offers to Existing Members or Their Families


Securities issued to existing shareholders or their family members do not necessitate submitting a
prospectus.

3. Bonus Shares
Issuing bonus shares to existing shareholders as a reward for their investment is exempt from this
provision.

4. Shares Issued as Dividend by a Listed Holding Company


When a listed holding company issues shares in its subsidiary to its members as a dividend, a
prospectus is not required.

5. Employee Share Schemes


Securities offered to employees or their family members through specific employee share
schemes are exempt.

6. Offer by State Bank of Pakistan


Securities offered by the State Bank of Pakistan fall outside the ambit of this requirement.

[Any four may be mentioned]

Suggested Solution # 3

Why ML Should Not Sign the Finance Facility Agreement


• Under the Companies Act, 2017, a public company like Mazboot Limited (ML) must first obtain
a Certificate of Commencement of Business before exercising its borrowing powers or signing
any borrowing agreements.
• Signing a finance agreement such as a Musharika facility without this certificate would
contravene the legal provisions.

Page 1 of 3
CAF 07: Company Law
Suggested Solution – Test # 6

Conditions to Fulfill Before Exercising Borrowing Powers


1. Minimum Subscription: Shares must be allotted up to the amount of minimum subscription, and
the funds must be received by the company.
2. Director Payments: Every director must pay in cash the full amount for shares they have taken.
3. No Outstanding Refunds: The company must ensure no money is payable to applicants for
shares offered for public subscription.
4. Statement in Lieu of Prospectus: If ML has not offered shares for public subscription, it must
file a statement in lieu of prospectus with the Registrar.
5. Declaration Filing: The Company Secretary and Chief Executive (or a Director) must file a
declaration with the Registrar stating that the above conditions have been fulfilled.

Consequences of Non-Compliance
• If ML signs the Musharika finance facility agreement without meeting the specified conditions:
o Legal Voidance: The borrowing agreement will be deemed void and unenforceable.
o Potential Penalties: Regulatory authorities may impose penalties on the company and its
directors for non-compliance with the Companies Act, 2017.

Suggested Solution # 4

Under the Companies Act, 2017, a public company cannot exercise any borrowing powers or
commence business operations until it obtains a Certificate of Commencement of Business from the
Registrar.

Agreement with TEL (Supply and Installation of Machinery)


The agreement with Taqi Engineering Limited (TEL), made before the Certificate of Commencement
of Business was obtained, is provisional. This means:
• It will only become binding on BGL if the Certificate of Commencement of Business is issued.
• Until then, the agreement remains non-binding.

Agreement with Commercial Bank (Short-Term Finance Facility)


The short-term finance facility agreement with the commercial bank is void because:
• BGL, as a public company, is not permitted to exercise borrowing powers before obtaining the
Certificate of Commencement of Business.
• Entering into such a borrowing agreement prematurely contravenes the Act, and any officer or
person responsible for arranging this facility may be subject to a fine.

Suggested Solution # 5

Inclusion of Expert's Statement in the Prospectus:


A prospectus shall not include a statement by an expert unless the expert is not, and has not been,
engaged or interested in the formation, promotion, or management of the company.

Mr. Ahmed’s statement should not be included in the prospectus because he is not an independent
expert, as he has been engaged in the formation and promotion of the company.

Page 2 of 3
CAF 07: Company Law
Suggested Solution – Test # 6

Suggested Solution # 6

Logical Sequence of Steps Relating to a Public Issue of Shares:


1. Approval of the prospectus by the Board of Directors.
2. Approval by the SECP for the issue, circulation, and publication of the prospectus.
3. Printing of the prospectus.
4. Publication date of the prospectus in newspapers.
5. Balloting due to over-subscription.
6. Allotment of shares to successful applicants.

Suggested Solution # 7

(a) Use of Expert’s Statement in Prospectus

(i) Considerations Before Including Expert’s Statement:


Before the directors of Jhelum Limited (JL) include an expert’s statement in the prospectus, they must
ensure:
• The expert is independent and not involved in the formation, promotion, or management of JL.
This independence is essential to maintain objectivity in the statement.

(ii) Conditions for Issuing Prospectus with Expert’s Statement:


To legally issue, circulate, or publish a prospectus containing the expert’s statement, JL’s directors must:
1. Obtain the expert’s written consent, confirming the expert agrees to include the statement in the
prospectus.
2. Clearly state in the prospectus that the expert has given this consent and has not withdrawn it
prior to publication.

(b) Shelf Registration


Definition:
Shelf registration under the Securities Act, 2015, allows a company to file a single offering document
(prospectus) for multiple securities offerings within a set period. This registration enables the company to
issue additional securities at different times, as specified in the initial offering document, without
preparing a new prospectus for each offering.

Conditions:
These multiple offerings must occur within a prescribed time frame and under conditions specified in
the Act or by the Commission.

(THE END)

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