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MISMANAGEMENT OF A COMPANY

PRESENTATION BY SHAHZAIB RAFIQUE

WHAT IS MISMANAGEMENT
Managing ineffectively, incompetently, carelessly, or wrongly.
Mismanagement ranges from making poor decisions to breaking rules for personal gain. In some cases, it could involve criminal behavior such as theft, fraud, breach of trust, and conspiracy.

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.

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.

Under the Companies Ordinance, 1984,the minimum threshold for seeking a remedy from the Court against mismanagement and oppression requires that at least twenty percent of the shareholders initiate a complaint. Shareholders representing at least ten percent but less than twenty percent of the companys shares can apply to the SECP to appoint an inspector to investigate the companys affairs.

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

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 .

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 in future.

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, the company 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.

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 one hundred 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.

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.

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.

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 for compensation for loss of office or in any other respect, either in pursuance of the agreement or otherwise.

MANAGEMENT BY ADMINISTRATOR
Creditors having interest equivalent in amount to not less than sixty per cent, of the paid up capital of a company can request the court to appoint an administrator The commission will appoint an Administrator within sixty days of the date of receipt of the request, from a panel maintained by it on the recommendation of the State Bank of Pakistan to manage the affairs of the company. The administrator appointed can continue for a maximum of three years. 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.

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 its shareholders 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 its equity.

REHABILITATION OF COMPANY
Once the company is declared sick by the federal government

The federal government can draw up the plan for reconstruction and reorganization of such company by

rehabilitation,

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 and obligations relating to voting powers, dividend, redemption or treatment on winding up

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 the official 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 relating thereto received from any quarter within the specified period.

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 plan from time to time and issue such directions as to its implementation and matters ancillary thereto as it may deem expedient.

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 arrangement or settlement in any manner authorized by company ordinance 1984

THANK YOU

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