lecture - 6 - amended 95-a

8/14/2019 Lecture - 6 - Amended 95-A

1/8

Lecture - 6

Power of companies to purchase its own shares (sec. 95A)

(1) Notwithstanding anything contained in this Ordinance or any other law for the timebeing in force or the memorandum and articles, a listed company may, subject to the

provisions of this section and the rules framed by the Commission in this behalf, purchase its

own shares (hereinafter in this section referred to as "purchase").

(2) The purchase shall be authorised by a special resolution which shall indicate

maximum number of shares to be purchased; the maximum price at which the shares may be

purchased; and the period within which the purchase is to be made.

(3) The notice of the meeting in which the special resolution authorising the purchase of

shares is proposed to be moved, shall be accompanied by an explanatory statementcontaining all material facts including the following:-

(a) justification for the purchase;(b) source of funding;

(c) effect on the financial position of the company; and(d) nature and extent of the interest, if any, of every director, whether directly or

indirectly.

(4) The purchase shall always be in cash and shall be out of the distributable profits.

(5) Where shares are purchased by a company on premium, the amount of premium shallbe charged to Share Premium Account of the company, or in the absence of any balance

therein, to the distributable profits of the company.

(6) Where purchase is made at a price lower than the nominal value of shares, the

difference shall be credited to the reserve created under sub-section (10).

(7) The company shall have such debt equity and current ratios as may be prescribed.

(8) The majority of the directors including the chief executive, shall at a meeting make a

declaration of solvency verified by an affidavit to the effect that they have made a full inquiryinto the affairs of the company, and that after having done so, they have formed the opinion

that the company shall continue to operate as a going concern and that it is capable of

meeting its liabilities on time during the period upto the end of the immediately succeeding

financial year.

(9) The purchase shall be made through a tender system and the mode of tender shall be

decided by the company in general meeting through a special resolution.

(10) The shares purchased under this section shall not be resold and shall be cancelled

forthwith. The amount of the company's paid up share capital shall be diminished by thenominal value of such shares accordingly. The amount by which the company's paid up share

capital is thereby diminished on cancellation of the shares purchased shall, after accountingfor the credit, if any, pursuant to sub-section (6) of this section, be transferred from the

distributable profits to an account to be called "Capital Re-purchase Reserve Account".

Page 1 of 8


2/8

Lecture - 6

(11) The provisions of this Ordinance relating to the reduction of a company's sharecapital apply as if the Capital Re-purchase Reserve Account was paid-up share capital of the

company, except that the reserve account may be applied by the company in paying up its un-issued shares to be allotted to members of the company as fully paid bonus shares.

(12) Where a company has purchased its own shares under this section, it shall maintain a

register of shares so purchased and enter therein the following particulars, namely:

(i) numbers of shares purchased;(ii) consideration paid for the shares purchased;(iii) mode of purchase; and

(iv) the date of cancellation of such shares.

(13) A return about the purchase of shares under this section containing such particulars

relating to purchase as may be prescribed, along with the declaration of solvency made under

sub-section (8), shall be filed with the Commission and the registrar within thirty days of the

purchase.

(14) If a company makes default in compliance with the provisions of this section, the

company shall be liable to a fine which may extend to one million rupees and any officer of the

company who is knowingly and willfully in default shall also be punishable with imprisonment

for a term which may extend to six months, or with fine which may extend to one million rupees,

or with both.

Power to purchase Own shares (treasury stocks): A listed company has thepowers to purchase own shares (treasury stocks)

Rules: The Commission has to make rules for purchase of own shares by a listed

company. The notice shall contain the following: -

(1) justification for the purchase; (to consolidate the shareholders' equity, toredeem excess capital, to purchase equity of dissenting directors etc.)

(2) source of funding; (un-appropriated profit, sinking fund, loans fromdirectors etc.).

(3) effect on the financial position of the company; (shall consolidate the

equity and increase earning per shares, no adverse effect etc).(4) nature and extent of the interest of every director, whether directly or

indirectly, (directors are interested to consolidate their voting power by

purchasing the shares of dissenting directors ).

CONDITIONS

(1) The company must be solvent and going concern.(2) The treasury stocks can be purchased out of cash.

(3) The purchase be made out of the distributable (un-appropriated) profits.

(4) If shares are purchased at a price higher than nominal value, the Share PremiumAccount is charged for such higher value (amount more than face value). In case

the company does not have Share Premium Account, the whole amount will be

debited to the distributable profits of the company.

Page 2 of 8


3/8

Lecture - 6

(5) If the purchase is made at a price lower than the nominal value of shares (i.e. at

discount), the difference shall be credited to the "Capital Re-purchase Reserve

Account".

(6) The company should have such debt equity and current ratios as may be

prescribed in the rules.The purchase must be made through a tender system and the mode offender is

decided by the company in general meeting through a special resolution.

The shares cannot be resold and are required to be cancelled at earliest. Capital

Re-purchase Reserve Account is treated as paid-up share capital of the company

in case of reduction of capital. However, the reserve account may be applied by

the company in paying up its un-issued shares to be allotted to members of thecompany as fully paid bonus shares.

SPECIAL RESOLUTION

Resolved that:

a. The directors be authorized to purchase 50,000 shares of M/s ABC Limited at the

market price of Rs. 12.50 per share.

b. The purchase of shares be made within 30 days positively.

c. The purchase be made through an open tender to be published in the daily Dawn.

THE COMPANIES (BUY-BACK OF SHARES) RULES, 1999

1. Short title commencement and application.-

(1) These rules may be called the Companies (Buy-back of Shares) Rules, 1999.(2) They shall come into force at once.

(3) They shall apply to listed companies.

2. Definitions.-

(1) In these rules, unless there is anything repugnant in the subject or context. -

(a) "Commission " means the Securities and Exchange Commission of

Pakistan;(b) "Ordinance" means the Companies Ordinance, 1984 (XLV1I of 1984);

and

(c) "purchase " means purchase by the companies of their own shares.(2) All other terms and expressions used but not defined in these rules shall have the

same meaning as assigned to them in the Ordinance.

3. Financial ratios.- (I) Subject to and in addition to other restrictions and

conditions provided in section 95 A of the Ordinance, the company intending to

purchase, shall have debt-equity and current ratios as under:

(i) Debt-equity ratio 60: 40(ii) Current ratio 1 : 1

Page 3 of 8


4/8

Lecture - 6

(2) The financial ratios specified in sub-rule (1) shall be certified by the auditors

of the company on a date not earlier than thirty days immediately preceding the date of

passing the special resolution for the purchase.(3) Debt-equity and current ratios as certified by the auditors shall be indicated in

the explanatory statement to be circulated to the members alongwith the notice of the

meeting in which the proposed purchase is to be considered.

4. Availability of sufficient cash.- (1) The company shall have sufficient cash

available with it for the purchase.

(2) A certificate from the auditors that sufficient cash is available, shall be obtained

by the company on a date not earlier than thirty days immediately preceding the date of

passing the special resolution for purchase and the position shall be indicated in theexplanatory statement to be circulated along with the notice of the meeting.

5. Purchase procedure.- (1) The directors shall take a decision in a meeting for the

purchase of a specified number of shares at a determined price and shall fix a date for thecompany's, meeting for seeking the approval of shareholders.

(2) The decision of the directors for the purchase shall be communicated to the

Commission and the respective stock exchange on the day of the decision.

(3) Subject to the approval of the shareholders, made in a meeting through specialresolution, the tender notice for the purchase shall contain

(i) the maximum number of shares to be purchased by the company;(ii) the manner in which the offer shall be communicated;

(iii) the last date by which the offer to sell the shares shall be made; and

(iv) the name and the address of the designated branches of the authorizedbank.

(4) A shareholder, interested, to sell his shares to the company in response to thetender notice, shall make the offer in writing through the designated branches of an

authorized bank, providing the following information in the offer, namely:-

(i) Name of the shareholder;(ii) his father's name and in the case of a married woman or a widow, her

husband's name:

(iii) National Identity Card No.;(iv) address of the shareholder registered with the company;

(v) number of shares offered for repurchase by the company;

(vi) distinctive numbers of share certificates (if not in the Central Depository);(vii) folio No. (if not in the Central Depository); and

(viii) sub-account number with the Central Depository, if any.

(5) The company shall take a decision on the offers received within ten days of theclosing date of the receipt of offers.

Page 4 of 8


5/8

Lecture - 6

(6) In case, offers' received in response to tender notice exceed the requisite purchase,

the acceptance thereof shall be on pro-rata basis in lots of five hundred shares.

(7) The acceptance of the offer shall be communicated within seven days of the

decision.

(8) The shareholder, whose offer has been accepted, shall submit the share

certificates alongwith the transfer deed duly signed, verified and witnessed to the

company through designated branches of the bank within seven days of the receipt ofacceptance from the company.

(9) Where the shares are on the Central Depositor}- System a confirmation from the

Central Depositor)', about the availability of the shares alongwith authorization totransfer, shall be sent to the designated branches of the bank within seven days of the

receipt of acceptance of the offer.

(10) In the case of non-compliance with sub-rules (8) and (9), the acceptance of theoffer shall be deemed to have been revoked.

(11) The company shall pay the price of the purchase through 'bank draft'/ 'pay order'

immediately on receipt of the share certificates and transfer deed or the authority to

transfer the shares from the Central Depository, as the case may be but not later than

seven days.

6. Disclosure of purchase.- The purchase shall be disclosed in the balance sheet as

reduction of share capital and other necessary details including the mode and purchaseprice shall be provided in the explanatory notes of the accounts.

7. Filing of return.- The company shall submit to the Commission and the registrarconcerned a return and a declaration of solvency within thirty days of the purchase in the

manner set out in the Schedule to these rules.

8. Penalty.- Whoever fails or refuses to comply with or contravenes any provision

of these rules, or knowingly and willfully authorizes or permits such failure, refusal or

contravention shall, in addition to any other liability under the Ordinance, be also

punishable with fine not exceeding two thousand rupees, and, in case of continuingfailure, refusal or contravention, to a further fine not exceeding one hundred rupee's for

every day after the first during which such contravention continues.

Page 5 of 8


6/8

Lecture - 6

Annex I

AN ORDINANCE

To amend the Companies Ordinance, 1984

WHFRHAS it is expedient to amend the Companies Ordinance. 1984 (XLVII of 1084) toprovide for the fisted companies to buy hack their shares and retain the repurchased

shares as treasury shares and reissue them at appropriate time;

AND WHEREAS the National Assembly is not in session and the President is satisfied

that circumstances exist, which render it necessary EG take immediate action;

NOW, THEREFORE, in exercise of the powers conferred by clause (1) of Article 89 of

the Constitution of the Islamic Republic of Pakistan, the President is pleased to make and

promulgate the following Ordinance:-1. Short title and commencement.- (1) This Ordinance shall be called the

Companies (.Amendment) Ordinance, 2009,

(2) It shall come into force at once.

2. Substitution of section 95A, Ordinance XLVII of 1984- In the Companies

Ordinance, 1984 (XLVlI of 1984). for section 95A, the following shall be substituted,namely:-

"9.5A, Power of a company to purchase its own shares. (1)Notwithstanding anythingcontained in this Ordinance or any other law or the lime being in fence or the

memorandum and articles, a listed company may, subject to the provisions of this section

and the regulations prescribed by the Commission in this behalf, purchase its own shares(hereinafter in this section referred to as ''purchase-'').

(2) The shares purchased by the company may, in accordance with the provisions

of this section and the regulations, either be cancelled or held as treasuryshares.

(3) The shares held by the company as treasury shares shall, as long as they are soheld, in addition to any other conditions as may be prescribed, be subject to

the following conditions, namely:-

a. The voting rights of these shares shall remain suspended; andb. No cash dividend shall be paid and no other distribution, whether in cash

or otherwise of the companys assets, including any distribution of assets

to members on a winding up shall be made to the company in respect ofthese shares:

Provided that nothing in this sub-section shall prevent,-

(i) an allotment of shares as fully paid bonus shares in

respect of the treasury shares; and

Page 6 of 8


7/8

Lecture - 6

(ii) the payment of any amount payable on the redemption

of the treasury shares, if they are redeemable.

(4) The board of directors shall recommend the purchase to the members. The

decision of the board of directors shall clearly specify the number of shares

proposed to be purchase, purpose of purchase i.e., cancellation or holding theshares as treasury shares, the purchase price, period within which purchase

shall be made, source of funds, justification for the purchase and effect on the

financial position of the company.

(5) The purchase shall be made only under the authority of a special resolution.

(6) The purchase shall be made within a period prescribed by the regulations.

(7) The proposal of the board of directors to purchase shares shall be

communicated to the Commission and to the stock exchange on which shares

of the company are listed on conclusion of the board meeting.

(8) The purchase shall always be made in cash and shall be out of thedistributable profits or reserves specifically maintained for the purpose.

(9) The purchase shall be made either through a tender offer or through stock

exchange as prescribed by the regulations.

(10) The company may dispose of the treasury shares as prescribed by the

regulations.

(11) Where a purchase has been made under this section, the company shall

maintain a register of shares so purchased and enter therein the followingparticulars, namely:-

a. Number of shares purchased;b. Consideration paid for the shares purchased;

c. Mode of purchase;

d. The date of cancellation or re-issuance of such shares;

e. Number of bonus shares issued in respect of treasury shares; andf. Number and amount of treasury shares redeemed, if redeemable.

(12) Whosoever contravenes any provision of this section or any regulationsframed hereunder shall be punishable with fine which may extend to thirty

million rupees and shall also be individually and severally liable for any and

all losses or damages arising out of such contravention.

ASIF ALI ZARDARI

President

Page 7 of 8


8/8

Lecture - 6

Reduction of Share Capital (sec 96)

96. Reduction of share capital.- (1) Subject to confirmation by the Court, a company

limited by shares, if so authorised by its articles, may by special resolution reduce its

share capital in any way, and in particular and without prejudice to the generality of the

foregoing powers may-

(i) extinguish or reduce the liability on any of its shares in respect of share

capital not paid up; or(ii) either with or without extinguishing or reducing liability on any of its

shares, cancel any paid-up share capital which is lost or unrepresented by

available assets; or(iii) either with or without extinguishing or reducing liability on any of its

shares, pay off any paid-up share capital' which is in excess of the needs of

the company;and may, if and so far as is necessary, alter its memorandum by reducing

the amount of its share capital and of its shares accordingly.

(2) A special resolution under sub-section (1) is in this Ordinance referred to as aresolution for reducing share capital.

Conditions for Reduction in Capital:

1. Un-paid share capital: A company may extinguish or reduce its liability on un-paidshares by reducing the capital to that extent.

2. Lost or un-represented assets: When some of the assets have been lost and the sharecapital does not represent them, a company may cancel such paid-up share capital, whichis lost or un-represented by available assets. For example, some assets are destroyed by

fire.

3. Excess Capital: When a company considers that any paid up capital is in

excess of its need, it may refund the amount of such excess paid-up share by reducing the

capital.

Page 8 of 8

lecture - 6 - amended 95-a

Documents