HC issues stay order against SEC directive on recasting Z-category cos
Kayes M Sohel | Monday, 7 July 2008
The High Court issued a three-month stay order against a Securities and Exchange Commission (SEC) directive on recasting the board of directors of Z-category companies which expired June 3 last.
It also asked the commission to reply within four weeks as to why the impugned notification dated august 1, 2002 should not be declared illegal.
The HC order came against the backdrop of writ petition filed by Meghna Condensed Milk Industries and Meghna PET Industries Limited on June 16 against the notification of the commission.
Barrister Abdur Razzaq is acting as the legal consultant on behalf of the petitioners.
After hearing from the petitioners, the HC served the show cause notice and stay-order against the SEC on June 17.
"The SEC is yet to get copy related to the matter," an official of the commission told the FE Sunday.
Moreover, in the latter part of May three more Z-category companies-- Bengal Biscuits Limited, Eagle Star Textile Mills Limited and Modern Industries - filed a writ petition challenging the order with the HC. An HC bench was supposed to hear the petition June 30 but the case remained pending.
Only four of the 98 Z-category companies, however, complied with the directive of the securities regulator within the timeframe. Currently, there are 271 companies listed with the Dhaka Stock Exchange, of which 98 are in the Z-category.
The SEC directed the errant companies to reconstitute their respective board of directors in order to make them commercially viable and operationally sound.
After winning the long legal battle over the challenge thrown by the Mark Bangladesh against the SEC's gazette notification issued on August 1, 2002 on reconstitution of Z-category companies' boards of directors, the securities regulator had directed the errant companies to recast their boards within six months by holding extra ordinary meetings (EGMs).
The directive had been made effective from December 3, 2007.
The SEC directive said a Z-category company must include a representative from general shareholders in the board of directors.
The commission suspended trade and transfer of sponsors or directors' shares of the 'Z' category companies to prevent them from making any move prior to compliance with the notification.
'The reconstituted board will prepare specific/detailed proposals for devising appropriate action plans for improving the operational and financial performance to run a Z-category company profitably,' said the directive.
As per the SEC notification, the reconstituted board will identify the specific reasons for the company's failure to operate profitably and also identify the persons, if any, of the company concerned, including its directors, auditors, responsible for such a failure.
The reconstituted board will also be empowered to take appropriate measures, including legal actions, if applicable, against the persons responsible for the company's failure.
'In case the issuer fails to show improved operational and financial performance of the Z-category company within 24 months from the date of reconstitution of the board, the company will take appropriate measures for liquidation of the entity, including merger or winding up, as per law, after taking shareholders' approval by holding an EGM,' the SEC directive stated.
The EGM will take place within three months of expiry of the given 24 months, the SEC said.
It also asked the commission to reply within four weeks as to why the impugned notification dated august 1, 2002 should not be declared illegal.
The HC order came against the backdrop of writ petition filed by Meghna Condensed Milk Industries and Meghna PET Industries Limited on June 16 against the notification of the commission.
Barrister Abdur Razzaq is acting as the legal consultant on behalf of the petitioners.
After hearing from the petitioners, the HC served the show cause notice and stay-order against the SEC on June 17.
"The SEC is yet to get copy related to the matter," an official of the commission told the FE Sunday.
Moreover, in the latter part of May three more Z-category companies-- Bengal Biscuits Limited, Eagle Star Textile Mills Limited and Modern Industries - filed a writ petition challenging the order with the HC. An HC bench was supposed to hear the petition June 30 but the case remained pending.
Only four of the 98 Z-category companies, however, complied with the directive of the securities regulator within the timeframe. Currently, there are 271 companies listed with the Dhaka Stock Exchange, of which 98 are in the Z-category.
The SEC directed the errant companies to reconstitute their respective board of directors in order to make them commercially viable and operationally sound.
After winning the long legal battle over the challenge thrown by the Mark Bangladesh against the SEC's gazette notification issued on August 1, 2002 on reconstitution of Z-category companies' boards of directors, the securities regulator had directed the errant companies to recast their boards within six months by holding extra ordinary meetings (EGMs).
The directive had been made effective from December 3, 2007.
The SEC directive said a Z-category company must include a representative from general shareholders in the board of directors.
The commission suspended trade and transfer of sponsors or directors' shares of the 'Z' category companies to prevent them from making any move prior to compliance with the notification.
'The reconstituted board will prepare specific/detailed proposals for devising appropriate action plans for improving the operational and financial performance to run a Z-category company profitably,' said the directive.
As per the SEC notification, the reconstituted board will identify the specific reasons for the company's failure to operate profitably and also identify the persons, if any, of the company concerned, including its directors, auditors, responsible for such a failure.
The reconstituted board will also be empowered to take appropriate measures, including legal actions, if applicable, against the persons responsible for the company's failure.
'In case the issuer fails to show improved operational and financial performance of the Z-category company within 24 months from the date of reconstitution of the board, the company will take appropriate measures for liquidation of the entity, including merger or winding up, as per law, after taking shareholders' approval by holding an EGM,' the SEC directive stated.
The EGM will take place within three months of expiry of the given 24 months, the SEC said.