SEC tightens handling of errant Z-category cos
Monday, 11 January 2010
Kayes M Sohel
The errant companies in the stock market face the music as the securities regulator has tightened its handling of the poor-performing companies in the stock market.
The Securities and Exchange Commission (SEC) has issued show-cause notices to the poor performing companies. The SEC will also hear from them and if they fail to come up with satisfactory answers, they may face financial penalties.
Such a move has been taken following the companies' non-compliance with the SEC order issued in early 2008 directing Z-category companies to recast their boards of directors.
"Objective of the move is to make those companies commercially viable and operationally sound and, above all, to protect the interest of investors," said Ziaul Haque Khondker, chairman of the SEC.
At present there are 81 Z-category companies listed with the Dhaka Stock Exchange (DSE), of which, 51 are being traded in the over-the-counter (OTC) market introduced last year.
The companies, which have failed to hold annual general meetings or declare any dividend or which are not in operation continuously for more than six months or the accumulated loss of which after adjustment of revenue reserve, if any, is negative and exceeds the paid-up capital, have been brought under the Z-category.
The SEC directive effective from December 3, 2007 says the Z-category companies will have to recast their boards of directors within six months by holding EGMs..
"A few of them have already turned up at the commission. We're hearing their problems and difficulties in complying with the directive," he said.
Stern action including financial penalty would be taken if they failed to come up with satisfactory answer about non-compliance with the directive, Mr Khondker said. The SEC had no intention to meddle with their work but to help them overcome their problems, he added.
The directive was issued a day after the High Court (HC) vacated the stay order in 2007 on the effect of an SEC gazette notification, made on August 1, 2002 about recasting the Z-category companies' boards of directors.
Banks and insurance companies in the Z-category are out of the purview of the commission's directive as they have enough scope to improve their performance.
The HC had imposed the stay order on operation of the SEC gazette notification on January 19, 2003 as directors of some Z-category companies went to court challenging the notification.
The SEC directive has provided for inclusion of a representative from the general shareholders in the board of directors of a Z-category company.
The order has also stipulated that the reconstituted board will find out the specific reasons for the company's failure to operate profitably and also identify the persons, if any, of the company concerned, including directors and auditors, responsible for the failure.
The reconstituted board will also be empowered to take appropriate measures, including legal action, if applicable, against the persons responsible for the company's failure.
In case the issuer fails to show an improved operational and financial performance of a 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 its operation, as per law, after taking the shareholders' approval in an EGM, the directive has stated.
The errant companies in the stock market face the music as the securities regulator has tightened its handling of the poor-performing companies in the stock market.
The Securities and Exchange Commission (SEC) has issued show-cause notices to the poor performing companies. The SEC will also hear from them and if they fail to come up with satisfactory answers, they may face financial penalties.
Such a move has been taken following the companies' non-compliance with the SEC order issued in early 2008 directing Z-category companies to recast their boards of directors.
"Objective of the move is to make those companies commercially viable and operationally sound and, above all, to protect the interest of investors," said Ziaul Haque Khondker, chairman of the SEC.
At present there are 81 Z-category companies listed with the Dhaka Stock Exchange (DSE), of which, 51 are being traded in the over-the-counter (OTC) market introduced last year.
The companies, which have failed to hold annual general meetings or declare any dividend or which are not in operation continuously for more than six months or the accumulated loss of which after adjustment of revenue reserve, if any, is negative and exceeds the paid-up capital, have been brought under the Z-category.
The SEC directive effective from December 3, 2007 says the Z-category companies will have to recast their boards of directors within six months by holding EGMs..
"A few of them have already turned up at the commission. We're hearing their problems and difficulties in complying with the directive," he said.
Stern action including financial penalty would be taken if they failed to come up with satisfactory answer about non-compliance with the directive, Mr Khondker said. The SEC had no intention to meddle with their work but to help them overcome their problems, he added.
The directive was issued a day after the High Court (HC) vacated the stay order in 2007 on the effect of an SEC gazette notification, made on August 1, 2002 about recasting the Z-category companies' boards of directors.
Banks and insurance companies in the Z-category are out of the purview of the commission's directive as they have enough scope to improve their performance.
The HC had imposed the stay order on operation of the SEC gazette notification on January 19, 2003 as directors of some Z-category companies went to court challenging the notification.
The SEC directive has provided for inclusion of a representative from the general shareholders in the board of directors of a Z-category company.
The order has also stipulated that the reconstituted board will find out the specific reasons for the company's failure to operate profitably and also identify the persons, if any, of the company concerned, including directors and auditors, responsible for the failure.
The reconstituted board will also be empowered to take appropriate measures, including legal action, if applicable, against the persons responsible for the company's failure.
In case the issuer fails to show an improved operational and financial performance of a 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 its operation, as per law, after taking the shareholders' approval in an EGM, the directive has stated.