President PSBA raises questions on ‘PSX’s Financial Report’
KARACHI: The Board of Directors of Pakistan Stock Exchange (PSX) has approved a proposal to make a separate entity of Real Estate assets in PSX company, said Hamad Nazir Kehar, President Pakistan Stockbrokers Association (PSBA) on a private Television here on Saturday.
If they finalize this decision to make separate legal Real Estate entity, an amount of Rs 4.6 billion of the total balance sheet size of Rs 10 billion would be separate from the stock exchange, he claimed.
He said that Managing Director, Chairman PSX or any other authorities did not take action over it and overlook this matter and neither considered as significant or material change by the directors in Director’s Report.
Hamad Nazir Kehar has requested the chairman Policy Board of Securities and Exchange Commission of Pakistan (SECP) for affair and transparent audit of the management of PSX, who overlook the provisions of the Companies Act 2017 in this regard.
In a letter to the chairman Policy Board on August 10 (available with Treasure Magazine), he had said, “External Auditor on page 113 of published financial statement mentioned that board had principally approved a proposal to carve-out the Real Estate assets and related liabilities of the company to a separate legal entity that would initially be owned by the existing shareholders of the Company. Based on the above decision of the board and keeping in view the requirement of IFRS-5 “Non-current Assets held for sale and discontinued operation” the company has reclassified assets and liabilities which are subject to carve-out/transfer to a separate legal entity.”
He further stated in the letter that the Auditor’s Report of PSX for the year ended June 30, 2019, wherein, external auditor, M/s. EY Ford Rhodes Chartered Accountants has given clean opinion on the classification of non-current asset held for sale and/or held for distribution to owners.
PSX on August 28, 2019, announced its financial results wherein it disclosed material/price sensitive information relating to de-merger of PSX.
He said in the letter, “This material information should have been disseminated on the day when it was decided that is June 19, 2019, and not after financial statements were audited.”
According to law, the board of a company shall not “sell, lease or otherwise dispose of the undertakings or a sizable part thereof unless the main business of the company comprises of such selling or leasing.
The expression ‘sizable part’ in any financial year shall mean twenty-five percent or more of the value of the assets in that class as per the audited financial statement of the preceding financial year.”
Hence, it is abundantly made clear by the legislation that the board is NOT empower to sell, lease or otherwise dispose of the sizable part of a certain class of assets of the company without the consent of the general meeting, the letter said.
He said, “Since the board or Directors of PSX were not empowered to make a decision of this reclassification of fixed assets than how come external auditor did not bring this in the notice of PSX shareholders either through a qualified opinion or through an emphasis paragraph in their audit report?
At the first stage when proposal was table by the PSX Management, it should have been turned down on the fact as mentioned herein above.
Do we realize that consent of general meeting in such business means a special business for which Special resolution is required (Section 134 (2) — in other worlds 75% of voting rights required (Section 2(66).
Had external auditor lifted the veil of incorporation of PSX, they would have concluded that management of PSX DO NOT reflect majority shareholders views. Constitution of Board of director of PSX i.e 7 Independent Directors (Without any stake) and 7 elected directors out of which Chinese were given 4 seats based on 40 shareholding, whereas 3 seats represented by 60% shareholding clearly reflects imbalances and disequilibrium. it would have been disclosed that no one has 75% voting rights required to pass a special resolution.
The president said in the letter, “What alternative audit procedure were adopted to ensure that the board of directors of PSX will get 75% voting rights in favor of its decision?”
“Why no questions were raised by the External Auditors on the minutes of the board meeting which clearly demonstrates that Board of Directors’ decision was illegal and uncalled for any therefore should have been considered as ab-initio void,” letter said.
These financial statements conform with the accounting and report in standards as applicable in Pakistan and give the information required by the Companies Act 2017 (XIX of 2017), in the manner so required respectively give a true and fair view of the state of the company’s affairs as at 30 June 2019.
Company’s affairs were opined to be a conformity with the companies act 2017, how as the requirement of section 183 was not followed?