Companies Bill 2016: Parliamentary panel agrees to major concessions

Withdraws requirement for foreign companies to disclose beneficial ownership in Pakistan and abroad

ISLAMABAD: A parliamentary panel has agreed to introduce sweeping changes in the controversial Companies Bill including withdrawing the requirement for foreign companies to disclose their beneficial ownership in Pakistan and abroad.

The subcommittee of the Standing Committee of the National Assembly on Finance has approved major and fundamental changes in the Companies Bill, said Securities and Exchange Commission of Pakistan (SECP) Chairman Zafar Hijazi on Tuesday.

The National Assembly Standing Committee on Finance had referred the draft Bill to the subcommittee for scrutiny that held five meetings to finalise the draft. The Bill will now go back to the main committee for approval before it is sent to the lower house of parliament for voting.

Exemptions

However, it seems that the government has given major concessions to get the bill passed including compromising on transparency and disclosures. The SECP chairman said that the provisions relating to global register of beneficial ownership are being revised so that this section is applicable only to Pakistani nationals.

The government has agreed to exclude foreign companies having substantial shareholding in Pakistan from the requirement of disclosing beneficial ownership. The government has accepted another recommendation to amend a section relating to information of beneficial owners of foreign companies.

Now, it will not be mandatory for foreign companies to provide information of beneficial ownership except in cases where the SECP seeks such information.

The government had promulgated the Companies Ordinance to implement the new regime but the Senate repealed the law while objecting over the method of enforcing it through Presidential Ordinance.

According to the 2016 repealed Ordinance, SECP was supposed to maintain a ‘Companies’ Global Register of Beneficial Ownership’, having complete record of the beneficial ownership of the substantial shareholders and officers in local and foreign companies doing business in Pakistan.

Moreover, it was also binding on foreign companies operating in Pakistan to provide complete information of their directors, officers and/or beneficial owners.

Now the foreign companies have been exempted from these disclosures.

Adjustments

The subcommittee has proposed to introduce 60 new sections, amended another 306 sections while kept 150 sections unchanged; suggesting fundamental changes in the proposed law.

The SECP said that amendments in 41 sections have been made based on feedback, which has also been agreed by the sub-committee of the Standing Committee of the National Assembly on Finance.

While introducing amendments in section 461, the requirement related to security clearance of shareholders, directors and office bearers of companies has been proposed to be restricted to companies notified by the federal government.

The powers to grant exemption have been proposed to be given to the Commission from the requirement for a director to hold NTN as per the provisions of Income Tax Ordinance, 2001, which would undermine the tax compliance in the country. There is a strong possibility that the SECP will exempt foreign directors from holding a tax number in Pakistan.

The SECP said that real estate companies soliciting advances will be required to recognise their income in accordance with IFRS. Further, the escrow account to be maintained for the real estate project will not be subject to any attachment except for the purpose of the project.

The SECP has also amended section 76 to cater for transfer of share agreement entered before enactment of Companies Bill, 2016. The section 301 has been amended to include that in case a company does not commence its business within a year from its incorporation, or suspends its business for a whole year, it can be wound up.

The requirements for maintaining physical records of resolutions and meetings of board have been halved to ten years. The sections relating to appointment of directors have also been amended. Section 172 has been extended to have powers to decide disqualification matters of all directors.

Published in The Express Tribune, January 25^th, 2017.

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