RE: Legal Opinion A/C Company 1.
We refer to your letters no. ………………. dated 08 July 2007 and no. …………….dated 16 July 2007 and the various correspondences between you and ourselves, including our telephonic conversation on 13 August 2007 on the above subject.
From perusal of your letters and documents furnished to us it appears that Company 1 (“Company 1”), which is a Public Limited Company, is a customer of Bank 1 (“the Bank”). Company 1 availed various investment facilities from the Bank including Hire Purchase Sheerkatul Melk investment facility and Biam BB Bills investment facility. However, Company 1 failed to adjust the Bank’s due as per stipulation in the respective agreements. As such a substantial amount against their investment account became classified as Sub-Standard/Doubtful.
Company 1 vide their letter dated 14 June 2007 (“the Proposal Letter”), submitted to the Bank their proposal in connection with rescheduling/declassifying of the account and requested the Bank’s permission regarding the proposed change in their Board of Directors.
The Head Office of the Bank agreed to Company 1’s proposal vide their letter dated 30 June 2007 (“HO Sanction Letter”), which was duly advised by the Bank vide their letter dated 30 June 2007 (“Sanction Letter”) to Company 1. Company 1 has accepted the terms and conditions of the Sanction Letter.
In these circumstances, you require our legal opinion regarding the following issues:
i) Whether the change in the Board of Directors of Company 1, as proposed by in the Proposal Letter and approved by the Bank vide the Sanction Letter, is permissible under the existing law of the country. If yes, what is the procedure for making such change?
According to Section 27A of the Bank Companies Act 1991, no resignation letter of the Directors of an indebted company shall be effective and no Director shall be entitled to transfer or sell his shares without the prior approval of the Board of Directors of the Bank or Financial Institution. Therefore, the change in the Board of Directors of Company 1, shall require the prior approval of the Board of Directors of the Bank to be effective. Approval through the HO Sanction Letter or the Sanction Letter of the Bank is acceptable provided that the Board of Directors of the Banks has approved the change of management of Company 1.
Please note that, Mr. x is the proposed Managing Director of both Company 1 and Company 2 This is not legally possible under section 109 of the Companies Act 1994, which states that a public company shall not appoint any person as managing director, if he is a managing director of another company. Therefore, the Bank should ensure that two different persons are appointed as Managing Directors of Company 1 and Company 2
Regarding transfer of shares (“the Target Shares”) of some of the existing directors of Company 1 to JB. Mr. x& Others:
The Sellers and the Purchasers of the Target Shares shall enter into a sale and purchase agreement for the sale and transfer of shares.
Upon receipt of share purchase price the Seller and Purchaser shall submit the duly executed, completed and stamped share transfer instruments (Form 117) and the original share certificates to the Company for approval of the transfer of shares and endorsement of the share certificates. (One set of Form 117 for each share certificate).
The relevant exiting Directors of the Company and existing Managing Director (Sellers) will tender their resignation to the Company.
By a resolution of the Board of Directors of the Company, the Board will approve the transfer of the shares of the Company from the Seller to the Purchasers, accept the resignation of the exiting Directors and Managing Director and appointment of the new Directors and Managing Director of the Company from the Purchasers taking into consideration the provisions of the Article of Association stipulating the minimum and maximum number of Directors of the Company and the requisite share qualification.
Upon endorsement the original share certificates will be furnished to the relevant Purchasers. The transfer will be recorded in the Register of Transfer. The Register of Members will be modified to enter the Purchasers as the new shareholders of the Company and the names of the Sellers will be removed.
Returns will be filed with the Registrar of Joint Stock Company during the preparations of the annual returns.
ii) What is the procedure for mortgaging an immovable property of a public limited company?
The procedure for mortgaging an immovable property of a public company and private company is the same.
The authorised personnel of the mortgagor company (by resolution) shall execute:
- Deed of Mortgage along with Affidavit; and
- and Irrevocable General Power of Attorney along with Affidavit
Both documents will be registered with the relevant Sub-Registrar of Lands in the vicinity where the property to be mortgaged is situated within 3 months from the date of execution; and will be registered with the Registrar of Joint Stock Companies and Firms (“RJSC”) within 21 days from the date of registration.
Prior to execution of the Deed, the Bank shall be required to examine the title ownership of the mortgagor over the property to be mortgaged.
iii) What are the documents/formalities that have to be executed/observed by Company 1/the Bank in order to secure the rescheduled facility by the existing mortgaged property?
Under the rescheduling agreement, Company 1 is required to confirm and agree that notwithstanding the rescheduled arrangement, the existing mortgage will be a continuing security until all its liabilities with the Bank has been discharged.
The existing Deed of Mortgage was created to secure the facilities up to a certain amount (“Mortgaged Value”). If the rescheduled facility amount is equal or less than the Mortgaged Value then the rescheduled facility shall be secured by the existing Deed of Mortgage without any further documents/formalities. However, if the rescheduled facility amount is more than the Mortgage Value then a further Mortgage has to be created on the said immovable property in order to secure the additional amount.
You have over telephone instructed us not to draft any documents in accordance with the Sanction letter at the moment. As such, we have not drafted the said documents.
If you have any further inquiries please do not hesitate to contact us.
For: “The Lawyers & Jurists”