RE: Legal Opinion regarding Formation of a Subsidiary Company by Bank 1.
We refer to your letter dated 31 August 2006 on the above subject.
On perusal of your letter it appears that Bank 1 (“BANK 1”) has purchased a Membership of Company 1(“COMPANY 1”) from Youth Investment Management & Securities Ltd. But the transfer of the membership in favour of BANK 1 is not possible in light of Membership License Rule 4 (1)(Kha) of Securities & Exchange Commission (Stock Dealer, Stock Broker and Authorised Representative) Rules 2000, dated 30.10.2000.
In these circumstances BANK 1 is considering an alternative i.e. acquiring the COMPANY 1 Membership in the name of a Subsidiary Company of BANK 1 where BANK 1 will be the major share holder.
You have requested our legal opinion as to whether there are any restriction to the formation of a Subsidiary Company by BANK 1 under the Companies Act 1994, The Bank Companies Act 1991 or any other relevant law.
According to Clause 25 of Part III of the Memorandum of Association of BANK 1, BANK 1 has the power to invest the capital and other money of BANK 1, not immediately required, in the purchase, exchange or upon the security of, among other things, shares and stocks issued or guaranteed by any company. So there is no restriction on BANK 1 acquiring the majority shares in a Subsidiary Company.
Section 7(g) of the Bank Companies Act 1991 states that in addition to the business of banking, a Banking Company may engage in the acquiring, holding, issuing on commission, undertaking and dealing in stock, funds, shares, debenture stock, bonds, obligations, securities, participation term certificates, mudaraba certificates and such other instruments as may be approved by the Bangladesh Bank and investments of all kind.
As such BANK 1 can in our opinion acquire shares in any company. Consequently BANK 1 can form a Subsidiary Company in which BANK 1 will be the majority shareholder. However BANK 1 should seek necessary clearance from Bangladesh Bank before incorporating the subsidiary company. BANK 1 should also check under the relevant law whether there is any restriction in holding certain percentage of shares in the merchant banking company.
If you have any further inquiry, please do not hesitate to contact us.
For: “The Lawyers & Jurists”