Corporate Laws & Practices

Companies Act, 1994 Bank Companies Act, 1991 Financial Institutions Act, 1993 BSEC Act, 1993

Question: - 1 (July - August 2022)

ABC Finance Ltd (herein after referred to as 'FI') is a listed non-banking Financial Institution
operating in Bangladesh. The Board of the FI is comprising of 11 members including 2 (two)
Independent Directors and 1 (one) Managing Director. All other directors are nominated by
their respective institutions and none of them hold any share of the company personally.

In compliance with Bangladesh Bank guidelines, the FI has two sub-committees of the
Board: Audit Committee and Executive Committee comprising of all directors of the Board.
Further the FI has three subsidiaries: one for Brokerage House operations, one for Merchant
Banking operations and one for asset management operations.

In compliance with the Corporate Governance Guidelines of Bangladesh Securities and

Exchange Commission (BSEC), the Board of the FI has nominated one independent director
as the chairman of the Audit Committee of the Board as well as the Chairman of the Board of
Asset management operations and another Independent Directors as the Chairman of another
two subsidiaries: Brokerage House operations and Merchant Banking operations. The
Chairman of the Executive Committee is a nominated director.

Recently, Bangladesh Bank has issued a directive that none of the Chairman of the Board,
Audit Committee and Executive Committee of FI shall remain as the Chairman and/or
member of the Board of subsidiaries. Within the stipulated time frame, FI is planning to
reconstitute its boards to comply with the regulations of both Bangladesh Bank and
Bangladesh Securities and Exchange Commission.

Requirement:
ABC Finance Ltd, being a listed FI, are governed by both Bangladesh Bank and Bangladesh
Securities and Exchange Commission. Advise how the Board of the FI, its sub-committees
and Boards of subsidiaries of the FI need to be reconstituted to comply with the regulations of
the regulators.

Answer to the Question 1:

As per the Corporate Governance Code of Bangladesh Securities and Exchange Commission
(BSEC) [clause 5(2)(b)] the Audit Committee shall be consisting of at least one Independent
Director. Further, the chairman of Audit Committee shall be an Independent
Director[clause5(3)(a)].

Moreover, as per the governance code [2(b)]at least 1 (one) independent director on the
Board of the holding company shall be a director on the Board of the subsidiary company;
However, such newly imposed regulation of Bangladesh Bank has imposed some challenges
for the FI to comply with the both Bangladesh Bank and BSEC regulations.
Since, Chairmans of the Audit Committee is also the Chairman one subsidiary, ABC Finance
Ltd being a listed NBFI, in the current formation compliance with the newly imposed
regulation of primary regulator, Bangladesh Bank will lead to non-compliance with
governance code of BSEC.

Way forward:
ABC should remove the chairman of Audit Committee from the Board of its subsidiary.
In addition to the existing two Independent Directors, FI should appoint one more
Independent Director who will neither be the Chairman of Audit Committee nor the
Executive Committee. And he should be nominated in the Board of its subsidiaries who may
be or may not be the chairman of subsidiaries.

Since as per existing regulation of Bangladesh Bank, total member of the board of FI shall
not be more than 11 and ABC has already the same, to appoint one more Independent
Director (in total 3) the Board should replace one nominated director by the Independent
Director.

Question: - 2 (March - April 2022)

One of the leading banks in the country, XYZ Bank Limited holds the following shares of a
listed non-banking financial institution, PQR Finance Limited as on 31 December 2021:
Particulars % of Holding of
By the bank itself FI
9.0%
Though one subsidiary 9.5%
Through another subsidiary 8.0%
Total 26.5%
PQR Finance Limited was established in Bangladesh as joint venture company in
collaboration of Canadian investment.
The equity structure of the bank as on 31 December 2021 was as follows:
Particulars Amount in BDT million
Paid up capital 10,000
Share Premium 1,500
Statutory Reserve 850
Dividend Equalization Reserve 100
Retained Earnings 5,000
Total 17,450
Paid up capital of PQR Finance Limited was BDT 5000 million as on 31 December 2021.
Market value of share of the FI' s Share as on the same date was BDT 50.
Requirement:
Comment on the investment made by XYZ Bank Limited in PQR Finance Limited in line
with the Banking Companies (Amendment) Act, 2013 as well as regulations applicable for
financial institutions.
Answer to the Question # 2
As per section 26(ka) of the Bank companies (Amendment) Act, 2013, the holding of share in
terms of Market value of share of the company by the bank shall be limited up to sum of 5%
of bank's paid- up capital, share premium, statutory reserve and retained earnings or up to
10% of the paid-up capital of the company, whichever is lower.
Here, 5% of bank's paid-up capital, share premium, statutory reserve and retained earnings
was BDT 867.5 million. By this 5% of equity the bank can hold up to 17.3% shares of the
financial institution (FI) (i.e. 3% of shares of the company) as on 31 December 2021.
Moreover, as per financial institutions regulations, institutional investment (solely or jointly
by the related concern) in any joint venture financial institution shall not be more than 25% of
the shares of the financial institution. Since, the banking group is holding in-total 26.5%
shares of the FI, the holding should be reduced it to 25% even though permitted by Bank's
solo investment limit.
Question: - 3 (November - December 2021)
ABC Finance Ltd., is a Non-Banking Financial Institution (NBFI) incorporated in 2000
which has 4 offices in different location in Dhaka City including corporate Head Office at
Motijheel Commercial area, Dhaka. Total manpower of this company is 635. Extracts of the
comparative position from audited Balance Sheet of this company as on 31.12.2020 &
31.12.2019 are as under:

Figures in BDT million

Yr- 2020 Yr-2019

Assets:
Cash & cash equivalents Investment
Lending Portfolio
Land & Building
Others

Liabilities:
Deposit
Borrowings
5,000 4,000
4,000 3,700
10,000 9,750
200 200
800 850

20,000 18,500

5,000 4,500

10,000 9,500
4,000 3,500
1,000 1,000
20,000 18,500
The Company has a proposal to purchase a IO-decimal land with a 9 storied building at
Gulshan Commercial hub at a price of BDT 1,000 million. The valuer has given a report that
the present market value of this property is BDT 1,200 million. The company has a sound
liquidity position, and the positive Net Operating Cash Flow as on 31st December 2020 was
positive by BDT 500 million.

Requirement:
You are required to comment on the purchase proposal of immovable property pursuing the
Financial Institutions Act 1993.

Answer No. 3
According to section 17 of Financial Institutions Act 1993 there is some restriction on the
possession of immovable property. No financial institution may acquire or possess
immovable properties exceeding in value 25 per cent of its paid-up capital and reserves. In
this case we find that the equity of the company (paid up capital and reserve) is Taka BDT
1000 million and maximum limit for purchasing of immovable properties is BDT 250
million. Here, the Company has some movable properties of which value is BDT 200 million
Other Liabilities
Equity
and hence can acquire immovable properties of which maximum value is BDT 50 million.
So, the
purchase deal is henceforth cancelled.
It is mentioned here that nothing contained in this section shall be applicable in the case of
immovable property required for the granting of facilities to employees of the financial
institution and in the case of property acquired in the interest of realizing unrealized credits
granted by it.
Question: - 4 (March - April 2021)
a) Describe the procedures to be followed under Hybrid System for conducting
general meetings (AGM or EGM) as issued by the Bangladesh Securities and Exchange
Commission vide circular No. BSEC/CMRRCD/2009-193/08.
b) PQR Ltd. is a publicly traded company engaged in Textile manufacturing
business and is listed with Dhaka Stock Exchange & Chittagong Stock Exchange. Its
registered office is situated in Motijheel, Dhaka whereas the factory is located in Tangail. The
company is holding the Board meeting to approve the Audited Financial Statements,
declaration of dividend, declaration of book closure date, and declaration of AGM date and
venue for holding the next 12th Annual General Meeting.
The Board unanimously approved the audited financial statements and declared 12% cash
dividend. CFO of the company is sick and is on leave for 2 months. Finance Manager was
invited to represent the CFO who informed the Board that an amount of Taka 1,25,000/- is
lying in accounts as unpaid cash dividend for the last year owing to 75 numbers of
shareholders. While selecting venue, Chairman proposed the factory premises of Tangail of
the company as venue for the next AGM. He has his views that it would be very exciting for
the shareholders of the company to see their own factory. To provide comfort to the
shareholders on their journey to Dhaka-Tangail-Dhaka, Chairman has suggested arranging
Air-conditioned luxury buses for pick and drop from the pick-up point Motijheel, Dhaka.
However Managing Director of the company and 3 other directors have opined that arranging
AGM in Tangail would be cumbersome and costly.
Requirements:
As Company Secretary of PQR Ltd., you are required:
(i) to inform the board about the update of BSEC laws regarding distribution process of cash
dividend and what should the company do with the unpaid cash dividend of Taka 1,25,000/-
for the last year.
(ii) to participate on the discussion to resolve the selection of AGM venue.

Answer to the Question 4 (a)

An issuer company shall conduct its general meeting (AGM or EGM) using Hybrid System
in combination of physical presence of shareholders at the venue of general meeting and
presence or connection of shareholders by using digital platform or online platform ensuring,
among others, the following voting manner and other rights of the shareholders as well as
limitations and compliances of other regulatory framework:
1) An issuer company using Hybrid System for conducting its general meeting (AGM or
EGM) shall notify its shareholders the address of the meeting venue and web-link for joining
the meeting ore-voting through online platform or system or digital platform, with intimation
to the Commission and the stock exchange(s).
2) An issuer company shall have a facility to exercise the shareholder's (holders of paper
shares or dematerialized shares) voting rights on the resolution proposed to be considered at
the general meeting ensuring voting system through physical or paper ballot at the venue of
general meeting or through electronic ballot or any e-voting system using online platform or
system or digital platform.
3) The voting system shall have pre-registration facility for attendance of shareholders,
casting vote and also have log register.
4) For the purpose of attending the general meeting and casting of vote on behalf of the
entitled shareholders either by physical or paper ballot or electronic ballot ore-voting system
at the venue of general meeting or using online platform or system or digital platform, an
issuer company shall send proxy form in hard/ paper or soft or online system to the
shareholders mentioning that each shareholder or his proxy has right to vote either for or
against each of the agenda or resolution.
5) The facility for on-line (real time) ore-voting and physical voting shall be agenda-
wise voting option either for or against each of the resolution:
Provided that on-line (real time) ore-voting option shall be opened at least 24 (twenty-four)
hours but not exceeding 72 (seventy-two) hours prior to start of general meeting and shall
remain open up to the closure of general meeting.
6) An issuer company shall provide one-way live or live streaming or webcast of the
proceedings of its general meeting.
Question: - 5 (November - December 2020)
You have been approached by one of your close friends to review a Leaflet, whereby a so-
called 'Hope Financial Institution' is offering exceptionally high monthly returns i.e., @
10%/month on deposits but they didn't mention as to how they will generate the revenue to
pay such high returns in the form of interest. Your friend mentioned, a numbers of
businessmen in the same arena already gave deposits to that Hope Financial Institution and
your friend being aware that you are conversant in this area, requested your guidance.

Requirements:
While you provide your guidance, highlight following areas:
i) How will you ensure that Hope Financial Institution is running a legitimate business?
ii) What Bangladesh Bank will require to be satisfied itself before granting any such
license?
iii) What are the business rules regarding acknowledging deposits and restriction on
credit facilities?
iv) Do you think, this offer by Hope Financial Institution is feasible considering the
ongoing market scenario?

Answer to the Question 5

i) How will you ensure that Hope Financial Institution is running a legitimate business?
Answer:
To ensure whether Hope Financial Institution is running a legitimate business or not,
we need to check the following as per in the Financial Institutions Act 1993.
To run the business as portrayed in the leaflet, Hope Financial Institution must have
valid license issued by the Bangladesh Bank.

ii) What Bangladesh Bank will require to be satisfied itself before granting any such license?
Answer:
i) Bangladesh Bank will require the following to satisfy itself before granting a license:
a) The financial situation
b) The characteristic of the management
c) The sufficiency of the capital structure and earning capacity
d) The purpose mentioned in the memorandum
e) The public interest

iii) What are the business rules regarding acknowledging deposits and restriction on credit
facilities?
Answer:
The business rules regarding acknowledging deposits and restriction on credit facilities: a)
Acknowledgement of receipts of deposits:
Once receiving any deposits, the respective Financial Institution shall immediately make out
a receipt to such person as a proof of its acknowledgement
b) Restriction regarding credit facilities: No Financial Institute
 accept any such deposit as is repayable on demand through cheque, draft or order of
the depositor
 deal in gold or any foreign coins
 grant credit facilities in excess of 30% or subject to the consent of the Bangladesh
Bank, of 100% of its capital to any particular person, firm, cooperation or company or
any such company, person or group as controls or exerts influence on such person,
firm cooperation or company
 grant credits in excess of 50% of its credit facilities or in excess of such percentage of
its credit facilities as the Bangladesh Bank may determine from time to time
 grant any unsecured advance, credit or credit facilities to any firm in which any of its
directors, individually or jointly, is interested directors unless the total amount of such
facilities does not exceed 10% of its paid-up share capital and reserves
 grant, in the manner mentioned above, advances, credits or credit facilities in excess
of Tk. 500,000 to any person or group of persons other than those stated.

iv) Do you think, this offer by Hope Financial Institution is feasible considering the ongoing
market scenario?

Answer:
Considering the very high return offered and without referring to how such high revenue will
be generated; I think this will never be a feasible venture considering the ongoing market.
Hence, I will advise my friend to refrain from any such unwise investment, which may not
only risk the return but also the capital as well.
Question: - 6 (November - December 2019)
ABC Plc of Singapore is exploring the possibility of setting up a manufacturing company in
an Economic Zone (EZ) in Bangladesh. In this connection the Director (Finance) of ABC
seeks your response to the following questions:
(a) Are there any restrictions on repatriation of royalty, technical know-how, technical
assistance fees and management fees by EZ entities to foreign companies? Discuss.
(b) Are there any restrictions on remittances ( outside Bangladesh) of income earned in
Bangladesh by foreign nationals working in the EZ entities? Discuss. 4
Answer to the Question No. 6
(a) ADs (also OBUs for 'Type A' enterprises) may remit the royalty, technical know-how and
technical assistance fees of enterprises of EZs from their FC accounts without prior
permission from Bangladesh Bank or BEZA if the total fees and other expenses connected
with above mentioned purposes do not exceed the following limits:
(i) for new projects, not exceeding 6 (six) percent of the cost of imported machinery;
(ii) for ongoing concerns, not exceeding 6 (six) percent of the previous year's sales as
declared in the income tax returns;
(iii) Remittance of such fees in excess of the prescribed limit is subject to prior
specific approval from BEZA.
Besides usual reporting to Bangladesh Bank, each transaction shall have to be reported to
BEZA also.
The Foreign Exchange Regulation (FER) Act 1997 does not mention anything about
repatriation of management fees. As such the EZ entities need to apply to Bangladesh Bank
though EZ Authority (BEZA) for prior approval of such repatriation of management fees. It is
unlikely that Bangladesh Bank will accord such approval. As such it is advisable that the EZ
entity has an agreement with a foreign company for receiving the relevant management
services and payment of the management fees subject to approval of Bangladesh Bank. And
no such management services should be received prior to approval of the Agreement by
Bangladesh Bank.
(b) (i) Foreign nationals working in EZs (with valid work permits issued by BEZA) and who
have an income in Bangladesh are permitted to make monthly remittances to the country of
their domicile out of their current savings up to 75 (seventy five) percent of their net income
to cover their commitments abroad.
Such monthly remittances may be sent to other countries where family members of them live
in as declared by them in prescribed application form.
(ii) Salary on which remittance entitlement is calculated would exclude monetary value
of various facilities, such as, free house, transport, servants, boarding etc., as also cash
payments towards conveyance, entertainment, house rent etc. The term 'net income' would in
this context signify gross income of the applicant less all compulsory deductions such as,
income tax, provident fund and pension fund, house rent and other deductions which are of a
fixed nature. Bonus or commission receivable by foreign nationals cannot be added for
calculating monthly entitlement in anticipation of the grant of bonus or commission; the
inclusion will be made only after the net amount of bonus or commission has been actually
paid by the employers and will be spread over the subsequent twelve months.
(iii) Such foreign nationals are also permitted to remit 100 (hundred) percent of leave
salary, actual savings and all pension benefits without prior Bangladesh Bank approval.
(a) ADs (also OBUs for 'Type A' enterprises) may remit the royalty, technical know-how and
technical assistance fees of enterprises of EZs from their FC accounts without prior
permission from Bangladesh Bank or BEZA if the total fees and other expenses connected
with above mentioned purposes do not exceed the following limits:
(i) for new projects, not exceeding 6 (six) percent of the cost of imported machinery;
(ii) for ongoing concerns, not exceeding 6 (six) percent of the previous year's sales as
declared in the income tax returns;
(iii) Remittance of such fees in excess of the prescribed limit is subject to prior
specific approval from BEZA.
Besides usual reporting to Bangladesh Bank, each transaction shall have to be reported to
BEZA also.
The Foreign Exchange Regulation (FER) Act 1997 does not mention anything about
repatriation of management fees. As such the EZ entities need to apply to Bangladesh Bank
though EZ Authority (BEZA) for prior approval of such repatriation of management fees. It is
unlikely that Bangladesh Bank will accord such approval. As such it is advisable that the EZ
entity has an agreement with a foreign company for receiving the relevant management
services and payment of the management fees subject to approval of Bangladesh Bank. And
no such management services should be received prior to approval of the Agreement by
Bangladesh Bank.
(b) (i) Foreign nationals working in EZs (with valid work permits issued by BEZA) and who
have an income in Bangladesh are permitted to make monthly remittances to the country of
their domicile out of their current savings up to 75 (seventy five) percent of their net income
to cover their commitments abroad.
Such monthly remittances may be sent to other countries where family members of them live
in as declared by them in prescribed application form.
(ii) Salary on which remittance entitlement is calculated would exclude monetary value
of various facilities, such as, free house, transport, servants, boarding etc., as also cash
payments towards conveyance, entertainment, house rent etc. The term 'net income' would in
this context signify gross income of the applicant less all compulsory deductions such as,
income tax, provident fund and pension fund, house rent and other deductions which are of a
fixed nature. Bonus or commission receivable by foreign nationals cannot be added for
calculating monthly entitlement in anticipation of the grant of bonus or commission; the
inclusion will be made only after the net amount of bonus or commission has been actually
paid by the employers and will be spread over the subsequent twelve months.
(iii) Such foreign nationals are also permitted to remit 100 (hundred) percent of leave
salary, actual savings and all pension benefits without prior Bangladesh Bank approval.