The Bangladesh Securities and Exchange Commission has made it mandatory for the listed companies not to declare dividends out of their capital reserve accounts and to maintain post-dividend retained earnings positive, and to distribute dividends for a year out of profits made in the year.
Besides, the listed companies must explain the reason for declaring stock dividend and the utilisation of such retained amount as capital (stock dividend) must be disclosed in the annual report.
On June 20, the BSEC issued fresh guidelines on financial reporting and disclosure with the provisions in order to enhance disclosure and transparency in the interest of investors and the capital market.
According to the new rules, dividend must not be declared out of the capital reserve account or the revaluation reserve account or any unrealised gain or out of profit earned prior to the incorporation of the company.
The company must not declare dividend through reducing paid-up capital or through doing anything so that the post-dividend retained earnings become negative or a debit balance.
The guidelines also stated that no dividend would be paid other than out of profits of the year or any other undistributed profits.
The commission framed the rules after it found that companies declared dividends whimsically putting investors at risk, said officials of BSEC.
Besides, some companies provide concocted financial statements to manipulate share prices for illicit gains.
Therefore, the regulator has made it mandatory for the listed companies to provide right reasons for any significant deviation in any parameter between the quarterly periods.
Many companies also declare stock dividend to make profit by swindling the general investors.
To prevent manipulation in the financial statements, the BSEC has made it mandatory for any listed company to authenticate any unaudited financial statements of the company on behalf of the board of directors with the signatures of the chief executive officer/managing director, chief financial officer and the company secretary including at least two directors of the board until and unless otherwise required by applicable primary regulators.
The authentication must be as per the provisions of the Companies Act, 1994 and requirement of the commission as well as requirement of the primary regulator of the issuer.
The board of directors of the company must not take any decision with regard to recommending interim dividend for the shareholders on the basis of financial statements without being duly audited and without declaring to the shareholders.
The company must print sufficient number of annual reports so that any shareholder may collect the printed copy of the annual reports from the registered address of the company and it also must send the annual reports to the e-mail addresses of the shareholders available in their beneficial owner accounts with the depository, the guidelines said.
The guidelines would promote compliance culture and increase accountability for any corporate action by the listed companies and their promoters, BSEC officials said.
Market experts, however, said that the BSEC had introduced enough rules, but there were not enough punishments for breaching those rules.
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