A Bangladesh Securities and Exchange Commission committee has proposed freezing shares of sponsor-directors of the companies that have remained for years in the ‘Z’ category, which groups low-profile companies.
A company must reconstitute its board if it remains in the ‘Z’ category for more than one year as per a BSEC notification issued in 2002, but the exiting companies in the category are yet to implement the BSEC order, the committee observed.
The stock market regulator on April 12 this year formed the three-member committee headed by its director Mansur Rahman to assess the BSEC notification for the ‘Z’ category companies.
The regulator asked the body to prepare necessary proposals on the notification.
Therefore, the committee made the suggestion of freezing the sponsor-directors’ shares as many companies remained in the ‘Z’ category for years without making any business development move, violating securities rules.
BSEC officials said that the commission might give a short period of time to the sponsor-directors of ‘Z’ category companies to reconstitute their boards as per securities rules to avoid the penalty.
They said that the commission might make decision on the proposal soon.
The committee has recently placed the recommendation before the commission.
According to the notification issued in 2002, the existing board of directors of the issuer company of a listed security which remains in the ‘Z’ category for one year or more must be reconstituted by holding an extraordinary general meeting within six months.
The board of directors of ‘Z’ category companies so far have not reconstituted the boards, and dissolving board of a company and appointing administrator to the board are not within the jurisdiction of the BSEC, BSEC officials said
Hence, the regulator has to think differently to implement its notification.
BSEC officials also said that the commission might impose more restrictions on the boards of directors of the ‘Z’ category companies along with freezing their beneficiary owners’ accounts.
They said the BSEC would discuss the issue with the stock exchanges and the Central Depository Bangladesh Limited.
A ‘Z’ category company may avoid the restrictions if it declares dividend for the financial year 2018-19 as such declaration would upgrade its status, they said.
The BSEC recently relaxed rules regarding dividend saying that the companies could declare cash dividend for a year out of profits in the same year despite having negative accumulated retained earnings.
The BSEC moved to amend the 2002 notification, which remained ineffective for years, to make it feasible in the current market situation.
The commission made the move after constant criticisms from different quarters about the companies which have remained in the ‘Z’ category for years without any business operations.
Most of the ‘Z’ category companies do not maintain basic regulatory requirements and do not provide dividends to their shareholders.
Despite having no business operations, the share prices of most of the ‘Z’ category companies often rose abnormally amid manipulation.
The country’s premier bourse, Dhaka Stock Exchange, recently delisted two ‘Z’ category companies — Rahima Food Corporation and Modern Dyeing & Screen Printing. It sought approval from the BSEC for delisting another four ‘Z’ category companies.
But, the commission did not approve the proposal as it found that delisting a company was not the best solution to the problem.
Therefore, the BSEC has made the fresh move to improve the business operation of the ‘Z’ category companies before making a harsh decision, BSEC officials said.
A new directive may come to force these dud companies to restructure their boards for failing to improve their business, they said.
The existing notification also said, ‘In case the issuer fails to show improved operational and financial performance of the company within twenty-four months from the date of reconstitution of the board, it shall take appropriate measures for dissolution of the company, including merger or winding up, as per law, after taking the shareholders’ approval by holding extra-ordinary general meeting within three months of expiry of the said twenty-four months.’
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