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Monday 27 December 2010

SOLVED ACCA 2010 Paper Corporate and Business Law, Fundamentals Level – Skills Module

Corporate and
Business Law
(Pakistan)
2010


Fundamentals Level – Skills Module
The Association of Chartered Certified Accountants

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours
ALL TEN questions are compulsory and MUST be attempted.
Do NOT open this paper until instructed by the supervisor.
During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.

All TEN questions are compulsory and MUST be attempted

1 Under the Constitution of Pakistan, 1973, explain:
(a) the concept of ‘Fundamental Rights’; (5 marks)
(b) the original jurisdiction of the Supreme Court of Pakistan to enforce the Fundamental Rights. (5 marks)
(10 marks)

Solution:
(a) Fundamental Rights are what have traditionally been known as ‘Natural Rights’ of human beings. The idea behind the concept
of Fundamental Rights is that political institutions and social structures rest on the theory that all men have certain rights of
life, liberty and the pursuit of happiness, which are inalienable, fundamental and inherent. When these inalienable rights are
protected by Constitutional guarantees, they are called ‘Fundamental Rights’ (K.B. Threads (Private) Limited v Zila Nazim,
Lahore PLD 2004 Lahore 376).
In Pakistan, the Fundamental Rights are set out in Part (II) of Chapter (1) of the Constitution of Pakistan, 1973 (the ‘Constitution’)
and relate to life, liberty and privacy (Article 9); freedom of movement (Article 15); freedom of assembly (Article 16); freedom
of association (Article 17); freedom of trade, business and profession (Article 18); free speech (Article 19); religious rights
(Article 20); protection of property rights (Articles 23 and 24); equality of citizens/non-discrimination (Article 25), etc.
The Lahore High Court in the case of Ahmed Abdullah v Government of the Punjab PLD 2003 Lahore 752 has held that
Fundamental Rights are not absolute rights, rather such rights are often encumbered by provisos and qualifying conditions.
Article 8 of the Constitution provides that any law, custom or usage having the force of law, inconsistent with the Fundamental
Rights shall be void to the extent of such inconsistency and mandates that state shall not make any law, which takes away or
abridges such rights. If any law in contravention of the Fundamental Rights is made then the same shall be void to the extent
of such contravention. The superior Courts of Pakistan have held even in a ‘state of emergency’ the state can not make laws in
violation of Fundamental Rights, however, as per Article 233(2) of the Constitution, the right to move the court for enforcement
of such rights can be suspended.
 (b) Article 184(3) of the Constitution of Pakistan, 1973 (‘Constitution’) provides that ‘Without prejudice to the provisions of
Article 199, the Supreme Court shall, if it considers that question of public importance with reference to the enforcement
of any of the Fundamental Rights conferred by Chapter 1 of Part II is involved, have the power to make an order of the
nature mentioned in the said Article’. The Supreme Court (‘SC’) does not interfere under this provision in every case involving
Fundamental Rights. The matter in issue must also be a question of public importance’. In order to acquire public importance
the case must obviously raise a question which is of interest to, or affects the whole body of people of an entire community
(Steel Mills Case PLD 2006 SC 697). The SC may act under Article 184(3) on petition or suo moto. Recently, the use of suo
moto powers has lead to a signifi cantly large number of cases regarding Fundamental Rights coming directly to the SC.

2 Under the Companies Ordinance, 1984:
(a) defi ne a ‘special resolution’ and give TWO examples of where a ‘special resolution’ is required; (4 marks)
(b) describe:
(i) an annual general meeting; (3 marks)
(ii) an extraordinary general meeting. (3 marks)
(10 marks)

Solution:
(a) Section 2(10) of the Companies Ordinance, 1984 (‘Ordinance’) defi nes a special resolution as ‘a resolution which has been
passed by a majority of not less than three-fourths of such members entitled to vote as are present in person or by proxy at a
general meeting of which not less than 21 days notice specifying the intention to propose the resolution as a special resolution
has been duly given: provided that, if all members entitled to attend and vote at any such meeting so agree, a resolution may
be proposed and passed as a special resolution at a meeting of which less than 21 days notice has been given’.
Instances of where a special resolution is required under the Ordinance include: alteration of memorandum of association
(s.21); alteration of articles of association (s.28); change of name by a company (s.39); investment in associated companies
(s.208); reduction of share capital (s.96).
A company must fi le a special resolution with the registrar of companies on Form 26 within 14 days of the passing of such
special resolution.
 (b) (i) Section 158 of the Ordinance mandates that every company whether public or private, must hold an annual general
meeting (‘AGM’) of its shareholders or members, as applicable, once in every calendar year within four months following
the close of its fi nancial year and not more than 15 months after the holding of the preceding annual general meeting
[s.158(1)] and the fi rst AGM shall be held within 18 months from the date of incorporation of the company.
AGMs are also referred to as ‘ordinary general meetings’ as they usually deal with ordinary business, for instance in them
the performance of the company for the past year is discussed, annual accounts are adopted, a dividend is declared,
directors and auditors appointed.
 (ii) All general meetings of a company, other than the AGMs (and statutory meetings under s.157) are referred to as
extraordinary general meetings (‘EGM’) [s.159(1)]. An EGM may be convened by the company at any time as required
for conducting such business that cannot be postponed until the next AGM, for instance, alteration of the memorandum
and articles of association; reduction and reorganisation of capital and issues relating to debentures.
An EGM may be convened by the board of directors or upon requisition by members or upon directions of the Securities
and Exchange Commission of Pakistan.
3 Under the Contract Act, 1872:
(a) defi ne
(i) ‘bailment’; (2 marks)
(ii) ‘bailor’; (1 mark)
(iii) ‘bailee’; (1 mark)
(b) explain a bailee’s ‘duty of care’ regarding the bailed goods. (6 marks)
(10 marks)

Solution:
(i) Section 148 of the Contract Act, 1872 (‘Contract Act’) defi nes a ‘bailment’ as the delivery of goods by one person to
another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise
disposed of according to the directions of the person delivering them.
8
 (ii) A ‘bailor’ is defi ned in s.148 as the person delivering the goods.
(iii) A ‘bailee’ is defi ned in s.148 as the person to whom the goods are delivered.
(b) Section 151 of the Contract Act titled ‘Care to be taken by bailee’ provides that in all cases of bailment the bailee is bound to
take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his
own goods of the same bulk, quality and value as the goods bailed.
In interpreting the scope of s.151, in the reported matter of Trading Corporation of Pakistan (Private) Limited v Murshed
Enterprises (PLD 2004 Karachi 407), the Sindh High Court opined that no hard and fast rules could be outlined for fi xing of
such degree of care. It may vary from case to case. The degree of care is also dependent on the nature, description, quality
and quantity of goods and so also the nature of the bailment contract. The court further identifi ed the following factors which
may be considered (i) ordinarily a bailee is required to ensure that all reasonable precaution has been taken to avoid a risk,
which could be reasonably foreseen; (ii) in case where a contingency has arisen then, it is to be seen that with what diligence
and promptitude the bailee has acted to avert or minimise the loss; (iii) the promptitude he showed to apprise the bailor of the
contingency encountered by him, to seek opinion as to further course of action; (iv) to what extent the bailee complied with
the directions of the bailor after the bailee notifi ed the contingency encountered by him. The initial burden is on the bailee to
show that he has taken proper steps and measures as may be expected of an ordinary prudent man.
Section 152 titled ‘Bailee when not liable for loss etc of thing bailed’ provides that the bailee, in the absence of any special
contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care of it
described in s.151.

4 State the fi nancial reporting requirements under the Code of Corporate Governance.
(10 marks)
Solution:
The Code of Corporate Governance (‘Code’) issued by the Securities and Exchange Commission of Pakistan (‘SECP’) lays down
certain requirements for ensuring regular and comprehensive reporting on fi nancial matters pertaining to listed companies. These
requirements are as follows.
The Directors’ Report to Shareholders
The directors of listed companies shall include statements to the following effect in the directors’ report, prepared under s.236 of the
Companies Ordinance, 1984:
(a) the fi nancial statements, prepared by the management of the listed company, present fairly its state of affairs, the result of its
operations, cash fl ows and changes in equity.
(b) proper books of account of the listed company have been maintained.
(c) appropriate accounting policies have been consistently applied in the preparation of fi nancial statements and accounting
estimates are based on reasonable and prudent judgment.
(d) International Accounting Standards, as applicable in Pakistan, have been followed in preparation of fi nancial statements and
any departure therefrom has been adequately disclosed.
(e) the system of internal control is sound in design and has been effectively implemented and monitored.
(f) there are no signifi cant doubts upon the listed company’s ability to continue as a going concern.
(g) there has been no material departure from the best practices of corporate governance, as detailed in the listing regulations.
The directors’ reports of listed companies shall also include the following, where necessary:
(a) if the listed company is not considered to be a going concern, the fact along with reasons shall be disclosed.
 (b) signifi cant deviations from last year in operating results of the listed company shall be highlighted and reasons thereof shall be
explained.
(c) key operating and fi nancial data of the last six years shall be summarised.
(d) if the listed company has not declared a dividend or issued bonus shares for any year, the reasons thereof shall be given;
(e) where any statutory payment on account of taxes, duties, levies and charges is outstanding, the amount together with a brief
description and reasons for the same shall be disclosed;
(f) signifi cant plans and decisions, such as corporate restructuring, business expansion and discontinuance of operations, shall be
outlined along with future prospects, risks and uncertainties surrounding the listed company;
(g) a statement as to the value of investments of provident, gratuity and pension funds, based on their respective audited accounts,
shall be included;
(h) the number of board meetings held during the year and attendance by each director shall be disclosed;
 (i) the pattern of shareholding shall be reported to disclose the aggregate number of shares (along with name wise details where
stated below) held by:
(i) associated companies, undertakings and related parties (name wise details);
(ii) NIT and ICP (name wise details);
(iii) directors, CEO (chief executive offi cer) and their spouse and minor children (name wise details);
(iv) executives;
(v) public sector companies and corporations;
(vi) banks, Development Finance Institutions, Non-Banking Finance Companies;
(vii) insurance companies, modarabas and mutual funds; and
(viii) shareholders holding 10% or more voting interest in the listed company (name wise details).
(j) All trades in the shares of the listed company, carried out by its directors, CEO, CFO (chief fi nancial offi cer), company secretary
and their spouses and minor children shall also be disclosed.
Frequency of Financial Reporting
The Code lays down the following requirements as to frequency of fi nancial reporting:
(a) the quarterly unaudited fi nancial statements of listed companies shall be published and circulated along with the directors’
review on the affairs of the listed company for the quarter;
(b) all listed companies shall ensure that half-yearly fi nancial statements are subjected to a limited scope review by the statutory
auditors in such manner and according to such terms and conditions as may be determined by the Institute of Chartered
Accountants of Pakistan and approved by the SECP;
(c) all listed companies shall ensure that the annual audited fi nancial statements are circulated not later than four months from
the close of the fi nancial year;
 (d) every listed company shall immediately disseminate to the SECP and the stock exchange(s) on which its shares are listed
all material information relating to the business and other affairs of the listed company that will affect the market price of its
shares. Mode of dissemination of information shall be prescribed by the stock exchange on which shares of the company are
listed. This information may include but shall not be restricted to information regarding a joint venture, merger or acquisition or
loss of any material contract; purchase or sale of signifi cant assets; any unforeseen or undisclosed impairment of assets due to
technological obsolescence, etc; delay/loss of production due to strike, fi re, natural calamities, major breakdown, etc; issue or
redemption of any securities; a major change in borrowings including any default in repayment or rescheduling of loans; and
change in directors, chairman or CEO of the listed company.
The Code goes on to direct that no listed company shall circulate its fi nancial statements unless the CEO and the CFO present the
fi nancial statements, duly endorsed under their respective signatures, for consideration and approval of the board of directors and
the board, after consideration and approval, authorise the signing of fi nancial statements for issuance and circulation.
5 In relation to loan capital:
(a) explain the concept of a ‘company charge’; (4 marks)
(b) defi ne and distinguish between a ‘fi xed charge’ and a ‘fl oating charge’. (6 marks)
(10 marks)
Solution:
(a) A charge is an encumbrance upon real or personal property granting the charge holder certain rights over that property, usually
as security for a debt owed to the charge holder. A company may raise capital for its business through loans. In order to secure
the payment of such loans it may create security over its assets through charges. In the English case of National Provincial and
Union Bank v Charnley [(1924) 1 KB 431] the court described the nature of a charge as follows: ‘… where in a transaction for
value both parties evince an intention that property, existing or future, shall be made available as security for the payment of
a debt, and that the creditor shall have a present right to have it made available, there is a charge, even though the present
legal right which is contemplated can only be enforced at some future date, and though the creditor gets no legal right of
property, either absolute or special, or any legal right to possession, but only gets a right to have the security made available
by an order of the court. If those conditions exist, I think there is a charge …
A charge does not depend upon either the delivery of possession or transfer of ownership, but represents an agreement
between creditor and debtor by which a particular asset or class of assets is appropriated to the satisfaction of the debt, so that
the creditor is entitled to look to the asset and its proceeds to discharge the indebtedness, in priority to the claims of unsecured
creditors and junior encumbrancers.
 (b) A charge may be ‘fi xed’ or ‘fl oating’. A ‘fi xed’ charge is a form of protection given to secured creditors relating to specifi c assets
of a company. The charge grants the holder the right of enforcement against the identifi ed asset (in the event of default in
repayment or some other matter) so that the creditor may realise the asset to meet the debt owed. By its nature, a fi xed charge
is best suited to assets which the company is likely to retain for a long period.
The essential features of a ‘fl oating’ charge has been described in the case of Re Yorkshire Woolcombers’ Association Limited
[(1903) 2 Ch 284] as follows: (1) a charge on a class of assets of a company present and future; (2) that class is one which
in the ordinary course of the business of the company would be changing from time to time; and, (3) by the charge it is
contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on
its business in the ordinary way as far as concerns the particular class of assets.
The central distinguishing feature of a ‘fl oating’ charge and a ‘fi xed’ charge is that a fl oating charge leaves control with the
chargee, while a fi xed charge does not.
Although, like a fi xed charge a fl oating charge takes effect as a security from the date of the security agreement, it does not
attach to the relevant assets until the charge crystallises. A fi xed charge on the other hand attaches to the specifi c assets from
the date of the security agreement.
6 In relation to the law of torts:
(a) explain the meaning of ‘tort’; (5 marks)
(b) identify the elements of a cause of action based on the tort of ‘passing off’. (5 marks)
(10 marks)
Solution:
(a) The term ‘tort’ is the French equivalent of the English word ‘wrong’. It is derived from the Latin term ‘tortum’, twisted, and
implies conduct which is twisted or tortuous (Union of India v Sat Pal Dharam Virl AIR 1969 J&K 128). It now means a breach
of some duty independent of contract or trust between citizens giving rise to a civil cause of action and for which compensation is
recoverable. Tortious liability arises from the breach of a duty primarily fi xed by law; the duty is towards persons generally and its
breach is redressable by an action for unliquidated damages (Winfi eld and Jolowicz, Modern Law of Tort). Other remedies besides
damages are also available, e.g., an injunction to stop a nuisance caused by, say, a neighbour playing very loud music.
To constitute a tort, the act complained of must be legally wrongful as regards the party complaining.
Instances of tortious acts are assault (showing of clenched fi sts to a passerby), battery (pushing by physical touch), and
trespass to property (breaking into someone’s house without their consent).
Torts can be against persons and/or their property/business.
 (b) In the English case of Reddaway (Frank) & Co, Ltd v George Banham & Co, Ltd [1896] A.C. 199, Lord Halsbury summed up
the tort of passing off as ‘nobody has any right to represent his goods as the goods of somebody else’. The tort of passing-off
concerns conduct by the defendant that is intended to deceive the public believing that goods belonging to or manufactured by
the defendant are really the property or product of the plaintiff. The same is true of services.
The fi ve elements of passing off are:
(i) a misrepresentation;
(ii) made by a trader in course of trade;
(iii) to prospective customers of his or ultimate customers of goods or services supplied by him;
(iv) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable
consequence); and
(v) which causes actual damage to a business or goodwill of the trader by whom the action is brought or will probably do so.
7 Under the Companies Ordinance, 1984:
(a) state the minimum number of directors prescribed for different types of companies; (2 marks)
(b) state the conditions which render a person ineligible for appointment as a director; (5 marks)
(c) state the consequences of an ineligible person acting as a director. (3 marks)
(10 marks)
Solution:
(a) Section 174 of the Companies Ordinance, 1984 (‘Ordinance’) provides for the minimum number of directors for different types
of companies. These minimum requirements apply notwithstanding anything contained in any other law for the time being in
force (and, by operation of s.6, anything in the companies’ respective memoranda and articles of association).
The minimum number of directors for different types of companies is as follows:
(i) a single member private company: one director
(ii) a private company (other than a single member company): two directors
(iii) a public unlisted company: three directors
(iv) a public listed company: seven directors.
 (b) Section 187 of the Ordinance sets out the conditions which render a person ineligible for appointment as a director.
(i) is a minor;
(ii) is of unsound mind;
(iii) has applied to be adjudicated as an insolvent and his application is pending;
(iv) is an undischarged insolvent;
(v) has been convicted by a court of law for an offence involving moral turpitude;
(vi) has been debarred from holding such offi ce under any provision of this Ordinance;
(vii) has betrayed lack of fi duciary behaviour and a declaration to this effect has been made by the court under s.217 at any
time during the preceding fi ve years;
(viii) is not a member; provided that clause (h) shall not apply in the case of:
(1) a person representing the Government or an institution or authority which is a member;
(2) a whole-time director who is an employee of the company;
(3) a chief executive; or
(4) a person representing a creditor.
Section 187 lays down two further conditions which apply exclusively to public listed companies:
(i) has been declared by a court of competent jurisdiction as a defaulter in repayment of loan to a fi nancial institution,
exceeding such amount as may be notifi ed by the Commission from time to time; and
(ii) is a member of a Stock Exchange engaged in the business of brokerage, or is a spouse of such member.
 (c) Section 188(1)(a) provides that a director shall ipso facto (i.e., by that fact) cease to hold offi ce if he becomes ineligible to be
appointed a director on any one or more of the grounds set out in s.187.
Section 189 states that if a person who is not qualifi ed to be a director or who has otherwise vacated the offi ce of director
describes or represents himself or acts as a director, or allows or causes himself to be described as such, he shall be liable in
respect of each day during which he so describes or represents or acts, or allows or causes himself to be described, as such,
to a fi ne which may extend to Rs.200. Under s.190, if an undischarged insolvent acts as director of a company, he shall be
liable to imprisonment for a term not exceeding two years, or to a fi ne not exceeding Rs.10,000, or to both.
Section 185, however, adopts a very practical approach and preserves the directors’ proceedings by providing that no act
of a director, or of a meeting of directors’ attended by him, shall be invalid merely on the ground of any defect subsequently
discovered in his appointment to such offi ce. Provided that as soon as any such defect has come to notice, the director shall
not exercise the right of his offi ce till the defect has been rectifi ed.

8 On Monday, Khalid said to Rizwan, ‘I will sell you my boat for Rs.20,000·00 if it rains before on Friday’.
Rizwan agreed and paid Rs.10,000·00 in advance. On Friday afternoon, rainfall started at 1.15 pm. Rizwan is ready
to pay the remaining Rs.10,000·00 to buy the boat, but Khalid is not willing to deliver the boat.
Required:
In relation to the law of contract, advise Khalid and Rizwan as to their mutual rights and obligations.
(10 marks)

Solution:
Section 31 of the Contract Act, 1872 (‘Contract Act’) provides that a contingent contract is a contract to do or not to do something,
if some event, collateral to such contract, does or does not happen. Section 32 provides that contingent contracts to do or not to do
anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened.
On our facts, Khalid appears to have made an offer which has been accepted by Rizwan. Their contract is contingent upon an
uncertain future event, i.e., rainfall taking place before on Friday. We are told that it has actually rained on Friday afternoon.
Therefore, since the event has happened, the contract ought to be enforceable at law.
However, it is important to note that rainfall started at 1.15 pm. Section 35 of the Contract Act provides that contingent contracts
to do or not to do anything if a specifi ed uncertain event happens within a fi xed time, become void if, at the expiration of the time
fi xed such event has not happened. On our facts, the rainfall ought to have happened before . Since, by it had
not rained, the contingency had not been met. Therefore, under s.35, the contract has become void at .
Accordingly, Khalid is under no obligation to deliver the boat. However, since the contract is void, Khalid must return the
Rs.10,000·00 received by him to Rizwan.
9 Star Industries (Private) Limited (‘SIPL’) is a private limited company. SIPL entered into a contract with Galaxy Traders
(‘GT’) for the supply of cotton yarn. Mr Anwer, the main shareholder and chief executive of SIPL signed the contract for
SIPL. GT has supplied the cotton yarn in accordance with the contract but SIPL has not paid the contract price. On GT’s
demand for payment, Mr Anwer stated that he had never intended for SIPL to pay GT. GT has brought a claim against
SIPL and Mr Anwer for the payment of the unpaid contract price.
Required:
In relation to company law, advise Mr Anwer whether he is liable for payment of the unpaid contract price.
(10 marks)
Solution:
One of the fundamental principles of company law is that a company is a legal entity separate and distinct from its shareholders
and directors (Salomon v Salomon & Co [1897] A.C. 22). Another fundamental principle of company law is that of limited liability.
A shareholder’s liability for a company’s debts is limited to the amount of shares held by him. A company is capable of entering into
contracts and for any unsettled liability under such contracts it is only the assets of the company which can be proceeded against by
an unpaid creditor or claimant (Sakhi Dattar Cotton Industries and Oil Mills v Mahmood (Pvt) Ltd 2006 CLD 191). It is also beyond
doubt that companies being legal persons must act through human agents, in most cases the directors (including chief executive)
or other authorised offi cers.
On our facts, the contract was between SIPL and GT. Mr Anwer, being the chief executive, has signed the contract for SIPL. The
rights and liabilities under the contract would be those of SIPL and not Mr Anwer’s. Mr Anwer should argue that GT’s claim is only
sustainable against SIPL.
However, it is also established in company law that in certain circumstances, the courts may ‘lift the veil of incorporation’ to discover
the factual position. The Superior Courts have held in many cases including Sakhi Dattar’s case (see above) that the doctrine of
lifting of the corporate veil does not mean that shareholders are also to be made equally liable with the company; it only means that
any undue benefi t drawn by a shareholder or any other entity to the detriment of a company is to be returned back to company so
that its creditors could successfully settle their account with the company which they otherwise would not have.
The corporate veil can be lifted where, for instance, the shareholders are using the corporate structure to perpetrate a crime or fraud
(The President v Mr Justice Shaukat Ali PLD 1971 SC 585). In our case, Mr Anwer’s statement may appear to indicate that SIPL’s
corporate status may have been misused by Mr Anwer. If the ‘veil of incorporation’ were to be lifted, Mr Anwer could be made
personally liable to settle the outstanding amounts.

10 Micro Electronics (Private) Limited (‘MEPL’) was incorporated on 1 April 2010. Sadiq, Majid and Ali are its fi rst
directors. The board of directors of MEPL met on 7 June 2010 to discuss the appointment of the fi rst auditors of MEPL.
Majid, who is a Chartered Accountant, offered to work as the fi rst auditor of MEPL for a small remuneration to help
ease MEPL’s fi nancial burdens. Sadiq was in favour of this proposal. However, Ali opposed it by saying that the board
could not appoint the fi rst auditor(s).
Required:
Under the Companies Ordinance, 1984, advise the board on the legality of the proposed appointment of the fi rst
auditor.
(10 marks)

Solution:
Section 252 of the Companies Ordinance, 1984 (‘Ordinance’) deals with the appointment of auditors. Section 252(3) provides tht
the fi rst auditor(s) of a company shall be appointed by the directors within 60 days of the date of incorporation of the company.
Proviso (b) to s.252(3) states that if the directors fail to exercise their aforesaid power, the company in a general meeting may
appoint the fi rst auditor(s).
On the given facts, MEPL was incorporated on 1 April 2010. The 60 day period within which the directors could have exercised their
power has already expired before 7 June 2010. Therefore, the board may not have the power now to appoint the fi rst auditor(s). A
general meeting of MEPL will have to be convened to appoint the fi rst auditor(s).
Section 254 of the Ordinance provides for, among other things, the disqualifi cation of auditors. Section 254(3) provides that a
person who is a director of the company shall not be appointed as auditor of the company. On the given facts, Majid is a director of
MEPL. Therefore, he is disqualifi ed from being MEPL’s auditor.
Accordingly, the board is no longer empowered to appoint the fi rst auditor(s) of MEPL; and, Majid is disqualifi ed from being MEPL’s
auditor. The proposed appointment is not in accordance with the Ordinance.

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