Defaut on holding AGM and organising the same later with court permission are widely discussed issues now-a-days in Bangladesh. This has become an acute problem specially after introducing DVC (Data Verification Code) for obtaining financial statements from one basket for all. Financial statements without DVC means no audit and unaudited financial statements lead to default on holding AGM, as the perception or general interpretation is that no AGM shall be held without the audited financial statements. DVC, is a unique code used for a legal set of audited financial statements for a company. Many companies are still in a dilemma over preparing and presenting a unique set of financial statements (without any fabrication), completing audit accordingly and presenting those in AGM for approval and further process as per the provisions of the Companies Act, 1994. Many companies have already missed the deadline of their AGMs and are waiting for court permission to be complaint. Many companies, regulators and auditors are in a very complex zone while dealing with this and in guiding them to come out of that complexity. The authorities concerned should clarify whether the AGM should be held without audited financial statements or not.
In accordance with section 183 of the Companies Act, 1994 the Financial Statements (profit & loss account, balance sheet etc. as described in the section) are to be laid before AGM. The section 183(1) reveals "the board of directors of every company shall , at every annual general meeting held in pursuance of section 81, lay before the company a balance sheet together with the profit and loss account or in the case of a company not trading for profit, an income and expenditure account for the period specified in sub-section(2) of this section." The interpretation of this section is that presentation of financial statements is mandatory in each AGM in every year and those have to be audited under section 183(3). Holding AGM in every year is also mandatory within the 15 months of the earlier AGM (excepting the 1st AGM which has to be held within 18 months from the date of incorporation) as per section 81 (1) and the date of AGM should be on such a date nine months before the expiry date of the financial statements in accordance with the section 183(2)(b) (i). Comply with both 15 months and 9 months as stated above is mandatory and the date of AGM is set in such way that falls under both criteria. This is a separate issue. What matters is the holding of AGM. A Company must hold AGM under section 81 each year. So two mandatory issues are (1) Holding of an AGM is a must every year (2) Presenting the audited financial statements is a must under section 183 unless otherwise stated in subsection or any other sections.
Section 183 (5) states about the penalty for failure to comply with the provisions of section 183 about the period of accounts (ending date of financial statements not exceeding nine months before the date of AGM) and presentation of the financial statements at AGM. The director(s) is liable to pay a fine not exceeding Taka 5,000 (five thousand). So, if the board of directors fail to present the financial statements at AGM in compliance with the time bar (ending date of financial statements not exceeding nine months before the date of AGM) as stated above, they will be penalised under section 183(5) only when the aggrieved authorities go to the court under section 396. No section or any subsections thereof is restricted or prohibited to hold AGM without the audited financial statements. So, it is apparent that they can hold AGM without the audited financial statements by paying fine imposed as above upon filing a case by any aggrieved authority. AGM has some specific agenda and presentation of the audited financial statements is one of them. The financial statements may not be audited and ready within the required date of holding AGM for various reasons as follows:
(1) If records are destroyed due to disasters like fire or collapse of software and backup
(2) Disagreement with auditors for any qualification point(s) where auditors may omit qualified ground for subsequent compliance. The compliance time may be longer than the period of holding AGM. In this situation, the AGM can be held without audited financial statements in spite of penalty option under section 183(5) as stated above.
(3) The management or board may fail to complete it for many valid reasons
The AGM is suspended or not held in time because of the need for audited financial statements. The company has to go to the court for obtaining permission under section 81(2). In order to avoid this critical situation, the company concerned can hold AGM within the legal time frame under section 81 (1) without the audited financial statements. In this case, the board of directors may be penalised for not presenting the financial statements under section 183 (5) or for not complying with the period bar (ending date of financial statements not exceeding nine months before the date of AGM) only when an aggrieved person goes to the court for remedy.
However, holding AGM without the audited financial statements should not be a common practice as this will create hassles for smooth operation and growth of a company. As the financial statements are not audited, presented and approved, the dividend will not be recommended by the board and approved in the AGM. The shareholders will be deprived of dividends if there is any, and may feel aggrieved. So, presentation of the financial statements at AGM may not take place sometimes for valid reasons and those financial statements should be presented at the next AGM for approval and further processing. The companies or the regulators or the concerned authority should obtain a legal opinion on this to make it legally effective.
The writer is a partner of Basu Banerjee Nath & Co., Chartered Accountants
