To hold or not to hold a general meeting without audited financial statements
DIPOK KUMAR ROY |
September 04, 2022 22:39:44
Failure to hold the AGM and to hold it later with court permission are widely debated issues in Bangladesh these days. This has become an acute problem especially after the introduction of the DVC (Data Verification Code) to obtain financial statements from a shopping cart for all. Financial statements without CDD means that no audit and unaudited financial statements lead to a failure to hold the AGM, as the general perception or interpretation is that no AGM should be held without the audited financial statements. DVC, is a unique code used for a legal set of audited financial statements of a company. Many companies still face a dilemma of preparing and presenting a single set of financial statements (without any fabrication), auditing them accordingly, and presenting these at the AGM for approval and continuation of the process in accordance with the provisions of the Companies Act 1994. Many companies have already missed the deadline for their general meetings and are awaiting court authorization to file a complaint. Many companies, regulators and auditors find themselves in a very complex area when dealing with this and guiding them out of this complexity. The authorities concerned should specify whether the AGM should be held without audited financial statements or not.
In accordance with Section 183 of the Companies Act 1994, financial statements (profit and loss account, balance sheet, etc. as described in the section) must be filed prior to the AGM. Article 183(1) reveals that “the board of directors of each company shall, at each annual general meeting held under Article 81, present to the company a balance sheet together with the profit and loss account or, in in the case of a not-for-profit corporation, an income and expense account for the period specified in subsection (2) of this section.” The interpretation of this article is that the presentation of the financial statements is mandatory at each annual general meeting and that these must be audited under article 183(3). The holding of the AGM every year is also mandatory within 15 months following the previous AGM (with the exception of the 1st AGM which must be held within 18 months from the date of incorporation) in accordance with article 81(1) and the date of the AGM must be such date nine months before the expiry date of the financial statements in accordance with section 183(2)(b)(i). Complying with both 15 months and 9 months as stated above is mandatory and the date of the AGM is set to fall under both criteria. This is a separate question. What matters is the holding of the GA. A company must hold an annual general meeting under Section 81 every year. So two mandatory matters are (1) Holding of an annual general meeting is a must every year (2) Submission of audited financial statements is a must under Section 183 unless otherwise specified in paragraph or any another item.
Article 183 (5) sets out the sanction in case of non-compliance with the provisions of Article 183 regarding the period of accounts (date of closing of financial statements not exceeding nine months before the date of the GM) and the presentation of the financial statements to the GA. The administrator(s) shall be liable to a fine not exceeding 5,000 (five thousand) Taka. Thus, if the board of directors does not present the financial statements to the AGM within the limitation period (closing date of the financial statements not exceeding nine months before the date of the AGM) as indicated above , it will be penalized under Section 183(5) only when the aggrieved authorities apply to court under Section 396. No section or subsection thereof is restricted or prohibited to hold a general meeting without the audited financial statements. Thus, it is obvious that they can hold a general meeting without the audited financial statements by paying the fine imposed as above when filing a file by any aggrieved authority. The AGM has a specific agenda and the presentation of the audited financial statements is part of it. Financial statements may not be audited and ready by the required date of the AGM for various reasons, as follows:
(1) If records are destroyed due to disasters such as fire or the collapse of software and backup
(2) Disagreement with auditors for any qualification point where auditors may omit a qualified ground for further compliance. The compliance time may be longer than the AGM holding period. In this situation, the AGM may be held without audited financial statements despite the penalty option under Section 183(5) as noted above.
(3) Management or the board may not complete it for many valid reasons
The AGM is suspended or not held on time due to the need for audited financial statements. The company must apply to the court for authorization under Article 81(2). In order to avoid this critical situation, the company concerned may hold an annual general meeting within the legal deadline under Article 81 (1) without the audited financial statements. In this case, the Board of Directors cannot be penalized for not having presented the accounts provided for in Article 183 (5) or for not having respected the limitation period (date of closure of the accounts not exceeding nine months before the date of the GA) only when an injured person goes to court to obtain compensation.
However, holding a general meeting without the audited financial statements should not be a common practice as it would create hassles for the smooth running and growth of a business. As the financial statements are not audited, presented and approved, the dividend will not be recommended by the board and approved at the AGM. Shareholders will be deprived of dividends if there are any and may feel aggrieved. Thus, the presentation of the financial statements at the AGM may sometimes not take place for valid reasons and these financial statements must be presented at the next AGM for approval and further processing. Companies or regulators or authority concerned should get legal advice on this to make it legally effective.
The author is a partner of Basu Banerjee Nath & Co., Chartered Accountants