Private & Confidential
MEMORANDUM
TO:
TS TECH Bangladesh
Attention: Mika Kitaguchi San, International Business Division
Bangladesh, Tokyo Consulting Firm Limited
FROM:
Fox Mandal (FM) Associates
RE:
Paid-up Capital Increment/Share Allotment of TS Tech Bangladesh
DATE:
27 April 2016
This Memorandum should be read not in conjunction to any other purpose apart from the scenario mentioned.
BACKGROUND:
TS TECH BANGLADESH LIMITED (Hereinafter, it will be called “TSBD”) is manufacturing company (private company) which located in Adamjee EPZ.
Currently paid up capital of TSBD is 260,000,000 BDT and authorized capital is 1,000,000,000 BDT. TSBD is planning to increase paid up capital and its amount will be equivalent to 273,000,000 BDT (approx. 400,000,000JPY). Its newly issued share will be accepted by TS TECH CO., LTD. (Hereinafter, it TSJP). After capital enhancing, total paid up capital of TSBD will be 533,000,000BDT.
TSBD has USD account in Prime Bank.
For enhancing the capital, TSBD want to follow a step as stated below.
1. TSBD will receive the capital amount from TSJP in USD account.
2. TSBD will collect Banker’s Certificate from Prime Bank.
Mainly the contents of Banker’s Certificate are;
how much USD was received in USD account,
purpose of remittance, and
how much BDT will be equivalent to its USD amount received as capital
3. Capital amount of TSBD will be deposited and kept in USD account. And its amount will not convert into BDT. However capital amount will be registered by BDT amount based on the Banker’s Certificate which is stated converted capital amount by rate of arrival date of remittance.
4. TSBD will apply for capital enhancement to Bangladesh Securities Exchange Commission (BSEC), Registrar of Joint Stock Companies and Firms (RJSC).
5. Capital amount of TSBD will be BDT amount based on Banker’s Certificate.
Regarding previous point IV-5, TSBD raised inquiry to RJSCB. TSBD got following answer from RJSC.
“In allotment of shares of the registered company Taka will be regarded as currency.”
TSBD cannot get any answer whether TSBD can keep capital amount in USD account or not. Additionally, through the interview to Bangladesh Bank, TSBD got the answer from Bangladesh Bank that paid up capital can enhance without encashing.
In Bangladesh Bank Guideline Chapter 9 2(A)-(a), following provision is stipulated.
“Foreign exchange thus brought in must be encashed in taka before issuance of shares.”
However, there is no clear notification whether this regulation is applicable for EPZ Type-A company or not.
Now, the following queries have been raised to FM Associates, which are clarified beneath.
ISSUES: Confidential legal advice in relation to Capital Enhancement
Regarding Point Nos. IV-5 and V of the background above, the Companies act 1994 is silent for capital currency. Whether keeping capital amount by USD in USD account is illegal or non-compliance for any law or regulation.
FMA: Encashment of the remitted amount (the paid-up capital amount which is going to be increased) from USD to BDT is required prior to filing the allotment of capital with RJSC. Undertaking all the formalities, keeping the amount in USD in the USD account shall not be possible.
In accordance with the Bangladesh Bank Guidelines foreign exchange amount brought in USD must be encashed in Taka (i.e. BDT) before issuance of shares. Therefore, effectuating the capital increment/share allotment with the RJSC keeping the capital amount in the currency “USD” in USD account of the entity shall not be possible as per the laws of Bangladesh.
Besides, though the Companies Act 1994 (CA 1994) does not clearly specify about the currency requirement; upon interpreting the relevant provisions from the CA 1994 it can be well said that encashment from USD to BDT prior to filing the allotment with RJSC is required. The relevant provisions of CA 1994 require the company notifying the RJSC about the numbers of shares to be allotted or increased and the value of the same calculating based on the par value of each share. Here it should be mentioned that the par value is certainly mentioned in BDT with the RJSC record and company’s Memorandum and Article of Association; thereby, to keep the coherence in calculating the value based on par value of the share and to avoid the exchange rate volatility the remitted amount (i.e. paid-up capital to be increased) need to be encashed.
Legal basis of answer of (a)
FMA:
The legal basis for our first proposition is Bangladesh Bank Guidelines, Foreign Exchange Guidelines, Volume 1, Chapter 9, Section 1, Guideline 2A (a); and
As to our second proposition the legal basis is Section- 151 (1) (a) of the Companies Act 1994.
Whether Prime bank will issue Banker’s certificate which is stated point no IV-2 is illegal or non-compliance for regulatory basis or not. Especially whether Prime bank can issue the statement stated “how much BDT will be equivalent to its USD amount received as capital” is illegal or non-compliance for regulatory basis.
FMA:
Foreign currency, which is brought in the USD account, need to be converted and encashed in Bangladeshi Taka (i.e. BDT). As per the RJSC practice, the Encashment Certificate needs to be provided with the RJSC to complete the filing formalities and effectuation of the share allotment. With regards to the Banker’s Certificate, there is no guarantee whether the Banker’s Certificate will suffice and grated by the RJSC. Hence, it is advised that the Encashment Certificate is obtained, rather than Banker’s Certificate as it is not common practice at RJSC.
Besides, upon the encashment of the remitted amount, your Bank (Prime Bank Limited) shall provide an Encashment Certificate which the Bank shall also forward to Bangladesh Bank within 14 (fourteen) days from such issuance.
Legal basis of answer of (c)
FMA:
The legal bases of our reply are as follows-
The Bangladesh Bank Guidelines, Foreign Exchange Guidelines, Volume 1, Chapter 9, Section 1, Guideline 2A (c); and
RJSC Guidelines on Return Filing.
If Banker’s Certificate which was stated in point no IV-2 is not illegal or non-compliance for regulatory basis, how much rate should be used for BDT conversion. (Rate of Bangladesh Bank or Prime Bank, remitted date should be used or capital registration date should be used.)
FMA:
Foreign exchange rates for BDT transactions are set by the dealer banks, based on the demand-supply interaction. Bangladesh Bank (BB) does not deal with the rates on a day-to-day basis, and undertakes USD purchase or sale transactions with dealer banks at prevailing inter-bank exchange rates only as needed to maintain market conditions.
Inter-bank foreign exchange rates are used by Bangladesh Bank for purchase and sale transactions with the Government and different International Organizations. The cross rates of BDT with other foreign currencies are based on New York and Dhaka closing exchange rates.
Whether remitted USD can be used before completion of paid up capital registration or it is illegal or non-compliant.
FMA:
We would like to refer to question no. C; and in addition, the company is obliged to file the required documents and effectuate the allotment with the RJSC within 60 (sixty) days from the date of board resolution whereby the allotment was passed by the company. Though there is no stringent rule as to utilization of the capital amount which is about to be allotted beforehand; it is advised that the capital amount in the account is not used prior to the filing and effectuating such allotment with the RJSC.
Further, in case the company fails to comply with the 60 (sixty) days requirement then there shall be sanction imposed by the RJSC and the company shall require seeking permission from the Company Bench of the High Court Division of Bangladesh as to proceeding with the formalities with the RJSC.
TSBD wants to book remitted capital amount as “Share money deposit” before completion of registration of RJSC. After completion of registration of RJSC, its capital amount will be “Paid up capital” from “share money deposit”. Whether such accounting treatment is non-compliance or violation of accounting standard in Bangladesh.
FMA:
When remitting the amount the purpose of the remitted amount initially must be stated in the remittance or swift instructions. Afterwards, in the Encashment Certificate the purpose of the remittance and whether it is encashed or not needs to be specified. Therefore, we are of the view that such wording shall not be in violation of accounting standard in Bangladesh provided the document clarifies the remittance and encashment purpose.
Should you require further information, please feel free to contact us.
Yours Sincerely,
Al Amin Rahman
Partner, FM Associates