RIYADH —The Saudi Capital Market Authority (CMA) has issued an amendment to the “Procedures and Instructions Related to Listed Companies with Accumulated Losses Amounting to 50% or More of its Share Capital”, which has been implemented since July 1, 2014. As amended, it is now called “Procedures and Instructions Related to Listed Companies with Accumulated Losses Amounting to 20% or More of its Share Capital”.
The amended procedures and instructions includes adding a flag beside the company’s name on the Saudi Stock Exchange (Tadawul) website to indicate when a company’s accumulated losses amount to 20% or more and less than 35% of its share capital, when accumulated losses amount to 35% or more and less than 50% of its share capital, and when the accumulated losses of a company amount to 50% or more of its share capital.
The CMA also clarified that the current Procedures and Instructions Related to Listed Companies with Accumulated Losses Amounting to 50% or More of its Share Capital will continue to be applicable until the new instructions take effect starting from April 22, 2017.
In addition, the CMA clarified that paragraph (k) of Article (5) of the currently applicable procedures requires delisting company’s shares with accumulated losses amounting to 100% or more of its share capital after the elapse of two full financial years, each of which is not less than 12 months, without improving its position by reducing its accumulated losses below 75% of its share capital or not reflecting operating profits and positive operating cash flows for the last financial year. Paragraph (k) of Article (5) in the currently applicable procedures will be applied to listed companies with accumulated losses amounting to 100% or more of its share capital and which will complete two financial years by the end of 2016 without improving its position by reducing its accumulated losses below 75% of its share capital, when it publishes its annual financial results for 2016.
The amendment on these procedures is consistent with the provisions included in Article (150) of the new Companies Law. This article included the procedures required to be taken when the accumulated losses of a company amounts to 50% or more of its paid capital. The procedures are as follows:
• Any company official or the auditor must inform the Chairman of the Board of Directors immediately upon his knowledge that the company›s accumulated losses reached 50% of its paid capital.
• The Chairman of the Board must inform the Board members immediately.
• Within 15 days of the Board›s knowledge of such losses, the Board must call for convening of the extraordinary general assembly within 45 days from the date of their knowledge of the losses.
• The extraordinary general assembly must decide to either increase or decrease the company›s capital – in accordance with the Companies Law and other related laws and regulations- to the degree where the percentage of losses would decrease below 50% of the paid capital, or to dissolve the company before the prescribed date in its bylaws.
In addition, according to the Companies Law, the company will be deemed dissolved by force of law in any of the following cases:
• If the extraordinary general assembly does not convene during the specified period above.
• If a meeting was held but failed to issue a resolution on the matter
• If it decided to increase the capital in accordance with the above but not all capital increase was subscribed for within 90 days from the issuance of the extraordinary General Assembly›s resolution to increase the capital.
The CMA reiterates that listed companies with accumulated losses amounting to 50% of its share capital should take advantage of the prescribed period in Article 224 of the Companies Law to improve its position, since this period will end on April 22, 2017. — SG
