Title A functional derivative action framework for Pakistan Name Aamir Abbas

407 Pages·2017·2.7 MB·English

Title A functional derivative action framework for
Pakistan
Name Aamir Abbas

This is a digitised version of a dissertation submitted to the University of
Bedfordshire.
It is available to view only.
This item is subject to copyright.
A FUNCTIONAL DERIVATIVE ACTION FRAMEWORK FOR
PAKISTAN

AAMIR ABBAS

JANUARY 2017
UNIVERSITY OF BEDFORDSHIRE
A FUNCTIONAL DERIVATIVE ACTION FRAMEWORK FOR
PAKISTAN

AAMIR ABBAS

JANUARY 2017
UNIVERSITY OF BEDFORDSHIRE
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ABSTRACT
Company law in Pakistan does not recognise shareholders’ right of derivative action.
This situation raises the question as to what extent derivative action, if recognised
under the company law in Pakistan, can promote good corporate governance and
contribute to reinforce enforcement powers of shareholders as to safeguarding their
rights? The purpose of this thesis is twofold. First, this thesis argues that an effective
derivative action system could act as a means of disciplining corporate management in
Pakistan. Second, it presents it argumentations that other legal and extra-legal
managerial disciplinary mechanisms have limitations of their own that support the
introduction of a statutory derivative action system in Pakistan.
The methodologies used in this thesis are doctrinal, historical, case study, comparative
and semi-structured interviews. Doctrinal analysis has been employed when analysing
statutes and case law. Case study methodology has been used to exemplify problems of
directorial misconduct and providing empirical evidence for carrying out further
analysis. A comparative approach has been utilized for which the UK has been chosen
for comparative purposes to identify lessons that Pakistan can learn from the UK
derivative action system while finding ways for effective use of derivative action
system in Pakistan. Semi-structured interviews are aimed at providing an evaluation of
the reform proposals.
This study contributes to the subject of derivative action in three key ways. First, it
provides an in-depth examination of the regulatory framework pertaining to shareholder
protection in Pakistan in order to highlight the inherent challenges presented by un-
updated legal framework. Second, based on the findings from this thesis, reform
proposals are made as to codifying derivative actions, clarifying the procedural route
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for derivative proceedings and providing a funding mechanism to attract shareholders
to bring derivative actions to enforce corporate rights. Third, suggestions proposed in
this thesis are supported by both the opinions of the interviewees and original research
on judicial experience of other jurisdictions, particularly the UK. The findings made in
this study and proposals have implications for law reforms and are expected to inform
practitioners, academics, legislators and policy makers on the way forward in reforming
shareholder protection in Pakistan. Thus, this thesis would inform reforms in the
company law in order to strengthen the enforcement power of shareholders and ensure
corporate accountability in Pakistan.
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AUTHOR’S DECLARATION
I, Aamir Abbas declare that this thesis and the work presented in it are my own and
have been generated by me as the result of my own original research.
Title: A functional derivative action framework for Pakistan
I confirm that this work was done wholly or mainly while in candidature for a research
degree at this University;
Where any part of this thesis has previously been submitted for a degree or any other
qualification at this University or any other institution, this has been clearly stated;
Where I have cited the published work of others, this is always clearly attributed;
Where I have quoted from the work of others, the source is always given. With the
exception of such quotations, this thesis is entirely my own work;
I have acknowledged all main sources of help;
Where the thesis is based on work done by myself jointly with others, I have made clear
exactly what was done by others and what I have contributed myself;
Either none of this work has been published before submission

Signature:_______________________________
Date: 12 January 2017

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ARTICLE AND CONFERENCE PAPER
1. Article: “Supremacy of the Constitution versus Supremacy of the Parliament:
Finding the Basic Structure of Constitution of Pakistan” Pakistan Law Journal,
Feb, 2016.
2. Conference Paper: Derivative Litigation in Pakistan, Lessons to be learned from
the US, presented at 7th International Business Conference, Las Vegas, USA,
December, 2014.
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ACKNOWLEDGEMENTS
Thanks to Almighty Allah for His Mercies and Blessing
My prime duty is to acknowledge my debt of profoundest gratitude to my supervisory
team, Dr. Chrispas Nyombi and Mr. Tom Mortimer for their continuous encouragement
and invaluable suggestions during this research. They have been affable and accessible
enough to condescend to ignore my fallacies and deficiencies which were rectified with
their unflinching patronage.
Dr Chrispas Nyombi’s thorough and thoughtful guidance mobilized me right from the
start point crudeness till it ripened over a period of time, to the point where I was able
to complete my humble research highly comprehensive and exhaustive in nature. I
would have not been able to get through this colossal without his remitting
encouragement, thought-provoking and invaluable suggestions which indeed, provided
me a comfort zone and some shade of scorching hot of my hectic journey.
On the other hand, I found both of my supervisors endowed with love, affection and
rich in humanitarian cult. I would not be forgetting them ever - men so complaisant and
sympathizing on the one hand and rich in ideas, knowledge and professional skills on
the other.
I also owe a debt of gratitude to my wonderful Parents; the journey that has led me to
this point would have not been possible without their support, love and patronage. May
God bless them with His kindness.
I am also thankful to GC, University for its financial support. Finally, thanks to all
friends and family members who missed me during years of study in the UK.

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TABLE OF CONTENTS
ABSTRACT ..................................................................................................................... i
AUTHOR’S DECLARATION .................................................................................... iii
ARTICLE AND CONFERENCE PAPER .................................................................. iv
ACKNOWLEDGEMENTS ........................................................................................... v
TABLE OF CONTENTS .............................................................................................. vi
LIST OF ABBREVIATIONS ...................................................................................... xv
KEY TERMS ..............................................................................................................xvii
RESEARCH BACKGROUND................................................................................... xix
Thesis layout ............................................................................................................ xxvi
Chapter 1. Theoretical Framework of Derivative Action ...................................... 1
1.1 Minority Shareholders in Family-Owned and State-Owned Enterprises in
Pakistan ......................................................................................................................... 1
1.2 Enforcement of Shareholders’ Rights .................................................................... 5
1.2.1 Shareholder Voting ........................................................................................ 10
1.2.2 Independent Directors ................................................................................... 11
1.3 Derivative Action; A theoretical review ............................................................... 13
1.4 Scope of Derivative Action in Pakistan ................................................................ 16
1.5 Theoretical underpinning of Derivative Action ................................................... 22
1.6 Problem of Abusive Litigation ............................................................................. 24
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1.7 Derivative actions versus Market based Mechanisms .......................................... 28
1.7.1 The Market-based Managerial Disciplinary Mechanisms ............................. 29
1.7.2 The capital Market ......................................................................................... 30
1.7.3 The Corporate Control Market ...................................................................... 32
1.8 Concluding Remarks ............................................................................................ 36
1.9 Research Questions .............................................................................................. 37
1.10 Research Methodologies .................................................................................... 38
1.10.1 Doctrinal Analysis ....................................................................................... 38
1.10.2 A Historical Approach ................................................................................. 39
1.10.3 A Case Study Approach .............................................................................. 40
1.10.4 A Comparative Approach ............................................................................ 42
1.10.5 Semi-Structured Interviews ......................................................................... 47
1.10.6 Reliability and Validity ............................................................................... 50
1.10.7 Data Required .............................................................................................. 50
Chapter 2. Literature Review ................................................................................. 52
2.1 Introduction .......................................................................................................... 52
2.2 Corporate Ownership Structure ............................................................................ 53
2.3 Background to Agency Costs ............................................................................... 57
2.4 Agency Theory ..................................................................................................... 59
2.5 Legal Contractarian Theory .................................................................................. 62
2.6 Reducing Agency Costs ....................................................................................... 66
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