Company Law reforms require leadership attention and prioritisation

Good governance activist Chandra Jayaratne has called for leadership attention to prioritise Company Law reforms, especially in terms of expanding the provisions of Part XXI which deals with offences. 

Jayaratne has written in this connection to Industry & Commerce Ministry Secretary K. D. N. Ranjith Asoka; Registrar General of Companies D.N.R. Siriwardena; Central Bank of Sri Lanka Governor Dr. Indrajit Coomaraswamy; Securities Exchange Commission Chairman Ranel T Wijesinha; START Chairman / Secretary; Ceylon Chamber of Commerce Chairman Rajendra Theagarajah; Bar Association of Sri Lanka President Kalinga Indatissa PC; Institute of Chartered Accountants of Sri Lanka President Jagath Perera; Sri Lanka Institute of Directors Chairperson Preethi Jayawardena; and Company Law Advisory Committee Chairman K. Kanag-Iswaran PC. The letter was copied to President and Law & Order Minister Maithripala Sirisena; Prime Minister Ranil Wickremesinghe; Justice Minister Thalatha Atukorale; Attorney General Jayantha Chandrasiri Jayasuriya PC; Auditor General H.M.Gamini Wijesinghe; Speaker of Parliament Karu Jayasuriya; Parliament Public Finance Committee Chairman M.A. Sumanthiran; and Public Enterprises Committee Chairman MP Sunil Handunetti.

Following are excerpts of Jayaratne’s letter: 

In the light of serious economic crimes believed to have taken place over the last two decades, as ascertained from investigations and media exposes, purportedly challenging to a significant extent the macro-economic growth, stability, sovereign ratings and solvency of the State, State-owned enterprises and selected key private sector businesses, along with a host of innocent citizens, it is an urgent priority, that in addition to 

 

• the early enactment of the proposed Proceeds of Crime Act, and 
• effective enforcement by law enforcement agencies of the penal provisions of existing laws and regulations against offenders of serious economic crimes, and,
• Business Chambers and Professional Associations taking steps to enforce ethical professional conduct by their respective memberships, with the imposition of stern disciplinary action upon failure by members in assuring due compliance with laws and regulations (NOCLAR) 
  
   

That by appropriate Company Law Reforms, the Provisions of Part XXI-Offences-of the Companies Act No. 7 of 2007 be expanded/amended without delay.

It is recommended that a multi-stakeholder group of nominees representing each of you be charged with the responsibility of jointly developing the essential amendments to Part XXI-Offences-of the Companies Act No. 7 of 2007, and thereafter progress with leadership commitment the effective implementation of the agreed reform agenda.

The Stakeholder Group is urged to consider the expansion/amendment of the Provisions of Part XXI-Offences-of the Companies Act No. 7 of 2007 to include the following recommendations:

 

• where any company registered under the Act has engaged in any serious economic crimes associated with money laundering, transfer pricing, tax avoidance, bribery, corruption, illegal transfer of State property, securities offenses, smuggling, trading in narcotics and dangerous substances, cross border illegal transfers of currency/gems/precious metals, the violation of regulations governing the management of foreign exchange, and or the violation of any written law for the time being in force relating to offences connected with the Poisons, Opium and Dangerous Drugs Ordinance (Chapter 218); the prevention and suppression of terrorism; the Bribery Act (Chapter 26); the Firearms Ordinance (Chapter 182); the Explosives Ordinance (Chapter 183); the Offensive Weapons Act, No. 18 of 1966; or an offence under the Banking Act, No. 30 of 1988; and any law for the time being in force relating to transnational organised crime; cybercrime: the Prevention of Money Laundering Act, No. 5 of 2006 ; offences against children; trafficking or smuggling of persons; the Customs Ordinance (Chapter 235) and any Regulation, Rule or Order made there under; the Excise Ordinance (Chapter 52) and any Regulation, Rule or Order made there under; the Payment Devices Frauds Act, No. 30 of 2006 and any Regulation, Rule or Order made there under; the National Environmental Act, No. 47 of 1980 and any Regulation, Rule or Order made there under; 
  
   

every person who at the time of the commission of the offence was a director, secretary or other similar officer of the company; or any person acting for or ‘on behalf of such a person’ shall be deemed to have committed an offense under this Act and upon conviction shall prevented by the Registrar of Companies from functioning as a director, secretary, officer or auditor of any company registered under the Act

• Amend Section 511 to read as : 

“Where in any return, report, certificate, prospectus, statement in lieu of a prospectus, annual report, directors report, balance sheet, audit certificate, valuation, directors opinion on any valuation, going concern status, solvency and serious loss of capital, or in any other document, required by or for purposes of this Act or published in satisfaction of any provisions of this Act, any person wilfully makes a statement or quotes from a statement of a third party, which statement is false in any material particular knowing it to be false, shall be guilty of an offences and be liable on conviction to a fine exceeding Rupees one million and to a term of imprisonment exceeding five years.”

• Amend the last paragraph of Section 512 to read as:

“Shall be guilty of an offence and be liable on conviction to a fine exceeding Rs. 1 million and to a term of imprisonment exceeding 5 years.”

 

• Introduce a new section, where any business of a company is carried on with intent to 
  
   
• defraud creditors of the company or creditors of any other person, or 
  
   
• defraud shareholders of the company, or 
  
   
• oppress the rights of minority shareholders, or
  
   
• for any fraudulent purpose, 

Every person who is knowingly a party to the carrying on of the business in that manner commits an offence and be liable on conviction to a fine exceeding Rs. 10 million and to a term of imprisonment exceeding 10 years

 

• Introduce a new Section whereby:
• If a company fails to file a special resolution with the registrar of Companies within 15 days after it is passed, the company and any officer who is in default commit an offence 
• if a company fails to include the required details in its register of directors, and in its register of charges, the company and any officer who is in default commit an offence 
• a director who fails to declare an interest in an existing transaction with the company commits an offence 
• Where in the case of a company limited by shares or by guarantee that has only one member. And such member takes any decision that —
  
   

(a) May be taken by the company in General Meeting, and

(b) Has effect as if agreed by the company in General Meeting,

And he fails to (unless that decision is taken by way of a written resolution) provide the company with details of that decision such member he commits an offence.

 

• where the directors fail to prepare a directors’ report for a particular financial year, any director who failed to take reasonable steps to ensure that a report was prepared commits an offence 

And such offenders shall be liable on conviction to a fine exceeding Rs. 1 million and to a term of imprisonment exceeding five years

 

• The term of imprisonment exceeding five years referred to in Sections 511 and 512 above is essential in order that such offenders can be charged in addition under the Prevention of Money Laundering Act and the provisions of that Act relating to the recovery of proceeds of crime could then be enforced 
• Where an offence under this Act is committed-
• every person who at the time of the commission of the offence was a director, secretary or other similar officer of the Company; or
• by any person acting for or ‘on behalf of a person’ referred to in the above subsection of this section
  
   

 Shall be subject to the provisions of this part of the Act:

 

• The Section 514 of the Act allowing compounding of offences are not to be applied in the case of offenses referred to in Sections new sections to be introduces as recommended above, as well as offenses under sections 511 and 512 as amended
  
   

I trust that considering the importance of these submissions in assuring national and citizens’ risk management and macro-economic growth and stability, the leadership team addressed, supported by those copied in on this letter, will take early steps to initiate the proposed Company Law Reforms.