Implications of new Companies Act

The reforms made to the Companies Act No. 17 of 1982 are designed to tackle the new developments in this field and simplify the process of incorporation which would immensely benefit the commercial community.

The European Chamber of Commerce of Sri Lanka (ECCSL) recently held a seminar to introduce the implications of these reforms to the public. Guest speaker, Attorney at Law, Nihal Jayawardene said, "We are hopeful that the introduction of this new legislative regime will provide the most suitable legal infrastructure in the commercial field for corporate structures to meet the pressures of an open economy and face the challenges of the next millennium."

Jayawardene feels that the proposed reforms are much needed for several reasons. The most important are to minimise barriers for small businesses seeking the benefits of incorporation. He also spoke on the need to encourage efficient and innovative management of the companies by conferring on directors a wide discretion in matters of business judgement, at the same time having an effective control by shareholders and creditors against abuses of such management. He added that it is important not to impose unnecessary limits on the ability for small business enterprises to structure those ventures.

The reforms should also make provision for the possibility of rehabilitating business facing temporary difficulties and to provide simple, quick and fair procedures for realising and distributing effects of defunct companies.

"These reforms have not been suggested for the sake of change," Jayawardene said, adding that the Minister of Trade and Commerce, Jeyaraj Fernandopulle called for the creation of an Advisory Commission on Company Law to recommend changes to the Companies Act which he feels are very necessary.

Some of the proposed reforms pertain to special provisions for private companies. Jayawardene explained that at present, the large number of companies that fall into the category of private companies has created the need to provide a legal network in order to encourage the incorporation of such corporate bodies and to effectively regulate those.

In the new draft of the Companies Act, suggested changes aim to enhance the ability of a private company to take business risks and enable them to obtain equity participation from willing investors or distribute ownership more effectively through a partnership or a non corporate structure.

Jayawardene also spoke on proposed changes to single shareholder companies, simplifying the incorporation process by introducing one constituent document, minority buy out rights, financial assistance by a company to acquire its own shares, the establishment of a companies’ disputes board and a solvency test regime.

Other speakers on the panel included Attorneys at Law, Uditha Egalahewa who spoke on contract on employment, trade unions and law relating to the termination of employment and Lasantha Hettiarachchi who gave a general overview of regulations applicable to foreign investors in Sri Lanka. A presentation was also made by tax consultant, Bharatha Subasinghe.

Hettiarachchi highlighting the role of the Board of Investment (BOI) as the regulatory authority for foreign direct investment in Sri Lanka and government protection of foreign direct investment.

(NG)