ISSN: 1391 - 0531
Sunday November 4, 2007
Vol. 42 - No 23

Getting to know Company Law sans legal jargon

Company Law In Sri Lanka by Arittha R. Wikramanayake.

Reviewed by Romesh de Silva.

The hallmark of a great treatise is the conveyance of a complex subject simply, clearly and concisely. This can only be done by an author who has understood the subject at great depth and has truly mastered it.

Arittha Wikramanayake has achieved this in his book titled “Company Law in Sri Lanka”. He has simply, clearly and with great erudition set out, as the title indicates, the “Company Law in Sri Lanka”. It is not an explanation or a commentary on the new Act, but an exposition of the total company law in Sri Lanka taking into consideration the changes and innovations introduced by the new Companies Act. Thus, the book contains the Sri Lankan Company Law in its current form. The author draws from the old law and incorporates the changes made by the new law. He draws from authority in Sri Lanka, Canada and New Zealand. His views on the law are supported by authority. Thus, the book, in my view, is a complete exposition of the Company Law in Sri Lanka. The book is concise. Each sentence has meaning and thus has to be carefully read and understood and yet the book remains readable and understandable.

The author views the new Companies Act in a positive way and deals with several aspects of the new Companies Act. The book is useful at several levels. It provides knowledge of company law in Sri Lanka to persons wishing to be acquainted with it. It also provides a useful insight to persons interested in a deeper study of company law. It is useful to laymen, lawyers and academics alike. It is especially useful because it provides the necessary authorities and research material, particularly in jurisdictions other than Sri Lanka and England.

The book deals succinctly with all aspects of company law. The author’s clarity of thought as well as his erudition and deep knowledge is illustrated by the section titled “Corporate Veil”. The relevant portion is set out to demonstrate the lucid and well considered manner in which he deals with the various topics.

Although the rule that the corporate entity has a separate existence is usually sacrosanct, it is subject to certain exceptions. In some compelling situations, courts might “pierce” or “lift” the veil of incorporation where the corporate form is being abused or used as a sham. However, it is difficult to discern a principle of universal application as to when courts will intervene

Courts have ignored the corporate form when it has been used as a cover for deliberate wrong doing. Courts have also applied the “agency and the alter ego doctrine” on occasions where the circumstances demanded that the corporate entity should be treated as an agent of a holding company or other controlling power. The veil of incorporation has also been lifted by courts to prevent fraud. In certain situations, when companies have been part of a group, courts have looked at the business realities of the situation and treated some or all of the entities in the group as one. Courts also might lift the veil of incorporation in other circumstances, including : to determine a company’s place of residence for the application of specific statues such as tax laws; to prevent deliberate evasion of contractual obligations; to promote the interests of national security, or to ensure conformity with public policy.

However, lifting the veil of incorporation is the rare exception to the rule. Since the corporate form is a vehicle meant to facilitate commercial activity and investment, undue interference with this principle would result in unpredictability and would stifle the ability to plan business operations, negating the very purpose of the corporate form. It is therefore safe to say that it is settled law that courts will not lift the veil of incorporation without very good reason.

There are 9 footnotes in this section which support the proposition set out and 22 cases cited. Other topics in the book are similarly dealt with.

Of particular interest perhaps is the manner in which the author deals with shareholders and directors together with their respective rights and obligations. The author deals with shareholders remedies, derivative actions and minority buy outs. The author also deals with directors, their powers, duties, appointment and removal, the standard of care expected of them and the disclosure of interests. He deals with the solvency test, stated capital and distributions. His chapter on winding up is comprehensive. There are also chapters dealing with overseas companies and off-shore companies.

Towards the end of the book the author makes a bold but true assertion. He quotes the Act, which says that “in the event of any inconsistency between the Sinhala and Tamil texts the former shall prevail”. The author then says there is no reference to the English text (this is a provision found in almost all pieces of legislation). Having said so he says thus:

“Although this principle is justifiable from a legal and social standpoint, it can have startling consequences especially since the Act was originally drafted in English and closely follows existing foreign legislation”

The review of the book has increased my knowledge of company law. The book is a welcome addition to legal literature and a shining example of the manner in which books should be written.

In conclusion, it is refreshing to have a man with interests as diverse as ‘butterflies’ and ‘company law’ and the ability to write competently on both. I hope that the assurance of the author to his family that there will be “no more books” (as set out in the preface) is merely a promise to placate an irate family and no more. I am confident that the father to whom the book is dedicated is justly proud of his son. I hope to see more publications from the author.

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