Awareness and knowledge of new Companies Act vital

by Elmo Leonard

If you wish to interact in the local corporate sphere, then, do what is vital and acquire an awareness and knowledge of the new Companies Act, which will come into force shortly.

The new order will contain very important features and will be larger in content than the running rule, some provisions of which have changed drastically, Dr. Harsha Cabral PC said. Some of the persons mentioned below directly involved in the corporate world are architects in framing the new Companies Act: K Kanag-Isvaran, PC, chairman Company Law Advisory Commission; Dr. Harsha Cabral; J.M. Swaminathan, Naomal Goonewardena and Suren Rajakarier.

The local branch of The Institute of Chartered Secretaries and Administration (ICSA) International held a seminar on the new company law last week, attended largely by secretaries and directors of corporates. ICSA UK is the only professional examining body of chartered secretaries. It is the sole regulatory body which governs and lays down professional guidelines in corporate secretaryship.

The current corporate law is based on the English law of 1848. At that time, company directors in England were considered honourable gentlemen who did what was best for their corporates and the country at large. They were thus not challenged in court, it was explained to participants. In time, many amendments were brought into the English law.

At that time corporates in USA were growing and there was a diversion from the English norm. In time, the services of a Canadian expert on the subject, L.C.D. Gower was sought. Gower took into consideration the shareholder. In time, changes in company law took place in New Zealand, Australia and other parts of the world which have had bearings in the company laws applying in different countries.

It is the duty of directors to act in good faith, was one of the aspects taken up by Dr. Cabral. He must do what he believes is in the interest of the company. He can also act in the interest of a subsidiary company, he is not a director.

A director of a company shall not act in any manner reckless or grossly negligent, expected of a person of his knowledge and experience. An attorney-at-law on a board cannot be heard to say that he did not know the law.

A director can rely on information and advice, on disciplines he is not versed in. However, such reliance is subject to the director in question acting in good faith, making proper inquiries if necessary and has no knowledge that such reliance is unwarranted, Dr. Cabral said.

Some new aspects bought out by Naomal Goonewardena include:

* There will be no nominal or par value on the share

* The consideration on the issue of shares has to be reasonable to the company and to all existing shareholders.

* The consideration for which a share is issued may take any form including cash, promissory notes, future services, property of any kind or other securities of the company

* Rights of pre-emption on new issues of shares which ran pari passu or above existing shares recognised.

At the panel discussion it was made out that the compulsory payment of a dividend in accordance with profits earned by the company, following the budget, could be further completed, with the new law coming into force.

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