By Dennise Williams, Staff ReporterTHE NEW Companies Act 2004 which is set to replace the existing Companies Act of 1965 and considered to be revolutionary in some of its aspects, was examined at the PriceWaterhouseCoopers & DunnCox seminar held at the Jamaica Conference Centre on April 7.
The theme of the seminar was 'The Companies Act Overview and Implications for Business.' Keynote speaker at the event, the Honourable Justice Ian Forte, president of the Court of Appeal stated, "The legislators should be commended for enacting this legislation. Even though this was a long time coming, this new 389-page Act will go far in protecting shareholders and creditors."
INCORPORATION
During the seminar, staff members of the law firm of DunnCox (DC) and the accounting and auditing firm PriceWaterhouseCoppers (PWHC) highlighted some of the implications of the Act.
Tracy Campbell, manager of PWHC subsidiary Duke Corporation, and Janelle Muschette, an associate of DC, spoke on the 'Formation and Capacity of Companies.' In this regard, the new Act expands the concept of what a company can do and who can form one. In recognising the importance of small businesses, an important feature of the 2004 Act is the recognition of a 'one man' company.
CONSIDER THESE NEW FEATURES.
A single document, the Articles of Incorporation, replaces the Memorandum and Article of Association (previously, you needed both documents).
The Articles of Incorporation will be simpler and a shorter document.
The Stamp Duty payable under the 2004 Act should now be the same as in a deed, at present $100.00.
In the Companies Act of 1965 assessed the Stamp Duty on an ad valorem basis, that is, the more your firm was valued the more you paid for Stamp Duty.
One or more persons will be able to form either a public or private company. In the 1965 Act, a minimum of seven persons were required for a public company and a minimum of two persons were required for a private company.
Under the 2004 Act, private companies will need at least one director where public companies require three directors.
Authorised minimum will be $500,000 or such sum as the Minister may prescribe.
All companies will be incorporated with no-par value shares, however existing companies may elect to retain their existing shares with a nominal or par value for a period not exceeding two years. And one of the more exciting aspects of the 2004 Act is the recognition of Mutual Funds. According to the presenters, the 2004 Act facilitates the incorporation of a Mutual Fund Company and regularises the present situation, as the 1965 Act does not facilitate the operation of Mutual Fund companies.
Another interesting feature of the Companies Act 2004 is the introduction the recognition of the pre-incorporation contracts. These contracts, the presenters explained, occurred as the organisers of the firm go about the business of setting up the firm. The 2004 Act provides that within a reasonable time after incorporation a company may adopt a contract made in its name or on its behalf before it came into existence by any act or conduct signifying its intention to be bound thereby. The Companies Act 2004 also abolishes the ultra vires rule. Simply put, a company could only conduct business as prescribed in the Memorandum of Association. This is no longer the case.
Interestingly, and perhaps in response to globalisation, the Companies Act now allows a foreign country to now have the same powers to own lands in Jamaica as a company incorporated under the Act.
SHARE CAPITAL PROVISIONS
Debbie Ann Gordon, tax counsel at PWHC, and Janet Morgan, partner at DC, presented the section on Share Capital Provisions. Under the 2004 Act, there is a radical change in the concept of the nature of the shares, which a company is now permitted to issue no par shares, that is, shares in the company without a fixed value. The advantage of enabling companies to issue shares without par value, is to permit the company to issue and sell shares at varying prices, according to their current market values at the respective times of issue without regard to any nominal value for the shares previously fixed. The 2004 Act also broadens the categories of consideration for shares has been broadened to include property and past services.
Two features of the Act that possibly give more control of their shares are the legal ability to redeem shares and the option to buy back shares. Redeemable shares allow the company to offer investors a buy back option that can be financed out of the company's distributable profits or out of a fresh issue of shares for that purpose. And companies can also increase or reduce their share capital without court approval or notice to the Registrar of Companies.
COMPANY FINANCE
'Accounting, Audit and Taxation Implications' was presented by Donovan Walker, a partner at DC, Dennis Brown, a partner at PWHC and Eric Crawford, another partner at PWHC. They state that the 2004 Act recognise the important of the financial health of a firm.
SPECIFICALLY
The necessity to ensure that companies keep proper books, records and documents of accounts (and in certain instances, to disclose same and subject same to audit).
To open the directors and managers of companies to reasonable scrutiny by the owners of the company, the state (in particular the Revenue Authorities) and in the case of public companies the investing public.
To facilitate a uniformity of standard in relation to international standards of accounting and auditing.
Generally, the main legislative sources of obligations to disclose information come primarily from:
The new Companies Act, 2004
The Income Tax Act Other Acts and Regulations relating to revenue gathering
The Stock Exchange Rules
Management of Companies
Christopher Bovell, senior partner at DC, and Debbie-Ann Gordon presented the portion of the seminar on Management of Companies. During this lengthy presentation, the essence of it was the more stringent consideration given to company directors. There is increased obligation and integrity required of directors. Asked the presenters, "What besides the drawing of fees and the drinking of tea are the duties of a director?"
According to the 2004 Act, directors are expected to act honestly and in good faith with a view to the "best interest of the company". They are also expected to exercise care, diligence and skill.
Debbie Ann Gordon and Janelle Muschette, an associate at DC, looked at Shareholder's Rights. The presenters reveal that the 2004 Act is intended to widen the classes of persons who can bring personal actions against the company and widen the scope of conduct to be reviewed. The 2004 Act allows a "complainant" to claim relief from acts or omissions, which are "oppressive" or "unfairly prejudicial." Complainants can constitute current and former shareholders, current and former directors and officers and current and former debenture holders of a company or an affiliated company that is "oppressive" or "unfairly prejudicial" to the complainant.
WINDING UP THE COMPANY
W. John Vassell, a partner at DC, and Wilfred Baghaloo a senior manager at PWHC, spoke on the end of a firm's life, that the 'Winding Up and Liquidation/ Turnaround Provisions.' In brief, the new Companies Act has re-enacted without change the provision of the Companies Act 1965 in dealing with the winding up of companies.
