New Act Provides Appropriate Environment for Local and Foreign Investments
18 November, 2015KHARTOUM (SUDANOW)—The previous Companies Act which was valid until last July was promulgated in 1925 and was not amended over 90 years and for this reason it became incompatible with the investment and economic developments that occurred in the country.
The shortcomings of that Act were apparent in practice, something which had an adverse impact on efforts for attracting both local and foreign investments. This situation helped former Justice Minister Mohamed Bushara Dosa to succeed in passing the new Companies Act which has become effective as of last mid-July.
Jurists and economists reviewed the advantages and disadvantages of the new Act in a workshop that was recently organized by the Information Administration of the Sudanese Banks Association which is one of the institutions that are concerned with the Act.
Former Justice Minister Abdulla Idriss began his paper in the workshop with criticism of the 1925 Companies Act which he said was exclusively based on the English companies act irrespective of the economic, social and doctrinal disparities between the two countries. It permitted usury `by allowing the companies to issue first-rate shares which earn annual profits in a specific percentage and oblige the shareholders to pay profits in cases of delaying payment of the values of the shares, said Idriss.
He added that the obsolete Act contained provisions which made some of the investors refrain from registering their businesses as companies of limited responsibilities. It also ignored numerous rules that control activities of the companies, making the Sudanese courts rely on the English judicial precedents in issuing judgments on disputes about which no provision was mentioned in the Act, the former Justice Minister said.
Idriss added that the new Act ensures stability of transaction with the companies and provides an appropriate environment for attracting local and foreign investments. He said the new Act retained the provisions of the
Previous Act which do not contradict the Islamic Sharia principles and which practically proved consistent with the Sudan's economic and social conditions.
He pointed out that the new Act facilitates the procedures of registration of companies as its article No. 15 provides for granting the registrar the registration authority but not the authority of acceptance or rejection; it, rather, obligates him to register the company whenever that company meets the terms exclusively stipulated in that article. Article 7 of this Act introduced a new type of companies known as limited responsibility company with a guarantee, Idriss said. This article specified the legal controls of registration and management of the company, he said, adding that paragraph 2 of article 9 stipulated as a condition approval by the court of the validity of amendment of the purposes of the company and avoidance of the resulting negative impact. Article 17 granted the company the right to introducing any amendment in its purposes and the amendment will become effective in case no objection is made against it in three weeks' time by shareholders who possess 15% of the paid capital, Idriss said.
He added that the new Act has addressed the negative aspects accompanying the control and organization of the activities of the branches of the foreign companies registering in Sudan. It has also addressed the floating mortgage problem as article 102 provided that any other floating mortgage should not be registered in the mortgaged assets if the contract of the previously registered mortgage provides for this, Idriss said. Article 105 of the new Act has obligated the companies to lodge with the registrar a copy of the contracts of insurance and acquisition mortgages which are given to other institutions so that the financing bodies will be in a position to know the volume of the company's debt before agreeing to finance in return for a floating mortgage, the former Justice Minister said.
As regards liquidation of a company, according to Idriss, the new Act addressed the negative aspects, especially those connected with the voluntary liquidation which in the obsolete Act which offered dishonest persons the opportunity of taking other persons' money away illegally. The articles of the new Act granted the liquidator wide powers without placing terms of qualification or specifying controls that govern their behavior, as article 203 of the Act stipulated stern terms for completing the voluntary liquidation procedures, Idriss said. He explained that these terms include one that obligates the majority of the members of the Board to sign, one month ahead of the date of issuing the liquidation decision, an authenticated acknowledgement confirming that the company is capable of repaying all of its financial obligations in a period of time that does not exceed one year from the start of the liquidation process. On failure of repayment, the members of the Board will be considered as committing the crime of false acknowledgement and each of them will be subject to a punishment of imprisonment of up to seven years, Idriss said.
Article 178 of the new Act provided that the person who is officially appointed as a liquidator must possess certain qualifications and article 252 granted the registrar the authority of appointing the liquidator and instructing him to deposit the liquidation proceeds in a bank account under his supervision, the former Justice Minister said.
Amirah al-Amin Mustafa, Director of the Legal Administration of the Investment Bank, spoke about the features of the new Act, indicating that article 7 of it has introduced a new type known as a guaranteed company of a limited-responsibility and defined controls for its registration and management with the purpose of encouraging and promoting sciences and arts or conducting philanthropic tasks and, therefore, it should not distribute any profits to its members. In case of a violation of this rule, all of its members and board of directors who have been aware of the violation will be responsible, individually and collectively, and have to pay all debts and obligations of the company, Ms. Mustafa said.
Article 10 has specified the standards of holding and dependence of the holding companies as there was no previous provision on this and has stipulated that, for a company to be holding the dependent one, must be controlling the board of directors of the dependent company or holding more than half of its voting strength, or owning more than half of the shares issued by the dependent company and, lastly, the dependent company must belong to a company that is dependent on the holding company, she said.
Ms. Mustafa added that the new Act also addressed a problem which prevailed in the previous Act of 1925 which did not mention amendment by the company of its foundation contract under a special decision and this amendment would be valid if it is not opposed by shareholders who own more than 15% of the shares during a period that should not exceed three weeks from the date of issuing the special decision.
If it is opposed, the court must notify the creditors whose interests are affected by the amendment in an announcement that is published in the gazette and on the economics page of three daily newspapers over three consecutive days, Ms. Mustafa said.
She added that article 21 of the Act also granted the company the right of amendment or addition of any new provisions which will be considered as if they have originally existed in the register and this should also be made by issuing a special decision too. The company must lodge this amendment with the commercial registrar and the amendment will come into force from the lodging date, Ms. Mustafa said. She added that article 25 of the new Act cancelled the similarity as a basis for rejecting the name of the company as in the past it was considered that concordance of more than two words in the proposed name of the company with the name of a previously registered company would provide a reason for rejecting the registration.
The Legal Consultant of Shaikan Insurance Company, Al-Basiry al-Fakki, has criticized some of the articles of the new Act, noting that article 5 provided that the company may be founded by two persons and more without specifying the legal age, something which he said contradicts the criminal liability.
Fakki said the new Act made the private and public companies equal as it has stipulated that the private company may consist of more than 50 members and that the shares may be transferred, thus removing the difference between the private and public companies.
He added that article 26 provided that the company may change its name only six months ahead of the liquidation, considering this as a short period that would not preserve the rights of the creditors.
Fakki said that the outstanding positive aspects of the new Act include differentiation between the dependent and holding companies, addition of a new article obliging the banks and insurance companies to observe the directives and decisions of the Islamic Sharia monitoring bodies if those directives and decisions contradict the articles of the Act.
He said another positive aspect of the new Act is that it has prohibited any person who has been convicted of a crime relevant to money laundering or financing terrorism from being a member of the company or its board of directors.
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