Transitional Confusions in Company Law
by Ananda Sirisena (Reg. Company Secretary) – 2007
There were two legislations in Sri Lanka, prior to the current Company Law enacted as Act No. 7 of 2007. The first was the Companies ordinance (cap 145) of 1938, and the second was the Act No 17 of 1982.
Identification of the type of a company incorporated under the Ordinance as to whether it is a Public or Private Company was not possible from the name itself without further enquiry, to its reference number, Certificate or the relevant provisions in the Articles, because all the Companies had names ending with “Limited” only in general. Public Companies had a prefix PBS while the private Companies carried PVS with the number denoting the type. The 1982 Act required all private companies incorporated there-under to carry the word “(private)” in their names before the word limited. Thus, the new Companies were identified by the name itself as to whether they are private or public. However, the names of private Companies incorporated under the Ordinance remained unchanged making it necessary for one to understand whether a particular Company is private or public, by making further enquiries to reference number, certificate or the Articles.
The Ordinance and the Act of 1982 did not have many complicated changes from one to the other. Especially the forms used for various purposes were more or less the same. For instance, the “Form 48” (list of Directors) had only some change in its content only, by adding the Secretary’s name, address etc… Thus the “Form 48”, under the Ordinance and the Act remained same by reference; the document ‘48’ is required for many purposes. The form 36 carrying the registered address of a Company also remained unchanged in its reference as Form 36, both under the Ordinance and the Act.
The transitional confusion is in the minds of Directors and other executives of the Companies, Banks and other lending institutions with regard to change over from the earlier Ordinance and the Act to the New Companies Act No 7 of 2007, which required all existing Companies to re-register within one year from 02nd May 2007, on which date the Act became operative. Practical aspects of changes subsequent to this date must be understood by all concerned.
A large number of Companies were re-registered before date stipulated by the Act, and in response to notices of the RGC thereafter. Everybody thought that once the re-registration application with the relevant charge is submitted, they would receive the new registration certificate soon. The RGC correctly imposed a condition that to issue the ‘New Certificate’ the Company must ensure that the file should be updated. This made several thousands of Companies to file their Annual Returns up to 2008. Some Companies had over 10 or more years of arrears to cover in Annual Returns alone. The Annual Return under old legislation – “Form 63” was replaced by “F 15” of the new Act. Similarly, the most commonly used forms 48, 36 of old and new companies were replaced by forms 20 and 13. The Companies which had to update the files were required to use the new forms bearing different numbers instead of the old.
In the case of Companies incorporated under the act No 7 of 2007, the “Form 1” contained the necessary data one has to know about it. This document carried the name and address of the Company; and the names and addresses of Directors and the Secretary.
With the lack of knowledge of such transitional changes, and practical situations the Companies faced, some of the executives of banks and other lending institutions, still ask for the irrelevant documents. Most of them don’t seem to recognize the Form 1, and asked the new Companies to bring 48 and 36 to open banking Account. Some, who knows something of the new Act, insist on Form 20 of re-registered Companies, when 48 and 36 (which is still valid unless a change has taken place), of an old Company are presented, for transaction of a business or for the purpose of updating their records. Differences, but not discrepancies are often queried.
A private company incorporated under the ordinance, for example carries its name as ABC Limited, and after re- registration under the new Act it becomes ABC (Private) Limited. If there had been no changes since the last, the forms 36 and 48 filed under old ordinance or the Act would still be valid even after the re-registration. When perusing the 36, and 48, one would find name of a Company in New Certificate is changed with the addition of the word ‘(private)’as compared to that of 36 and 48. Since the Certificate carries the Old and New Numbers assigned to the Company and the forms indicate only the old numbers there appears no confusion in accepting as they are. Unfortunately, in many cases failure to understand this without queries often waste time when arriving at decisions.
Memorandum and Articles of the companies incorporated under the old legislations, and the Articles of Companies incorporated under the 2007 Act have to be treated as one document “The Articles”. Provisions with regard to major transactions spelt out in the “Memorandum” are very often ignored by some and new resolutions are passed for the purpose.
Similar situation has arisen with regard to the understanding of Stated Capital and value of shares as well. Provisions in the old legislations and the new Act on this issue too are often misunderstood by many.