This is a short bulletin intended to highlight and summarising the salient provisions of the proposed new Companies Act for Jamaica which is currently before the Parliament. The Act, which is likely to be promulgated soon has actually been tabled since July 2001 but has been delayed for reasons which are uncertain.
The new Act, is intended to improve corporate governance, to introduce additional flexibility to financial management and to modernise the framework of company law in general. It is generally in keeping with worldwide developments in this area and is long overdue.
The Act, in its present form however, is replete with cosmetic and other errors and some contradictions, and it is hoped that before passing through the Parliament that the necessary corrections and amendments will be made.
This Bulletin summarises:
The general implications of the Act for existing companies;
The nature of increased liabilities of directors;
Capital restructuring; and
The requirements for formation of new companies.
The following are the highlights, not necessarily in any order of importance.
Minimum Capital Requirement for Public Companies
Public companies will be obliged to maintain a share capital of $500,000. This amount may be altered by government. Affected companies must obtain a certificate from the Registrar of Companies confirming that their allotted share capital exceeds $500,000. They are also required to file a statutory declaration detailing the company's capitalisation and its liability to promoters.
Shares Converted to No Par Value Shares
The proposal under the last available draft of the Act is that shares at 'par value' will be abolished (there has been some reconsideration of this issue but the matters has not been finalised). If shares may no longer be issued with a par value, existing shares are to be treated as not having a par value. In certain instances, this may create uncertainty for existing preference shares. Therefore, for the sake of clarity, it may be advisable to effect amendments to references to par value in share documentation and in company's articles where possible.
The existing practice of issuing shares at a premium will therefore need substantial review and this area mey yet be adjusted in the final Bill.
New Articles of Incorporation and Powers of Companies
Companies are to be incorporated under a single "articles of incorporation". However, the memoranda and articles of association of existing companies continue to be valid under the new Act.
Companies now have the same capacity and power to act as natural persons. Thus, companies are no longer restricted to powers enumerated in the old memoranda of association. Companies may however still validly restrict their powers by enumerating restrictions in the incorporating documents.
Contracts formed after the entry into force of the Act which are between companies and third parties will be binding regardless of any conflict with restrictions in the articles or old memorandum of association. However, directors and officers may nonetheless be liable for breaches of these restrictions.
This may generate problems vis-a-vis shareholders and creditors who may continue to rely on the memorandum to determine contractual rights. Therefore, for the avoidance of doubt, we are of the view that companies consider amending their existing memorandum to incorporate any restrictions on a company's powers which would have previously been unnecessary.
Appointment of the Company Secretary
Directors of public companies must take all reasonable steps to ensure that persons appointed Company Secretary have the requisite knowledge and experience for the position. It is advisable that this be evidenced by appropriate professional qualifications.
Although not directly applicable to private companies, it would arguably constitute a breach of the duty of care to appoint an unqualified company secretary, regardless of a company's status.
Companies must also give notice of the appointment of every new company secretary to the registrar within 15 days of appointment.
Purchase of the Company's Own Shares
Companies may repurchase their own shares provided they declare that they are not in financial difficulty. Directors are liable if they knowingly make a false statement in the declaration. Thus, due diligence is required in assessing a company's financial health prior to entering into repurchase agreements.
For certain repurchases, the company must also show that the shares vendors are not being
given unfair priority over pari passu shareholders in a winding up. Companies are also required to notify all shareholders, giving them full details of the repurchase and its implications no more than 30 days after the repurchase.