Senator Applauds New Bill Seeking To Repeal Companies Act

A new Bill which seeks to repeal and replace the present Companies Act has been applauded by Senator Noel Sloley, who has predicted that as a result of the numerous changes to the Act, there would be increased shareholder confidence, and encouragement for local and overseas investors, especially in the country’s capital market.

Speaking in the Senate yesterday (February 27), following the tabling of the Bill by Leader of Government Business, Burchell Whiteman, Senator Sloley said the updated Act would encourage more companies to go public, ensuring a wider distribution of wealth, additional wealth creation and another area for funds to be invested in, as interest rates declined.

Describing the Act as another tool to improve corporate responsibility, he said it had many positive features to make life much easier for the businessman and increased the protection to shareholders in public companies.

“The Bill seeks to bring laws relating to companies in line with more modern trends. They have been substantial in the number of changes,” he added.

The legislation exempts certain small private companies from the requirement of conducting annual audits, in recognition of the onerous costs which annual audits may entail, a feature which Senator Slolely said he fully supported.

Under the new law, a company can now raise financing through redeemable shares. Prior to this, apart from the issue of ordinary shares, a company could raise money through the issue of preference shares and give these shareholders preference in payment over ordinary shareholders. “This preference was not always desirable, depending on the financial state or plans of the company,” he noted.

He also praised the simplification of the company formation, while acknowledging concerns which were raised by Leader of Opposition Business in the Senate, Senator Anthony Johnson regarding the issue of single shareholders.

“What this is doing is recognising what has existed for a long time and removes the fiction that people indulge in, of naming another person just for the sake of having two shareholders and as you know, oftentimes the second shareholder would hold only one share and had nothing to do with the running of the company,” he said.

Senator Sloley also supported stricter duties of skill and care for directors in undertaking their fiduciary responsibility. “This will provide greater protection to the shareholder, in particular, and is in keeping with the growing trend in corporate governance for there to be a higher standard in the manner in which directors of companies operate in their role as directors,” he said.

He said the changes to the Act allowed mutual funds to now come into existence by exempting them from the requirement of issuing prospectus each time these companies invited subscription for shares or share offers to the public. “This is a practical provision as the issue of prospectus is a time consuming and costly procedure,” he remarked.

Senator Sloley used the opportunity to divulge that two companies had so far signalled their interest in opening up mutual fund entities in Jamaica and that this would have a major positive effect on the country’s capital market. “It is going to create a major demand for shares of successful companies and it is going to encourage many new entities to go public,” he said.

He also commented on the fact that the new law recognized the change in the mode of modern communications in the business environment and made it possible for companies to hold valid meetings by telephone or other communicating facilities, as long as the mode of communication permitted all persons participating to hear.

The Bill also makes provisions for extensive rules to be made with regard to the preparation of balance sheet and profit and loss accounts and setting out the required formats. In addition, the Bill which contains 396 clauses, expressly provides that redundancy payments owed to company employees on winding up, constitute preferential debts, regardless of whether the payment falls due before or after the appointment of a receiver.

Debate on the Bill will continue next week in the Senate.