Pointing out the many shenanigans of mining companies in creating subsidiary companies or businesses that took away the profits from the main company and hence minority shareholders, the Royal Audit Authority (RAA) had recommended legal provisions to protect them.
The new Companies Bill 2014 is expected to address this lacuna in the law among other deficiencies and missing features in the existing Companies Act 2000. It will also incorporate best international practices in business and also update the law with new developments.
The new law will provide protection to investors and minority shareholders, encourage more participation from the shareholders in the affairs of the Company and introduce very heavy penal and administrative penalties on corporate crimes.
It also aims to encourage good corporate governance by streamlining the roles and responsibilities for the Board and Management of the Company and it will introduce enabling provisions for enforcement of Corporate Governance Code and Corporate social Responsibility.
The law will also streamline and make opening and closing business procedures transparent and make enabling provisions for FDI Companies. It will also establish a strong corporate regulator for effective enforcement of Companies Act and provide clear provisions for prescription of auditing and accounting standards.
The law also aims to provide for proper delineation of power among regulators of corporate sectors like Royal Monetary Authority, Royal Audit Authority, Accounting and Auditing Standards board of Bhutan, Royal Securities Exchange and Office of the Registrar of Companies.
There are new sections for protection of minority interest, against unfair prejudice by majority by intervention of court on a written complaint by the affected shareholders. This is the context of public companies with hundreds of shareholders in one company, where there is likely existence of majority shareholders or promoters with substantial control over the management of the company.
The Act has a provision for derivative proceedings against board directors for mismanagement. It can be enforced through administrative measures as well as judicial prosecution, in case of criminal offences resulting from corporate decisions of the Board.
The Act also prescribes stronger penalties for corporate crime and offences. According to the MoEA corporate bodies or companies are the biggest business establishment dealing in money and assets worth billions, on a daily basis and there is always a possibility of some criminal offences resulting out of business transactions, and affecting the interest of the company and the shareholders. Such acts by the Management or officers of the company will invite fines or administrative penalties commensurate to the value of the offence, in the provisions of this new bill.
The companies Act, 2000 had very minimum corporate governance codes imbibed in the provisions. Now the bill requires the government to develop and enforce a standard code of corporate governance for all the companies incorporated under the companies Act.
The approval of name for companies was fully dependent on the wisdom and discretion of the Registrar of Companies under the Companies Act, 2000. But now the names will be approved based on written set of criteria laid down in the law and regulations.
The removal of defunct companies, without any assets or liabilities, from the register of Companies were only left to the discretion of the Registrar under companies Act, 2000 and now this bill empowers the shareholdersand management of the company to apply for such strike-off if their company becomes defunct.
There are several ways to change the structure of Company without dissolution of the legal entity during the course of its business life. There are many circumstances which require such arrangements to be made, and such arrangements should be encouraged through very short administrative procedures with due approval and guidance from the regulator. To this end, administrative amalgamations like non-aggressive Mergers and acquisitions are to be facilitated through administrative procedure, as long as such arrangements involves no dispute among the stakeholders like shareholders, employees and the management.
The scope of the law has been broadened to recognize all legal entities created by any other laws and register them under the same registry. This will ensure establishment of a centralized registry with collection of information related to all forms of commercial legal entities incorporated outside companies Act.
The incorporation of Companies procedure under the new Companies bill is made compatible to both manual and electronic system, with migration of data to online system as and when the government is ready to establish such registry and IT infrastructure.
Adoption of legal documents for incorporation of Companies like the Articles of incorporation, which defines the scope of the company’s business, management powers and the shareholding pattern of the shareholders, has been made easy by introducing the concept of model articles. The variable like shareholding, management details and regulations are separated in forms. While forms will require variable information like shareholdings and capital to be specified, the regulations in model articles can be adopted by any company without any cost or effort.
The requirements for Company Secretary were prescribed in the Companies Act, 2000 but the qualification was not specified. To this end, the new law has defined the legal qualifications like age, mental condition and criminal background while the academic qualifications are left to the regulations to be adopted under the law.
The Bill was in the works since 2010 and though it was ready by 2012 it had to undergo consultations in 2013.