All llan Hans Muhome me Legal Consultant April 2016 - - PowerPoint PPT Presentation

All llan Hans Muhome me Legal Consultant April 2016

+265888304274 - tmuhome@gmail.com

PART TWO

 Directors qualifications and duties  Company secretaries  Accounts and Auditors  Liquidation of a Company  Insolvency Act [peep thru only]

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

1.A De De Jur Jure Dir Director ector (a director from law) is is properly appointed to the board and registered with Registrar of Companies - A registered director. 2.A De De Fact Facto Di Dire rector ctor (a director in fact or in reality) - not properly appointed and registered but who acts as a director.

• 3. Alt

Alternat rnate Di Direct rector

• r – a person appointed by a director to act

when he cannot. 4.A Cas Casual ual Di Direct rector

• r – fills a casual vacancy that arises between

annual shareholders’ meetings coz of death/resignation. 5.A Shad hadow Dir Direct ector

• r

–

• ne

in accordance with whose instructions the Board acts or is accustomed to acting. (not a professional advisor) 6.Nomi

• mine

nee Directo ector - a shareholder/creditor/employees’ rep. 7.Execut Executiv ive (2 contracts – employee and director) and No Non- execu ecutive ive (single contract as director - Independent)

Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

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A private co. must have at least on

• ne director. Previously all

companies were required to have three three directors which is now the case for Plcs only. One director must be resident in Mw for all companies [S. 162] WHY WHY?. The CA 2013 regulates directors’ service contracts for Plcs [S. 216 -219]. Every Every company must keep a register of directors [S. 174]. Ineli eligi gible ble Persons

• ns [S. 164]

1)

A body corporate, unless for a SOC;

2)

A person below the age 18 (previously 21);

3)

For Plcs - a person over 70 (or below per constitution);

4)

An un-discharged bankrupt;

5)

A person prohibited from being a director;

6)

A person adjudged to be of unsound mind;

7)

A person disqualified by the constitution e.g. where a director is required to take up shares and fails.

Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

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APPOIN APPOINTM TMENT NT- (1) First directors are the ones named in the application for registration [S. 166(1)]. (2) Subsequent directors are appointed by an ordinary resolution [S. 166(2)]. (3) The High Court has been granted power to appoint a director where there are no directors or are not quorate [S. 167 ]. (4) The Registrar may also appoint e.g. following death of a sole director & Shareholder [S.171(9) ] RE REMOVA OVAL-A director of a Plc may be removed from office by an

• rdinary resolution at a General Meeting; a director of a Private
• co. may be removed from office by special resolution [S. 169].

VACA VACATI TION ON – may arise through non-eligibility (e.g. turns 70 for a Plc; adjudged bankrupt or of unsound mind) resignation, death

• r other qualification in the constitution.

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Being a director is easy. Being a responsible director is not. Being a responsible director means more than just acting with honesty and integrity and using talents to the company's best

• advantage. It means developing an understanding

and awareness

• f

the ever increasing legal

• bligations and responsibilities being placed on

directors, breach

• f

which can give rise to personal liabilities under the civil and criminal law and even disqualification from holding office as a director

• Charles

Russel, Di Directors rectors Responsi Responsibil bilit ities ies www.charlesrussel.co.uk 6 of 25

Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

1) Du Duty ty to to Act ct in in Acc ccor

• rdance

dance wi with th the the Cons Consti titution tution [S. 176] – Minors ill placed Masanga ngano no v Masanga ngano no (2014). S 39 Co to act intra vires. 2) Du Duty ty to to us use powe

• wers

rs for

• r a pro

proper per pu purpo rpose [S. 176] - wrong to issue shares just o alter balance of votes- Bamford v Bamford [1970]. 3) Du Duty ty to to pro romote

• te the

the succe uccess of

• f the

the com

• mpany

any [S. 177] a number of factors for consideration are provided e.g. the likely consequences

• f any decision in the long term; the interests of employees,

creditors, suppliers, customers and

• thers;

the impact

• f

the company's operations on the community and the environment e.t.c. [Triple bottom – social, environmental and financial] [CSR] 4)Duty uty to to exerci cise independent judgment [S. 178] (do not just follow what other directors opinion)

Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

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5) Duty uty of

• f care

are and and skill skill [S. 179] Re Re City City Eq Equita uitable ble Fire Fire Ins Insuran urance ce [1925] - Director to exercise average skill in accordance with his experience and skill. 6) Duty not to to accept ept benefi efits from 3rd

rd parties

es [S. 181] 7) Dut Duty to to av avoid

• id confl

nflict ict of

• f int

inter eres est [S. 180] Press esscan cane Lt Ltd v Patel Patel

• use of mgt accounts by director against his co in

court… 8) Duty Duty to to de declare clare inter interest [S. 182]. A director is obliged to declare the same to the Board of directors. Such transactions may be voided by the company within six months from the date of the declaration unless the company has received fair value under it [S. 186-194].

Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

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9) Du Duty ag again inst in inside de deal dealin ings gs [S. 194] [also Securities Act 2010] Diam amond

• nd v Ore

Oreamuno amuno (1969) [USA] -Directors who sold their shares at a higher value, knowing the next day the shares would loss their value were guilty of insider trading – had to refund difference. 10 10) Du Duty ty as as to to the the company’s solvency lvency (W (Wro rongful ngful Trad Tradin ing) g) A director of a company who believes that the company is unable to pay its debts as they fall due is obliged to forthwith call a meeting of the Board to consider whether the Board should appoint a liquidator or an administrator. [S. 222(1)] and disclose the same to the Director

• f Insolvency (if Plc)[S. 11 Insolvency Act 2016].

11 11) Du Duty ty to to co comply ly wit ith the the co code de of

• f cor
• rpora

rate te gove

• vern

rnance ance The Act has adopted the ‘‘comply or explain’’ UK approach. It provides that the prescribed code is only directory in nature but the Court, the Registrar or any authority is entitled to have regard to it.

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

Remedies for breach of directors statutory duties are the same as those for common law [S.185(1)] they include:-

• 1. Removal of the director from office;
• 2. Liability to compensate the co. for any loss;
• 3. Account to the co. for any profit made;
• 4. The contract or other transaction may be rescinded by the co.
• 5. The co. may obtain an injunction against the director’s breach;
• 6. The director may be ordered to pay a fine or be imprisoned in line

with the provisions of the CA 2013. [General fine K5 m S. 381 – R v Lutep tepo (2015)]

• 7. Lifting the Corporate Veil – NBM v Nya Ndovie Ker (2007).
• 8. The Minister, Registrar or the Registrar of Financial Institutions in the

case of Plcs, may appoint inspectors to investigate the affairs of a co. and breaches found may be criminally prosecuted with the consent

• f the Director of Public Prosecutions [S 331(1)] .

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

Req Requireme uirement- Under the CA 1984, every company was required to have a co. secretary which requirement remains for Plcs only [S. 68, 156] hence register of Co. secretaries remains for Plcs

• nly [S. 227]. [Financial Institutions also under financial laws].

Qualif ualifica icatio ions of

• f Secret

retar aries ies of

• f Plcs [S

[S. 225 25] A person who appears to directors to have the requisite knowledge and experience to discharge the functions

• f

secretary of the co; OR has the following qualifications:-

• 1. that he has held the office of secretary of a public co. for at

least three of the five years immediately preceding his appointment as secretary; or

• 2. that he is a member of any professional body of co.

secretaries in Malawi (IS THERE ONE?).

Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

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The Board is under obligation to cause ac accoun counting ting reco ecords to to be be kept ept that, among others, correctly record and explain the transactions of the co. and enable the financial position of the co. to be determined with reasonable accuracy [S. 229]. Fi Financi nancial al St Stat atement ents must be completed, signed by director/s for all companies [S. 245]. The Board of every co. must, within six months after the balance sheet date of the co. prepare an an annua ual repo report rt and and ac accou counts

• nts. [S. 251(2)].

This does not apply to a one person

• co. [S. 251(4)]. Shareholders of a private co. may also resolve

by unanimous resolution against this [S. 251(3)]. IS THIS ANY GO GOOD FOR INVESTOR TOR CONFID IDENCE ENCE?

Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

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No need for an Inter Internal al Auditor uditor (unless a Financial Institution under the FSA 2010 – S. 55) Req Requireme uirement - The CA 1984 required that every co. have an

• auditor. In contrast, the CA 2013 makes no such requirement for

private companies and dormant companies [S 191(1)]. Only plcs to have auditors [& Financial Institutions under financial laws]. [ICAM again argued that audited accounts instill confidence in stakeholders such as Banks, creditors, investors, MRA …] WHAT AT IS YOUR UR VIEW? DO AUDITOR ITORS S EXORBIT ORBITANT NT FEES ES JUSTIFY TIFY THIS? IS? EASE SE OF DOING G BUSIN INES ESS S IND NDEX EX? 13 of 25

Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

Appo ppointm intmen ent (1) first auditor may be appointed by directors (2) Subsequently, appointed at each annual meeting (3) The Board may fill a casual vacancy (4) the Registrar may appoint an auditor where the co. has not [S. 231]. Special rules for the appointment of a partnership as auditors e.g. one member must be ordinarily resident in Malawi; some partners must be qualified for appointment; no member of the firm is indebted to the co. or a related co. unless the debt is in the

• rdinary course of business e.t.c. [S. 233]

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

Publ Public ic Acc Accountan

• untants

ts and and Aud Audito itors rs Act Act 201 2013 [S. 25, 28] Ineligi ligible ble e.g.

• 1. An un-discharged bankrupt;

2.A convict of a disgraceful or dishonourable offence; involved in disgraceful or dishonourable conduct; [def efini inition?] tion?];

• 3. Of unsound mind;

4.One removed from a position

• f

trust for misconduct; 5.One convicted of theft, fraud, forgery or perjury; 6.A person disqualified from registration under the law.

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

CA 20 2013 13 [S. 234(2)] Ineligi igible ble e.g.

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

• 1. A director

tor

WHY – Conflict ict of Interest rest

• 2. A debtor
• 3. An employee
• 4. A liquidator/receiver of the co.
• 5. A body corporate
• 6. A related party company

7.A person who is not ordinarily resident in Malawi.

WHY?

Duti Duties es – avoid conflict [S. 240], Duty to make a report to shareholders [S. 241] – Accounts to be signed in the name of the firm + name of

• f auditor

tor [S. 233(5)] Content ents of

• f Report
• rt:-
• 1. The scope and limitations of the audit;
• 2. Whether the auditor obtained all info. & explanations;

3.Whether, in the auditor's opinion, the financial statements give a true and fair view of the matters covered and where they do not, the respects in which they fail to do so; 4.Whether the financial statements have been prepared in accordance with Inte Interna rnational tional Financ Financia ial Repor Reporti ting ng Sta Standard ndards (IFRS) and the CA 2013. An auditor is required to carry out the audit in accordance with Inter ernat atio ional nal Stan andards dards on

• n Auditi

iting ng.

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

In Insolvenc

• lvency Act 20

2016 [S [S. 11 11] - Auditor of a public company to disclose insolvency or serious financial difficulties of the

• co. to the Director of Insolvency.

Finan ancial cial Servic vices es Act 2010 2010 –

• 1. The Registrar may require an external auditor to make

a report to him and hold a meeting. [S. 56 & 57]

• 2. Auditor to inform the Registrar of the insolvency of a

financial institution or contravention of the FSA or

• ther

laws, regulation

• r

directives

• r

condition imposed on its licence. [S. 58]

• 3. Auditor must verify returns and other reports of a

financial institution which the Registrar may from time to time require to be verified. [S. 58]

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

Rights Rights –access information [S. 242], receive notice, attend & speak at shareholders’ meetings [S. 243]. Where the board fails to comply with these requirements every director is liable to a fine. S. 20 of the Public Accountants and Auditors Act - an auditor who certifies accounts where he was denied information or does not comply with the law commits an offence and may be disciplined.

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

Li Liabi abiliti lities es – auditors are liable in the tort

• f

negligence Caparo Indus ustri tries plc plc v Dick ckma man [1990] Caparo Plc was a shareholder in a co. It purchased more shares in the co. Later brought an action against the auditors

• f

the co. for negligent

• verstatement of the pre-tax profit of the co.

IS TH THE CLAIM M SUSTA TAIN INABLE BLE IN COU OURT RT?

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

House House of

• f Lo

Lords rds held held that the work done by the auditors was for the benefit of the co, that is, not for the benefit of individual shareholders but for the benefit of the shareholders collectively. Therefore, no duty of care was owed by the auditors to outside investors who may see the accounts before buying

• shares. Nor, for example, was a duty of care owed by

the auditors to a bank which was considering lending money to a company on the basis of the audited

• accounts. Further, the auditors did not owe a duty to

existing individual shareholders. But a ‘special relationship’ may exist between the auditor and a third party.

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

Repla Replace ceme ment of

• f an

an Audi uditor tor - security of tenure [s 238(1)] a co. shall not remove or appoint a new auditor unless given 28 days' written notice and the auditor given

• pportunity

to make representations (oral/written) to the shareholders [Co to pay for the same]. In respect to an auditor of a financial institution, his removal before expiry of his term only becomes effective on approval from the Registrar of Financial Institutions [s. 60 FSA]. Resign Resignat atio ion

• Where an auditor gives the board written notice

that he does not wish to be reappointed, the board must, if requested to do so by that auditor, distribute to all shareholders and to the Registrar, at the expense of the co., a written statement of the reasons. An auditor may resign prior to the annual meeting by giving notice. 22 of 25

Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

The CA 1984 provided comprehensively for winding up of companies under Part XII and the Winding Up Rules. The CA 2013 has departed from that scheme. The law

• n

winding up

• f

companies will now be governed by the Insolvency Act, 2016 which will apply to all companies incorporated or registered under the CA 2013 [S. 329,330]. The Insolvency Act has however maintained the modes of winding up namely; (1) Compulsory (Court order) (2) Members Voluntary (Declaration of Solvency) and Creditors Voluntary (No declaration of solvency)

Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016

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A robust insolvency system ensures the survival of economically efficient companies and reallocation of resources of inefficient

• nes. Fast and cheap insolvency proceedings result in the

speedy return of businesses to normal operation and increases returns to creditors. The Act introduces the following, inter alia:-

• 1. Office of Director of Insolvency [PS Min of Industry and Trade]
• 2. Insolvency Practitioners (Rules)
• 3. Company Re-organisation (Administration)
• 4. Receivership
• 5. Winding up of Companies
• 6. Bankruptcies of individuals (repeals the Bankruptcy Act 1928)
• 7. Individual Voluntary Arrangements
• 8. Cross-border insolvency – application of UN Com. On Int.

Trade Law (UNCITRAL)Rules. [has 355 sections]

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THANK YOU FOR YOUR ATTENTION Allan Hans Muhome

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Allan Hans Muhome Companies Act 2013 Exploring Key Changes April 2016