Transparency International Sri Lanka (TISL) calls on the State to reformulate certain provisions in the Companies Act No 7 of 2007. The recommendation is made in a Position Paper just released following an analysis on the failure of a large number of companies to re-register under the Act.
TISL believes there is ample reason to suggest a hidden agenda behind the questionable inclusion of Section 487 of the new Companies Act. The section aims at removing defunct companies from the register, and was founded on the premise that there were adequate safeguards for stakeholders. However, TISL argues that there is potential for misuse of this transitional provision by errant directors and shareholders. The lacuna in the law may be used in order to escape liability to stakeholders by simple non- re-registration of the companies.
Two years after the effective date of the Act, the process of re-registration is still ongoing and only 37% of companies have sought re-registration. TISL paper argues that section 487 could have been alternatively written and could be implemented through a more regulated process. It also makes recommendations based on accepted standards of transparency and good governance and points out steps which the State and the Private Sector can take to mitigate potential misuse, increase awareness and enforce proper implementation.
In an interview with the Daily News on Tuesday 13 October, 2009, Registrar General of Companies, D.K. Hettiarachchi said that his Department continues to publish press advertisements notifying companies to re-register giving a grace period of six months for the companies mentioned in the respective notice. The grace period for the companies in the latest advertisement will end on March 29 next year.
TISL Position Paper provides a timely and insightful analysis on the intention, risks posed and stakeholders affected by Section 487, and presents an interesting perspective in this regard.