Financial Times

Govt. inaction delays new Companies Act

The lack of coherent government policy is seen as the reason for the recent shelving of the proposed Companies Act, which had been in the draft stage for the past seven years.

Arittha Wikremanayake, former Director General of the Securities and Exchange Commission (SEC) and senior partner of Nithya Partners, said that the latest decision to incorporate English law into the new Act was puzzling, since Britain was now a part of the European Union, and the concept of English law was diminishing.

"We might as well wait until the EU drafts a new Companies Act in the next 2-3 years and directly enact it in Sri Lanka, rather than keep drafting laws and shelving them later," he told a seminar on the new amendments to the SEC Act, organized by the Corporate Lawyers' Association.

Wikremanayake said that those involved in corporate and stock market activities should play a more activist role in getting a new Companies Act.

"Your'll are the ones who have to work with this outdated law. You should be out there protesting for a new Companies Act, because unlike the SEC Act which is only a procedural law, the Companies Act is the substantive law."

Wikremanayake called for a new Companies Act that is in harmony with the existing procedural laws, which will help create a level playing field for both listed and unlisted companies. "Unlisted companies are not required to publish quarterly financial reports unlike listed companies, but I think it's important."

He denied the fact that listed companies were over regulated by having to comply with regulations made by the Colombo Stock Exchange and the SEC in addition to adhering to the provisions of the Companies Act and the Registrar of Companies.

There had been occasions of bad regulation, which can be attributed to human error but not over regulation, he said.

Unlisted companies appeared to be unregulated because of the inefficiency of the Registrar of Companies.

Kithsiri Gunawardena, Director Legal and Enforcement of the SEC, said that with the new powers vested in the SEC to compel attendance of persons to provide information and seize documents, investigations would be carried out more efficiently and quickly.

Asked why the SEC did not draw up guidelines to prevent the offence of insider dealing by giving advice on when shares could be traded, Gunawardena said that it was impossible to draw such guidelines.

But, he said, the ideal situation was for the director to wait until the price sensitive information was disclosed, or to trade six months after he was privy to such price sensitive information.

If directors were in doubt as to whether the information was actually price sensitive, they should refrain from trading their shares. (SG)