Indeed a New Companies Act simplified

New Companies Act Simplified – (Part I – a book authored by Kandiah Neelakandan, Partner of Murugesu & Neelakandan, Attorneys-at-Law and Notaries Public. Reviewed by J. Romesh de Silva, President’s Counsel

Mr. Kandiah Neelakandan has been known to me for several years, perhaps some decades; first as a worthy opponent in Court, , then as a colleague in the Executive Committee of the Bar Association of Sri Lanka and professionally in the preparation and presenting of the several cases to court. In all these endeavours he has shown very clearly qualities which are manifest in the book namely, ability, capability, conscientiousness, hard work and commitment to the cause.

This book is refreshing firstly because it comes from the depth of the author. Clearly the author has understood the subject and manifested it in the book. This is in contrast to several books written which are in reality ‘cut and paste jobs’ or only serve as “digests”.

Several books in the country written today are merely a ‘haste to publish’, ‘a necessity to add a book to curriculum vitae’ or to fulfil the old adage publish or perish. This book is in sharp contrast; it shows that the author clearly has read, understood and digested the topic and has in his own words shown a desire to share knowledge with others.

It is also timely, in that it is published at a time when several persons are attempting to grapple with the new Companies Act.

The new Companies Act brings in several innovations; Some of the more important of these innovations are: Abolition of the ultra vires doctrine; altered definition of a shareholder; rights of shareholders; duties of directors; minority buy outs; ability of the company to buy its own shares; doing away with par value; and distribution of assets dependant on the solvency test.

This law has also given statutory recognition to certain aspects of recognized law as derivative actions and the duties of directors. These topics have been aptly dealt with in the book.

The author does so by inter alia adopting the following methodology:

(1)Division of the book into chapters which deal with topics/subjects rather than a slavish adherence to the sequence of sections ;

(2)Each topic contains the relevant sections of the Companies Act so that a reader could appreciate the different provisions of the Act dealing with a subject and understand the manner in which the Companies Act deals with the topic/subject ;

(3)The annexing of formats under each topic ;

(4)The use of graphs and floor charts so that at a glance the reader can easily understand the scheme of the relevant sections ;

(5)The reference to the corresponding (or similar) sections in the New Zealand and Canadian legislation – starting point for further research;

(6)The inclusion of explanatory notes when necessary;

(7)Check list at the end of the publication.

It has an excellent summary in the first chapter which may even suffice for persons familiar with Company Law to understand broadly the new Companies Act.

The author has not ‘jargonized’ the text and has used simple language so that any reader can easily understand it.

The format is akin to a nutshell though the publication is not a nutshell. It is easy to read.

The publication is concise and to the point, not verbose which shows the clarity of thinking and the depth of understanding of the author.

Abolition of Ultra Vires

The new Act seeks to abolish Ultra Vires in relation to the workings of a company. However, the author at that point sets out the provisions of section 185(2) and has given the definition of Major Transaction which has been defined inter alia as follows:
“a transaction, or series of transactions which have the purpose or effect of substantially altering the nature of the business carried on by the company”

At this point the author puts in the following note – Although the doctrine of ultra vires is abolished under the new law and the objects are not mandatory one has to be mindful of the item (d) in the definition of “Major transaction” quoted above.

A transaction (or a series of transactions) which has (have) the purpose or effect of substantially altering the nature of the business carried on by the company cannot be entered into without the approval or ratification of at least 75% of the shareholders unless it is included in one of the objects (included in the Articles).

Therefore it may be prudent to have a set of objects to cover all the anticipated businesses.

On the previous page, the author sets out that a major transaction has to be approved by (or is contingent on approval) by Special Resolution.

Thus, it becomes clear to the reader that ‘in practice’ the Ultra Vires doctrine is not altogether abolished. The juxtaposition of the relevant sections makes this clear to the reader.

Definition of Shareholder

In Chapter 12 the author sets out the meaning of shareholder as per section 86 of the Act. In the same chapter, the author refers to section 232 which gives a different meaning to the term shareholder.

Thus, the same Act defines shareholder in two separate ways though the definition in Section 232 is confined to actions in terms of sections 224 to 228 of the Act (Minority Right actions).

The placing of these two sections in one chapter brings into focus these two ways in which a shareholder has been defined in the Act.

It is interesting to note that in the new Act, a person to whom a share has been transferred and whose name ought to be, but has not been entered in the register is recognized as a shareholder. The old Act restricted a shareholder to a person whose name appeared in the Register.

Thus, a certified extract of the Share Register will determine who a shareholder is. The new Act may give rise to several contentions as to who a shareholder is which may be another matter to be decided at the threshold stage.

These are but two examples to illustrate the importance of the methodology of the author’s work. The whole book is arranged in this way.