‘Shareholders have major say under New Companies Act’

Ruwanthi Abeyakoon

LEGISLATION: Society itself has an interest in the conduct of companies because it plays a vital role in economic development, Judge of the Supreme Court of Sri Lanka, Justice Saleem Marsoof, P.C. said at the seminar on `Stakeholders’ interests- mandatory governance in terms of Companies Act’, organised by the Institute of Chartered Secretaries and Administrators.

“The shareholders are the primary stakeholders of the company. There are others such as employees, creditors, suppliers and customers who have a stake in the affairs of the company.

The New Companies Act prohibits a company from entering into a major transaction which is not expressly authorised by the original Articles of Association, unless it is approved by, or contingent on, a special resolution or is consented to in writing by all the shareholders of the company,” Justice Marsoof said.

He also said if the shareholder is uncomfortable with the company, the shareholder may require the company to buy his shares in accordance with section 94 of the Act at a fair price. “The main objective of this provision is to enable the majority shareholders to have a greater say in the business activities and direction of the company,” he added.

“Another innovative feature of Sri Lanka Companies Act is the establishment of a Companies Dispute Board.

This is an organ, which is expected to take all necessary conciliatory efforts to resolve a dispute relating to a company, without having to go to court and obtain interim relief which in effect virtually cripples the normal operations of a company,” he explained.

He pointed out that good corporate governance requires internal control mechanisms, policies and transparency.

CEO, Colombo Stock Exchange, Surekha Sellahewa said corporate governance is not about complying with rules and regulations.

“Corporate governance must be a mindset. Finding qualified and competent directors, continuing education of directors, evaluating the performance of the Board, especially independent directors, independence of Directors in relation to compensation and maximum number of Board membership are some of the challenges in implementing,” she said.

“Corporate governance is a system by which companies are directed and controlled.

It will attract foreign investment, improve accountability, transparency and openness and protect the rights of shareholders,” she added.