Companies Act provisions archaic - Dr. H. Cabral

Sarath Malalasekera

The provisions stipulated in the Companies Act that govern winding-up or liquidation of Companies in Sri Lanka is totally archaic said Economist, Dr. Harsha Cabral PC at a seminar on Proposed Law on Revival and Rehabilitation of Companies organised by the Business Recovery and Insolvency Practitioners Association of Sri Lanka (BRIPASL) at the Holiday Inn.

"The law relating to insolvency of Companies is Sri Lanka is not contained in a separate Act as in England," he said.

Part XII of the new Companies Act deals with Winding up of Companies, the statutory process of bringing operations of a Company to a close through realisation and distribution of its assets among its creditors and contributories according to their rights followed by dissolution of the Company.

"Thus, it is clear that the provisions available make it comparatively easy to wind-up a company. A new law for corporate turn-around in Sri Lanka is needed. "

"Our laws relating to corporate turn around and insolvency would be in line with the current legislation of other developed jurisdictions."

Consequent to the preliminary studies the Council decided to go on the lines of the Indian and the English legislations, which are more familiar to the Sri Lankan legislators as well as the legal fraternity.

Providing the proper education and the training is as important as drafting a perfect piece of legislation.

Corporate crisis can trigger ill health in the corporation and the corporation can be in a state of distress. This is a common phenomenon a human or corporation may face in its life span.

The remedies have to be looked at initially on analysing the state of the sickness. In corporations whether or not a rescue can deem a success raises a further set of issues. "In fact complete success might be hard to achieve which will be a restoration of the corporation to its former healthy state."

Cabral added however, the drastic actions that rescue necessarily involves in corporations include inevitable changes in the management.

"These changes can be made in various forms, restoring, reorganising, restructuring, refinancing, downsising, partial selling-off and the like, depending on the circumstances and the legal frame work the company is subjected to.

A good, precise, clear and a modern system of insolvency law should provide a means for preserving viable corporations capable of making a useful contribution to the economy, the life blood of a country.