Janet Morrison, Legal Writer

February 1, 2008 marked the third anniversary of the coming into force of the Companies Act.

Its enactment marked the introduction of a modern company law regime after many years of protracted debates before parliamentary and Senate review committees initiated by recommendations for reform contained in a report issued by a review committee on the reform of company law chaired by the late Kenneth Rattray.

It would be fair comment for me to say that at the time the act was passed into law, it was recognised that the task was not done and there were several amendments that were urgently needed.

The task of continued review went into full gear by the Companies Office of Jamaica and a sub-committee of the Jamaican Bar Association.

Not surprisingly, that review process produced voluminous submissions for amendments which were submitted to the former minister Phillip Paulwell.

The submissions for amendments were laid before Parliament in an attempt to complete the exercise before a change of government - mindful that upon the election of a new government, all parliamentary submissions would have to be reconsidered and resubmitted.

The act came into force in early 2005, but as it transpired, the amendments were not passed, and a new government was elected in the September 3, 2007 general election.

The question therefore begs itself: How much longer will the amend-ments take this time?

Waiting for amendment

Three years have passed since the 2004 act came into force and five months have passed since there has been a change in government, but the legal fraternity and the business sector which it services have been waiting for at least one fundamental amendment to be made to the act - provision of a legitimate method for companies formed under the repealed 1965 company law to transition to the 2004 act.

This lacuna in the law exists because the current legislation does not provide a procedure by which such companies may elect to come under the operation of the new act.

A serious omission, but not seen as necessary to have sparked immediate amendments by Parliament of the day.

Meanwhile, to keep commerce rolling, the Registrar of Companies has permitted old companies to transition by a method fashioned by the Companies Office which the former minister had promised would be ratified by Parliament.

That did not happen.

Also in urgent need of reform are provisions introduced by the 2004 act, which deal with mutual funds.

Investments in mutual funds are by way of subscription for shares in a mutual fund company.

In the normal course of business mutual fund shares are continuously on offer.

The prospectus requirements of the Companies Act, contemplate normal trading companies which may occasionally offer shares to the public for subscription but do not do so on almost every business day as mutual fund companies do.

The law exempts local mutual companies from the requirements of issuing a prospectus compliant with the act's requirements as to content.

This, on the basis that it would be impractical to issue a prospectus on each occasion an offer is made to the public.

However, that exemption does not apply to mutual fund companies incorporated outside the island even though the fund may have been approved under the Securities Act.

The existing exemption to local mutual funds therefore needs to be extended to apply to overseas mutual funds.

More widely, it may be worth considering amendments which simply exempts a mutual fund, local or overseas, which has been approved under the Securities Act from complying with prospectus requirements under the Companies Act.

PAR VS NO PAR

More generally, criticisms have arisen from the fact that the former Parliament sought to retain some part of the repealed 1965 Companies Act and fit a new company law within the framework of the repealed act.

Putting the new wine into the old wineskin has proved daunting. The old approach was based on 'par value' and the new on a 'no par value' regime - each very different methods of determining the value of the shares of a company.

Simply, under the old system, the value of the share was fixed at the date of incorporation or creation, while now the value of the shares 'float' as the fortunes of the company wax or wane.

As a result of this attempt to fuse the old with the new, there are many inconsistent references throughout the 2004 Act to 'nominal value', 'share capital', 'share premium' and 'minimum premium' that need rationalising.

Finally, the insolvency provisions of the 2004 Act, adopted in whole from the earlier 1965 Act, remain unchanged.

Our company insolvency regime does not provide rescue or shelter provisions for an insolvent company.

There is no purgatory except the expensive and dilatory procedures of schemes of arrangement or receiverships.

The former government promised that a modern unitary personal bankruptcy and company insolvency regime would have been introduced after the passage of the new Company Act.

How long will it take to bring us into line with modern insolvency practice?

Every effort should be made to restart the amendment process and, indeed, to keep the reforms to the legislation ongoing, given that company law is dynamic and therefore should be responsive to the commercial needs of our country in a globalised market.

Janet Morrison is an attorney with the law firm DunnCox, Duke Street, Kingston. Email: janet.morrison@dunncox.com.