The Companies Act 2001 And The Financial Services Development Act 2001

The Financial Services Development Act 2001, the Companies Act 2001 and the Trusts Act 2001 were recently enacted by Parliament in Mauritius. It has, also, been announced that securities and insolvency legislation will be enacted in the near future. Together these form a legislative package designed to develop, and enhance the credibility of, Mauritius as a business and financial services centre.

The Financial Services Development Act 2001, the Companies Act 2001 and the Trusts Act 2001 will only come into force on a date to be proclaimed in the near future. Pending their coming into force, companies will continue to be governed by the existing legislation.

This article describes the salient provisions of the Financial Services Development Act 2001 and the Companies Act 2001.

The Financial Services Development Act lays down the first steps for the integration of the offshore and onshore business activities, and makes provision for a single regulatory authority, the Financial Services Commission (FSC), for all non-banking financial services. The objects of the FSA are to regulate the non-banking financial services so as to ensure the development of the sector in a co-ordinated and harmonised manner, to promote efficiency and transparency of financial and capital markets and to protect the consumers of financial services. The Act provides for the establishment of a Financial Services Promotion Agency (FSPA). The FSPA will be responsible for the promotion of financial services in Mauritius. Under existing legislation, the Mauritius Offshore Business Activities Authority (MOBAA) is responsible both for the promotion and regulation of offshore business activities. The FSPA has been set up to avoid any conflict between regulatory activities and promotional activities. The Financial Services Development Act 2001 also provides for an advisory body, the Financial Services Consultative Council, which will serve as a platform for discussion of developments and trends in the field of financial services.

The FSC shall be responsible for the administration of all legislation governing financial services. It will be the sole body authorised to licence, regulate, monitor and supervise the conduct of business activities in the non-banking financial services sector. Any person wishing to conduct offshore business (now termed global business under the new legislation) will require a licence from the FSC. The FSC may grant a Category 1 Global Business Licence or a Category 2 Global Business Licence. Existing Offshore Companies shall be deemed to have a Category 1 licence whereas existing International Companies shall be deemed to have a Category 2 licence.

The FSC has been given extensive powers of supervision. In addition, the FSC is authorised to issue rules, guidelines and codes or give directions for the proper conduct of non banking financial business. The FSC will also be responsible for consumer complaints in relation to providers of financial services. In respect of losses arising from the default of licensed providers of financial services, the FSC may set up compensation funds for the purposes of compensating investors or other persons who are victims of such losses.

The FSC shall take over the functions of the Insurance Division, the MOBAA, and the Stock Exchange Commission. Information in the possession of the FSC shall only be disclosed on an order made by the Supreme Court on an application by the Director Of Public Prosecutions for the purposes of an enquiry or trial relating to drugs trafficking, arms trafficking or money laundering. It should be noted that under the new Companies Act, the scope of information relating to any company carrying out business in the global business sector which is now available for inspection has been considerably increased.

The development of an offshore centre, the establishment of the Stock Exchange, and the ambitions of Mauritius to become a leading financial services centre have rendered a review of the present company legislation imperative. It is in the context of the growing realisation that the present Companies Act, enacted in 1984, is outdated that the Companies Act 2001 has been enacted. It is largely based on the New Zealand company legislation, which is generally seen as a progressive and efficient framework for the regulation of companies. The Companies Act 2001 has several objectives: - to provide an effective, efficient, responsive, user and investor friendly legislative framework for Companies, to align the legal provisions governing domestic companies with that governing companies operating in the global business centre, to incorporate international best practice, to promote accountability, openness and fair dealing, to make provision for electronic means of record and communication, and to provide modern vehicles for local and international investors to invest in and from Mauritius with confidence.

The Companies Act has been structured such that there is a core statement of company law which applies to all companies. This core statement provides the basic framework for the incorporation, internal management and winding up of all companies. A company wishing to depart from this core statement may, if so permitted, provide alternatively in its constitution so long as the constitution does not go against the Act (The constitution is a single document which replaces the traditional Memorandum and Articles of Association.).

The salient features of the Companies Act 2001 are described below:-

• Apart from the traditional companies limited by shares, two new types of companies will now be available: Limited Life Companies (which were previously only available to International Companies and Offshore Companies) and hybrid companies, which are limited both by shares and by guarantee.
• The Companies Act 2001 now permits the incorporation of one-person companies. This recognises that companies are very often incorporated with nominees but are effectively controlled by one person only.
• Under the existing legislation, offshore companies and International Companies can be incorporated simply on application to the relevant authority. This has now been extended to domestic companies, who no longer need to embody their constitutive documents in a notarial deed.
• There is no requirement for a company to have a constitution. In the absence of a constitution, the company will be governed by the Act on all matters. However, Private Companies may elect to be governed by the model form constitution provided in the Second Schedule, and all companies may find guidance in the Fifth and Eighth Schedules of the Act for the conduct of proceedings at Board Meetings and shareholders’ meetings.
• A company shall have all the powers of a natural person. A company will not be restricted by the need to state its objects, but will have full capacity to undertake any lawful business. The Companies Act 2001 therefore does away with the Ultra Vires rule.
• The existing legislation prevents a company from issuing shares which have disproportionate rights vis-à-vis each other. To give greater flexibility to companies wishing to engineer financial structures, the Companies Act 2001 does not replicate these provisions.
• It is widely accepted that the par value of a share is a historic statement which does not adequately reflect the real value of that share. Companies incorporated after the commencement of the Act are required to issue shares without any par value, unless the approval of the Registrar of Companies is obtained to issue shares with a par value. However, existing companies may continue to issue par value shares.
• The concept of dormant companies which has been borrowed from UK company legislation has been introduced in the Companies Act 2001. Where a company has no significant accounting transactions in any period, it may be declared a dormant company. A dormant company is not required to have its accounts audited and is subjected to the payment of reduced fees.
• Small private companies (i.e. companies having a turnover of less than Rs. 10,000,000) will be subject to a more relaxed regulatory regime. They will not have to appoint an auditor or secretary. Small private companies are not required to file full financial statements with the Registrar of Companies; they may file financial summaries only. It should be noted, however, that Global Business Companies are not eligible for qualification as small private companies.
• The procedure for the repurchase of company shares has now been simplified. Providing a company satisfies the solvency test, it may repurchase its own shares and reduce its stated capital. The requirement of the solvency test ensures realistic protection for creditors and minority shareholders. Domestic companies may hold up to 15% of the shares of that class previously issued by the company as treasury shares and Global Business Companies may hold all the repurchased shares as treasury shares.
• The Companies Act 2001 requires directors voting in favour of a distribution to certify that the company is able to satisfy the solvency test.
• The powers and duties of directors are set out in detail. An important innovation is the power given to the directors to make provisions for the employees of a company in the case of the company ceasing its activities. Such powers would be subject to the directors fulfilling their obligations and duties to the company first.
• Where the remuneration of a director has not been approved by a resolution of shareholders but a decision of the Board of Directors, then a shareholder may, if he considers that the payment is not fair to the company, require that a meeting of shareholders be called to approve the payment.
• All companies (except private companies whose shareholders so consent by means of a unanimous resolution) are required to keep an interests register where directors must disclose any self-interested transactions. Directors share dealings, in the case of public companies, must be disclosed to the Board of Directors and must be entered in the Interests register.
• A meeting of shareholders may make recommendations to the Board on the management of the company. Such a resolution will be binding if it is carried as a special resolution or if it is so provided in the constitution of the company. Such a management review can potentially be a powerful tool in the hands of shareholders in cases of mismanagement of the company.
• The Companies Act 2001 also provides that a minority shareholder who votes against certain specific transactions may require the company to repurchase his shares. This will strengthen the position of minority shareholders.
• Financial statements for all companies (except small private companies) must comply with International Accounting Standards. However, it should be noted that in relation to companies holding a Category 1 Global Business Licence, the requirement to prepare their financial statements under International Accounting Standards will be discharged if the financial statements are prepared under any other internationally accepted accounting standards.
• The Companies Act 2001 makes provision for electronic communication with shareholders, and allows for resolutions to be in an electronic format.

A comprehensive restatement of company law, the Companies Act 2001 is a modern and forward looking piece of legislation, which provides greater flexibility to companies wishing to adapt to the requirements of the changing commercial world. The legislative package which has been enacted provides an effective and efficient framework in which to carry out business, reaffirms the commitment of Mauritius to promote the financial services sector, and builds upon its reputation as a jurisdiction of substance.