Corporate Liability under the Companies Act 2015 - PowerPoint Presentation

Slide1

Corporate Liability under the Companies Act 2015Slide2

Introduction

Corporate Capacity

Who has the authority to make decisions for and legally bind the Company?

What is required for a Company to assent to transactions?

Company’s Liability – Civil and Criminal

RegulatorsSlide3

CORPORATE CAPACITYSlide4

Corporate Capacity

Previously a company was empowered by its Memorandum of Association.

Now, Memorandum of Association is NOT allowed (section 46).

Capacity defined by section 44

A company has “the legal capacity and powers

of an individual

both in and outside Fiji”Slide5

Corporate Capacity …cont

Section 44

Capacity to sue and be sued

Power to own and dispose of property

All the powers of a natural person plus corporate powers

Companies also have special features that natural persons don’t

Issue of shares and charges in respect of dealings with other persons

Liability of members is limited to amount unpaid on shares or the dollar value of a guarantee

Power to create a floating chargeSlide6

The decision making hierarchy Slide7

Corporate Governance

Members appoint Directors who are responsible for the strategic direction and control of the Company

Management carry out the day to day running of the company and are responsible to the Board

Rules of Corporate Governance to ensure robust decision making, compliance and accountability. Includes requirement for external auditors, Risk Management Frameworks etc.Slide8

Board Of Directors

appointed by shareholders.

responsible for the strategic direction and control of a company. This includes oversight of the structure of the organization, setting and approving of business objectives, strategies, plans, risk management and compliance with regulations.

Board also appoints the Managing Director or CEO and carries out succession planning

Boards of public companies maintain investor relations – communications and plans for disclosures.

Distinct from management (although employees/CEO may also be appointed as Directors)

“The Board of Directors manages the corporations business and formulates business policy. Shareholders elect the members of the Board for this purpose, retaining for themselves the right to decide only the most fundamental issues such as major changes in capital structure. Officers of the Corporation act, in effect, as agents or delegates of the Board, their essential role being to carry out Board

decisions”

Henry

Bosch “Corporate Practices and Conduct” (3 ed)Slide9

MD/CEO -Executives

Responsible for the day to day operational running of the Company

Implement the decisions of the Board

Are accountable to the Board – report at regular Board meetings and seek Board approval where requiredSlide10

Assent to Transactions by a CompanySlide11

Common SealA Company is no longer required to have a common seal (section 52).

Not prohibited but no longer mandatorySlide12

Power to make contracts on behalf of a Company

Documents may be executed by 2 Directors, a Director and Secretary and if a sole director company, that director. (section 53)

Where a document is signed in accordance with section 53, a person may assume the document is duly executed by the Company (s54(10(e

))

Other Assumptions

Express Authorisation

Powers of AttorneySlide13

Validation and Ratification of Defective Transactions

Pursuant to section 45, no act of a company, including entering into agreements, transfer of properties is invalid only because the Company was without the capacity to do the act.

BUT

Member can take proceedings against Company or Officers in respect of defective transactionsSlide14

LIABILITYSlide15

Company’s Liability for Civil & Criminal Wrongs

A company can be prosecuted for a criminal offence as well as sued for civil liability in respect of the same conduct (s642-644)

Directors can also be held liable both in civil and criminal law for breaches of Directors dutiesSlide16

Directors Duties

Duty to act within powers (s104)

Duty to promote the success of the Company (s104)

Duty to exercise independent judgment (s105)

Duty to exercise reasonable care skill and judgment (s106)

Duty to avoid conflicts of interest (s107)

Duty to declare interest in a proposed transaction or arrangement (s109)

Duty not to accept benefits from third parties (s108)Slide17

Directors duties which attract criminal sanctions

Directors may be criminally liable for a breach of the following duties:

Section 104 – Duty to promote the success of the company

Section

105 - Duty to exercise independent judgment

Section 107 -

Duty to avoid conflicts of interest

Section

108 - Duty not to accept benefits from third parties

Section 109 -

Duty to declare interest in a proposed transaction or arrangement Slide18

Offences under the Companies

Act

The Companies Act creates offences under various parts of the Act, including Parts 42 and 43. Offences may attract civil or criminal penalties and include:

Insider Trading (part 42)

Offences in relation to a market (sections 648-654)

Misleading or Deceptive Conduct (s655) – Civil liability only

Offences in relation to Disclosure Documents (sections 658-661)

Offering securities in breach of the Act – s667

False or misleading statements – s668

False Information (s669)Slide19

How proceedings are taken

Charge, complaint or application can be laid by the Registrar, the AG, the DPP or other person authorised by the Minister OR the RBF for parts of the Act the RBF is responsible for administering (s631).

Criminal proceedings have to be brought within 5 years (s632)Slide20

Civil Penalties

The Act creates certain civil penalty provisions. These are:

Division 3 of Part 10 (directors duties)

Part 18 (transactions affecting share capital)

Part 32 (Financial Reporting)

Division 5 of Part 38 (Offences antecedent to or in the course of winding up)

Part 42 (Insider Trading)

Division 3 of Part 43 (offences in relation to the Market (other than insider trading)

Section 637 – A declaration of a contravention by the Court is conclusive evidence of that contravention.Slide21

Civil Penalties - continued

S638 – A Court can order payment of up to $200,000 in respect of each contravention as a “pecuniary penalty” if the contravention:

Materially

prejuduces

the interest of the Company or Managed scheme: or

Materially prejudices the Company’s ability to pay its creditors; or

Is serious

Penalty is payable to the Registrar

The Court may also order compensation to persons who have suffered damages (s639)Slide22

Corporate Criminal Liability – Crimes Decree

Corporate criminal liability is legislated by Part 8 of the Crimes Decree 2009. The Decree hold bodies corporate liable for criminal acts carried out by employees in certain circumstances.

A body corporate can be prosecuted and convicted of any offence under the Crimes Decree, “as long as the employee, agent or officer of the Body Corporate acted within the actual or apparent scope of employment” Slide23

The circumstances under which a body corporate can be held liable for criminal activities of its employees or agents include:The Body Corporate’s Board of Directors (defined as the body exercising the executive authority of the company )

intentionally, knowingly or recklessly

engaging in the relevant conduct or

expressly, tacitly or impliedly authorizing or permitting

the commission of the offence: or

A high managerial agent

(defined as an employee agent or officer with duties of such responsibility that his conduct may be assumed to represent the xx) of the Body Corporate

intentionally, knowingly or recklessly

engaging in the relevant conduct or

expressly, tacitly or impliedly authorizing or permitting

the commission of the offence: (and the Body Corporate did not exercise due diligence to prevent the conduct) or

A corporate culture (defined as “attitude, policy, rule, course of conduct or practice existing within the Body Corporate or part of the Body Corporate) exists within the Body Corporate that

directs, encourages, tolerates or leads to noncompliance

with the relevant provision;

The Body Corporate

fails to create and maintain

a corporate culture that

requires compliance

with the relevant provision.

Where negligence if a fault element, the Body Corporates conduct may be held to be negligent if viewed as a whole.( evidenced by inadequate corporate management, control or supervision or failure to provide adequate systems of conveying relevant information to relevant persons)Slide24

Mitigants to Criminal Liability

Robust Policies, including whistleblower policies which allow processes for anonymous reporting of allegations of non-compliance.

Implementation strategies

Training and Orientation processes

Compliance and internal Audit/Risk Programs

Complaints/Grievance and System of sanctions that is appropriate to the Organisation.

“

Corporate bodies must be able to identify particular areas of the law which are likely to see offending by its employees, agents and officers

” (

N Shameem -

“Legal Challenges and the Banker – The Way Forward in 2012

”

)Slide25

RegulatorsSlide26

Investigation and Information Gathering

The Registrar of Companies and the Reserve bank are given wide powers of investigation and information gathering. (part 44)

Powers:

General Powers of Investigation

Information Gathering

Powers may be exercised in relation to a suspected contravention of the Companies Act or another law that involves the management or affairs of a Company or involves fraud or dishonesty in respect of a company

Section 686Slide27

Can also make enquiries where it suspects a liquidator has not faithfully performed his/her duties or “ as it thinks expedient for the due administration of the corporations legislation” (s686(3) & (4))The Minister may also direct the Registrar or RBF to investigate any:

Alleged contravention of the Act

Alleged contravention of another law that involves management of a company or managed investment scheme

Involves fraud or dishonesty in respect of a company or Managed investment scheme

Section 687Slide28

Registrar of Companies

Main regulator under the Act (s13(2))

Responsible for administration of all Parts of the Act except for

parts 22 -28, 42 (solely) and

jointly for Parts

43 and 44 (in conjunction with the Registrar) of the ActSlide29

Reserve Bank of Fiji

The RBF is responsible for parts 22 -28, 42 (solely) and Parts 43 and 44 (in conjunction with the Registrar) of the Act

RBF is given powers under the Act in respect of :

Operators of Security Exchange or Central Depository

Holders of Securities Industry License

Trustee Corporations

Takeovers

Capital Raisings

Debentures

Managed Investment Schemes

Additional power to RBF – to make investigations into any breach of section 263 (compulsory acquisition of shares or interests other than a takeover)Slide30

Reserve Bank – Cont.

RBF may collect information by inspecting books (s700), issuing notices to produce documents (s703) and requiring persons to appear before it to disclose information (s708-10)

RBF may require a Director or Company Secretary to disclose information that has or may affect a dealing in securities issued by the Company (s708)

The Disclosure is made in private and the person making the disclosure may have his or her lawyer present (s709-10)Slide31

Thank You