Governance is the most discussed issue in today's global economy. The word "governance" comes from the Greek word 'Kuberniaen' and the Latin word 'Gubernare' which means 'To steer'. Steering of a ship is important in the rough sea for its balanced movement, similarly an organisation has also to be governed with the behavioural relationship and culture between the governor and the governed to save the interest of the stakeholders. And in the corporate world, the governance framework is structured following the related act, rules and regulations applicable in the territory. The Companies Act can be defined as the constitution of the companies. If the constitution is incomplete and inadequate, all other efforts for the purpose of establishing legislative governance in the corporate sector become in vain and fruitless. Currently in Bangladesh, companies are regulated and governed by its mother law "Companies Act, 1994". But in course of time, types of companies and other influential operational contents have changed and got modernized in line with the global governance standards. From the perspective of governance, the prevailing companies act is not satisfactorily enough to keep abreast with the times. It has various types of limitations and somewhere excess of unused sections which can't be overcome only through amendments. In this context, the companies act, 1994 is considered as obsolete and voices have been raised for modernization several times from different corners of business representatives, forums, associations as well as professional bodies and Institutions. In this article we will try to point out the limitations and shortfalls as well as necessity of modernization of the Companies act, 1994 for promoting expected and excellent level of corporate governance practices in private and public organizations of the country.
Major limitations of Companies Act 1994
There are 404 sections, XI parts and XII schedules in the companies act 1994. All the companies of Bangladesh are regulated by this act but it is a matter of regret that some of its sections are not updated.
Major limitations and inadequacy of the prevailing companies act in Bangladesh are as below:
No regulatory and monitoring body
According to company law, there is no direct regulator of the companies especially for private and non-listed public limited companies. Bangladesh Securities and Exchange Commission (BSEC) is engaged to monitor and regulate companies listed with the Stock Exchanges,, Bangladesh Bank, the central Bank of Bangladesh is to regulate the Banking companies,, National Board of Revenue (NBR) is to resolve VAT and Tax matters. But to ensure transparency in the field of financial and non-financial corporate affairs, efficiency and accountability of Board management systems of private and public company; there are no presence of any legal guardian or authority empowered to take necessary initiatives. As a consequence, lots of anomalies, discrepancies are observed in the corporate sector. Though Registrar of Joint Stock Companies and Firms (RJSC) is playing the principal role in registering the companies and filing the returns of them, they have to get the regulatory powers to look after other contributing factors as well as governance systems of the company.
Concept of group of companies
The then formulated Companies Act, 1994 was not formed taking into consideration the concept of "Group of companies". In course of time, this term has been developed and widened in the business territory of the country. Now the management has to face several problems at the time of inter-company transactions, internal decisions and maintaining compliance issues in absence of legislative directions resulting in a negative impact on overall governance systems of the companies.
Resolution by circulation
Resolution by circulation is passed in an urgent situation by the majority members of the board or committees who are entitled to attend and vote at a duly convened meeting in absence of physical presence. This Resolution has to be circulated in drafts along with necessary papers to their addresses registered with the companies and subsequently this resolution has to be approved in next meeting and properly recorded in the minutes. In the Companies act 1994 there is no presence and guidelines for such a resolution.
Company Secretary
Company Secretary is the Chief Compliance officer who is primly responsible for structuring a compliance management framework in the company. Prime responsibility of the Company Secretary is ensuring strong compliance and governance system. Chartered Secretary is the core professional produced by Institute of Chartered Secretaries of Bangladesh (ICSB) to act as Company Secretary. Though BSEC has made mandatory to appoint Company Secretary in the publicly listed companies but the compliance and governance culture in private and non-listed public companies are very weak due to in absence of statutory clause in Companies act. Most of these companies think that appointing a professional Company Secretary is rather waste of money of the company. In consequences, anomalies of those companies cannot be removed as well as accountability of the Board and other stakeholders cannot be ensured.
Compliance/Secretarial Audit
Secretarial Audit is a crucial concept in today's corporate world for promoting and developing a culture of good governance. Secretarial Audit also called the compliance Audit done by the related Practicing Firm. It includes legal and regulatory compliances based on the prevailing act, rules and regulations of the country and serving reports including observations and recommendations based on the findings. Many countries have mandated Secretarial Audit through Statutory regulation for sound compliance management systems. But there is no clause in support of Secretarial Audits in the mother law of the Companies in Bangladesh.
Accountability of Board of Directors and Auditors
Board of Directors and Auditors are appointed in the general meeting according to the Articles of Association of the company. But due to lack of strong legislative provisions, the Directors and Auditors stay out of reach most of the time in case of wrongdoing and they cannot brought under the control of accountability. As a result, culture of ignorance and violation of law grown in the organization.
Merger and Acquisitions
During the recent few years Merger and Acquisitions have taken an important place in the field of business reconstruction in Bangladesh with other countries. Now a day this concept is a well-accepted idea for business reformation. This is mechanism of transferring business ownership, operation units and other assets and liabilities are transferred to another business organization through legal procedures. But there are no specific provisions to guide or outline the overall process of Merger, Acquisition or Amalgamation of the companies. In absence of specific legislative vacuum the policy makers as well as the legal and judicial authorities have to take shelter of Section 228 and 229 of companies act as the shadow guideline of this concept. But these include no guideline for conducting independent audit of the companies, no specific measure for valuation of shares and to demonstrate Share Exchange Ratio of the companies. In these circumstances, the legal and judicial authorities have to confront with several challenges to settle the issue.
Complexities in the winding up process
Sometimes companies are found duly registered but are not in operation due to different reasons. These companies have no functions rather have to bear the burden of expenditure, file Return to NBR as well as RJSC. But these companies cannot go for liquidation under current companies act due to complexities and lengthy process.
General meeting
In Companies act, 1994 concept of holding General meeting is not clear to all due to its illegibility. As a result, most of the private and non-listed public companies are not regular in holding General meeting and various types of irregularities and anomalies are seen in the companies. Besides, reverse section of holding AGM is also confusing in decision making. Third paragraph of Section 81(1) spells that, on failure of holding AGM in due time, a company have to make application to the Registrar of RJSC to extend the time within thirty days from the date of expiry of the said period. On the other hand, second paragraph of section 183[{2(b)}-i] spells that, on failure of holding AGM in due time, a company have to submit application to the Registrar of RJSC to extend the time before the expiry of the said period. So section 81 is saying about "from the date of expiry" whereas section 183 is saying "before the expiry".
Provision of Independent Directors
Independent Directors can play a vital role for effective Board management transparency of the operation, accountability in decision making. BSEC has already made a mandatory provision to appoint a certain number of Independent Directors in the Board of publicly traded companies to take neutral decisions for the benefit of the stakeholders of the company. There is no provision in the companies act for appointment of Independent Directors in the Board of Directors of the company. So private and non-listed public companies are deprived of Independent Directors in the Board Management.
Alternative Disputes Resolution
Alternative Dispute Resolution (ADR) is a process of resolving disputes between or among the parties followed by a Tribunal. But in companies act, 1994 there is no provision of ADR or ADR Tribunal to resolve the conflict arisen by the parties of agreement of ADR. Sections 227 to230 cover the provision of arbitration but companies or parties do not feel interested to go for arbitration due to high fees.
E-Commerce/ online business
With the economic and technological development different types of business has been emerged such as E-commerce, SME and others. But there are no provision and direction in the current Companies act regarding administration and operation. With the change of time necessary provisions regarding online business should also be inserted.
Use of technology
There are no provisions in the current companies act that permit use of technology in the meeting systems.
Penalty systems
Systems and amount of penalty mentioned in the act is not up to dated and sufficient to bring the defaulter parties under the control if law. Provisions of penalty have to be inserted on breach of laws by the Board of Directors, Auditors to ensure strong governance in the corporate sector.
Impacts of modernization of companies act in
corporate governance enrichment
Corporate governance constitutes mainly with the principles of transparency, accountability, responsibility, risk management, effectiveness, equality, relation with stakeholders, corporate social responsibility (CSR), ethical behaviour, financial reporting, integrity, balanced disclosure. Besides, corporate governance emphasizes people, purpose, process and performance which are precisely known as "4P". Company act has a positive and strong impact on nourishing those principles and elements of good governance in the company. Since the prevailing companies act is behind the time and not enough to foster ethical organizational behaviour in the company, a new and complete version of Companies act is necessary for establishing a strong governing culture in line with global standards. Every new is attractive to all and its novelty stimulate and encourage the people to perform a better way for achieving the organizational purpose.
Substantial influences of a modern version of companies act for nurturing good governance in the companies of Bangladesh are following:
• A new and complete version of companies act avoiding all the limitations and inadequacies will remove all the misconception of the concerned parties and make them confident.
• It will make easier to adhere with the laws avoiding conflicts of interest of the parties.
• Organizational reconstruction such as Merger and Acquisitions will be done more easily.
• It will safeguard the interest of the stakeholders ensuring the principles of good governance.
• Adding new provision of Independent Directors will ensure exercise of independent judgment in taking decisions and to act in good faith in the best interests of the companies as well as its stakeholders.
• Statutory recognition of Secretarial Audit and Chartered Secretaries Firm licensed from ICSB will ensure compliance of the corporate affairs.
• Provision of strong Board management systems will facilitate the culture of accountability and responsibility of the Directors.
• People's, employees and other stakeholders are likely to have confidence in those companies where laws are strictly followed. New companies act will contribute in employee retention and attention of highly skilled professionals with sustainable business growth.
• Removal of conflicting portion regarding the General Meeting will make the companies regular in holding meetings.
• Provision of ADR in the companies act will encourage the companies and parties for settlement of business conflict.
• Provision for permitting use of technology will make the affairs of the company easier.
• Making the companies act easier and well-acceptable to all by removing all the unnecessary and conflicting sections from the act as well as adding new important sections and guidelines.
The companies act has its far reaching implications for implementation of best practices in corporate governance. Its contribution towards attracting domestic as well as foreign investments and opening the doors to new business opportunities cannot be defined in words. But due to the incompleteness of prevailing companies act, our corporate sectors cannot get the opportunity to enjoy the facilities. A modern and dynamic company act can play a comprehensive role in building an ethical governance system through enrichment of business integrity and relationship between the governor and the governed. There is no alternative to a new, updated and complete version of companies act covering the latest global corporate governance standards for fostering and facilitating a balanced governance system in a company.
Sweety Akhter FCS is a chartered secretary.
sweeteeakhter@gmail.com
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