Parshotam Lawyers Barristers and Solicitors Level 2 Mid City Cnr Cumming St/Waimanu Rd GPO Box 131, Suva, Fiji Ph: Fax: Web: parshotam.com.fj parshotam.com.fj View: chambersandpartners.com Subject: The law of Corporate Governance Presented by: Subhas Parshotam

Parshotam Lawyers BRIEF INTRODUCTION Companies Act 1983 to be replaced by a new Companies Act Act (408 sections; 13 Parts); 2015 Act (752 sections; 46 Parts). Objective as set out in the 2015 Act: "to provide for the regulation of companies carrying on business in Fiji". (section 4) Repeal of: Companies Act. Capital Markets Act. Unit Trusts Act. Registration of Business Names Act.

Parshotam Lawyers CORPORATE GOVERNANCE This term is not defined in the Act. A system of rules, practices and processes by which a company is directed and controlled. Involves the balancing of interests of the many stakeholders. These include the shareholders, the directors, the management, the customers, the suppliers, the financiers, the government and the community. Laws brought in to convert code of conduct into laws under sanction of penalty. Jurisprudence: protection of unsecured creditors.

Parshotam Lawyers PRIVATE COMPANIES 1983 Act: Section Act: Section 19. A private company is a Small Private Company for a Financial Year if the consolidated revenue for the Financial Year of the Company and the entities it controls (if any) is less than $5.0m or a Prescribed Amount. A private company is a Medium Private Company for a Financial Year if the consolidated revenue is more than $5.0m but less than $20.0m or a Prescribed Amount. A private company is a Large Private Company for a Financial Year if the consolidated revenue is more than $20.0m. Significance of distinction set out in Part 32 (especially sections 388 and 389).

Parshotam Lawyers SOLVENCY 1983 Act: no provisions Act: requirement that the company should remain solvent: see sections 210 and 207.

Parshotam Lawyers DIRECTORS AND SECRETARIES - APPOINTMENTS Private companies: at least one director and at least one director must ordinarily reside in Fiji (section 91) Other companies: at least three directors and at least two directors must ordinarily reside in Fiji (section 91) Private companies: no secretary required. If a secretary or secretaries are appointed, then at least one of them must ordinarily reside in Fiji (section 92) Other companies: at least one secretary and at lease one of them must ordinarily reside in Fiji (section 91) Consent to Act.

DIRECTORS AND SECRETARIES - REMUNERATION Part 10 Division 2 Sections 99 to 102. Controlled by the AGM. For private companies with a single director/single member, by resolution of that person.

Directors' duties and obligations (civil obligations) (section 103 et seq) To act within powers set out in the Articles of Association and to use the powers only for the purposes for which they were conferred. To promote the success of the company. To exercise independent judgment. To exercise reasonable care, skill and diligence. To avoid conflicts of interest. Not to accept benefits from third parties. To declare interest in proposed transaction or arrangement. Other duties and obligations which are considered criminal offences (section 115). Acting recklessly or intentionally dishonestly and failing to exercise their powers and discharge their duties in good faith in the best interests of the Company or for a proper purpose. Dishonestly using their position or any information they have obtained. DIRECTORS AND SECRETARIES - DUTIES Parshotam Lawyers

DIRECTORS AND SECRETARIES – RELIANCE ON INFORMATION OR ADVICE Totally new provisions. This is to attach liability to directors under Sections 104 and 106. Reliance on information, or professional advice, given or prepared by employees, professional adviser or expert, another director or a committee of directors. Reliance taken to be reasonable unless the contrary is proved. Similarly, responsibility for actions of delegate.

DIRECTORS – RESTRICTIONS ON INDEMNITIES AND INSURANCE Again, totally new provisions. Indemnities and insurances permitted but in restrictive cases. Indemnity against costs of criminal proceedings where Judgment is given in the director’s favour or in which he was acquitted or where the proceedings against him were discontinued. Indemnity against costs and liability of civil proceedings. The director need not be successful in his defence. The indemnity or insurance cannot extend to liability to the company. Similar provisions for insurance.

DIRECTORS - POWERS Again, completely new provisions (Sections 123 to 127). Generally, a director could not delegate his powers (as his appointment is fiduciary in nature) except for administrative matters. Now, a director can delegate any of his powers to A committee of directors. A director. An employee of the company. Any other person. For single director/single member companies, that person can act on his own.

FINANCIAL REPORTING – FINANCIAL RECORDS Definition of “Financial Records” (Section 3). Definition of “Financial Statements” (Section 3). Directors’ Reports (Section 388(1)). Proforma Financial Statements (Section 388(2)). Directors’ declarations.

FINANCIAL REPORTING - AUDITORS Appointment of auditors (section 393). No auditor required for a private company – but see section 388: audit required if the direction requires that the Financial Statements be audited. Auditor: retention of all audit working papers for 7 years. Auditor’s declaration.

Parshotam Lawyers WINDING-UP BY THE COURT Provisions in the 2015 Act are not dissimilar to the provisions of the 1983 Act. Section 513 of the 2015 Act: circumstances under which a company may be wound up by the Court. New section 514: the terms "solvency" and "insolvency" are defined. The definitions extend to both a resident company and a foreign company. A company is solvent if, and only if, it is able to pay all its debts as and when they become due and payable. A company which is not solvent is insolvent. Section 515: definition of "inability to pay debts". A new definition and not to be confused with what section 221 of the 1983 Act provides. A new term - Statutory Demand - is introduced.

Parshotam Lawyers WINDING-UP BY THE COURT Cont… Creditors can file an application for a winding up order against a company when a receiver to a company is appointed and without having first to serve a Statutory Demand on the company. The threshold amount for a Statutory Demand has been increased from the present $ to $10, This is now described as "the Prescribed Amount" and can be changed by regulation from time to time. (Draft 2015 Act had provided for $5,000.00). Completely new provisions have been introduced in the 2015 Act for setting aside the Statutory Demand. Courts are to determine either or both of the following: That there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; That the company has an offsetting claim. A new test has been introduced if a Statutory Demand is to be set aside - this new standard being the debt being under "a genuine dispute".

Parshotam Lawyers WINDING-UP BY THE COURT Cont… Creditors can file an application for a winding up order against a company when a receiver to a company is appointed and without having first to serve a Statutory Demand on the company. The threshold amount for a Statutory Demand has been increased from the present $ to $5, Now described as "the Prescribed Amount" and can be changed by regulation from time to time. Completely new provisions have been introduced in the 2015 Act for setting aside the Statutory Demand. Court is to determine either or both of the following: That there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates; That the company has an offsetting claim. New test introduced to established if a Statutory Demand is to be set aside - this new standard being the debt being under "a genuine dispute".