Second Regional Conference on Prospects and Challenges facing the Modernization of the Legal Environment to enable Business and Investment in the MENA Region Beirut, Lebanon, January 2010 Julien Levis- Philippe de Meneval IFC-World Bank Reforming the Corporate Legal Framework- Issues and Approaches

Business Law in MENA Examples from World Banks lending operations – 500 millions USD loan to Egypt (2008) for specific reforms of the financial sector (regulation and supervision of banks, insurance and pensions, regulation of capital markets); –300 millions USD loan to Jordan (2009) for recovery under global uncertainty with several packages of reforms including a business environment component

Business Law in MENA The World Banks advisory role –Ad hoc assessment work –Investment Climate Assessment, Doing Business –Technical Assistance to follow up on these assessments

The corporate legal framework What constitutes the corporate legal framework ? Company law, capital markets regulation, corporate governance, accounting and auditing, insolvency rules…. Different types: limited liability, joint stock, partnerships, State owned companies Full corporate cycle: from registration to liquidation

Different legal and regulatory needs All these companies have different needs in terms of: Protection of shareholders Management discretion Board supervision Minimum capital requirements Disclosure and transparency

Recent reform trends New topics have emerged: Corporate governance: increased board independence Groups of companies: specific rules New approach to insolvency: reorganization rather criminalization Fraud and white collar crime.

Different reform trends and issues Type of companies Recent reform trendsRemaining issues SMEs (SARL Company Law) Reducing minimum capital requirements Simplified SARL form (single shareholder) Licensing to start operating Medium size (SA Company Law) General updating of the law: suppressing directors warranty shares, introducing group of companies, etc. Weak auditing and accounting standards Listed Companies (SA Company Law + Capital Market Rules) Improving corporate governance, independent directors, shareholder control over related-party transaction Protection of minority shareholders Corporate information and commercial registry

Active reforms in MENA MENA region is relatively active in corporate legal reforms. Several countries amending company legislation and commercial codes Reforms often inspired by international best practices: OECD principles of corporate governance, Doing Business, ROSC,… …But challenges appear in terms of reform process

Cross-cutting issues for reformers Three main challenges: Quality and clarity of the Law on the book Predictability of Administrative Implementation Fairness and efficiency of Judicial enforcement

1 - Law on the Book Content of the Law : Challenges of adapting complex international standards to local market needs… …While updating the main legal framework (basic codes and institutions) Organization/hierarchy of legal standards: Implementation decrees are often lacking Access to Case law is limited

2 - Administrative implementation Companies negatively affected by the large number of instructions and circulars Fill the vacuum left by the absence of implementing decrees Regulation that is not published allows considerable executive discretion One option: requiring the publication and improving the mechanism of formal publication

3 - Judicial enforcement Major challenge: fair and efficient judicial enforcement Courts lack resources to handle corporate matters One option: specialized commercial courts Is the private sector (business organizations, lawyers, accountants, notaries, liquidators, etc.) always seeking judicial enforcement?

Establishing an efficient reform process ? What level of consultation? Which Ministry: Justice or Economy? What focus? Corporate law or the broader business legislation? Which standards? Local or international? Should reform focus on a specific company type?

MENA common legal standards for corporations ? Commercial laws are currently going through a piecemeal revision by most MENA countries National legislations are slowly diverging rather than building on their common patterns. Could a set of non-binding common legal standards be identified and guide each countrys commercial law reform process?