Corporate Liability under the Companies Act 2015

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 Regulators

CORPORATE CAPACITY

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”

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 charge

THE DECISION MAKING HIERARCHY

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.

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)

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 required

ASSENT TO TRANSACTIONS BY A COMPANY

Common Seal A Company is no longer required to have a common seal (section 52). Not prohibited but no longer mandatory

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 Attorney

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 transactions

LIABILITY

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 (s ) Directors can also be held liable both in civil and criminal law for breaches of Directors duties

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)

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 Duty to exercise independent judgment  Section Duty to avoid conflicts of interest  Section Duty not to accept benefits from third parties  Section Duty to declare interest in a proposed transaction or arrangement

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 )  Misleading or Deceptive Conduct (s655) – Civil liability only  Offences in relation to Disclosure Documents (sections )  Offering securities in breach of the Act – s667  False or misleading statements – s668  False Information (s669)

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)

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.

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)

Corporate Criminal Liability – Crimes Decree Corporate criminal liability is legislated by Part 8 of the Crimes Decree 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”

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)

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 ” )

REGULATORS

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 686

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 687

Registrar of Companies Main regulator under the Act (s13(2)) Responsible for administration of all Parts of the Act except for parts , 42 (solely) and jointly for Parts 43 and 44 (in conjunction with the Registrar) of the Act

Reserve Bank of Fiji The RBF is responsible for parts , 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)

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)

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