Subject: New changes in the new Company s Act. I. BACKGROUND:

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1 Subject: New changes in the new Company s Act. I. BACKGROUND: On 31 May 2017, a new companies act was published in the Official Gazette of the Republic of Rwanda. Some of its main objectives include (i) clarification of provisions which were not clear in the 2009/2010 law; (ii) improving accountability and transparency in business (iii) protecting shareholders and (iv) imposing sanctions on companies breaching regulatory requirements. II. MAJOR CHANGES a) Essential requirements for a public company 1 1. A name, ending with the words public limited company or letters plc ; 2. one or more shares all of which must be fully transferable; 3. one or more shareholders, whose liability must be limited to the amount, if any, unpaid on the shares respectively held by them; 4. Two or more directors; 5. A Company Secretary; 6. Incorporation documents. The bank must fulfill all the above-mentioned requirements since it is a Public company as stipulated by Article 3,5 o of Law Nº 47/2017 of 23/9/2017 governing the organisation of banking. b) Major transaction A major transaction means: 2 1 Article 7of Law N 27/2017 of 31/05/2017 governing companies. 2 Article 197, Ibid.

2 1) The acquisition of, or an agreement to acquire, or a series of agreements to acquire whether contingent or not, assets equivalent in value to ten (10%) per cent or more of the value of the company s assets before the acquisition; 2) The disposition of, or an agreement to dispose of, whether contingent or not, assets of the company the value of which is more than half the value of the company s assets before disposition; 3) A transaction which has or is likely to have the effect of the company acquiring rights or interests or incurring obligations or liabilities including contingent liabilities the value of which is more than half the value of the company s assets before the transaction. Article 196 makes it mandatory that immediately upon receiving a proposal for a major transaction, the company must disclose the proposed transaction to its shareholders. Article 196 further stresses that the Board of Directors must have obtained a prior opinion of an independent professional financial adviser on the terms of the transaction, in which the adviser provides an analysis and an explanation of all the terms of the transaction and provides an opinion as to the fairness of the transaction to the shareholders of the company; The company shall thereafter issue notice of meeting to all shareholders which must state that the purpose of the meeting is to consider a major transaction The notice must contain a summary of the transaction, the recommendation of the board of directors on the transaction, and a copy of the independent adviser s opinion, are given by the company to all shareholders entitled to attend the meeting. The transaction is approved and adopted only upon receiving the affirmative vote of a special resolution of the votes of all shareholders entitled to vote at the meeting on the transaction. c) Liability and responsibility of shareholders Liability and responsibility of shareholders are more clearly determined (Article 95 including the limits to the responsibility of the shareholders. A shareholder is not liable for the obligations of a company only because of being a shareholder. For example liability is limited to any amount unpaid on a share held by the shareholder. Article 95 clearly notes that a court may pierce the corporate veil to hold a shareholder liable for obligations of the company if the court finds that the shareholder has abused the company for fraudulent or illegal purposes or wrongfully treated the company s assets as personal assets as though the company did not exist. Article 95 of the new Act is more clear, detailed and completely different from the scope of article 137 of the old Act. d) Rights of shareholders to sue the company and its officers

3 Rights of shareholders to sue the company and its officers are addressed comprehensively under Articles Article 213 expresses the view that directors owe duties to shareholders personally to comply with the Company s Act and the company's incorporation documents. A shareholder may sue the company or its directors in respect of any breach of a duty owed to the shareholder personally, but not for breach of a duty owed solely to the company; Article 215 provides for unfair prejudice where affairs of the company are conducted in a manner which is unfair to the interests of the shareholders. An application to stop the unfair prejudice may be made to a competent court by a person affected or likely to be affected by such conduct. e) Share register Article 117 clearly shows who should keep the share register. It is the duty of each Director and Secretary to keep the share register. Article 117 demands specific particulars that must be included in the share register, these include the names and latest known addresses of each person who is or has within the last ten (10) years been a shareholder; number of shares held by each shareholder, distinguishing share by its number, so long as the share has a number and, where each the company has more than one class of issued shares, by its class; date of any allotment of shares to, or repurchase or redemption of shares from, or transfer of shares by or to each such shareholder within the last ten (10) years etc. Contrast with article 132 of 2009/2019 Act. f) Annual accounts to be delivered to the Registrar General The directors of a company must ensure that the company delivers to the Registrar General not later than four (4) months after its accounting reference date in the case of a private company, and four (4) months after its accounting reference date in the case of a public company: 1 A copy of its signed and approved annual accounts; 2 A copy of the auditor's report on those accounts; 3 The directors' reports relating to the same accounting period as those annual accounts. If the directors fail to comply with paragraph one of this article, the company is liable to an administrative fine provided under article 278 of this law. g) Annual returns The new companies Act has introduced the concept of annual returns. This is captured in article 141. Going forward, companies shall be required every year to submit a statement to the Registry General detailing general information regarding the Company. On incorporation, the Registrar General by written notice to the company, allocates a month to the company for the purpose of filling annual returns. The company will file the returns on the given date. If the directors fail to file annual returns this will result into a civil penalty.

4 h) Power of Attorney Article 50 strengthens power of company s attorney to sign documents. The language in this article is clearer than article 227 of the old act. Article 50 unambiguously states that a company has power to issue a power of attorney and the holder of those powers can sign documents on behalf of the company. i) Conflict of interest of Directors Conflict of interests of Directors in transactions are well captured: Article 163 requires directors to disclose to the Company other directorships, positions in other companies; j) Administrative penalties A specific section on administrative penalties has been included. This aims at ensuring strict compliance and as result administrative sanctions have been imposed. In some instances, administrative penalties have been increased. For example article 284 states that a company which fails to comply with registration requirement is liable to a fine of five times the annual filing fee and every director of the company is liable to a fine of five hundred thousand (500,000) to five million (5,000,000) Rwandan francs. Article 285; a company which fails to keep the books required under this Law is liable to a fine of five times the annual filing fee. A person who knowingly submits a false document commits a fault and is liable to a fine of not less than one million (1,000,000) but not exceeding ten million (10,000,000) Rwandan francs. Equally Article 290 states that if directors of a company approve accounts which do not comply with Articles 123 (individual annual account) and 125 (group annual accounts) of this Law, every director who is a party to their approval and who knows that they do not comply or is reckless not to know whether they comply or not, is liable to a fine of not less than Rwandan Francs one million (RWF1,000,000) but not exceeding ten million (RWF10,000,000). A recidivist company with regard to compliance faults referred to in Articles 280, 281 and 282 is liable to a fine of twice the fine that was provided for before the recidivism. 3 Article 292 imposes penalties for failure to deliver annual accounts, directors report and auditor s report (1 Million to 10 Million. These are new penalties which were not in the 2009 Act. k) Criminal Liabilities New Offences have been introduced: Some of the new Articles include 293 (Simple fraudulent bankruptcy), 294 (Acts which qualify as simple fraudulent bankruptcy) and 295 (Grave fraudulent bankruptcy), 296 (Fraudulent action by a representative of an insolvent 3 Article 287, Ibid.

5 company), 297 (Poor book-keeping ), 298 (Refusal to provide information about an insolvent company) and 299 (Offences by a liquidator), 300 (Removal or fraudulent concealment of assets in favour of the bankrupt), 301 (Fraudulent dealings with a bankrupt), 302 (Disqualification order). Committing these offenses result imprisonment and/or a fine. l) Deadline for conforming to the provisions of the new Law The new law was entered into force from the date of its publication in official gazette (31/05/2017). However, the deadline for all companies to conform to its provisions is 31 st May 2018.