Statement of HE the Executive President of CMA on the new Commercial Companies Law and the Role of CMA
HE the Executive President of the Capital Market Authority said the new Commercial Companies Law comes at a time the Sultanate of Oman is preparing for 2040 vision which focuses on enabling the private sector to take the lead in the production process and effectively contributing to the growth of the economy and creating employment opportunities for the citizens. Thus, the development of the legislative structure and creating investment friendly environment within this vision which aims to make the Sultanate of Oman attractive and encouraging to the local and foreign investment. The role of the Government will be complementary and supportive to the role of the private sector. It is an auspicious coincidence to issue this significant law at this time.
He added the law is adequately flexible to accommodate the development in the business, finance and the rapid changes imposed by technological revolution that require easing the procedures and providing for simple methods to attract investments and creation of economic entities that attain our future vision in triggering the role of the private sector in the national economy as main partner in the comprehensive development programs and plans including diversification of income resources and building capacity to accommodate job seekers.
HE said in a press conference held by CMA on Wednesday 13th March 2019 on the key features of the new Commercial Companies Law (CCL)enacted by Royal Decree No. 18/2019 which is the legal framework regulating the businesses of commercial companies, their establishment, legal forms, management and corporate actions.
HE sheikh Abdullah Salim Al Salmi, Said the law addresses numerous matters regulating the Omani capital market to provide for the main elements for building robust capital market with high level of confidence and legislative and technological readiness to make the Omani capital market a sustainable mover of the comprehensive economic growth and creation of wealth through resilient legal provisions and easy procedures for practices to make the capital market the principal source of financing for investment projects and initiatives incubating large productive investments.
Al Salmi said the law conferred on CMA the whole powers to regulate the public joint stock companies since establishment, supervision on their work to ensure they conduct in accordance with sound administrative rules to protect the shareholders. This would limit the duality of powers and identifies the powers of other entities to which the issuer of the security is subject to further to central authority in easing the procedures of establishing public joint stock companies without the need to call on more than one entity.
New Legal form- One person company
Al Salmi explained that the law copes with the recent developments in the financial industry such as providing Islamic finance products such as Sukuk and Islamic investment funds. Due to the special nature of such products such as Sukuk a new legal form was required for commercial companies such as one person company which is a limited liability company owned by one natural or juristic person as establishment of such types of company contributes to boosting the Sukuk market in Oman as the entities desirous of issuing Sukuk establish an independent entity know as special purpose vehicles to be the link between the issuer of Sukuk and Sukuk and investment unit holders.
Holding Company Joint Stock Company
The law provides the holding company will take the form of joint stock company unlike the previous situation where the holding company had the option to be limited liability company or joint stock company. Al Salmi said the law identifies the holding company as being joint stock company with financial and administrative control over one or more company whether joint stock or limited liability by holding at least 51% of the shares of such companies. This tendency comes to curb unethical practices in financial transactions or misuse of commercial practices under the umbrella of a commercial enterprises which lacks adequate controls for risk management while the regulations for joint stock companies cover all aspects of management of subsidiaries or establishment of new companies by availing investment opportunities. We think this would contribute to enhancing the activities of the companies and fine tuning many administrative practices which would result in positive performance.
With regard to professional firms the Executive President of CMA explained that the law included a new article on the professional firms such as accounting and law firms etc. The law provided for sound legal basis for establishing professional firms and special rules will be issued for their regulation by the Council of Ministers.
The new CCL provides that the companies and participants shall cope with the Government policy of automation of businesses, thus the law obligates the commercial companies, regardless of their legal forms, to communicate with the shareholders through electronic publication means to avail the modern technology for being widely disseminated. The legislator also allowed using conventional means of publishing for the interest of the public.
It is noteworthy that the law urges the companies to use their websites to disseminate information and statements the public has the right to access emphasizing on the importance of having a central site for dissemination of the information of public joint stock companies.
Corporate Goverance for State Owned Enterprises
Al Salmi added that the law emphasized the importance of enhancing wise governance for the management of commercial companies, thus the legislature directed the public joint stock companies and state owned enterprises to apply the principles of governance in accordance with the standards set by CMA. He added this comes to consolidate the culture of governance to ensure sound performance as the governance is a set of principles and standards that achieve institutional discipline in accordance with international standards by identification of responsibilities and duties of directors and the management taking into account protection of the rights of shareholders and stakeholders.
Encouraging the Companies to Transform
Al Salmi pointed out that the level of centralism CMA enjoys in the supervision and regulation of public joint stock companies confer on it the authority of supervision and regulation of public joint stock companies, hence, the new law organizes all the procedures for establishment of public joint stock companies and reduced the terms required for this. CMA has the power to put in place the procedures required for establishing of such forms of commercial companies. This incentivizes the companies, including family businesses, to transform into public companies by granting advantages different from the newly established companies such as maintaining the commercial name even if a name of a natural person and allowed the converted companies to have RO 1 million capital while the newly established companies are required to have RO 2 million or more in capital.
Family Businesses may offer less than 25%
Al Salmi added, the law allows the founders of family businesses and other transforming companies to keep a percentage higher than the prescribed for founders of newly established companies. Article 100 provides “The founders of public joint stock companies shall subscribe not less than 30% and not more than 60% of the capital and offer the balance for public subscription except in case of transformation to public companies, the shareholders or partners in the company may, prior to transformation, keep 75% of the capital. CMA may allow the founders in the transformed companies to hold a higher percentage from the specified in the previous paragraph.”
The legislature’s keenness to ease transformation of family businesses to public companies is due to their importance and weight which are considered national institutions that require appropriate environment for the continuation of their performance without being impacted by the challenges facing the family businesses due to succession of generations.
Mechanism to curb Erosion of capital
Al Salmi said the legislature addressed the issue of erosion of capital in public companies and set mechanisms to limit the accumulate losses to enhance the confidence of investors in MSM by putting in place special provisions for the protection of the capital of public joint stock companies to protect the investors and participants. The law obliges the boards of directors to take the required actions to ensure early protection of capital without waiting for the losses to accumulate to 75% of the capital as was applicable previously. The legislature obliged the board to take the appropriate action in case the erosion reaches 25% to obviate the situation.
Where the actions of the board fail to achieve the required results in maintaining the capital and continuation of erosion to 50% the board is obliged to convene a general meeting to consider the situation and look for solutions, the general meeting shall convene in 30 days maximum from the date the board verifies the percentage of loss to protect the rights of investors and participants of the company that is suffering capital erosion. The provision allows CMA to convene the extraordinary general meeting if the board fails to do so.
The legislature, in believe of the role of CMA in protecting the rights of shareholders, participants and creditors, allowed CMA, in case the company causes damage to their interests, to take precautionary procedures such as dissolving the board of directors and appointing a temporary board to eliminate the causes of risk or preclude the company from carrying out certain objects until the elapse of risk or damage.
General Meetings of Public Joint Stock Companies
With regard to the general meetings HE the Executive President said “To emphasize the principle of confidence in the protection of the interests of participants the law allowed the shareholders, who hold not less than 5%, in addition to the rights the law confers on the shareholders, to approach CMA to issue a decision suspending the resolutions of the general meeting of the company that caused them to suffer damage provided the application satisfies the procedures and timings prescribed in law.”
Owing to the importance of the general meetings of public joint stock companies as the supreme authority that takes decisive resolutions the law prohibited the proxy who is authorized to attend and vote in the general meeting to be a proxy for more than one shareholder if the percentage of their holdings exceed 5% of the capital. In the same context, the law prohibited the directors to act as proxies in general meetings and voting on their resolutions. The purpose of such processes is to limit the phenomena in the previous implementation such as attending and voting in general meetings by small groups and sometimes concentration of directors, thus the law aims to liberate the resolutions from concentration of votes and to provide for wider participation in the company decision making.
On the bases of the role of CMA in protecting the securities holders and participants by putting in place sound and fair dealing principles among the various categories of investors to protect them from unfair and unsound practices, the new law provided due care to this aspect and set out special chapter for inspection
The law conferred on CMA the authority to inspect public joint stock companies and subsidiaries at any time to check their compliance with the provisions of the law as per timetable set by CMA. The law also allows the partners and shareholders to request from CMA in writing to inspect the company in which they are shareholders if they have adequate evidence of any violation. The law sets out the procedures and steps the CMA may take.
HE the Executive President pointed out that CMA is currently working on the Regulations for implementation of the provisions of the Commercial Companies Law in respect of public joint stock companies which the law requires to be issued within one year from the date of issuance of the law.