Trans­form­ing Myan­mar’s cor­po­rate land­scape

The Myanmar Times - - Business - AUNG NAING OO WINFRIED WICKLEIN

FOR more than a cen­tury Myan­mar com­pa­nies have been reg­u­lated by the colo­nial-era Myan­mar Com­pa­nies Act of 1914. The law shares sim­i­lar­i­ties with com­pany laws from other for­mer Bri­tish colonies such as Sin­ga­pore, Malaysia and Hong Kong – yet while they have up­dated their laws to re­flect the re­al­i­ties of mod­ern busi­nesses, the Myan­mar Com­pa­nies Act has re­mained largely frozen in time.

To­day, Myan­mar is trans­form­ing rapidly into a demo­cratic, mar­ket­based econ­omy that is among the fastest-grow­ing in the world. Change is sweep­ing the cor­po­rate sec­tor. The Yan­gon Se­cu­ri­ties Ex­change opened last year un­der the newly es­tab­lished Myan­mar Se­cu­ri­ties Ex­change Com­mis­sion. The Fi­nan­cial In­sti­tu­tions Law passed by the Union par­lia­ment this year is help­ing mod­ernise the bank­ing sec­tor. Sep­a­rate for­eign and Myan­mar cit­i­zen in­vest­ments laws are be­ing merged to en­cour­age greater in­vest­ment.

With these de­vel­op­ments, more do­mes­tic and in­ter­na­tional in­vestors are gain­ing the con­fi­dence to set up busi­nesses, which could con­trib­ute much needed fund­ing, tech­nol­ogy, knowl­edge and job op­por­tu­ni­ties to the econ­omy.

To main­tain mo­men­tum and fur­ther build in­vestor con­fi­dence, how­ever, a clear and sta­ble le­gal frame­work for com­pany af­fairs is im­por­tant. A ro­bust Com­pa­nies Law can in­stil sound cor­po­rate prac­tices that safe­guard in­vestors, cred­i­tors and other stake­hold­ers in com­pa­nies rang­ing from small busi­nesses to large con­glom­er­ates.

For ex­am­ple, the re­port­ing and dis­clo­sure re­quire­ments for com­pa­nies usu­ally im­posed un­der the com­pany law, if prop­erly ap­plied, would bring much-needed trans­parency and ac­count­abil­ity to Myan­mar com­pa­nies’ per­for­mance.

The cur­rent Com­pa­nies Act pro­vides a solid frame­work for cor­po­rate reg­u­la­tion, but it also con­tains many out­dated re­quire­ments. Com­pa­nies are re­quired to seek pres­i­den­tial ap­proval to change their names, and court ap­proval to change busi­ness ob­jec­tives. Direc­tors’ le­gal du­ties are not clearly set out and com­pa­nies can­not eas­ily al­ter their share cap­i­tal to re­flect busi­ness needs.

Sec­tions of the law no longer in use have not been re­moved, cre­at­ing un­cer­tainty for users. The law also lacks proper sanc­tions and en­force­ment mech­a­nisms to reg­u­late cor­po­rate con­duct. The penal­ties and fines spec­i­fied in the law were last up­dated in 1989 and re­flect prices from 25 years ago.

But change is com­ing. The Direc­torate of In­vest­ment and Com­pany Ad­min­is­tra­tion (DICA), with as­sis­tance from the Asian De­vel­op­ment Bank (ADB), has pre­pared a new Myan­mar Com­pa­nies Law.

The law will gov­ern the regis­tra­tion, own­er­ship, man­age­ment and in­ter­nal af­fairs of all com­pa­nies in Myan­mar, and re­flect tried and tested re­forms from the UK, Sin­ga­pore, Malaysia, New Zealand, and Hong Kong.

The draft law, ex­pected to be sub­mit­ted to par­lia­ment for ap­proval in the com­ing months, is de­signed to stream­line com­pany man­age­ment and ad­min­is­tra­tion, strengthen gov­er­nance and en­force­ment, and make Myan­mar firms more com­pet­i­tive and at­trac­tive to in­vestors.

Key re­forms in­clude the in­tro­duc­tion of sin­gle-share­holder and sin­gle-di­rec­tor com­pa­nies – mean­ing Myan­mar’s in­di­vid­ual busi­ness own­ers will no longer have to find a part­ner to form a com­pany. More flex­i­ble cap­i­tal struc­tures and changes to share cap­i­tal will al­low com­pa­nies to raise or re­duce cap­i­tal with fewer pro­ce­dural re­quire­ments.

Small and fam­ily-owned busi­ness will be the main ben­e­fi­cia­ries of sim­pler com­pany ad­min­is­tra­tion re­quire­ments, which will lower com­pli­ance costs. The law in­tro­duces writ­ten res­o­lu­tions of direc­tors and share­hold­ers in place of meet­ings and now recog­nises elec­tronic com­mu­ni­ca­tion meth­ods. Small com­pa­nies will no longer be re­quired to hold an­nual gen­eral meet­ings or pre­pare au­dited an­nual fi­nan­cial state­ments, ex­cept in lim­ited cir­cum­stances.

Cor­po­rate gov­er­nance stan­dards will be raised, which for pub­lic com­pa­nies will help build con­fi­dence in the newly es­tab­lished Yan­gon Se­cu­ri­ties Ex­change. The pro­posed law will also make it eas­ier for Myan­mar’s pub­lic com­pa­nies to at­tract new in­vest­ment, tech­nol­ogy and knowhow by per­mit­ting for­eign in­vestors to own shares. The gov­ern­ment will be able to set a higher thresh­old for when a Myan­mar com­pany with for­eign share­hold­ers will be con­sid­ered a for­eign com­pany.

All these changes are aimed at spurring en­trepreneur­ship and greater busi­ness ac­tiv­ity by pro­vid­ing the flex­i­bil­ity to form and man­age com­pa­nies based on mar­ket con­di­tions. Lower com­pli­ance costs, par­tic­u­larly for small and fam­ily busi­nesses, re­flect the new gov­ern­ment’s pri­or­ity of sup­port­ing small and medium en­ter­prises, cre­at­ing op­por­tu­ni­ties and jobs, and in­creas­ing trans­parency and the rule of law.

The new law will also sup­port­the much-needed re­form of sta­te­owned en­ter­prises by pro­vid­ing a le­gal frame­work for cor­po­rati­sa­tion and im­proved cor­po­rate gov­er­nance. This will be an im­por­tant step to­ward en­hanc­ing the trans­parency and ac­count­abil­ity of pub­lic ad­min­is­tra­tion.

Once ap­proved, the law will be com­ple­mented by a new elec­tronic com­pa­nies registry con­tain­ing all com­pany doc­u­ments filed with DICA.

While the Myan­mar com­pa­nies registry has come a long way in the past three years – it now takes one or two days and costs K500,000 (US$425) to reg­is­ter a lo­cal com­pany, com­pared to six months and K50 mil­lion in 2011 – the gov­ern­ment is striv­ing to do even bet­ter.

The new elec­tronic registry, to be es­tab­lished with ADB as­sis­tance, will pro­vide an ef­fi­cient and cost-ef­fec­tive way for com­pa­nies to meet com­pul­sory re­port­ing re­quire­ments. Pub­li­cally ac­ces­si­ble on­line 24 hours a day, the registry will also pro­mote un­prece­dented trans­parency.

These trans­for­ma­tive changes will help Myan­mar make rapid strides in im­prov­ing its busi­ness en­vi­ron­ment in line with neigh­bour­ing coun­tries. They will send an im­por­tant mes­sage to lo­cal and in­ter­na­tional in­vestors – the new Myan­mar is now open for busi­ness.

Aung Naing Oo is di­rec­tor gen­eral of the Direc­torate of In­vest­ment and Com­pany Ad­min­is­tra­tion, the reg­is­trar of com­pa­nies in Myan­mar. Winfried Wicklein is the Asian De­vel­op­ment Bank’s coun­try di­rec­tor in Myan­mar.

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