This is the first of a three-part series of articles looking at key aspects of the corporate governance framework under the Myanmar Companies Law 2017 – including looking at Australian case law on the application of directors duties (in part three).
1. What is corporate governance and why is it important?
In order to have a clear understanding of the fundamental principles underlying corporate governance, it’s essential to also understand the fundamental purpose of companies themselves and how corporate governance promotes investment in, and growth of, companies.
- Companies are used as convenient and efficient vehicles for pooling collective investment.
- Companies frequently have shareholders who are investors only – who are not involved in the management and don’t personally know the managers
- Investors need to have a reasonable degree of trust that they will be provided with sufficient, accurate information on the status of their investment and that management of the company will comply with some minimum standards in running the business to protect their investment.
- The basic concept of ‘corporate governance’ was created – and some aspects of corporate governance have been embedded into companies law – so that investors can have confidence to put money into companies that they are not themselves managing.
- This is in turn required to make it possible to grow much larger and more sophisticated economies.
2. MCL information-keeping obligations – company registers
One way the Myanmar Companies Law 2017 (MCL) creates compulsory information and transparency obligations in support of corporate governance is through company register requirements.
- A private company must make all registers and indexes that it is required to maintain under the MCL available for inspection by any member of the company at its registered office (or another registered location where the information is kept) during ordinary business hours, free of charge. Public companies must let any person inspect their registers/indexes, but may charge a reasonable sum. (Section 99(a) MCL).
- Any such member or person can require that the company give him/her a copy of all or part of any register/index on payment of a reasonable sum. The company much comply within 10 days. (Section 99(b) MCL).
- If a company refuses to allow inspection of its registers/indexes or refuses or fails to provide copies within the required period, the company and every director and officer responsible is liable to a fine of MMK250,000. The Directorate of Investment and Company Administration (DICA) may also make an order requiring the company to provide the requested inspection or copies of the registers/indexes. (Section 100 MCL).
- The following are the main registers/indexes required to be kept by companies under Division 13 of the MCL. (This is not an exhaustive list – there are other registers required to be kept under the MCL).
- Register of Members (Shareholders)
- Share Certificates
- Register of Option Holders
- Register of Debenture Holders
- Register of Other Interests (in shares/securities)
- Every director and officer of a company has a duty to take reasonable steps to ensure that the registers/indexes under Division 13 are maintained and made available and that relevant DICA/MyCO filings are made and related obligations under the MCL are met. (“MyCO” is Myanmar’s online company registry filing system). The company and every director and other officer who is knowingly and wilfully involved in a default will be liable to a fine of MMK500,000. (Sections 104-105 MCL).
- Other registers required to be kept by companies include:
- Register of Mortgages and Charges (sections 247-248 MCL). Every director and other officer who knowingly and wilfully permits an omission will be liable to a fine of MMK250,000.
- Register of Directors and Company Secretaries, including directors’ interests and benefits (Division 19, sections 189-190 MCL). Every director and any other person subject to a provision under Division 19 who defaults in complying with that provision will be liable to a fine of MMK10,000,000.
- These obligations under the MCL ensure that members (i.e. shareholders) of a company have a legally enforceable right to obtain access to up-to-date information on many of the key aspects of the company’s affairs and the interests held in the company.
3. Directors interests and benefits and voting exclusions
The interests and benefits required to be kept as part of the Register of Directors and Secretaries relate to the duty of directors to disclose interests in relation to board decisions and the obligation to obtain board or member approval for provision of benefits to directors by the company.
- Any director who has a material personal interest in a matter that relates to the affairs of the company must give the board notice of the interest (other than for certain exceptions listed in the MCL that largely relate to where the director’s interest arises only from his/her role as a director). The notice must give details of the nature and extent of the interest and be given at a board meeting and recorded in the minutes. (Section 172 MCL).
- A director who has a material personal interest in a matter may not vote or be present while that matter is considered at a board meeting (unless the other directors resolve that this should be permitted). (Section 163 MCL).
- Placing a duty on directors to disclose interests – and excluding them from voting when they have an interest in a matter – allows potential and actual conflicts of interest to be avoided and supports transparency in board decision-making and compliance by directors with their duty to act in good faith and for the best interests of the company.
- The board can authorize the payment of remuneration or provision of other benefits (such as severance payouts, loans, guarantees) to a director if satisfied that the remuneration or benefit is in the best interests of the company, reasonable in the circumstances and made on ‘arms-length’ terms. The directors who vote in favour of the remuneration or benefit must sign a certificate confirming best interests / reasonableness / arms-length. The remuneration or benefit must be disclosed to members at the next AGM. (Section 187 MCL).
- The MCL also contemplates the board referring decisions on whether to approve remuneration or benefits for directors to a general meeting of members, including filing of the proposed notice of meeting with DICA for review prior to sending to members. (Section 188 MCL).
- The director interests and benefits provisions fall within Division 19 – every director and any other person subject to a provision under Division 19 who defaults in complying with that provision will be liable to a fine of MMK10,000,000. Additional penalties may also apply, including disqualification from acting as a director. (Section 190 MCL).
- Directors acting where they are conflicted or granting inappropriate and/or unapproved benefits to themselves at the expense of the company are two of the most obvious ways in which corporate governance can be breached and value in the company destroyed. Placing disclosure and approval obligations around these issues reduces this risk of impropriety.