Stakeholder feedback

This page collates the feedback received from stakeholders to date, and provides the Ministry’s response where appropriate. It will be updated throughout the consultation process as new comments and submissions are received.

Background

Under older companies acts there is a distinction made between different types of companies. The main divide is between public and private companies, with other subtypes as well. There are then technical rules that govern each of these subtypes that relate to prerequisites for formation, liability of shareholders, and the way the entity interacts with the world. Different sections of the legislation pertain to different entities, making it harder for non-lawyers to understand the law under which they operate their businesses.

The current Eswatini Companies Act 2009 follows this approach and recognizes the following four types of local companies:

Private limited liability companies, section 15(1)(a);
Public limited liability companies, section 15(1)(a);
Companies limited by guarantee, section 15(1)(b); and
Unlimited liability companies, section 15(1)(c).

In truth, nearly all companies are limited by shares as this is the traditional use of the company form, one in which shareholders do not face personal liability for company debts. Recognizing this fact, some countries that have undertaken to reform this traditional British model of corporate structures have dispensed with the public vs private distinction, along with dispensing with those that are limited by guarantee or are unlimited. Instead, these countries have created a “one size fits all” corporate form. One significant advantage to this approach is that it greatly simplifies the law, making it much easier for non-lawyers to determine what provisions are applicable.

There is a complicating factor in Eswatini. With regard to companies that are non-profits, there is no independent law governing their incorporation. Instead, the 2009 Act calls for them to be incorporated as companies limited by guarantee. The Ministry specifically seeks input from these companies as to the best way to manage their transition to the new law. The Ministry believes it should be possible to fit non-profits into the one-type-of-company-fits-all schema in the Bill. Under this approach, the application to incorporate would ask if the proposed company is non-profit. If the box is ticked “Yes”, then specific rules governing non-profits (such as the prohibition on distributions to members) would simply apply to that entity.

There is also the issue of how to determine if a company is truly “local” or if it has sufficient foreign connections to be considered a “foreign corporation” for purposes of certification under foreign investor laws. The current law has a test that looks not only to shareholders but also to directors. Section 15(2) of the 2009 Act states that a company is considered local if it has —

Swazi citizens who hold more than half of its issued share capital;
Swazi citizens forming the majority of its shareholders who have control over the election of the Board of Directors; and
Swazi citizens forming the majority of its Board.

This is unusual as most countries only consider ownership percentages in determining if a company is local or foreign. The Ministry is considering whether a test that looks to the actual owners is a better fit for Eswatini.

Stakeholder comments received:

Stakeholder comment

Noting this change, and we have no issues.

Ministry response (if appropriate)

Acknowledged.

Stakeholder comment

Does removing ‘limited’ by guarantee’ actually add any value?

Ministry response (if appropriate)

This is an open issue that requires more investigation.

Stakeholder comment

I agree that such definition of a local company should be aligned to the shareholding structure as opposed to the Board of directors. It is the shareholders that have authority over the placement and removal of directors, therefore the shareholders should have the liberty of hiring who they feel would stare the company to the right direction and in application of fiduciary duties.

Ministry response (if appropriate)

Agreed.

Stakeholder comment

We are generally in agreement. However, kindly clarify what informs the 50% foreign ownership? We suggest 80% foreign ownership as a means to encourage FDI flow into the country.

Ministry response (if appropriate)

The 50% level was selected simply because above that level the foreign owners would have control over the company. If foreign persons could own up to 80% of a local company before triggering foreign investor approval requirements, those requirements would be significantly undermined.

Stakeholder comment

What is the rationale for eliminating consideration of the composition of the Board as part of the test on whether a company is local or foreign? Could it be because it is linked with the business environment under which they operate?

Ministry response (if appropriate)

Shareholders are the ultimate owners and controllers of a company. It does not seem to make economic sense that a local company 100% owned by Eswatini residents could be designated as a foreign company if they hired non-Eswatini directors.

Background

Under the current Eswatini Act 2009 company formation is complicated in that it requires submission of numerous accompanying documents including Memorandum of Association, Articles of Association and a Declaration of Compliance. The Memorandum is intended to set out how the company is to interact with the world and includes biographical information about the company such as its name and key addresses. The modern approach to company formation does away with most if not all of these other documents. Instead, a company can be formed via the completion of a simple online form that collects biographical information about the company such as its relevant addresses and the identification of its shareholders and directors without the need for additional documents. This information goes far in meeting international AML standards, and other reforms discussed below will round out Eswatini’s AML compliance package.

The traditional approach also required that the objectives of the company be listed in the Memorandum and the company was not permitted to transact any business outside those objectives. This creates a substantial burden and risk on a company in the event it engages in some activity that might not fall squarely within its stated objectives. The modern approach is to automatically allow a company to engage in any lawful business.

There are other topics that the Ministry raised as well that also received comments:

Should any local Eswatini company have at least one director who resides in Eswatini?
Should Model Rules (also known as a constitution) be set forth in Regulations that any company could use, thus saving the time and expense of drafting its own internal rules?
Should concepts of “par value” and “stated capital” be eliminated?

Responses to stakeholder comments

Stakeholder comment:

The reduction of the number of documents is welcomed by the business community.

Ministry response (if appropriate):

Acknowledged.

Stakeholder comment:

I think we need to consider that while we are desirous to replenish the companies Act to suit the dynamic international business climate, any amendments should not be a gate pass to money laundering. My mind is irked by the proposed scraping of the formal documents like our Memorandum of association and Articles. We just need to be vigilant while we want ease of incorporating companies.

Ministry response (if appropriate):

The concern over AML matters is legitimate, but the way the new online registry will be configured will address this concern. All director and shareholder names and other identifying information (addresses, nationality, etc.) will be collected and available for public inspection. Further, companies will be required to update this information whenever a change is made, such as if a director is hired/removed.

Stakeholder comment:

Our main interest is for government to automate the process so that it cuts down on the unnecessary red tape and that a person who is interested in registering a company in Eswatini does not have to be physically here in the country.

Ministry response (if appropriate):

The new registry will allow for incorporation of local companies and registration of foreign corporation through the online portal: no longer will any person be required to visit the Ministry or be physically present in the country.

Stakeholder comment:

For taxation purposes it is important that a company the commissioner knows the objects of a company as that information assists in determining if a company trades in taxable, non-taxable or exempt supplies. The proposed change it appears would allow companies to trade just in anything as long as it is lawful which will cause confusion in the accounting records. However, it is not clear from the paper if this just relates to the formation of the company only, so that the trading licences will put a distinction to the trading nature as is the current obtaining position.

Ministry response (if appropriate):

The Ministry believes that the formation documents of a company should not impose any restrictions on the lawful activities it may undertake. This gives a company the greatest flexibility to find good uses for its capital as business conditions can quickly change. The trading licence is designed to licence specific activities and is the more appropriate document to look to concerning the activities of a company.

Stakeholder comment:

What informed the categorization by number of shareholders? Suggestion: align to the MSME policy by categorization in terms of size i.e., number of employees etc.

Ministry response (if appropriate):

Model rules govern the internal workings of a company, such as how meetings are called, how shareholders receive notices, how directors are selected, etc. This really has nothing to do with a company’s number of employees. Instead, the Rules are designed to be very simple for 1 shareholder companies, slightly more detailed for companies with a small number of shareholders, and then robust for companies with a larger number of shareholders. The actual cutoff between the levels of shareholders is somewhat arbitrary, but the concept outlined here is what underlies the approach. Further, all companies will be completely free to draft their own Rules: the use of model rules should be purely voluntary.

Stakeholder comment:

As the constitution is a new mandatory requirement, will companies formed before the Act not be required to have a constitution?

Ministry response (if appropriate):

The current proposal is to have a one-year transition period during which all companies will have time to adopt either one of the model rules or else draft their own. Many companies may choose to take provisions from their existing core and simply roll them into a constitution.

Stakeholder comment:

Stated share capital and par value have only been identified as face value as relevant to bonds. Only a very small fraction have these. There is not much reference to par value even of reports submitted by public companies.

Ministry response (if appropriate):

The Ministry concurs.

Stakeholder comment:

We note that transition provisions would convert any par value shares to no-par shares, and are generally okay with the proposal.

Ministry response (if appropriate):

Background

In all countries there is a general duty imposed on company directors to act in good faith and in the best interests of the company. The current Companies Act 2009 contains language that includes these concepts. However, the 2009 Act does not set out the duties in as clear or as expansive a manner as can be found in other countries that have also undergone recent reform. The more modern trend is to directly spell out the various duties that a director owes to the company and make actionable any breaches at the time they occur. Further, some countries, following numerous financial scandals involving egregious director behaviour towards their own company, have criminalized the worst of these financial transgressions.

Responses to stakeholder comments

Stakeholder comment:

We note some people relinquish their director position on paper once it has been discovered that there is pending debt for the company, the real owner of the business then tends to “disappear.”

Ministry response (if appropriate):

✔ The purpose for having at least one resident director for a local company is to ensure that there is one natural person within the country that is responsible for the company’s actions.

Stakeholder comment:

Remove this clause as it could be a hurdle in attracting FDI. Alternatively, it should be understood that the shareholders may appoint a nominee to fulfil this function especially in the case of multinational companies.

Ministry response (if appropriate):

✔ The requirement would only apply to local companies, not to foreign companies seeking to invest in Eswatini.

Stakeholder comment:

A definition of “Resident Director” should also apply for taxation purposes. Please note that currently our legislation uses a source-based approach to taxation.

Ministry response (if appropriate):

The Ministry does not see how this directly relates to whether the compensation of a director is taxable in Eswatini as that determination is properly made under tax laws, which are far more nuanced that the Company Act would be on such matters. But, the Ministry is not opposed to using the same test as is used for tax purposes if that makes sense for Eswatini.

Stakeholder comment:

Although section 269 of the Act references foreign company permanent directors, it does not seem to make it mandatory and an obligation for all other companies to have a director or member of an external or foreign company to be resident in the country. Such a provision would be ideal for compliance and accountability to the domestic member.

Ministry response (if appropriate):

The proposal at this stage is to only require a resident director for local companies. It is problematic to require a local director for foreign entities doing business in Eswatini. Consider a huge multinational corporation with offices around the world: such an entity would be unlikely to appoint a director from every country in the world to their Board. The result if such a requirement were imposed might be that Eswatini could miss out on investment from multinationals.

Stakeholder comment:

Director duties need to be clearly articulated to align with modern environment and hold them to account.

Ministry response (if appropriate):

✔ The draft Bill will set out the proposed director duties for all commentators to review.

Stakeholder comment:

Yes. Include any non-compliance to i.e., taxes as well.

Ministry response (if appropriate):

✔ While the Ministry is generally in support of this notion, the Ministry believes the tax code is the proper location for dealing with tax offenses.

Stakeholder comment:

Give also the example of appointment of people who do not understand the operations of the business etc.

Ministry response (if appropriate):

✔ The Ministry is cautious about setting out what amounts to an educational standard as a pre-requisite to persons being able to serve as directors. Many companies are very small with family members running the business, and obstacles to incorporation must be carefully considered. On the other hand, making resources available for training building capacity makes perfect sense.

Stakeholder comment:

Yes, criminal liability towards Directors; this position comes with responsibility.

Ministry response (if appropriate):

The draft Bill will set out the proposed actions (or inactions) that could lead to criminal liability for all commentators to review.

Stakeholder comment:

Do away with appointing minors as Directors.

Ministry response (if appropriate):

The new law will clearly state who is prohibited from being a director, which should include minors. The proposed Bill would also prohibit undischarged bankrupts and persons who have committed certain offences in the last 3 years from being directors.

Stakeholder comment:

At times, the cleaners of the business are made to be Directors without their knowledge.

Ministry response (if appropriate):

The new law will require a director to consent to their appointment. Some countries require signed director consents to be submitted with registration documents, other countries require the company to keep these consents in the company records. Unfortunately, neither of these is a perfect solution as criminals can always forge signatures. The new Bill will require an affirmation as to all facts when any filing is submitted to the registry, and false filings can be criminally prosecuted.

Stakeholder comment:

Can external stakeholders be allowed to share culprits to Registrar as well so that they can be blocked from registering?

Ministry response (if appropriate):

The current thinking is to allow a Court to disqualify a person from being a director under the following circumstances:

The Court may make the order if the person has:

been convicted of fraud committed in relation to a company while a director of the company; or
found liable for a breach of duty to a company or a shareholder while a director of the company; or
been convicted of an offence in any other jurisdiction that corresponds to any of the offences referred to in paragraphs (a) to (b); or
been prohibited under the law of any other jurisdiction from acting as a director of a company or being concerned or taking part in the management of a company; or
become of unsound mind.

This list could be expanded if commentators believe it is not sufficient. Also, any person will be empowered to provide evidence of bad acts by directors.

Stakeholder comment:

Hopefully this can address the issue of deregistering an owing company and opening a new one just as a face.

Ministry response (if appropriate):

The disqualification of directors can help address this issue.

Stakeholder comment:

Due diligence on company directors especially foreigners.

Ministry response (if appropriate):

It is uncertain what level of due diligence is sought in this comment.

Background

The 2009 Act includes provisions related to takeover schemes. In simple terms, the current law allows for the forced sale of less than 10% of the shares of a company where the 90% majority have accepted a takeover offer. The Bill does not currently have provisions that directly address take-over schemes. Instead, the Bill sets out what are called “dissenting shareholder rights” (also called “appraisal rights”) under which a shareholder who votes against a major transaction can require that their shares be purchased by the company. In other words, the Bill would place the power on how to deal with their shares with the shareholder, not the offering company in a takeover. While this may be beneficial to the individual shareholder, it might also be prejudicial to the 90% of the shareholders that voted in favour of the takeover as often offerors require 100% of the shares of the company before they will proceed to closing the transaction.

Responses to stakeholder comments

Stakeholder comment:

Shareholders Appraisal rights, should we look at it?

Ministry response (if appropriate):

The draft Bill will contain these provisions for all commentators to review.

Stakeholder comment:

We believe these provisions should be kept as they are into the new Bill. The reason is because mergers and acquisitions are rare in our environment. However, as we develop as a country and become attract huge mergers, these provisions may be invoked a lot more frequently in the future. Let us be comprehensive and futuristic.

Ministry response (if appropriate):

The Ministry believes stakeholder input should drive the answer to this question and looks forward to more comments from the business community.

Stakeholder comment:

May we request that the requirement that a company should have a physical office be also removed because in this day and age and with the advent of Covid-19 pandemic, not all businesses need an office space. Some are completely operated online due to advanced technologies.

Ministry response (if appropriate):

There will always be a need for a physical office at least in regard to service of process of legal documents. That does not necessarily need to be where the company’s business is undertaken.

Background

International AML standards require additional protections to ensure illicit funding does not flow through companies to avoid taxation or to support international criminal activities. Some of the AML provisions that the Ministry is considering include: i) requiring shareholder records to be kept up-to-date; ii) making companies collect and maintain beneficial ownership information, and making it available upon request by regulators and law enforcement; iii) similarly, requiring companies to keep information on “shadow directors,” persons who exert practical control over a company despite not being officially listed as a director; and iv) specifically prohibiting companies from issuing bearer shares.

Responses to stakeholder comments

Stakeholder comment:

Our Companies Act has very little on provision on who are supposed to be members of companies. There is almost nothing on provision of Ultimate beneficial ownership. The legislation is short of standard Anti Money Laundering provisions which the world has focused on and made critical consideration in regard to anti money laundering and finance of terrorists. This an essential provision that needs to be a part of the legislation being developed.

Ministry response (if appropriate):

—

Stakeholder comment:

The concept is much appreciated and as a Revenue Administration, we would appreciate some assistance of how we can incorporate this provision (register of Beneficial Owner) into our legislation.
Include in the checklist of requirements for registration we have the register of the Beneficial Owner.
An assistance will be needed on how we can ensure that our registration process is robust so that we are able to detect and register the Beneficial Owners at the time of registering the Company for tax purposes.

Ministry response (if appropriate):

At this time the Ministry is not proposing to require the submission of beneficial ownership information at the time of company formation. Instead, the Ministry is pro-posing that each company be required to maintain this information in its internal records and then make that in-formation available upon request (such as in the event of an investigation on tax fraud or money-laundering). Given this, there would be no Register of Beneficial Owners in the new Companies Act. If it is determined that there is a need for such a Register in Eswatini, it might be better to provide for that in a standalone law so that beneficial ownership of other entities besides just companies could be addressed. The online system that will contain the companies registry can be modified to also handle a Bene-ficial Owner registry if this is the preferred approach.

Stakeholder comment:

Where a company issues shares at a later stage after incorporation, does the new legislation require that they update their shareholder’s registry so that such information also reaches us with ease?

Ministry response (if appropriate):

The Ministry supports requiring that any changes in shareholders (or their shareholdings) to be reported to the registry within 10 days. The new online system will make this very easy for companies. The failure to update the record in a timely manner should result in a late penalty fee.

Stakeholder comment:

We need assistance on how we can structure our tax legislation to include shadow director. Currently our section 65 talks of ‘arrangements’ which are closely linked to the concept of shadow director. We would like to have a specific provision on shadow directors

Ministry response (if appropriate):

The definition of a shadow director for purposes of a Companies Act can be very simple, for example: “A shadow director is a person in accordance with whose directions or instructions a director (the director) is required or is accustomed to act.” It is unclear whether this sort of definition would be useful for tax purposes.

Stakeholder comment:

We would like to have a robust legislative provision on the issue of bearer shares for tax purposes.

Ministry response (if appropriate):

The Ministry proposes to totally prohibit the issuance of bearer shares, and if a company does issue such shares, the law would state that they are null and void.

Background

Companies should be required to update all information that is held in the registry whenever a change is made. The failure to update the registry within a short time after an event should give rise to a late filing fee/penalty.

If a company fails to update the registry it will be discovered when it is time to file the annual return, as there will be a mismatch between what the registry shows and reality. In this case, the company would be directed to the relevant service (such as a change of director filing) to file the proper form that collects the applicable data. This approach allows the late filing penalty to be applied and the correct effective date of the change to be recorded. Otherwise, companies would have no incentive to keep changes updated if they could simply fix up any discrepancies for free during the filing of the annual return.

Stakeholder comment:

What is the timeline i.e., change within how many days?

Ministry response (if appropriate):

The Ministry proposes that most changes should be reported to the registry within 10 days. If commentators feel strongly about the issue, 20 days would be acceptable, though this is not preferred.

Stakeholder comment:

How will the system charge the penalties?

Ministry response (if appropriate):

The software upon which the registry is run has business rules built into it. These rules include when filings must be submitted. If a director changed their name on Febru-ary 1, but the company did not file a change of director information form until April 1, the system would detect that more than 10 days had passed and therefor a penalty would be applied at the time the filing is paid for. This is standard registry behaviour and has been in place in nu-merous countries for many years.

Stakeholder comment:

Can other government agencies also see when the company has filed the annual return?

Ministry response (if appropriate):

The online system will hold all filings within a company’s record. There have been no discussions yet around whether any given filing should be available for public viewing, but the default position is that all filings are public and only very special circumstances would render a filing confidential.

Background

Difficulty accessing capital is one of the most significant constraints on small-and-medium-sized enterprises (SMEs). The current Eswatini Companies Act contains restrictions on the ability of a private company to raise additional funds. Section 16 currently provides:

In this Act “private company” means a company having a share capital and which by its articles—
1. restricts the right to transfer its shares; and
2. prohibits any offer to the public for the subscription of any shares or debentures of the company.

This is the traditional approach and is intended to protect the public from fraud. For a private company to raise capital through the sale of shares, it must convert to a public company and issue a formal prospectus. This approach is too complicated and too expensive for the vast majority of small, private companies and thus severely restricts the ability of SMEs to grow. As a result, some countries are adopting an alternative modern approach that relaxes the prospectus requirement in limited instances to enable SMEs to access capital. The key policy consideration in the regulation of fundraising is find the right balance between investor protection and the need for small businesses to be able to raise capital to expand.

To protect investors, these laws impose a strict duty on the company and its promotors to refrain from making false claims or otherwise engaging in deceptive advertising, and any such fraudulent actions are criminalized. This approach attempt to strike a balance between allowing companies to tap alternative financial markets while still protecting investors.

Responses to stakeholder comments

Stakeholder comment:

Eswatini Govt should allow small offers of shares to the public with reduced transaction costs, compliance costs or the net regulatory burden. This will ensure that investor protection is achieved at the same time capital is raised.

Ministry response (if appropriate):

The Ministry agrees with this comment.

Stakeholder comment:

For Eswatini this may be a difficult way of raising capital since a lot of people have been scammed in these platforms like the internet-based ones. Govt would have to closely monitor the capital raising platforms and implement harsh sentences to those companies who are out to scam potential investors.
Company directors seeking to raise capital must be aware that they may be personally liable for claims of misleading and deceptive conduct if a person invests into their company based on material omissions or errors in information that they provide.

Ministry response (if appropriate):

Agreed. The new law would make it a crime to make false or deceptive claims as part of any fundraising efforts.

Stakeholder comment:

Government must issue Government Grants to SMEs to start a business or, if they already have a business, to make it stronger and more profitable.

Ministry response (if appropriate):

Whether to issue grants or not is not a matter for the Companies Act. Grants would be issued under some other law or program.

Stakeholder comment:

Eswatini should gazette less interest rates on an allowed period for new capital investors.

Ministry response (if appropriate):

Interest rates are not a matter for the Companies Act.

Stakeholder comment:

A Government/ bank capital raise checklist must prepare for all new companies. A digitized template that contains all the critical data points that ensure a company is healthy and prepared for investment.

Ministry response (if appropriate):

The online registry will have a website on which all sorts of helpful information can be posted. This could include checklists regarding making a business more likely to be able to receive investments or credit.

Stakeholder comment:

Not sure though if the business community in Eswatini would be willing to share ownership of their businesses with other people.

Ministry response (if appropriate):

Any fundraising is purely voluntary: no company would ever be required to sell shares.

Background

There should be an orderly procedure for winding down and ultimately closing a company. This procedure should balance various interests, including those of the shareholders, secured creditors, government, and other third parties that may have a claim over company assets. When a company’s assets are liquidated, they should be distributed fairly.

Under the existing Companies Act, the traditional types of closing a business exist, which are: winding up (both voluntary and by the court); liquidation; and something similar to receivership called “judicial management,” which gives the court powers to deal with companies when they are unable to repay debts but there is a reasonable probability that with appropriate management, they would be able to remain a going concern. The problem with the current law is that a Court must be involved with and oversee nearly every step of the winding-down process. This can be very inefficient as courts are usually overwhelmed with other pressing matters and cannot keep up with the fast-paced needs of a business in distress. The modern approach allows secured creditors to act directly to protect their interests and then submit reports after-the-fact to the court to ensure all procedures were followed. This can result in far higher returns to creditors (and shareholders) of a company that is failing. This approach recognizes the economic reality that if secured creditors are not protected then they will be far less likely to lend, which means that local business will not be able to obtain loans so as to expand their operations.

One new item being considered is a “business recovery” regime, a process intended to help try to save companies that are under financial stress. Business recovery is intended to be a relatively short-term measure that freezes a company’s financial position while the administrator determines the company’s future. The goal of entering business recovery is to give a near-insolvent company (or a company that, in the opinion of the directors, may become insolvent) two options. It can either reorganize and continue its business or, if the business cannot continue, develop a plan to dispose of the business that provides creditors and shareholders with a better result than immediate liquidation. It is often used when a short-term cash-flow issue threatens an otherwise viable business.

Another new item under consideration is how to deal with the property of a company that is struck off the register. Most companies that are involuntarily removed from the register suffer this action because they failed to file an annual return. These companies could still be operating but simply neglected to file their return. However, most companies that are removed are truly defunct and will never operate again. Further, these defunct companies may still hold title to property and it would be helpful if there is a clear statement in the law as to how to deal with this property.

Finally, another new point for consideration concerns how to deal with the property of a company that has been removed from the register. In many Commonwealth countries the property of a removed company can ultimately vest in a government agency. This agency would then—in theory—have the ability to sell the property so that it may enter back into circulation in the general economy. There are many procedural steps that must first occur before this would happen, including that the government agency must give public notice, and any person with any interest in the property (including creditors) may apply to have the company restored to the register so that they may assert their rightful claim to the property.

Responses to stakeholder comments

Stakeholder comment:

A receivership can be a good move if it can also apply to other semi-autonomous and Parastatals, like SRA.

Ministry response (if appropriate):

✔ The proposal would be to allow any secured creditor to appoint a creditor, which could include Parastatals if they are in the position of a secured creditor.

Stakeholder comment:

Revisit the role of court and the master of the High Court on winding up. Effectiveness and practicality of Judicial management in this day and age.

Ministry response (if appropriate):

✔ This is the great advantage of allowing secured creditors to act directly instead of having to wait for court approval for each step needed to deal with the property subject to their charge.

Stakeholder comment:

A clear binding statement of duties and obligations must be enshrined in law also binding the receiver even with other third parties. i.e., SRA.

Ministry response (if appropriate):

The law will set out the rights and responsibilities of a receiver. In general, the receiver has the power to deal with the property that is securing the loan. The list of powers will include something like the following:

demand and recover income of the property in receivership:
issue receipts for income recovered:
manage the property in receivership:
insure the property in receivership:
repair and maintain the property in receivership:
inspect at any reasonable time documents that relate to the property in receivership and are in the possession or under the control of the company:
exercise, on behalf of the company, a right to inspect documents that relate to the property in receivership and that are in the possession or under the control of a person other than the company:
buy and sell the property in receivership in the ordinary course of business;
execute documents related to the property in receivership;
make applications to court to enforce their powers.

Stakeholder comment:

We should consider the extent of liability of the receivership as well as its binding effect in litigation

Ministry response (if appropriate):

The new law should make clear that the receiver is bound by the contracts they enter. The provision will say something like the following:

A receiver is personally liable on a contract entered into in the exercise of any of the receiver’s powers.
However, the contract may exclude or limit the personal liability of a receiver who is not appointed by the Court.

Stakeholder comment:

What does the prioritisation of distribution entail? Normally banks are most preferred compared to SRA, whilst SRA should be most preferred as tax is a debt to government.

Ministry response (if appropriate):

✔ Secured creditors should have priority over the assets that were pledged to stand good for the loan. Otherwise, lenders will significantly slow down lending and increase interest rates due to the credit risk, both of which will have significant negative impact to the economy.

Stakeholder comment:

What about the protection of semi-autonomous entities and or parastatals (organisations or industries) owed revenue?

Ministry response (if appropriate):

✔ The liquidation provisions will set out a clear statement of priority in company assets. There are numerous persons with an interest in these assets, including employees, unsecured creditors, government agencies, etc. This discussion will continue once commentators have a chance to review the priority scheme set out in the proposed bill. The new law would not materially change the priority scheme set out in current law as these priorities are actually reasonably standard across countries.

Stakeholder comment:

What if the party concerned fails to honour such liability, is there any amicable alternative approach, embedded in such option which can be used to compel party concerned to honour his liability if modern laws lessen court oversight?
A private agreement denotes a mutually agreed upon and entered into exchange of promises, hence, will such private agreement be binding and enforceable in law?

Ministry response (if appropriate):

Ultimately a court would enforce the law and also any private agreements that have been entered.

Stakeholder comment:

The debtor must update SRA on further company issues, i.e. appointment of liquidator.

Ministry response (if appropriate):

The appointment of a receiver or a liquidator will be filed in the online registry. It will be a public filing and will result in a change of status of the company from “registered” to “in liquidation.”

Stakeholder comment:

Liquidator must check and ensure if all creditors are represented and benefit.

Ministry response (if appropriate):

The duties of the liquidator are set out in the Act.

Stakeholder comment:

We hope that the freezing does not pre-empt collapse of the company, but allow it to continue to trade within reasonable parameters.

Ministry response (if appropriate):

Agreed, this is the purpose of a temporary freeze.

Stakeholder comment:

Unnecessary overregulation. Why, if at all, should Government intervene?
There are already adequate provisions and laws in place to deal with such.

Ministry response (if appropriate):

Appreciate this valuable input.

Background

To maximize the use of technology solutions, in those countries that have implemented new electronic registries the entire annual return process is usually conducted online. The online system should present the information currently held in the registry for the company and the company need merely confirm the accuracy of the data. If any changes are needed then the company is automatically directed to the proper online form to make the change (such as a change of director if a new person has been appointed to fill the role). This approach ensures that at least once a year a company must update its record so that the registry stays relatively current.

Most reformed laws make it easier for the Registrar to de-register a company for failing to file the annual return. Usually, the grace period is set at only somewhere between six months and one year. Additionally, the need to publish de-listing for failure to file an annual return in a national gazette is eliminated. This publication requirement is costly to the registry office, often ends up being a hindrance to any compliance, and can result in numerous defunct companies showing as active and registered.

In the current Company Act 2009, under 62(3), compliance can only begin if a company fails to file an annual return for 2 years. The Registrar must send a physical letter by registered post to the company and publish a notice of intent to delist in the gazette. No actual enforcement can be taken until 2 months after the notice by post. This process needs reformed to take advantage of having an online system.

The system will send reminder-to-file notices to email accounts associated with the company (all directors, company lawyers, etc.), so there is no excuse to missing a deadline. Further, modern registry systems can include a “watch list” feature that allows interested persons to receive email alerts when any item is filed against a company or else when a company undergoes a status change. This allows creditors, for example, to easily keep up with their borrowers’ actions and company status.

Finally, the modern approach is to make it much easier for a company to be restored to the register if it suffers a de-registration. All a company need do is simply file the back-due returns together with paying the fees and late penalties. This is far easier than Section 62(6) of the current law, which requires a company to seek a court order for reinstatement.

Responses to stakeholder comments

Stakeholder comment:

Who is responsible for submitting returns i.e., shareholders, directors?

Ministry response (if appropriate):

Directors are responsible for overseeing the day-to-day operations of a company. However, that doesn’t mean the director is the only person that can submit filings to the registry: the company could hire a law firm or have their accountant undertake its filings. This is a function of having an online registry where the company controls its own entity profile and can delegate filing authority to its hired agents.

Stakeholder comment:

6 months seems too soon. We propose that the 6 months is made the grace period for filing without penalties, 3 years accorded to companies to file with the associated penalties, and subject to prior notice of the strike off to the relevant company.

Ministry response (if appropriate):

Three years is far too long to allow companies to drift along without any contact or oversight from the Registrar. The purpose of having registries online is to provide the public with current and accurate information. Therefore, compliance must run on a more regular basis.

Stakeholder comment:

Can the returns be submitted during same periods as tax returns?

Ministry response (if appropriate):

There are various ways that the due date for the annual return can be set. Most countries make it come due in the month of the original incorporation. However, there should be a provision in the new law that allows a company to make a specific request to change the month, thus allowing the company to make their annual return at the same time as their tax return if they wish.

Stakeholder comment:

Can another company be opened in a different name but having the same directors, after being de-listed?
How do you control a situation where a new company is registered solely to avoid, or run away from the “late penalties” etc.?
The enforcement approach being proposed only addresses one part of the problem. But what of those who intentionally open a new company because they do not want to pay penalties of the “older” company? There needs to be a control there?

Ministry response (if appropriate):

While these sorts of restrictions sound great, in practice they are notoriously difficult to enforce. What if a company with 7 directors is struck off, but then a new company is formed with 3 of those 7 working together with 4 new directors? Would a restriction apply given that the old directors are a minority of the board of the new company? What if a company is de-registered because the director in charge of filing the annual return neglected to do so: would all the other directors be pe-nalized—even if one was ill and had nothing to do with the failure to file?

Currently the proposal is to allow a Court to disqualify a person from being a director under the following circumstances:

The Court may make the order if the person has:

been convicted of fraud committed in relation to a company while a director of the company; or
found liable for a breach of duty to a company or a shareholder while a director of the company; or
been convicted of an offence in any other jurisdiction that corresponds to any of the offences referred to in paragraphs (a) to (b); or
been prohibited under the law of any other jurisdiction from acting as a director of a company or being concerned or taking part in the management of a company; or
become of unsound mind.

If necessary, the list above could be augmented by including the phrase: “been found liable for continual or habitual violations of this Act.” Using a court to disqualify a person from being a director is a more disciplined approach than tasking the Registrar from sorting out when a director is or is not an appropriate person. There are also practical problems for a company that seeks to avoid paying fees. A new company will not be able to use the exact name of a de-registered company for a period of years. So, if the de-registered company has property, then all that property will need to be retitled in the name of the new company. That can be an expensive proposition depending upon the type of property involved.

Stakeholder comment:

How are fees recovered once the company has been de-listed?

Ministry response (if appropriate):

If the company seeks to be restored to the register, they must pay all fees for any missing annual returns and also pay a late filing/penalty fee. The actual fee levels have not been set. If the company does not seek restoration, the Registrar can seek payment from the directors, though in practical terms this is usually not worth the effort.

Stakeholder comment:

Will there be supporting documents required i.e., proof of change in physical address, banking details etc.

Ministry response (if appropriate):

Most registries do not require supporting documents for things like address changes for local companies. All filings are made under affirmation/penalty of perjury, so if false filings are made, they can lead to criminal sanctions. The registry will not collect any banking details. For foreign companies, some countries do impose more stringent requirements regarding operating locations, and Eswatini should consider if this is appropriate.

Stakeholder comment:

When changes are made on this platform, they can be transferred to other government agencies as well/automated?

Ministry response (if appropriate):

Modern registry software can make data available to other government agencies, either through true integration of via an API. This matter will be discussed in more detail at the implementation phase.

Background

Foreign companies should be able to conduct all their business with the registry online. Further, there should be no unreasonable requests for information that discourages investment. There is no question that additional work needs to be done in this area to make sure that the proper balance is achieved.

Responses to stakeholder comments

Stakeholder comment:

It is in our interest to ensure the prospective investors aren’t subjected to unnecessary requirements. Registration online becomes very ideal and is the most efficient and effective.

Ministry response (if appropriate):

All registrations will be able to be accomplished online. There is no set international standard as to what information should be requested from foreign companies seeking to do business in a country. Obviously core biographical information is needed: name, home jurisdiction and registration number there, key addresses, director information, and shareholder information (unless publicly traded). Countries with a strong foreign investment certification process typically allow the agency granting the investor approval to collect more details about the intended investments of the foreign corporation. Further discussions will be needed to make sure that the right information is collected by the proper parties to make sure that local interests are protected while at the same time not discouraging investment.

Stakeholder comment:

There is also a concern about citizenship and residency. We are advocating for the acquisition of permanent residence and from what I gather in this document.

Ministry response (if appropriate):

Currently there is no citizenship test or residency requirement proposed for foreign companies. A foreign company by definition is formed in another jurisdiction, and it doesn’t seem appropriate to require its owners and officers to seek Eswatini citizenship to do business in the country.

Background

A new online registry system will produce significant benefits for Eswatini. Being able to conduct all business online and being able to search the registry create tremendous efficiencies for not only the business community but society as a whole.

There will be more discussions around how to implement the registry later in the project. For now, the key is to make sure that the fact of on online registry is always kept in mind when drafting the law. This includes making sure that the law allows for the Registrar to have the authority and flexibility to manage the registry and associated activities, like updating online payment methods to keep up with changing technologies. There will also be new opportunities for the Registrar to administer the registry more efficiently. These should include the authority to rectify the register in the event of minor errors (such as typos) and the recognition of the validity of email notices sent from the Registrar when the company has provided an email address.

Responses to stakeholder comments

Stakeholder comment:

We fully support modernization of the law aimed toward improving the ease of doing business in the country.

Ministry response (if appropriate):

Agreed.

Stakeholder comment:

Improve IRAS to include registration of Shareholders including other vital registration info from Registrar of companies

Ministry response (if appropriate):

Shareholder information will be available on the company registry in real time.

Stakeholder comment:

A plan must be in place to ensure that the Online Registry integrates with OGAs, such as MCIT - Trading Licenses system, MOHA – Immigration system
Will it integrate with the system being devel-oped by the MOF – Revenue Services
This information on changes must also be reflect-ed in SRA database in “real time”/ automated changes to taxpayer database to be facilitated from the source. In this way taxpayer information remains current and up to date.

Ministry response (if appropriate):

Modern company registry software systems have the ability to integrate to with other systems, either directly or via an API. Normally the difficulty in this task is not with the company registry software but with other agencies that may still be running old legacy systems. It may be that a phased approach to the software project makes sense: implement the companies registry first as the bedrock upon which to build, and then expand from that successful implementation. There is a risk in taking on too much in a software project, and moving at a measured pace can end up saving time in the long run. That being said, it is certain that trading licences need to be carefully considered during the company registry project. As for changes being reflected in real time, that will indeed be the case, and even if a full integration takes a little longer, other agencies can always view the information on a given company in real time.

Stakeholder comment:

Will there be administration fees borne to compa-nies for maintaining the Registry?

Ministry response (if appropriate):

Yes. The type of online payments that will be available have not been discussed in detail. All registries accept credit cards, but in countries with low credit card penetration alternatives must be found. One approach observe in other countries is to allow for the establishment of client accounts in the registry, and then allow users to pre-fund those account via bank deposits (or even checks made out to Registry) which are then credited to the account. The online filer then accesses those funds when doing their filings. This approach works well for law and accounting firms that may be managing multiple clients.

Stakeholder comment:

Will the system support online payments?

Ministry response (if appropriate):

Yes. The type of online payments that will be available have not been discussed in detail. All registries accept credit cards, but in countries with low credit card penetration alternatives must be found. One approach observe in other countries is to allow for the establishment of client accounts in the registry, and then allow users to pre-fund those account via bank depos-its (or even checks made out to Registry) which are then cred-ited to the account. The online filer then accesses those funds when doing their filings. This approach works well for law and accounting firms that may be managing multiple clients.

Stakeholder comment:

Security: how will the certificates be issued to en-sure they are considered original?

Ministry response (if appropriate):

The online system will produce Certificates that are suitable for use in a variety of settings, including as evidence in court pro-ceedings. One way to validate certificates is to: i) have the software system time-and-date stamp a copy of each Certificate it ever issues and hold that copy as a permanent registry rec-ord; and ii) have the software encode a unique security code on the face of each Certificate. The public person who is hold-ing a Certificate and questioning whether it is legitimate can visit the registry website and enter the security code in a search field. If the Certificate is legitimate, the registry copy of the Certificate will be returned to the searcher for comparison to the Certificate they hold in their hands.

Stakeholder comment:

Provide for attachments, (must be able to attach documents with the application). Validity of attached documents (How will attached documents be verified for correctness?) Will original copies be filed?

Ministry response (if appropriate):

Some filings require attachments. The online system will be configured to accept PDFs or scanned images of required doc-uments. These attachments will be reviewed by staff just as if they were submitted in paper form. The goal is to do away with the need for any original documents to be filed with the registry.

Stakeholder comment:

Hopefully, saved time from use of an online system will mean staff get to be relocated to dealing with other much more pressing issue areas in the economy.

Ministry response (if appropriate):

Agreed This is one of the many side-benefits of an online system. Time-intensive tasks that are sometimes neglected due to a lack of staff availability (example: due diligence investigations). It is hoped that these other activities can be increased after an online system is implemented.

Background

The information currently maintained by the Office of the Registrar for each company will be out-of-sync with the new Companies Act requirements. Additionally, there is no electronic database within the Ministry that can serve as a comprehensive source for all the information that will be maintained in the new registry. Thus, the issue is how best to migrate companies into the new electronic register.

To address this situation, the Ministry is strongly considering that all companies be required to re-register as a company under the new Act. All those companies that did not re-register would be removed from the register, just as if they did not file an annual return. This will allow Eswatini to catch up on any outstanding compliance that has been delayed in the past.

The online re-registration form will contain the same data elements that would be required for a new company formed under the new law. In this way, all existing companies will provide information into the registry that is up to date. This process also has the positive effect of clearing the registry of companies that are no longer active, as the failure to re-register within the grace period (usually one year) results in the company being struck off.

Responses to stakeholder comments

The comments represent differing views of re-registration, and a comparison of the two positions will be helpful.

Stakeholder comment:

We assume this is to make sure we only have active companies in the data base. It will work as a clean-up exercise.

Ministry response (if appropriate):

✔ Re-registration is indeed largely a clean-up exercise to ensure that: i) only active companies are found on the registry at the conclusion of the process; and ii) that all data in the new online registry is current and accurate.

Stakeholder comment:

We are against re-registration. Re-registration would be too cumbersome. It would be the first of its kind for a law to be promulgated in this fashion.

Ministry response (if appropriate):

✔ The process is not at all cumbersome. Companies would be given a full year in which to complete the online re-registration form, which will take the place of the normal annual return that would have otherwise been filed in that year.

Stakeholder comment:

Also, transition will require no less than 5 years.

Ministry response (if appropriate):

✔ Five years is far too long, such a process would effectively mean Eswatini had no reliable company registry for half a decade. Eswatini needs a modern online registry that will have current and accurate data in as short a time as possible.

Stakeholder comment:

With the Registrar beginning to input the data immediately upon promulgation of the law, which data to be later used by the public.

Ministry response (if appropriate):

✔ It is not feasible to have registry staff keystroke literally millions of characters into a new registry system, and unquestionably: i) there would be errors; and ii) not all of the data would be current, meaning old data was being entered. This is the purpose of re-registration: each individual company enters its own data that will be accurate and up-to-date. That way the registry can be up and running in as short a time as possible with accurate data. Other countries have successfully undertaken this exact process.

Stakeholder comment:

Is the re-registration process left to the owners and members of the company entirely? Is there anything that government needs to do except to avail the service for re-registration? Is there a need for the office to examine the information uploaded?

Ministry response (if appropriate):

Re-registration is the responsibility of each company. Normally staff does not review every single re-registration, though details around the actual implementation have yet to be discussed in full. Part of the discussion will be around how to handle re-registration for companies that are currently compliant with all filing requirements vs. those that are non-compliant.

Stakeholder comment:

Is there an extra budget outside of the “Normal” that needs to be supplemented to have the re-registration process carried out?

Ministry response (if appropriate):

It is not expected that re-registration would require any additional budget.

Stakeholder comment:

It will help to know how the Act will protect the SRA interests when companies not re-registered are struck off. What does this mean to the tax administration, are we also expected to de-register such companies, what happens if there is evidence that the company still exists. Suggest the Regulations should cover such instances of companies who fail to come forward to re-register for instance there could be a provision for a forced registration.

Ministry response (if appropriate):

These sorts of details will be worked out as the Bill progresses. Obviously, the law would not allow a company to fail to re-register and thus avoid tax or other liabilities.

The Ministry received a few comments that were not made in response to specific items raised in the consultation papers. These comments are most welcome as obtaining input from the real stakeholders dealing with real problems are invaluable.

Responses to stakeholder comments

Stakeholder comment:

We propose that the online registration platforms be able to read previous registrations by the same director through PIN.

Ministry response (if appropriate):

A small handful of countries have started to introduce some form of ID numbers for directors. These numbers can either be randomly assigned by the registry or else be linked to some other number, like a National ID. There may be some value in this approach, but it also can add an additional burden as it is yet one more number that a person must keep track of. Further discussion on this point will occur nearer to the time of the software implementation.

Stakeholder comment:

If a director is found to have left some pending obligations on previously registered companies, the platform gives notification that such be attended to before the new registration is approved.

Ministry response (if appropriate):

Earlier in these comments there was a discussion regarding the potential disqualification of directors. Whatever the outcome from that policy discussion, the registry system will be able to maintain a list of “Prohibited Directors” that can be checked against future appointments.

Stakeholder comment:

To effectively implement the changes proposed in their entirety, it is crucial that a Commercial Court is up and running.

Ministry response (if appropriate):

Agreed, but that is outside of this project.

Grow Eswatini:Reforms for better business.