Changes to the Companies Act DADA AFA

Identify 5 proposals of the new Draft Companies Bill.

Answer

It has been argued by some academics of law that the Companies Act of 1963, Act 1979 is
obsolete. This has necessitated the drafting of a new Companies Bill to cure the so-called
defects and shortcomings of Act 179.

Before delving into the proposed changes to the Act, it must be re-called that Act 179
was enacted under the commission of Professor L.C.B Gower to replace the then 1907
Companies Ordinance of the Gold-Goast which according the learned Professor was
“behind times from its inception”

The coming into force of Act 179 was a spring of modernity and made significant inroads
to Ghana’s corporate governance scheme. Notable of these changes were: introduction
of single-document constitution known as regulations (section 14 and 16) ; abolition of
ultra-vires in relation to third parties (section 139, 140 and 141); no par value shares
(section 40(1)) and rationalization of the law on pre-incorporation contracts (section 13).

Despite its revolution then, Justice Date-Bah in Revitalizing Gower’s Legacy: Reforming
Company Law opines that the time is ripe for review of Act 179.

The key proposals of the Business Law Reform Committee of Experts established by the
Attorney-General of Ghana to forward independent advice on the reform of business law
as follows:

1. Full abolition of the ultra vires doctrine: The Committee and the draft bill propose
a complete abolition of the ultra vires doctrine as established in Ashbury Railway
and Carriage Co Ltd v Riche.

The Companies Act did not totally abolish the ultra vires rule but rather retained
aspects of it in restricted form. For instance, section 25(1) of Act 179 provides that
no company shall go beyond the scope of its regulations or the Act. The law
further allows the members of the company to set aside a transaction obtained by
an ultra vires act of the company if it is equitable to do so, according to section
25(5).

The draft Companies Bill renders the ultra vires rule inconsequential. Why? It
proposes that a company may be incorporated without an object clause and this
is the default situation. Therefore, there are no objects in relation to which there
can be a determination of excess powers.

2. Change from Regulations to Constitution and abolition of the need to file a

constitution as part of incorporation process: The single constituent instrument
of a company which under the existing law is called “Regulations” is now to be
Changes to the Companies Act DADA AFA

called the called the “constitution”. Now, the proposals remove the need to
register a constitution in order to incorporate a company.

3. Suffixes to Company Names: under the Companies Act, there was only one
abbreviation required to be the last word of the name of a company limited by
shares-“ltd” pursuant to section 16(2)(a) of Act 179. The draft bill introduces new
requirements by insisting that “plc” be used as the suffix for public companies
limited by shares and “Lbg” for companies limited by guarantee.

4. Major Transactions: Certain transactions classified as “major” now require a

special resolution before a company can validly enter into them so as to preserve
and extend the voting powers of members.

The following are major transactions:

i. Acquisition of assets worth more than 75% of the value of the company
before the acquisition.
ii. The disposition or an agreement to dispose of assets worth more than 75%
of the value of the company before the disposition or the agreement to
dispose. Under section 202(1)(a), the law merely prescribed an ordinary
resolution where the company is to dispose of the whole of its assets;
iii. A deal that has or is likely to have the effect of the company acquiring
rights or interests, or incurring obligations or liabilities whose worth is
more than 75% of the value of the company.

5. Registration, Communication and Service by Electronic or Digital means: The

draft Bill gives power to the Registrar of Companies to authorise the performance
electronically, through an electronic system approved by the Registrar, of any of
the following acts:

 The incorporation or the registration of a company;

 Payment of any fees;

 Submission of annual returns and the filing of any notice or document.

6. Financial Statements: The use of accounting terminology in the draft Bill is

updated from that contained in the 1963 Act. Thus, “financial statements” is used
instead of “accounts” and “income statement” instead of “profit and loss
account.” Companies are now to be required to include in their financial
statements a statement of cash flows.

Financial statements and auditors’ reports are to be prepared in accordance with

International Financial Reporting Standards approved by the Institute of
Chartered Accountants Ghana.
Changes to the Companies Act DADA AFA

7. Buy-out for Dissenting Shareholders: The proposals adopt a remedy for minority
shareholders which exists under Canadian and New Zealand legislation. It is the
remedy of ‘buy‐out’. There are provisions in the draft Bill which confer on
shareholders who have opposed particular transactions of a company, but have
been outvoted, the right to demand to have their shares bought out.

This remedy provides an outlet for minimising dissention in a company and an

additional relief against oppression of minority shareholders. The right is
triggered in relation to certain transactions which need, under the draft Bill, the
approval of shareholders by special resolution, or, in the case of variation of
rights, the written agreement of 75 % of the shareholders. The transactions
concerned are:

 Approving a “major transaction”;

 Variation of class rights;
 Altering the company’s constitution so as to vary or dispense with the objects or
stated business activities of the company; and
 Approving an arrangement or merger or both under the provisions of the draft
Bill.