Uniform Business Laws in Africa: OHADA's Contribution to Legal Predictability March 28, 2012

Uniform Business Laws in Africa: OHADA's

Contribution to Legal Predictability

March 28, 201210:00 AM – 11:30 AM US EST

Presented by

ABA International Rule of Law Committee:Jason Matechak · Steven Hendrix · Lelia Mooney · Carol Mates ·

Matthew Nicely · Alexandra Wrage

Africa Committee:Ricardo A Silva · Nancy Kaymar Stafford · Roland D Abeng · Tiago

Martins Cruz · Christina Theresa Holder · Angelia Wade

Co-Sponsoring International Law Committees:ABA Young Lawyers Division (International Law Committee)

· International Securities and Capital Markets · Islamic Finance · Task Force on Financial Engineering for Economic Development

Introduction: Jason Matechak, Rule of Law Officer

Moderator: Ricardo Alves Silva, Africa Committee

Panelists (in order of presentation):

Me. Xavier Zeno: Attorney, Jeantet & Associés (France)

Prof. Claire Dickerson: Tulane University Law School (USA)

Dr. Jean Alain Penda: Fubla & ACP Legal (Cameroon)

Mr. Xavier Forneris: World Bank (USA)

Please email all questions during the presentation to

[email protected]

OHADA PRESENTATION

Xavier ZenoAttorney at Law

Paris Bar

March 28, 2012

1. Origins of OHADA1.1 Situation after the independence

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Legal insecurity

→ Independence in 1960: heterogeneous regulations.

→ Context of globalization: regulations no more adapted to the economic situation and to the actual international framework.

Judicial insecurity

→ Degradation in the way in which justice is returned, either in right or as regards deontology, in particular because of a lack of material means, an insufficient formation of the magistrates and auxiliaries of justice.

Economic stagnation

Legal insecurity + judicial insecurity = Economic stagnation.

Regional economic development, restore the foreign investor’s confidence, make exchanges between countries easier and develop competitive industries…

April 1991

→ First summit (Burkina Faso). Finance Ministers of the Franc Zone’s initiative. Entrusts 7 jurists, led by Mr Kéba Mbaye in charge of the technical feasibility of the project.

October 1992

→ Feasibility report approved by all the Finance Ministers of the Franc Zone (summit held in Libreville).

→ Constitution of a steering committee (3 members) in charge of drafting an international treaty and identifying areas of law to be harmonized.

September 1993

→ Meeting in Abidjan: presentation of the draft of the Treaty for signature.

October 1993

→ Signature in Port-Louis, Mauritius. In force since September 1995.

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1. Origins of OHADA1.2 Main steps leading to the creation of OHADA

“Ohada is a legal tool conceived and realized by Africa to serve economic integration and growth”, Kéba Mbaye, Funding Father of OHADA.

The idea behind the creation of OHADA sprang from a political will to strengthen the African legal system by enacting a secure legal framework for the conduct of business in Africa, which is viewed as indispensable for the development of the continent.

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2. Purposes and objectives

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3. Member States3.1 Actual Member States

Benin

Burkina Faso

Cameroon Comores

Chad

Congo

Ivory Coast

Gabon

Equatorial Guinea

Guinea-Bissau

Mali

Niger

Senegal

Togo

= 16 Member States

Central African Republic

Guinea

February 2010

→ Promulgation by the President of the DRC of the Ordinance-Law relating to the OHADA accession.

November 2010

→ Expected date for the ratification of the instruments

January 2011

→ Expected date for entry of the RDC into OHADA.

As to date, still awaiting for the instruments of ratification to be deposited.

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3. Member States 3.2 Entry of the RDC into OHADA

The Conference of Heads of State and Government

The Council of Ministers

The Permanent Secretary

The Common Court of justice and arbitration (CCJA)

The regional training centre for legal officers (ERSUMA)

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4. OHADA institutions

Broadly speaking, the Treaty provides for the promulgation of harmonized legislation (Uniform Acts). 9 Uniform Acts have been adopted:

Commercial law

Company law

Recovery of debts and enforcement measures

Securities

Insolvency

Arbitration

Accounting law

Transport of goods by road

Cooperative companies

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5. OHADA Uniform Acts5.1 Harmonized legislation – Uniform Acts

→ Total of 9 Uniform Acts

Pursuant to Article 10 of the Treaty, Uniform Acts are directly applicable and binding in the Member States, notwithstanding any conflicting provision of national law, be it previous or subsequent.

However, this provision can lead to certain problem of interpretation concerning the extent to which national laws are abrogated by virtue of the Uniform Acts.

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5. OHADA Uniform Acts5.2 Applicability

OHADA AND INVESTMENTS: EXPECTATIONS OF THE ECONOMIC

OPERATORS

March 28, 2012

1. Introduction – main issues

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Many expectations of the economic operators as regard investments

Demand of both stability and transparency of regulations and attractive taxation → requirement of good governance of the company

Background on the notion of good governance of the company:

• Notion originally unknown

• First appeared in 1934 in the United States with the creation of the “Securities and Exchange Commission” (SEC)

• Intervention of American authorities so as to organize a regulation system with subsequent mechanisms of sanctions (ie. ENRON case law, 2001: bankruptcy of the Central PEN for which the SEC blamed the administrations incompetency, their passivity and the absence of discussion within the Board of Directors)

• “Sarbanes Oxley” law, 2002: legal reform tending to better frame and control the companies’ operations.

Notion of good governance within OHADA: 1997, Uniform Act relating to commercial companies and economic interest group

PART 1

The Board of Directors: guarantor of the good governance of the company

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1. Evolution of the modes of administration in Africa1.1 End of the managing board and supervisory board

System before the adoption of the Uniform Act of 1997: system of the managing board (directoire) and supervisory board (conseil de surveillance) → common mode of administration.

Article 414 of the Uniform Act of 1997: the shareholders can from now on chose either a new mode of administration, the board of directors, or the previous common mode of administration.

Advantage of the system of the board of directors: a clear distinction of who has the control of the company and manages it.

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1. Evolution of the modes of administration in Africa1.2 Institution of a new way of managing the SA: SA with a Board of Directors

This new way of managing the SA was not surprising as most of the African civil law countries not entered yet into OHADA were governed by business law provisions which referred to a system close to the actual board of directors’ system.

The most widespread method in the countries of the Franc Zone was that of the chief executive officer (president directeur general) holding concurrently the position of chairman of the board of directors and executive officer (directeur general) → raised difficulties of governance of company.

Idea of independence of the board of directors towards the management:

• Executive officer: administrative duties of managing and representing the company

• Chairman of the board of directors: decision maker

3 members at least and 12 at the maximum.

Members are often stated to be shareholders, however, employees not holding any shares within the company can become members of the board of directors as far as they do not together represent more than 1/3 of the total members of the board.

Freedom in the choice/recruitment of the directors → problem of incompetency of the directors (solution of creating an Institute of directors, ie. in Senegal).

Guarantee of the availibility of the directors and limit the risks of conflicts of interests: rule of prohibition to be director of an anonymous company being registered on the territory of a same member State for more than five terms (Uniform Act 1997), however possible when registered in different member States.

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2. The Board of Directors: guarantor of a good governance of the company2.1 Composition

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2. The Board of Directors: guarantor of a good governance of the company2.2 Functioning

Periodicity of meetings:• Meetings as often as the interest of the company requires it.• Right of the third of the members to convene the board in case it has not met for more

than two months.

Validity of deliberations: when at least half of its members are present → efficiency of this rule (no representation allowed), good governance of company.

Validity of decisions: principle of the majority of the present and represented.

Participating to the meetings:• Directors• Chairman• Statutory auditors• Executive officer• Secretary• And “any person called to take part to the board of directors’ meetings” (ie. in

particular experts, valuers)

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2. The Board of Directors: guarantor of a good governance of the company2.3 The particular case of the Chairman of the Board of Directors

3 essential prerogatives:

• Convenes and chairs the board meetings and the shareholders general meetings

• Takes care that the board of directors ensures the control of the management of the company

• Power of carrying out investigations and right of information.

Prohibition → not allowed to held concurrently the same functions in more than 3 companies whose registered office is stated to be on the territory of a same member State, and to be general manager (administrator general) or executive officer of an anonymous company being registered on the territory of a same member State for more than 2 terms (note that this prohibition only concerns companies of a same member State and not those of other OHADA States).

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2. The Board of Directors: guarantor of a good governance of the company2.4 Functions of the Board of Directors

Functions:

• Define and guide the strategy of the company

• Supervise the practices of the company and carry out the necessary changes

• Recruit the main leaders, determine their remunerations, follow up their activities

• Supervise and manage the conflicts of interest enter into between the managing department, the directors and the shareholders

• Supervise the process of circulation of information and communication of the company, etc.

Various tools of good governance of the company: ie. internal rules and regulations or an ethic code.

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PART 2

TRANSPARENCY OF THE ACCOUNTS: A REQUIREMENT OF THE INVESTORS

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1. Countable elements required during the financial year

1.1 Principles of the countable organization

Countable organization must ensure:• A day to day exhaustive registration and without any delay of the basic information

• A data processing within a convenient time

• The availability of the necessary documents for the users within the fixed delivery legal delays.

Conditions of regularity and security:• Book-keeping

• The use of the technic of the double parts

• The justification of the accounts by parts

• The respect of the chronological registration of the operations

• Identification of each one of these registrations

• Control by inventory of the existence and the value of the goods, debts and liabilities of the company

• The recourse to a plan of standardized account

• Hold the account books and other authorized material as well as the implementation of approved processing procedures enabling to establish the annual financial statements.

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1. Countable elements required during the financial year

1.2 Countable journals and other compulsory materials

The Day book

The Big Book

Journals and accessory books, or similar materials: not compulsory

The book of inventory

General balance sheet of the accounts

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2. Elements required at the end of the financial year2.1 By the company

Management report

Annual summaries of the financial statements

Statement Appended

Additional statistical statement

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2. Elements required at the end of the financial year2.2 By the statutory auditors

Report of the CAC mentioning:• Controls and verifications carried out

• Balance and other accountant documents to which amendments appears to him to necessary

• Irregularities and inaccuracies

• The conclusions arising from the observations

Report of the CAC:• Certifying the regularity of the summaries of the financial statements

• Certifying with reserves or refusing to certify

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2. Elements required at the end of the financial year2.3 By the general meeting

Minutes of the ordinary general meeting ruling on the financial year, deciding of the assignment of the result, approving the statutory auditor’s report

OHADAGENERAL COMMERCIAL LAW

Claire Moore DickersonProf. & Breaux Chair in Business Law Permanent Visiting ProfessorTulane University Law School, LA, USA University of Buea, SW, Cameroon

Introduction

• OHADA’s Uniform Acts’ Uniform Goals– Favor investment, foreign & domestic– Favor rules over standards

• The General Commercial Law– At the heart of business operations– Breadth & clarity

The GCL’s Four Goals• Disseminates business information• Facilitates raising capital• Formalizes professional agency• Reinforces contracts of sale

Making Information Available

• Trade and Personal Property Credit Register– Registre de Commerce et Crédit Mobilier (RCCM)

• Commerçant (economic operator)• Entreprenant (enterpriser)

Raising Capital with the Register

• “Business” (Fonds de commerce)• Professional lease• Security interests• Trade payables

AGENCY

•Professional Intermediaries

Sales Contracts

• Influence of CISG• Scope: economic operators, enterprisers• Formation• Performance & warranties• Delivery & Risk of loss• Breach & Remedies• Statute of limitations

OHADA General Commercial Law

OHADA’s Impact on the Rule of LawDr. Jean Alain Penda

Laws’ sophistication, laws’ accessibility Confidence in the justice system Certainty in a contract & assurance on contract

enforcement

OHADA’s Evidence of success Practical and easy to

use rules Fast setting-up of

business Facilitate access to

credit Secured lending Simple and quick

access to justice

Confidence in the judicial system

Protection of companies’ assets and their staff

Assurance on contract enforcement and

Efficient dispute resolution

How OHADA Shaped Businesses

From informal to formal entrepreneurs Fast growing private sector Reliability on the banking system

Findings in the World Bank’s Doing Business report on OHADA

Global Doing Business 2012: Average ranking of the OHADA member states is 166 out of the 183

Mali is 146, the easiest place among OHADA member states

The average cost of starting a business decreased from 338 percent to 110 percent of the average per capita income.

average time required to register property also decreased by 28 percent

Construction permits in Burkina Faso takes only 98 days, 3 months faster than the EU countries

OHADA Registry’s Computerization, a Revolutionary Improvement The security of

existing and future national TPPCR

Accessibility of data to different user groups

Reliability of data consolidated from different national TPPCR

The distribution and availability in real-time data recorded

The production of regular statistics to monitor developments of TPPCR

Compliance with the commitment of member states vis-à-vis OHADA

The legal validity of electronic data and

The recovery of data existing in paper format

OHADA Business Law Reform Program

Xavier Forneris

Investment Climate Advisory Services for Africa

March 2012

THE WORLD BANKWorld Bank Group Multilateral Investment Guarantee Agency

Comoros

CongoCentral African Republic

Chad

NigerBurkina Faso

Mali

Senegal

Guinée Bissau

Guinea

Côte d'Ivoire

Togo Benin

Cameroon

Equatorial GuineaGabon

OHADA: Organization for the Harmonization of Business Law in Africa (created 1993)

+ DRC


OHADA BUSINESS LAW REFORM PROGRAM

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Objectives:

• Facilitate creation and operation of businesses

• Facilitate Access to Finance

For SMEs (secured transactions, leasing…)

For Infrastructure development (secured transactions, PPP, BOT)

Developing regional financial markets through creation of new financial products (securitization, IPOs…)

• Strengthen confidence and improve access to reliable business information

Modernization of registries for companies and secured transactions



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• Complex, Rigorous and Participatory process:

Diagnostic: analysis of the Law by independent/reputed experts; consultation of regional stakeholders (public and private); report with recommendations to OHADA Secretariat

Drafting: OHADA commissions a group of independent lawyers to prepare amendments based on diagnostic

Consensus-Building: informal presentation of draft amendments in the region, comments, and re-drafting

Official Review by National OHADA Commissions, comments by Member States sent to OHADA Secretariat



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• Complex, Rigorous and Participatory process:

Re-drafting or finalization of the draft

Review by OHADA Court of Justice Legal Opinion

Submission to OHADA Council of Ministers for review/adoption

Publication in Official Journal

Training of Lawyers, Judges, Law Professors, etc.

• First Reforms adopted December 2010: General Commercial Law and Secured Transactions Law.


OHADA – Legislation Modernization ProcessUniform Company Law (AUDSCGIE)

DForms, Creation and Organization of corporate entities

Examples of measures proposed:

Setting-up the company: Make recourse to notary (notaire) optional

and not mandatory for the founder(s).

SARL (LLC): reduce the amount of mininum capital to be actually

deposited in a bank account

New form of joint-stock company: the Societe par Action Simplifiee

(SAS)

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OHADA – Uniform Company Law (AUDSCGIE)Changes In Corporate Governance

Objectives: bring the OHADA Company Law up to best international practices in the area of Corporate governance through :

Clearer definition of the stakeholders and their roles

Improved functioning of the Board of Directors

Reduced risk of conflicts of interest

Enhanced transparency and accountability

Strengthened Shareholders’ Rights

Higher standards for public (=listed) companies

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Examples of changes proposed :

a. Clarification of the roles of the various organs/stakeholders

Art.435. Role of the Board of Directors: responsible for strategy and control of the Management.

b. Improved functioning of the Board of Directors

Art.435. Access to information : Chairman is required to ensure that members of the Board (Directors) receive complete information.

Art.437. Allow establishment of committees, made of directors, acting under supervision of the Board and issuing recommendations.

Art.454-1. Participation in Board of Directors via VC or teleconference

Art.459-1. Obligation to give written minutes of each Board to each Director (for more effective monitoring of decision implementation)

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c. Reducing risks of conflict of interest

Art.465, 474, 482, 490: The compensation of all top executives (Chairman/CEO, Managing Director, Deputy General Manager) must be approved by the Board of Directors. The executive whose compensation is under review by the Board does not take part in the vote.

d. Increased Transparency and Accountability

Art.523: All candidates to the Board of Directors have to disclose to the shareholders’ meeting all directorships they have (with other companies)

Art.546 : The CEO informs the shareholder’s meeting of the discussions held and decisions taken at the Board of Directors.

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e. Strengthened Rights / Protection of Shareholders

Art.133-1, 518 et 531-1 : Clearer rules for vote through proxy or by mail.

Art.130 : Liability of the Board members who have voted in favor of a decision that is not in the best interest of the company or detrimental to minority shareholders.

f. Higher Standards for Public (listed) Companies

Art.829-1: Makes the Audit Committee mandatory, comprised of non-executive directors. Stricter rules for financial information.

Art.831-1 : CEO reports to the Shareholder’s Meeting of the internal control and risk management procedures.

Art. 832-2: Detailed report on the compensation for top executives and directors. 51


Q&APlease email all questions to

[email protected]

For previous panels or additional information, please visithttp://ambar.org/introl

Documents

Uniform Business Laws in Africa: OHADA's Contribution to Legal Predictability March 28, 2012