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Companies law dead on arrival

…new law exposes need for registry clean-up


Delays in fully computerising the company registry office due to government’s failure to fund its e-governance project could soon render the New Companies and Other Business Entities and the Deeds Registries Act ineffective when the piece of legislation comes into full force today, Business Times has established.

According to official data obtained from the Office of Company Registration, Zimbabwe has about 500,000 registered companies, but, the majority are dormant.

The new law replaces the old Companies Act which was enacted in 1952. The New Companies and Other Business Entities and the Deeds Registries Act was published in a Government gazzette dated November 15, 2019 and its date of commencement is therefore February 13, 2020. Section 303 of the new law, which is central to the new Act and the most important one, compels all already registered companies to re-register starting from today.

They have, however, been given a grace period of 12 months to do so. But, the new law which was gazetted in November last year, is in false start.

The law stipulates that failure to re-register within a period of 12 months from today, will result in the businesses struck off or deregistered.

The latest development was revealed by Registry of Companies principal examiner, Melody Nyambuya, who confirmed that reregistration of companies as stipulated by the law would be deferred because the registry of companies offices were not yet equipped. She said Treasury, which claim to have been recording surpluses, was yet to provide funding estimated to be millions of dollars to computerise the system for re-registration to begin.

This is a huge blow as the new law is meant to clear the companies’ registry. “The Act, which has brought in new and major changes, comes into effect on February 13, 2020,” Nyambuya said at the Zimbabwe Association of Pension Funds meeting held in the capital last week.

“But, re-registration of all companies through the electronic registration will not come into effect immediately because we are not yet equipped,” Nyambuya said. “Re-registration, will be done through electronic registration, and is something new in southern Africa.

But, we are not yet equipped. We are waiting for funding from government for electronic registration. Hope funds will be provided soon.” Zimbabwe has two offices where companies are registered in Harare and Bulawayo. But, Nyambuya said government may consider expanding to other areas. “I would like to believe that after the introduction of the electronic registration system, we will move to other areas outside Harare and Bulawayo.

But, the idea of electronic registration is that one can do from wherever they will be. One would get a certificate of registration via e-mails. There is a template at the end of the new law so that even those who want to do it on their own, they can follow the template. But several legal experts say the new law in its current state was not well-thought out.

“Drafting is very important. This is a very important Act. It seems the dice is cast, but, there is no need to rush because this law needs to be refined. Many don’t understand it.

One of the objectives is to clean up registry,” Zimbabwe’s former High Court judge, Justice Moses Chinhengo said.

He added: “There are quite a number of progressive issues in the law. But, there are also a number of faults. It must be relooked at and refined because it’s not properly drafted. People are not clear on Section 4 of the Act.

This Section left out many sectors including insurers. So, it leaves a lot to be desired. It appears, we have just borrowed from New Zealand or the United Kingdom, and it was like just copy and paste. So, the drafters could have done a better job.” Another lawyer, Nobert Phiri of Muvingi and Mugadza Law firm said : “Section 4 of the new Act excluded other industries like the insurance and pensions. So, there is confusion.”

Apart from the confusion, the new Act incorporated a lot of new progressive things such as the introduction of voluntary organisation partners, which was not in the old Act. It also introduces private businesses.

There is also protection of minority investors. It also deals with mergers and takeovers. The older Act was saying shareholders with 10% cannot call for extra-ordinary meeting (EGM). Now, minorities with as low as 5% shareholding can call for an EGM. Sole traders would for the first time be issued with certificates of incorporation under the Private Business Corporation and they will operate like private limited companies. Although it’s common in other countries like South Africa, this was not the case in Zimbabwe.

There will be penalties for fault statements by business entities. The new law under section 102, introduces insolvency and liquidity tests, which is central to the business.

Registrable companies which fall under this Act will be public limited companies, private limited, company limited by guarantee, a co-operative company, a foreign company, and a private business corporation. Subject to Section 278, voluntary registration of partnership agreements, syndicates, joint ventures and certain associations of persons can be formed.

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