Recent corporate and financial reforms
Bernard Tan
Abrahams Davidson & Co
Bandar Seri Begawan
Bernard Tan (Bio)
The year 2011 saw Brunei introduce a number of key legislative reforms in line with the country's commitment to reform and the strengthening its financial and corporate regulations.
Corporate reforms - A step in the right direction
The Companies Act Amendment Order 2010 updated the Brunei Companies Act (Cap 39) focusing primarily on improving the ease of the incorporation and management of companies by foreign investors and reinforcing corporate governance.
For instance, one of the new amendments has somewhat diminished the importance and difficulty of the common law doctrine of ultra vires. This doctrine restricts a company from doing anything outside the objects set out in its constitutional document as such unauthorised acts would be considered void. The law now effectively equates a company with a natural person and provides that a company will have the capacity and power to undertake any business or activity, subject only to any restrictions or limitations which may be prescribed in its constitutional documents or by law.
However, an action based on lack of capacity or powers remains possible but this is now confined only to its members and debenture holders against the company, or by the company against the officers of the company. In addition, a person dealing with a company would no longer be imputed with constructive notice of the contents of a company's constitutional documents by reason only of the fact that the same have been registered with the Registrar of Companies or are available for inspection at the registered office of the company.
In another welcoming change, the rule requiring that not less than half of the board of directors of a company to be nationals of Brunei has been removed. The law now requires at least one director where there are two directors, or if there are more than two directors, at least two directors to be 'ordinarily resident' in Brunei; the underlying object being that the removal the citizenship requirement and the 'burdensome' practice of staffing the board of directors with local citizen directors will reportedly facilitate the incorporation and participation by foreign investors in local companies. However, the expression 'ordinarily resident' was not statutorily defined but instead, the amendments included the expression 'resident in Brunei Darussalam' which imports the meaning used in the Brunei Income Tax Act (Cap 35). Under the tax definition, an individual would be defined as a resident in Brunei if he is resident in the country for at least 183 days or more during the preceding year of assessment and includes an individual who is physically present or who exercises employment during such period. This would, arguably be one determining factor in satisfying the 'ordinarily resident' requirement and is consistent with the dicta of English cases which appear to say that its meaning ought to be construed in its ordinary and natural sense thereby requiring some degree of continuity of physical presence and residence.
The recent amendments also enable the authorities to apply to court for the removal and disqualification of a person who has been a director of an insolvent company and whom the court deems unfit to be a director or to be involved in the management of a company. In determining the 'fitness' of a person, the court will have regard to a range of factors including whether there was misfeasance, breach of fiduciary duties, misapplication of funds or property of the company, or any failure to ensure that a company complies with its various statutory functions and duties.
On a related note, Brunei, in keeping with practice of other international legal regimes, will soon allow limited liability partnerships (LLP) to be set up under the Limited Liability Partnership Order, 2011. Modelled after the UK regime, an LLP may be established as a body corporate with perpetual succession. At the time of writing, the Order has not come into force.
Financial sector reforms - A new order
In a much welcomed and historic move, the country set up its own central bank or monetary authority via the Autoriti Monetari Brunei Darussalam Order, 2010. Coming into effect on January 1 2011, the new monetary authority is stylised as a central bank with core functions and powers for setting monetary policy, issuing and managing the local currency, the supervision of payment, clearing and securities settlement systems as well as oversight powers as regulator. Many in the local financial industry as well as the International Monetary Fund (the latter in its Executive Board Report 2010) had looked forward to its creation; with some suggesting that this would bring Brunei in line with other international financial regimes in the region and would create a more transparent regulatory regime, which until recently, operated as a department within the Ministry of Finance. Under this new set up, the authority will now have the powers to independently promote Brunei as an Islamic financial sector in addition to setting the monetary and financial policies for the country.
As an adjunct to this development, Brunei also introduced a deposit insurance scheme under the Deposit Protection Order, 2010 with the creation of the Brunei Darussalam Deposit Protection Corporation. The scheme came into effect on from January 1 2011 and offers a protection up to a maximum amount of Br$50,000 of deposits placed with a member bank institution.