A Guide to Investing in Trinidad and Tobago (2011) - Ministry of ...

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Trinidad and Tobago is a signatory to the International Centre for Settlements of Investment Disputes Convention (ICSID) and the New York Convention and by virtue of the latter foreign arbitral awards of signatory territories can be registered and enforced in Trinidad and Tobago. Governing Legislation For Companies Operating In Trinidad And Tobago Companies Act 1995 The Companies Act, 1995 Chapter 81:01 of the Laws of Trinidad and Tobago provides a modern legal framework for the operations of companies in the country. It is a significant step in the government’s comprehensive overhaul of the legal and regulatory framework for doing business, intended to increase the country’s attractiveness as a center of business activity in the Caribbean and Latin America. The Act is based primarily on the Canadian Corporations Act, but has been adapted to meet local conditions. The Companies Act, 1995, seeks to facilitate business dealings and to remove unnecessary encumbrances under the former Companies Ordinance and has simplified the system for the incorporation of companies of a wide variety. 64 A Guide to Investing in Trinidad and Tobago (2011) Some of the ways in which the Companies Act impacts on business practices and opportunities in Trinidad and Tobago include: • The introduction of a number of practical provisions, which allow greater flexibility to pursue commercial objectives, including: - The introduction of “one man companies” - The abolition of the ultra vires rule and the removal of the objects clause, which limited a company’s business to the objects set out in its objects clause - The simplification of the capital structure with the abolition of “par value” shares - The introduction of “amalgamations” as a tool which can facilitate restructuring, mergers and tax planning - The abolition of the doctrine of constructive notice which debars any company from avoiding obligations under a contract - The freedom to decide on its own by-laws. However, by-laws are not mandatory, under the Companies Act. • The extension and re-enforcement of directors’ duties and liabilities. • The shifting of the balance of power between controllers of companies and minority shareholders to significantly favor the interests of minorities. Capital Structure The shares which a company, by its articles, is authorised to issue, may be divided into several classes having different attributes. A class of shares may be issued in a series. All shares must be without nominal or par value. The essential features of such a share are that: • It represents a proportionate interest in the net worth and earnings of a company • The articles do not attach to the share an arbitrary fixed dollar value (such as the par value system under the previous law) • The directors, acting in good faith, may determine the purchase price or consideration on the original issue of the share subject to the requirements laid down in the Act • It avoids the potentially misleading impact of par value shares on unsophisticated investors the dollar value of which does not represent their current market value or liquidation value • It permits greater flexibility in arranging the company structure of an entity • Shares without par value may be issued at different prices per share from time to time depending on the market conditions at time of issue • The whole of the consideration becomes part of the stated capital of the company. Stated Capital A company under the Companies Act, 1995 (other than a public company) is required to maintain in its accounting records a separate “stated capital account” for each class and series of shares issued. On the issue of each share the full price/consideration must be added to the appropriate stated capital account with an exception for non-arm’s length transactions (inter-company issues). A company may not reduce any stated capital account except for the purposes and in the manner specified in the Companies Act. The transitional provisions of the Act permit a former company to include in its stated capital account any consideration received by it for a share the company issued and any amount credited to a retained earnings or other surplus capital account.
Owning Shares At common law a company could not own or purchase its own shares, as this would constitute a reduction in capital. Under the Companies Act, 1995, a company is permitted to purchase or otherwise acquire shares issued by it unless (subject to certain exceptions) there are reasonable grounds for believing that: • The company is unable, or would, after that payment, be unable to pay its liabilities as they become due; or • The realizable value of the company’s assets would, after that payment, be less than the aggregate of its liabilities and stated capital of all classes. In addition, redeemable shares may be purchased or redeemed by a company at prices not exceeding the redemption price as stated in or calculated according to the formula in the articles unless there are reasonable grounds for believing that: • The company is unable or would, after that payment, be unable to pay its liabilities as they become due; or • The realizable value of the company’s assets would, after that payment, be less than the aggregate of: - Its liabilities - The amount that would be required to pay the holders of shares that have a right to be paid, on a redemption or in a winding up, ratably with or before the holders of the shares to be purchased or redeemed Directors` And Officers` Liabilities Directors’ Duties The Companies Act describes the overriding fiduciary duty of directors as being a duty of care, diligence and skill, to act honestly and in good faith and in the best interests of the company. A breach of this duty usually involves the director doing something that he should not have done at all. The Act also requires a director to exercise the degree of prudence and skill that a normally prudent person would exercise in comparable circumstances. Individual members of the Board of Directors are liable for any damages sustained by the company as a result of their personal breach of duty whilst carrying out their functions. The Companies Act enforces duties owed by directors through specific statutory provisions. For instance, directors may be made jointly and severally liable for: • Authorising the issue of shares for a consideration other than money if the consideration received is less than fair. • Permitting certain transactions (such as financial assistance, share redemptions, dividends or indemnities) when there are grounds for believing that the company is insolvent. • “Oppressive conduct” by a company, its affiliates or directors. To whom are the directors’ duties owed? The Companies Act substantially increases the range of persons to whom directors are made accountable. While most directors’ duties are owed to the company itself, the Act provides for a “derivative action” that allows shareholders and others to sue directors on behalf of the company. In some situations, directors are made directly liable to persons other than the company. For example, in relation to insider trading, a director may be liable both to persons who suffer a direct loss and to the company for any benefit received by him. The liability faced by directors where they are found to have been engaged in “oppressive conduct” probably includes liability to shareholders, creditors and others. Directors’ duties and liabilities in situations of possible company insolvency Directors always operate under their overriding fiduciary duty to act honestly and in good faith and their duty to exercise skill, diligence and care. However, specific duties and potential liabilities arise in the context of any possible insolvency. In particular, whenever questions arise about the solvency of a company, it is necessary to ensure that the company does not: • Unfairly incur new debts and obligations which it would not be able to meet. • Engage in transactions which further prejudice its ability to meet its obligations. As under the old Act, the court can impose personal liability on directors, officers and others for continuing to trade fraudulently or in reckless disregard of whether the company is able to meet its liabilities. The Act also prohibits specified transactions where a company does not satisfy various prescribed solvency tests. Directors who authorise any such transaction are exposed to personal liability. Directors need to be able to: • Recognise those transactions which are prohibited unless the relevant solvency test is met. A Guide to Investing in Trinidad and Tobago (2011) 65
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