This change means a win-win for investors and government stakeholders alike. The process will now be better streamlined, modernized and ready.
The new Myanmar Companies Law 2017, Pyidaungsu Hluttaw Law No.29 (MCL), passed on 6 December 2017, replacing the century-old Myanmar Company Act 1914 (MCA). The MCL modernizes Myanmar’s corporate framework and provides new opportunities for local and foreign companies that had not existed under the MCA.
There are several new important developments to be aware of under the MCL. This is what you need to know:
- Despite the passage of the MCL, presently the MCA is still in force and is being applied by Myanmar’s company regulator, the Directorate of Investment and Company Administration (DICA).
- Under §1(b) MCL, the law “commences on the date of notification determined by the President.” This means the MCL will not officially come into full force and effect until the president passes a separate commencement notification regulation stating the law is officially in effect on a specified commencement date. Put simply, the MCL is not law until the commencement notification is passed and the specified commencement date is realised.
- This means it is still “business as usual” for local and foreign investors under the MCA until the commencement notification is passed implementing the MCL.
- In one of our recent dialogue sessions with DICA, we were informed that the commencement notification is likely to be passed in mid-June or July 2018, specifying that the MCL commencement date will be 1 August 2018. The commencement notification was previously expected to be passed before the end of 2017.
- The MCL regulations will also pass prior to 1 August 2018, but will likely come into full force and effect on the commencement date of 1 August 2018.
- DICA will spend the next eight months upgrading its online applications, prescribed forms, procedures, policies, manuals and conducting intense staff training sessions on the MCL.
What does this all mean?
The delay is unfortunate. However, there is a silver lining. Once 1 August 2018 arrives, Myanmar will have a new sophisticated corporate framework in place, able to effectively cope with the heavier intake of foreign investment and M&A activity expected under the MCL. This is a far better alternative than having the MCL in effect without the supporting implementing framework in place. This change means a win-win for investors and government stakeholders alike. The process will now be better streamlined, modernized and ready.
What are the benefits once the MCL comes into effect?
The MCL is a great victory for domestic and foreign investors in Myanmar. Once the commencement date is realised, foreigners will be able to buy equity in Myanmar companies and, accordingly, Myanmar companies will have greater access to foreign capital. This is a significant milestone and it will no doubt provide the fillip that the economy craves.
Under the MCL, foreign companies/foreigners will be permitted to:
- Acquire share ownership of up to a prescribed threshold of 35 percent in a Myanmar company and still have the company considered as a Myanmar company.
- Under the MCA, companies were classified as either a Myanmar company or a foreign company. One of the main difficulties under the MCA was that a Myanmar company was required to be 100 percent “locally” owned unless approval to change the classification was given by DICA. In practice, such approval was hard to obtain and often not given. Accordingly, most Myanmar companies were largely off-limits to foreign companies. The MCL changes all this. Foreign investment through direct ownership is critical to engender trust and greater interest in Myanmar by foreign investors.
- Some investment activities falling under the purview of 1(b) Notification 15/2017 will become open for minority foreign investment.
- Purchase shares in a Myanmar company without obtaining advanced permission from DICA. The MCL means that DICA will only need to be notified when the foreign ownership of a Myanmar company exceeds the prescribed limit of 35 percent. In such a case, the company will need be recategorized as a foreign company.
- Myanmar’s legislature, the Pyidaungsu Hluttaw, recognized that under the MCA there was little protection for minority shareholders, and this needed to be updated by including legislative protections in-line with more developed jurisdictions. Importantly, foreign shareholders will for the most part be minority shareholders—holding 35 percent or less of the shares in a Myanmar company. The MCL provides that minority shareholders now have rights to commence legal proceedings against the company for “oppressive conduct” that is unfairly prejudicial to or discriminatory to them as a class of members. Minority shareholders can also now call meetings, propose resolutions and more easily obtain company records.
- Own 35 percent of the shares in public Myanmar companies listed on the Yangon Stock Exchange (YSX).
- We see this as a huge game-changer for the economy. Public Myanmar companies will now be able to access foreign capital to list their entity on the YSX. This will promote the development of the YSX by allowing foreign participation from new institutional investors.
- Allow a board of directors to determine the form of consideration for an issuance of shares.
- Consideration must be fair and reasonable to the company and its shareholders, and the cash value cannot be less than the amount credited for the issued shares.
- Have the option of drafting customized company constitutions, providing they do not breach the MCL.
- This means companies may now have the ability to issue different classes of shares to assist with corporate fundraising initiatives; structuring respective shareholders’ rights accordingly, so a particular class of shareholder may have distribution of dividend rights (even without the entity making profit if the company passes the solvency test); and voting rights, etc. This opens up different fundraising mechanisms as share options and convertible shares may also now be issued.
- Companies will no longer be required to have objects under Articles of Association/Memorandum of Association (Articles) unless this is preapproved by the members.
- Investors should consider whether it is worth updating existing Articles to benefit from these changes under MCL.
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