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New law to ban dividends based on a year's profit

Star Business Report
Companies will not be allowed to declare dividends on the profits of a single year following losses of preceding years under a new Companies Act, experts said yesterday.
"If a company is sitting on an accumulated loss for a few years, it will not be able to declare dividends for shareholders on the basis of a one-year profit," said barristerTanjib-Ul Alam.
"The company will have to offset the loss first and then it can proceed to award dividend if it has any distributable profits. Otherwise it will be illegal," he said.
"Under the circumstances, the capital will trim down if any company declares dividends. Besides, the company will not be able to announce dividends based on reserves after asset reevaluation," the lawyer said.
He said the proposed law, which could be made into law by next year, would also exempt directors from buying shares in their own names. The current laws stipulate that directors must buy shares of the company.
The Supreme Court lawyer spoke at a discussion, "Benefits of Companies Act Reform in Bangladesh" at Ruposhi Bangla Hotel in the city.
Dhaka Chamber of Commerce
and Industry (DCCI) and Business Initiative Leading Development (BUILD) jointly organised the programme.
Alam is a member of a 17-member government committee, which is working on reforms in the century-old Companies Act to make the law more business-friendly.
Richard Shaw, an expert on Companies Act reform, said Bangladesh is at the forefront of the changes in corporate law in the world. It must have a platform for creating enterprise if the country wants to have a growing economy.
He said all stakeholders such as the government, the private sector, registrars and courts need to work together to make the effort successful.
"Bangladesh should adopt the world's best practices and have flexibility to change to meet market needs," said the Canadian expert.
The government team hopes to place the draft Companies Act before the Parliament by this year for further debate, said commerce secretary Ghulam Hossain, who is leading the team.
He said they are bringing changes to all policies and acts to have a comprehensive trade regime in the country to help businesses flourish.
Commerce Minister Ghulam
Mohammed Quader said the government is bringing changes to the laws as the current Companies Act, which was last amended in 1994, has become outdated.
"The businesses have become complex. Many countries are amending their Companies Act to cater to the changing needs," he said. "Our target is to make business processes easier and transparent."
DCCI president Asif Ibrahim said a number of laws and regulations covered in the existing Companies Act do not reflect the recent developments in the business community. As a result it impedes private sector growth to some extent.
"Simplified business processes will result in reduced time and costs of carrying out business. A new and modern Companies Act will create a conducive business environment by eliminating difficult compliances for businesses," he said.
"We should plan to formulate a Companies Act keeping the context of at least 25 years accommodating future changes in the country."
Alam said the amended laws would not allow mushrooming of companies in the country. He said the Act also includes insolvency clause to facilitate exit from the
market in case of any business failure.
The team is studying laws in the UK, USA, Malaysian, Australia and Singapore to make the Act effective and hassle-free.
"The Act will encourage the use of modern communication tools in conducting business activities such as teleconferencing for helping overseas shareholders take part in the meetings or exchangingletters.”
Jisha Sarwar, private sector development officer of Bangladesh Investment Climate Fund, said a major reform of the Act is required, where new provisions are included in order to simplify business processes and make it easier for businesses to start, operate, and make exit.
"This can significantly improve Bangladesh's position in the internationally acclaimed Doing Business ranking. Bangladesh needs to have a strong and time befitting company act to compete with the fast growing commercial world, and to attract foreign direct investment and smooth economic development. "
Ahmedur Rahim, registrar of Registrar of Joint Stock Companies and Firms, and Sajjad Zahir, a director of Economic Research Group, and Jisha Sarwar, also spoke.