As our clients and readers may have already seen reported in the Myanmar press (for example: https://www.gnlm.com.mm/directors-shareholders-in-absence-of-ar-disallowed-to-set-up-new-companies/), the Directorate of Investment and Company Administration (DICA) has introduced a new policy regarding incorporation applications where a director or shareholder of a proposed new company is an existing director or shareholder of a current suspended company.
Background on Annual Returns and suspension
Under the Myanmar Companies Law 2017 (MCL), companies are required to file an Annual Return once per year by no later than one month after their anniversary of incorporation. If the Annual Return is overdue by one month, the company’s status in the My Companies Online (MyCO) online company register is changed to “suspended”. The suspended status can be removed by filing the overdue Annual Return, along with an application to remove suspension, and paying filing fees and late fines. If the company remains suspended for six months – that is, if the Annual Return is overdue for a total of seven months – it becomes liable to being struck off the register and dissolved by DICA. To date, to the best of our knowledge, DICA is allowing companies more than seven months to rectify late Annual Return filings and has not been striking off companies promptly following them becoming liable to striking off. However, DICA is regularly striking off companies that have been suspended for an extensive period on a monthly basis – usually hundreds of companies per month.
Pros of the new policy
DICA’s new policy clearly appears to be aimed at enforcing and improving compliance on Annual Return filings. Some form of annual company filing is required in most jurisdictions. This is usually not a very difficult requirement to meet – and filing an Annual Return in Myanmar is certainly not difficult.
Also, some directors and shareholders use striking off for failure to file an Annual Return as a ‘zero cost’ option to, in effect, liquidate companies. This is not the intention of the striking off mechanism and increases the risk of companies being deregistered without having dealt with their remaining assets and liabilities – as is required under a winding up and liquidation.
Improving compliance standards on basic annual filings and on proper winding up and closure of companies is a positive for the efficient administration of companies in Myanmar. Further: (i) as this new policy only applies to directors and shareholders who are trying to incorporate a new company, it is of limited effect; and (ii) as discussed below, DICA should possibly be considering seeking to impose fines on directors who fail to file Annual Returns on time – most directors will consider this new policy less onerous than being subjected to fines.
Some comments on implementation
To the best of our knowledge, no announcement has been made by DICA about this new policy. This lack of transparency is problematic – directors and shareholders should be able to find out about changes in the way DICA is administering company incorporations without having to wait for news of practical examples to filter out.
Section 6 of the MCL sets out the requirements for an incorporation application for a company. Section 8(a)(i) of the MCL states that “When [DICA] receives a completed application which upon any necessary examination meets the requirements of this Law, [DICA] must: (i) register the application….” [emphasis added]. That is, if the requirements of section 6 have been met, DICA is obliged to incorporate the new company – the MCL does not give DICA discretion to impose new requirements for incorporation applications outside of the contents of section 6.
Section 97 of the MCL requires existing companies to file Annual Returns. However, there is no link between section 97 and section 6 or section 8(a). On the language of the MCL, it therefore appears that DICA does not in fact have authority to impose this new policy that introduces an additional requirement for incorporation – nor to introduce any other additional requirements for, reviews of, or bans on incorporations, unless on grounds expressly authorized by the MCL. However, Myanmar has very limited avenues of administrative law review. Even such review as is usually available, being the relevant Constitutional writs, are suspended during a state of emergency and not presently available. There is therefore no practical prospect of any challenge to DICA’s new policy on the grounds that it may be ultra vires.
As mentioned, the obligation on companies to file an Annual Return is imposed by section 97 of the MCL. Sections 104 and 105 of the MCL provide that where a company fails to meet its filing requirements – which would include Annual Return filings – “every director and other officer of the company who is knowingly and wilfully involved in the default shall be liable to a fine of 500,000 kyats”. We are not aware of any instance to date since the MCL came into effect of DICA seeking to impose fines on directors in relation to late Annual Return filings. Such fines are the actual enforcement mechanism provided for under the provisions of the MCL. However, as noted above, directors will most likely be happy to accept DICA’s new limited policy rather than see DICA seek to have fines imposed on directors for late filings.
Conclusion
Please feel free to contact us if you would like assistance with any Annual Returns, company suspension or winding up and liquidation issues or more information on DICA’s newpolicy.