‘Corporates in ICU could be resuscitated with robust framework’
Sri Lanka’s economy is in a critical state of health and the fact remains that many corporate bodies and even individuals will be bankrupt at the end of this crisis.
The current economic crisis has revealed the need to recognise businesses that are likely to being rendered in insolvent and highlight the need for Sri Lanka to implement a robust framework to resuscitate businesses, says Dilshani Wijayawardana-Attorney at law and the Board Member at Union Bank PLC and Former Commissioner –Securities and Exchange Commission of Sri Lanka said.
“Many corporates as we speak remain in the proverbial ICU state fighting to survive. Some amongst them will certainly die while some others with some external help can be resuscitated,” Wijayawardana told the ‘Reform now Conference’ at the BMICH.
An efficient, reliable and transparent regime is needed for a robust financial system and plays a key role in the reallocation of productive resources, investor confidence and forward-looking Cooperative structure.
“Under our legal system when a company is insolvent it can be wound up under the Company’s Act of 2007. In the case of an individual or a partnership they would be declared insolvent under the Insolvency’s Ordinance of 1884.The law on bankruptcy is essentially procedural in nature.”
However, under the present act alternative legal mechanisms are available to resuscitate a company. I like to flag that there are certain fundamental duties when a company is facing insolvency and I’m sure many companies as we speak now are in this state but unaware of these legal obligations.”
She further said that under Section 219 of the Company’s Act, there’s a duty cast in law and each and every single director whose company is facing insolvency and unable to pay its debts to forthwith call a meeting of the board of directors to consider one whether you should file a petition to wind up the company or to appoint an administrator to run the business of the company.
“Failure to do so will expose the board of directors and each and every single director to personal liability. Most directors are completely unaware of these legal obligations or duties.” Wijeyawardana noted that as Sri Lanka steps into its darkest decade with the current economic crisis, many businesses will struggle to survive.
“The question remains are there provisions in law to resuscitate them or should we let them.
Accordingly, it is extremely important for the corporate sector that you be cognizant of your legal duties where a company is not viable. The main thrust of law should be for a swift and efficient liquidation due to the time constraint to die.”