Investors into the DRC will undoubtedly find the implementation of the Uniform Act on Commercial Companies and Economic Interest Groupings (the AUSGIE, from the acronym formed by its French name) a welcome development. The current DRC legal framework relating to commercial companies stems from disparate legislation originally dating back to the colonial era (in some respects going as far back as 1887). In a few cases it contains historical anomalies ill suited to modern business practices. For example the DRC decree-law of 22 June 1926, as subsequently amended, still requires specific Presidential approval for the formation and changes in the shareholdings in sociétés par actions à responsabilité limitée (joint stock limited liability companies). It also provides that such société par actions à responsabilité limitée may not have less than seven shareholders. It limits the voting rights attached to shares, so that regardless of the number of shares held by a shareholder, its voting rights may never exceed 20% of the total voting rights attached to the total number of shares or 40% of the voting rights attached to the shares held by the relevant shareholder. By way of contrast, the AUSGIE is a modern piece of legislation which, at the time of its promulgation (1997), reflected the most recent trends in continental European (particularly French) company law. Consideration is currently being given to updating the AUSGIE.
The DRC enjoys considerable natural resources and much foreign investment to date has taken the form of joint ventures concluded either with other foreign investors or with DRC shareholders (often public sector entities) in the natural resource sector. The management and administration of such joint ventures often requires delicate negotiation between shareholders in order to ensure a proper balance is achieved between control of direction and strategy, voting rights and rights to dividends. While the DRC has already adopted a series of progressive and modern codes relating to various industrial sectors (e.g., a Mining Code, a Forestry Code and an Investments Code) which have succeeded in making those sectors attractive to international investors, existing company law makes it difficult for parties to joint ventures to enshrine certain controls (particularly shareholder control over management) desirable for safeguarding their interests. Joint venture parties have had to introduce these controls through private joint venture agreements which do not always fit well into the legislative framework and which raise issues of enforceability as against the joint venture entity itself.
The implementation of AUSGIE will make it easier for joint venture shareholders to conclude such arrangements in a manner consistent with the legislation to which the joint venture company itself is subject, rendering such arrangements enforceable against the company and against third parties. In the future these arrangements may be incorporated in the joint venture company’s own Articles of Association (statuts) which are filed with the local commercial registry and are a matter of public record.
Main forms of commercial companies
The AUSGIE creates two forms of companies, the société à responsabilité limitée or SARL (limited liability company), and the société anonyme or SA (joint stock company) which are the equivalents of company forms well known throughout continental Europe. This will enable joint venture partners to negotiate arrangements within a familiar framework. Subject to certain limitations, parties are free to create different categories of shares with diverse voting and dividend rights, and enjoy a certain measure of freedom in determining how management of the company is to be performed.
The OHADA SARL does not have a board of directors and management is exercised by one or several managing directors (gérants), subject to certain decisions which as a matter of law can be made only by shareholders. The challenge for investors using this form of company is ensuring that certain strategic acts are not decided upon without due consideration being given to the views of the shareholders. This can be a subtle process given that as a matter of law, the gérant is fully entitled to represent the company vis-à-vis third parties unless such third parties have actual notice of any requirement for shareholder approval (and the mere fact that statuts are a matter of public record does not suffice to put such third parties on notice).
The OHADA SA by contrast normally has both a board of directors (conseil d’administration) and management consisting either of a single Chairman and Chief Executive Officer (Président-Directeur Général) or, at the option of the shareholders, a separate Chairman of the Board (Président) and Chief Executive Officer (Directeur Général), both of whom are designated by the Board. This allows for a bifurcation of power and control particularly well suited to joint ventures concluded between foreign investors concerned more with long-term strategic decisions and local parties who may be better suited to deal with the day-to-day management of the company. Alternatively, in companies with less than three shareholders, it is possible to opt for management by a single managing director (administrateur général) much along the lines of an SARL; this form of management can be particularly useful in the case of wholly-owned subsidiaries. Indeed, the single shareholder SA is also specifically authorised under AUSGIE and will certainly be an improvement on the seven shareholder société par actions à responsabilité limitée (or SARL) currently used in the DRC.
It is noteworthy that, to avoid the overly burdensome regime for SARLs provided by the DRC law as described above, most DRC companies chose to be incorporated as a société privée à responsabilité limitée (or SPRL), and chose this despite the fact that the SPRL form was initially tailored for privately held or closed companies (such as family-owned businesses). As a consequence of the implementation of the OHADA law, DRC companies will be required to bring their constitutional documents (statuts) into line with the rules governing the relevant corresponding OHADA type of company. This implies in theory that a company established as a SPRL would opt for the OHADA SARL form, which provides for the most comparable and similar regime. However, it may be advisable for certain businesses that are incorporated “by default” as SPRLs to take one step further by ultimately converting into an OHADA SA (the typical open capital company), which is in practice likely to be the most suitable form to conduct their business.
AUSGIE and other Uniform Acts which will come into force in the DRC in September could also present a series of challenges to foreign investors which will need to be considered closely by them in conjunction with their international and local legal and financial advisors. Limitations on the number of offices directors or officers may hold simultaneously in different companies could make it more difficult to source local talent in order to staff such positions. Detailed criteria have been established with respect to the holding of meetings of shareholders and (where relevant) the Board of Directors and although considerable latitude is provided for the mechanics thereof to be decided in the statuts of the company, it still appears necessary for an actual meeting to take place in certain circumstances. This will mean that the adoption of resolutions by simple signature of unanimous “actions in writing” by members of management located in disparate places will not be possible. Certain “interested party” transactions concluded between an SA and members of its management or Board of Directors (or with other companies in which such managers or directors are also interested) are either prohibited outright or (unless they are routine transactions concluded at arms’ length) are subject to prior approval by the Board of the SA (with the “interested” directors required to abstain). This restriction can render the process of concluding intra-group transactions complex. It is hoped that several of these issues will be dealt with in the modifications to AUSGIE currently under consideration.
Accounting and auditing
Similarly, other modifications to the legislative framework will present both incentives and challenges to investors. All SA companies and certain SARL companies meeting certain thresholds as to share capital, total annual turnover or levels of employment, are required to designate official statutory auditors (commissaires aux comptes) who review and certify the company’s accounts. This naturally provides a safeguard against irregularities in the accounts (and all of the major international accounting firms maintain offices in several OHADA member states) but it also grants such auditors power to trigger “alert proceedings” requiring management to respond to queries in the event of financial difficulties. The OHADA Uniform Act on Accounting Law (AUL) creates a comprehensive framework for accounting rules and procedures but these may be different from the international accounting standards used by major international companies. One such rule requires the alignment of a company’s financial year with the calendar year and imposes an obligation to close annual accounts on 31 December.
The OHADA Uniform Act on Insolvency Proceedings also provides a comprehensive framework not only for companies encountering financial difficulties and seeking relief from the pressing demands of creditors, but also for creditors to file their claims.
The changes to DRC law wrought by adhesion to OHADA are as significant as they are welcome, and are likely to require adjustments to the articles of association of most existing DRC companies. For this reason, the AUSGIE provides a transition period of two years for companies to modify their articles of association in order to bring them into line with the AUSGIE. The existing articles of association will continue to apply to such companies until they are so modified, but after the two-year period, i.e. from 12 September 2014, any provision of the articles of association of any company that have not been modified so as to render them compliant with AUSGIE will be considered as inapplicable and will be replaced by the relevant AUSGIE provisions. However uncertainty exists as to the entry into force of other provisions such as for instance the AUL, which upon its adoption on 24 March 2000 provided for a one to two years transitional period, but contains no transitional regime for companies in jurisdictions that become subject to the AUL thereafter. In light of the above, investors in the DRC should consider at an early stage which position to adapt with regard to the compliance of existing commercial companies with OHADA law.