Focus Media (Kigali)
Sam Ruburica
15 May 2008
opinion
A sigh of relief has gone through the business community, now that specialized commercial courts have finally been set up. Over the years, the business community has often complained about the lack of specialized laws, and especially courts, that would help them settle business disputes.
In the past, commercial cases were heard by ordinary courts which, given the heavy case-load these courts were facing, often caused long delays.
This has also hampered the government's efforts to attract foreign investors for whom the existence of a consistent law and specialized courts is often an important factor in their decision to do business in a country.
However the Government's efforts of reforming the business law set the wheels in motion with the establishment of the business law reforms task force back in 2005, which quickly established three commercial chambers where one was in Kigali and the other two were established in the western and southern provinces.
Under these new commercial chambers, disputes were to be heard by a Judge and two lay assessors knowledgeable in commercial issues. Richard Mugisha, the chair of the law reform task force, explains the attachment of the assessors was due to the lack of specialized skills to deal with commercial dispute resolution amongst judges.
However, the implementation of this law was impossible given the fact that no assessors were ever appointed, so the commercial chambers never heard any cases.
This has created a new backlog of commercial cases. The economic impact of the absence of commercial courts is that contracts are difficult to enforce, and that businessmen find it next to impossible to enforce payments of debts.
This discourages investment, and increases the cost of business since entrepreneurs often take out bank loans to finance operations, and bear the burden of the interest when the customer fails to pay on time. Essentially every investor takes the risk that if cheated; the courts may not provide any recourse.
Richard Mugisha highlighted the failure of the system saying that the inability to enforce contracts and the prevailing bad debt culture are constraints to private sector development. "For instance, they cause financial institutions to restrict credit facilities and charge higher interests due to high risk and cost of recovery," he said.
On the other side, small businesses often collapse due to bad debts, which has led the business community to believe that the inefficiency of commercial courts encourage debtors to delay or avoid payment of loans and other debts.
Single-owner companies
Furthermore, foreigners were not very comfortable with the protections (or lack thereof) offered by the former Rwandan business law, and it is common for them as they negotiate contracts to require dispute settlement to be subject to foreign law and by way of arbitration.
Moreover, the lack of a coherent business dispute settlement system has a less obvious consequence, which is that local entrepreneurs mostly prefer to be sole proprietors of a business rather than pooling resources to establish companies.
Indeed, more than 95% of enterprises in Rwanda are owned by a single proprietor, due to the fact that there were no specialized courts to settle possible disputes between shareholders.
The good news is that specialized commercial courts, as well as a high court, have finally been created, and are expected to start their operations this month. And they have their job cut out for them.
According to Benedict Gakwaya Gatete, the vice president of the commercial high court, so far there are 2,690 cases waiting to be heard, with the Kigali commercial court scheduled to deal with more than 2,000 disputes, while Huye court in Southern Province and Musanze in Western Province set to hear 450 and 240 cases respectively. The commercial high court, for its part, is faced with a backlog of more than 700 commercial cases.
The high court, Gatete explains, will deal with disputes involving amounts above Frw 20 million.
In a bid to beef up the skills to deal with commercial cases, the government has also hired expatriate judges who are specialized in commercial law and who will be subordinated by Rwandan judges. The government has also embarked on improving the capacity of the local judges.
"Currently, seven judges are completing a masters degree in commercial related disputes in South Africa," Mr Gatete remarks.
Apart from the courts, certain commercial cases can be resolved through alternative dispute resolution such as arbitration, mediation and conciliation.
"We are waiting for the alternative dispute resolution law to be passed in parliament," Mr. Gatete says, adding that it is the most widely used system in developed countries and has proved to be efficient.
Business innovations
Before the business law reforms, Rwanda was still using the 1988 company law which was not capable of handling the innovations that have taken place in doing business.
According to Frank Twagira, who is in charge of doing business reforms at RIEPA, the new company law will ensure best practices through streamlining of all the operations a company undertakes. He says that it will also address the protection of minority shareholders who tend to be over-ruled by the majority shareholders.
He also remarks that the new company code will ensure smooth disclosure of company dealings. "Before this new company code, there was no disclosure process which resulted into funny dealings that went undetected," Mr. Twagira explains.
Moreover, he points out that the new code will also ensure penalties for directors in case of violation of the company code, and that issues regarding closure of a company due to bankruptcy will be addressed.
"Issues regarding liquidation and insolvency will be addressed in the company law rather than the most commonly used system where, if a company goes bankrupt, it closes down and the owner arranges with the bank on the how it can get its loan serviced," Twagira says.
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