Zimbabwe: New Act Curtails Shelf Company Manipulation

27 February 2020

Some criminals that for long, have been manipulating the laxity around the registration of shelf companies, will have their shenanigans curtailed by new provisions of the recently promulgated Companies and other Business Entities Act (Chapter 24:31), Herald Finance & Business can reveal.

The Act, among other fraud curtailing strategies, entails that shelf companies can only be kept on the shelf for a maximum of 12 months, after which they get automatically struck-off register if they are not passed on to bonafide and operational businesses.

A shelf company is one that is pre-registered, has no assets or liabilities and largely registered for onward disposal to businesses who are unwilling to go through the rigours of registering a company.

Shelf companies, the world over, have been used as business financing accessing vehicles by fraudsters who don't intend to meet their statutory obligations.

Speaking at a workshop on "mining fiscal transparency, accountability and beneficial disclosure" organised by the Zimbabwe Environmental Law Association (ZELA), Department of Deeds, Companies and Intellectual Property deputy Chief Registrar Willie Mushayi, said the department had serious reservations against shelf companies concept in Zimbabwe.

He said during consultations for the new Act, the department had submitted that shelf companies be completely done away with from the statutes.

However, he said, their registration has been continued albeit with limitations that is aimed at removing clutter from the national company register.

"In the end we compromised and ended up with Section 293 . . . indeed, we have a lot of them on the register right now, they occupy space they dominate our shelves and really they are a nuisance to manage," Mr Mushayi told participants at the workshop yesterday.

"Many of them have been abandoned, you really don't know which one is alive, which one isn't. So the new Act allows agents to register shelf companies as long as they declare that this one is a shelf company so that the registrar will know, on incorporation, that I am registering a shelf company.

"When you incorporate that company, within the next 12 months, we assume that you are going to sell it to a businessperson who wants to operate it and then that requires you to make changes on details like directors, address and at the anniversary submit an annual return.

"If all that doesn't happen, it shows the company is not active and therefore doesn't deserve to remain on the shelf and we will remove it without further formalities," he said.

Under the ease of doing business in Zimbabwe, Government has substantially simplified the requirements for registering a company to operate in Zimbabwe.

Mr Mushayi noted that the company registration process has been simplified with some forms merged and those that were complex being made simpler for the purposes of prospective business people who might want to self-act.

Panellist had earlier on noted that the extractive or mining sector was the one that is particularly prone to manipulation across the value chain hence the importance of communities to know who owns what in which company so that businesses can be held accountable. The new Companies Act repealed the Companies Act (Chapter 24:03).

In as much as the new Act brought some positives to the registration and administration of companies, there are a number of matters in the new law that need to be revisited.

Legal experts say drafters of the Act (Chapter 24:31) need to re-look at some of its provisions that are unclear.

Retired Judge Justice Moses Chinhengo, recently said although the law was progressive, Sections 4, 54 and 95 required refinement.

"I think there are a number of progressive changes that have been brought to our Companies law. But there are a number of faults where if I were in a position of influence I'd say please let's refine this Act. Another guidance is that when you come up with your regulations, those regulations must be intra vires the Act, and those regulations will tell us exactly how the Act will be implemented.

"I have often stressed in other fora that Government is run on regulations and you can't leave it to the discretion of officials to do this or that. When the regulations are clear that is the right way to go," he told a recent Zimbabwe Association of Pension Funds (ZAPF) meeting in Harare.

Nobert Phiri, managing partner with Muvingi-Mugadza Legal Practitioners, concurred with the Retired Judge.

"In my considered view, the new Companies Act is a welcome development and it carries provisions that are progressive in terms of the ease of doing business.

"However, as with new concepts that we have adopted from other jurisdictions . . . We have borrowed some concepts from other jurisdictions like New Zealand, perhaps Australia and South Africa; these concepts require refinement.

"There are issues that need attention, particularly if you look at Section 4, which deals with the entities that are affected or are supposed to be administered by this Act. The way in which it is drafted is not clear. Are insurance companies administered in this Act? So there are certain areas that the drafters need to relook, because legislation needs to be clear to everyone."

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