On 5 May 2014, the revised Uniform Act on Commercial Companies and Economic Interest Groups (the Revised Uniform Act) entered into force in the seventeen member States of the Organisation pour l'Harmonisation en Afrique du Droit des Affaires (Organisation for the Harmonisation of Business Law in Africa or OHADA).
The Revised Uniform Act, which implements the decision of the OHADA Council of Ministers dated 30 January 2014, provides for long-awaited improvements, such as the creation of new forms of securities (including new preferential shares) and modernisation of corporate governance rules,) which are intended to adapt the company law framework to a rapidly changing economic landscape.
These changes will undoubtly impact investments by foreign companies in the energy sector in OHADA member States, in which the conduct of operations generally requires the registration of a local entity (a branch or a subsidiary).
In this context, specific attention should be drawn to the following features:
- Creation of the simplified share company (société par action simplifiée or SAS). We can predict a bright future for this new legal form of company based on our experience in France, in which it was successfully introduced in 1994 (and modified in 1999). The SAS provides significant flexibility by permitting most issues regarding form of management and relations among shareholders to be dealt with in the company’s Articles of Association (statuts) rather than by strict rules set forh in the company law itself (the sole mandatory requirement being that the SAS is represented by a Chairman (Président), who may itself be a legal entity). Energy companies will thus have a free hand in structuring their local subsidiaries with respect to corporate governance, powers of the shareholders, transfer of shares, etc. Shareholders’ agreement can therefore be restricted to those matters which require confidentiality.
- Confirmation of the validity of shareholders’ agreements. The validity of shareholders agreement has been questioned by the authors of learned legal commentary (doctrine), who emphasised that shareholders’ agreements were contracts governed by the local legislation of each OHADA member state (and not governed by the OHADA Uniform Act on Commercial Companies and Economic Interest Groups)1. Although this uncertainty did not significantly impact the use of shareholders’ agreements in the energy sector, where they played a key role in terms of organisation of the functioning of jointly held companies and the sharing of the profits between partners, the development is a favourable one as the Revised Unifom Act puts an end to uncertainty and expressly acknowledges the validity of shareholders’ agreements.
- Clarifications regarding Article 120 of the Uniform Act on Commercial Companies and Economic Interest Groups. Several uncertainties existed concerning the interpretation of this article, which provides that a branch of a foreign company located in an OHADA member state must be converted into a company constituted under local law within two years unless this obligation is waived by order (arrêté) of the minister in charge of trade in the member state in which the branch is located.
The definition of “foreign companies” was not clear and it was generally interpreted as applying to companies which are not themselves registered in an OHADA member State.
The condition for the renewal of an existing branch and the potential sanctions were not defined which left room for different interpretations by member state. We have seen in this respect an evolution in a large number of States (including inter alia Gabon and Ivory Coast) toward increased rigour as the renewal of the branch registration was accepted only once and failure to convert a branch into a local company was sanctioned by the removal of the branch from the register of companies (registre du commerce et du crédit mobilier) (the RCCM) (and the potential loss of the rights granted in the country).
This position, which is based on the desire to control foreign investments (regarding inter alia tax aspects), was often considered inaccurate especially in the oil and gas sector, in which branches are used during the exploration phase (which usually last more than four years)2.
This concern has unfortunately not been reflected in the Revised Uniform Act, which:
- clarifies that only one waiver of two years can be granted (accordingly, even if such waiver is granted, a branch must be converted into a subsidiary after four years of registration);
- provides two types of sanctions which apply if the branch has not been converted into a subsidiary within two years:
a. pursuant to a decision of the relevant jurisdiction (which can act sua sponte or following a petition by any interested party), the registrar or the relevant authority can remove the branch from the RCCM; and
b. a new article 891-2 of the Uniform Act provides a criminal penalty for the directors of the foreign company, in the event the branch has not either been converted into a company within two years or removed from the RCCM.
- Creation of a representative office (bureau de représentation (ou de liaison)). This structure will be registered with the RCCM but will not have a legal personality. It is to some extent close to the autorisation temporaire d’exploitation (ATE) which currently exists inter alia under the Congolese local legislation or thebureau de représentation which already exists inter alia in Niger. The bureau de représentation should offer new options for foreign companies (especially in countries in which such structure was not available) conducting short term missions in OHADA member States (such as as service providers in the oil and gas sector). This should however be confirmed in each country by the authorities in charge of the energy sector.
The Revised Uniform Act will encourage the development of the energy sector in the OHADA member States. However, there is still room for improvement and new developments (such as the creation of a computer database for the RCCM and the ability to distribute interim dividends) are still awaited in order to facilitate and develop foreign investments in the energy sector.