Legal Boost

Mar. 20 (LBO) — The modernisation of the main piece of legislation that governs the incorporation and running of Sri Lankan companies would substantially boost capital market activities, corporation law experts have said A draft bill to replace Sri Lanka’s antiquated Companies Act, which has been 13 years in the making, is due to be presented to Parliament within months.

“If you glance through any business section of any international newspaper or journal you will read that large co-operate transactions that are taking place in other markets,” says Aritta Wikramanayake, Senior Partner at the law firm Nithya Partners.

“One of the basic obstacles is that our law does not have provisions that enable or facilitate such transactions. Other countries have surged ahead in this regard through various mechanisms such as management buy outs etcetera, because the law gives freedom to give leverage to companies for financing transactions.”

The existing companies’ law prohibits leveraged buyouts (LBO’s) where a company uses cash raised from loans to buyout a group of shareholders, thereby giving full ownership to the remaining shareholders.

In a management buyout (MBO), the management takes control of a company by