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Provisions of corporate disclosure in Fiji are toothless and the failure to create sanctions for directors who act without reasonable care and a reckless disregard for the interests of shareholders, creditors and the public have become features of local corporate failure says former High Court judge Nazhat Shameem.
In a paper prepared for the 2010 Congress of the Fiji branch of the Australian CPA (Certified Practicing Accountant) in Nadi, Shameem said it was clear that the role of the law had not been helpful in the history of corporate governance in Fiji, and the story of the its biggest failures.
Referring to examples of corporate fraud such as the case of Flour Mills of Fiji in the 1970s, the Housing Authority case, the National Bank of Fiji (NBF) debacle in the 1990s and the Agriculture scam in the new millennium, Shameem said that in each case the law proved to be inadequate.
“The maximum sentence for the offences in the Flour Mills case was seven years imprisonment and the offences centred around the making of false entries in the account books. The convictions were set aside on a technical point of law. In the NBF case, there were no convictions. Borrowing money on inadequate security was not an offence if the bank was not fooled. In almost all cases, the bank was not fooled and knowingly lent money on bad security. In Kunatuba (Agriculture scam) the only offence charged was abuse of office, for which the maximum sentence was 2 years imprisonment if the act was done without personal gain,” she said.
Fiji’s Companies Act deals with none of the institutional problems surrounding company fraud and negligence in Fiji, Shameem said.
“It does however deal with the incorporation of companies, the conversion of companies, winding up and bankruptcy. What it does not do, is set down firm rules about the behavior expected of directors. Nor does it provide for the policing of companies, for their prosecution or for sanctions imposed for breaches of directors’ duties. The sad history of corporate and institutional failure in Fiji, reveals a pattern of the breach of fiduciary duties by directors, CEO‘s and senior management.”
Shameem also said the investigation and prosecution of companies in Fiji has been a much neglected area of regulation.
“The Companies Act gives powers of investigation to the Registrar of Companies but who is responsible for enforcement?” she questioned.
Law reform is urgent said Shameem but must be based on tried and tested regimes of other countries which battle with the same experiences of corporate misconduct.
“I would suggest that in order to give any new Companies Decree “teeth”, law reform must not only provide for specific duties of directors, officers and employees of companies, but also create criminal sanctions for non-compliance. A specialised office should be responsible for enforcement and prosecution, and just as is the case in Australia, prosecutions should be conducted in the central courts.
“Further such a regulatory body must have powers to issue infringement notices (e.g. when a company has failed to comply with disclosure provisions) and even to levy fines if civil liability has been found. I believe the ASIC (Australian Securities and Investments Commission) to be a good model for Fiji although I accept that there will be resource implications.
“Nevertheless if the aim of reform is to improve corporate governance in Fiji, the same governance which has been so badly lacking in the National Bank, with such tragic results, then the initial cost will be offset by attitudinal change which may help to build greater accountability for companies, with a view to ensuring protection from such an expensive repetition of history.”
