Company law seen as bad for small business, to be revised

Howard Campbell, Gleaner Writer

Director of professional services at the Mona School of Business (MSB), Dr William Lawrence, has called for urgent modifications to the Companies Act to help resuscitate Jamaica's small business sector.

Speaking at a Small Business Association of Jamaica (SBAJ) function at the Courtleigh hotel in Kingston last Thursday, Lawrence said the act's insolvency clause has been a death knell for entrepreneurs who are placed into liquidation once they accrue insurmountable debt.

He believes it is time for the Government to follow international trends and make radical changes.

"One thing that the Government can do to help SMEs (small and medium enterprises) is to extend the current Companies Act to include a full bankruptcy code," Lawrence said.

"Right now, it stops at company liquidation and that can't help the SME in trouble. The world is moving to having a full bankruptcy code to facilitate the rehabilitation of SMEs."

revise the bankruptcy code

Based on provisions of the Companies Act, Lawrence said once businesses go into liquidation, it is almost impossible for entrepreneurs to recover their reputation, especially with lending agencies.

He stressed that a revised bankruptcy code would give small and medium-sized enterprises another chance at viability.

A new Companies Act was passed in the House of Representatives in February 2004, but there were no changes to its insolvency provisions which were legislated in 1965.

Reginald Budhan, permanent secretary in the ministry of industry and commerce, also spoke at the function. He agreed with Lawrence that amendments to the Companies Act is "an issue that needs to be addressed as quickly as possible".

Budhan told Sunday Business that a committee, comprising officials from the Attorney General's office, finance ministry and private-sector groups is being formed to oversee a revision of the act.

He did not say when the committee would be activated.

SBAJ president Dalma James said a bankruptcy code similar to Chapter 11 filings in the United States would be ideal. It would give some encouragement to aspiring entrepreneurs who are afraid to take a chance, fearing that they will fail under the present system.

He disclosed that the SBAJ has over 650 members, but said its attrition rate is troubling.

"It's pretty high, maybe 15 to 20 per cent. We have a high turnover rate in terms of the start-ups," James said.

Lawrence's address was based on results of three-weeks of recent islandwide research by the MSB. He said his team interviewed 262 small business owners in the 14 parishes, many of whom pointed to the worldwide recession, taxation, and the exchange rate as their greatest challenges.

According to Lawrence, their frustration reflected a report on Jamaican SMEs in the 2008 edition of the Global Entrepreneurship Monitor. It stated that the country's economic challenges prevented many start-up businesses from making the transition to established companies.

business@gleanerjm.com