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Newsletters » April 2006 Issue

THE GOVERNANCE OF STATE ENTERPRISES IN TRINIDAD AND TOBAGO

  1. Over the past 30 years one of the most outstanding aspects of corporate law in Trinidad and Tobago has been the continuing failure of successive governments to either appreciate or acknowledge that there is a distinction between State Enterprises which are companies incorporated under the Companies Act as opposed to State Enterprises which are Statutory Corporations established by an Act of Parliament.
     

  2. The foregoing distinction has been recently recognized in the local courts by the judgment of Mr. Justice Smith in the case of Oropune Village Multipurpose Co-operative Society Limited v Propane Development Limited et al (H.C.A. No. 1483 of 2002). In that case the Court recognized that there was a distinction between a State Enterprise in the form of a Statutory Corporation such as the Water & Sewerage Authority (WASA) as opposed to a corporate body established under the Companies Act such as Urban Development Corporation of Trinidad & Tobago (UDECOTT). The distinction is that in terms of the conduct of the business or governance of its affairs a body such as WASA is required to comply with special or general directives given to the Board by the Minister in charge (see Section 10 of the WASA Act. Chap. 54:40) However in the case of an institution such as UDECOTT which is incorporated under the Companies Act the governance of that body is vested in the Directors as a matter of law to the exclusion of the shareholders. This means that although the 100% shareholder is the Minister of Finance (Corporation Sole), no officer in that Ministry is lawfully entitled to issue directives to the Board of Directors of UDECOTT as to the conduct of its affairs.
     

  3. Such instructions are only founded on a proper legal basis in the case of a Statutory Corporation such as WASA or the like because the “line” Minister is given the express Statutory power to issue directives and instructions.
     

  4. The giving of directives and instructions is wholly without any legal foundation and contrary to corporate law when one comes to deal with a State Enterprise which is a company incorporated under the Companies Act. This is because it is well established in law that the persons who are in charge and control the affairs of such a company are the Directors: This is made clear by Section 60 of the Companies Act 1995 which provides:

    “Subject to the articles and any unanimous shareholder agreement, the directors of a company shall –

    (a) exercise the powers of the company directly or indirectly through the employees and agents of the company; and

    (b) direct the management of the business and affairs of the company
     

  5. The continuing failure to recognize the foregoing distinction is best exemplified by the recent creation of 15 special purpose State Enterprises established under the Companies Act to execute and implement various governments projects. Although the conduct and management of the affairs of such bodies will be vested in the Board of Directors appointed by the Minister of Finance (Corporation Sole), it is quite clear that the shareholder will want and is to be expected to want to dictate and direct how any one of the particular State Enterprises should conduct its affairs. At the same time the Directors in strict Company Law will have a duty to exercise independent judgment and not to be fettered by any government directive in the exercise of their discretion. It seems inevitable that there can be a conflict between the objectives of the shareholders and the duties of the Directors unless they are prepared to be labeled as “yes” men. In such circumstances it is likely that persons who may be adversely affected by decisions of any one of those State Enterprises can seek to challenge them in Court. The extent of which such a challenge can be pursued is a matter still to be determined.
     

  6. In order to avoid continuing legal confusion in this area the ultimate solution would seem to be the passage of legislation to recognize a special purpose State Enterprise which would take such a body outside of the Companies Act and put it within the confines of its own unique arena. The new regime would involve the obligation on the Board of Directors of such a body to comply with special and general directives of the Minister. It would remove the present taint of unlawfulness which hangs over the governance of State Enterprises incorporated under the Companies Act.

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