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Accession of DRC to OHADA: Impact on State-Owned Companies

Emery Mukendi Wafwana & Associates > Blog Cabemery  > Business News  > Accession of DRC to OHADA: Impact on State-Owned Companies

Accession of DRC to OHADA: Impact on State-Owned Companies

UPIO2EMW_4Protection of state-owned companies subsequent to the accession of the Democratic Republic of Congo to OHADA

Emery Mukendi Wafwana
Upio Kakura Wapol

On September 12, 2012, the Democratic Republic of Congo (DRC) became party to the community law, Treaty, Decisions and Uniform Acts of the Organization for the Harmonization of Business Law in Africa (OHADA Law) , thus making the country, the OHADA 17th member State. This membership does not create any coexistence problem due to OHADA supranationality of its norms that make its legal and regulatory provisions binding and repealing.

However, such enforceability of OHADA Law seems to have worried in some ways the DRC Government who wishes to be reassured regarding the protection of State-owned commercial companies not only against the impacts of the General Uniform Acts, but also, in particular, against the Uniform Act Organizing Collective Proceedings for Wiping Off Debts. Actually, since the process of transforming state-owned companies is not yet finalized, the winding up of such companies will adversely affect the dynamism of the national economy, shake macro-economic stability and ultimately lead to social unrest.

Many are of the opinion that the entry into force of OHADA Law in the DRC would probably undermine the objectives set and the progress made by the DRC Government to enhance and reorganize state-owned companies. Furthermore, it was feared that OHADA Law might not be consistent with measures governing state-owned companies which, inter alia, provide such companies with a three-year waiver from bankruptcy.

The Law No. 08/007 of 7 July 2008 on the transformation of State-Owned Companies, which grants these companies, by way of derogations, a transitional system of bankruptcy, needed to be accommodated with provisions of the OHADA Uniform Act Organizing Collective Proceedings for Wiping Off Debts, otherwise it would be incompatible and could be repealed in accordance with article 10 of the OHADA Treaty.  In this perspective, the Law No. 12/2009 of 31 December 2012 amending the Law No. 08/007 of 07 July 2008 sets forth special provisions essential to the continuation and finalization of the transformation process of State-Owned Companies. As a result, the process must be substantiated by regulatory legal, economic, and financial measures.

Parliamentary debates that punctuated the passage of the Law of 31 December 2012 mentioned above requires an in-depth analysis of the OHADA Law, more specifically the doctrine and case-law (or jurisprudence), especially in its provisions related to commercial companies subjected to a special regime (I), to collective procedures and their limitations (II), to the immunity from execution and immunity from distraint of assets held by companies with state capital (III), as well as residual or suppletive powers granted to the Congolese legislator (IV), likely to protect state-owned companies being transformed into commercial companies  now referred to as “Portfolio Companies”.

I. Rules applicable to companies subjected to a special regime

State-owned companies are governed by Law No. 08/007 and No. 08/010 of 7 July 2008 on the transformation of the said companies and on the Organization and Management of the State portfolio (“the Reform of 2008”) as amended by Law No. 12/009 of 31 December 2012. These companies are, under OHADA Law on commercial corporations subjected to a special regime defined in article 916 of the OHADA Uniform Act on Commercial Companies and Economic Interest Groups.

Being commercial corporations under a mixed legal regime, they are subjected not only to relevant provisions of OHADA Uniform Act on Commercial Companies and Economic Interest Groups (AUSCGIE), but also to the provisions of the Law 08/007 and Law 08/010 of 7 July 2008. That said, provisions that are contrary to AUSCGIE shall not apply to them.

Actually, the OHADA law makes allowances to companies subjected to a special regime (article 916 of AUSCGIE) [1] sheltering assets of State-owned companies from the general pledge of their creditors, thereby granting them an immunity from execution (article 30 of the Uniform Act Organizing Simplified Recovery Procedures  and Measures of Execution (AUPSRVE)[2].

It stands out from the comparative review of the provisions of articles 908, 916 and 919[3] of AUSCGIE that the specific legal and regulatory provisions, to which companies with a special regime are subjected, will not be repealed. However, these provisions shall survive if they are not contrary to the provisions of the said Uniform Act. Therefore, as per CCJA Notice No. 001/2001/EP of 30 April 2001, a legislative or statutory instrument under domestic law, which is neither contrary, nor identical to any of the OHADA Law provisions, should form part of the special legal regime whose validity seems to be indisputable.

Statutory and regulatory instruments in force demonstrate clearly that in the organization and operation of commercial companies resulting from the transformation of former state-owned companies, there is residual evidence of public law such as the appointment of directors by the President of Republic, monitoring of State disengagement, strong ties with the Government.  Indeed, State companies have signed by special agreements or shall conclude agreements with the State. Therefore, they remain under the constraints of public service, meaning they have to fulfill their obligations as public services[4], ensure compliance with State technical and financial control, as well as submit to administration and management powers of the Government through the Minister of State Portfolio.

Furthermore, the Reform of 2008 was characterized by the survival of the regime applicable to former state-owned companies as described in transitional provisions of Chapter V and, especially, in article 17 of the Law No. 08/007. Legislators in 2008 have hence transformed companies into new “state-owned companies” as set forth in article 3 of the Law No. 07/010. It means that, while placing state-owned companies transformed into commercial companies under common law, the reform of 2008 did not intend to confine derogatory provisions solely to aspects pertaining to incorporation rules for limited liability companies (SARL) but also to the bankruptcy regime[5].

The special legal nature of sole shareholder and state-held commercial companies (the sole shareholder being the State) also derives from the actual nature of the asset (patrimony) the State contributes with, transfers or allocates to these companies. If the State’s contribution consists in the transfer of a piece of asset from the State domain (whether public or private), in this case, the commercial law becomes applicable to such companies so long as there is consistency with relevant mandatory rules of the public law[6]. These mandatory rules survive notwithstanding the application of OHADA Law, which supersedes the DRC commercial law.

II. Law applicable to Collective Proceedings for Wiping Off Debts and limitations of such proceedings

With regards to the issue of bankruptcy (which may be brought up for State-owned enterprises and companies due to the expiration of the interim special exemption regime provided for in article 14 of the Law No. 08/007 of 7 July 2008 on the transformation of State-owned Companies) it is worth highlighting that the Decree of 27 July 1934 on Bankruptcies forms part of instruments which shall ex officio be repealed upon the entry into force of the OHADA law. Consequently, only such measures as provided for in the Uniform Act on Collective Proceedings for Wiping Off Debts of 10 April 1998 (“AUPCAP”)[7] shall apply to State Portfolio companies in consideration of the special nature of such companies.

The Law of Collective Proceedings, which supersedes the bankruptcy regime, comprises three measures namely: preventive settlement, receivership, and liquidation of assets. Therefore, in order to avoid default in payment or cessation the company activity, the procedure for preventive settlement may be undertaken by the Company. In the event of default in payment i.e. in the event that possible preventive measures are unsuccessful prior to the cessation of payment, and to resolve any problem, they should comply with proper procedures for receivership reserved for companies making a credible settlement proposal and with the liquidation of assets.

It is noteworthy that since the liquidation of assets has an impact on the assets of the debtor, it can only be contemplated if it is impossible to save the company. Yet, at the end of the day, it is quite difficult to imagine that a company may be subject to collective proceedings while its assets are exempt from attachment[8].

Indeed, article of 53 of AUPCAP does stipulate that the judgment that orders the liquidation of a company automatically entails the winding up of the debtor’s business and the removal of the debtor from involvement in any administration or disposal of assets. The removal automatically includes the cessation of duties and powers of the persons appointed by the Government and their replacement by judicial bodies as the official receiver, controllers and the Public Prosecutor.

As it can be noted, receivership and liquidation of assets, as they can result in the realization of the corporate assets of the company in order to pay off creditors, may circumvent the immunity from seizure of assets owned by legal entities of public law operating as a commercial company. As a result, this allows the sale of assets through means other than judicial sale or attachment of real property.

The systematic analysis of the new uniform law demonstrates that the OHADA legislator shields the assets of state-owned companies from general pledge of their creditors by expressly establishing the immunity from execution for these companies.

II. Immunity from execution of state-owned companies

 According to paragraph 1 of article 30 of the Uniform Act Organizing Simplified Recovery Procedures and Execution Measures (AUPSRVE), the “Compulsory execution and preventive measures are not applicable to persons enjoying immunity from execution”. This provision does not give legal details on the concept of legal or natural persons enjoying immunity from execution. This implies a residual competency left to the member states to determine the beneficiaries of such immunity from execution.

 Such is the case with Senegal which passed Law No. 2002-12 of 15 April 2002 on the Code of Civil Obligations. Article 194 of the Code stipulates that “there shall not be any forced execution against the State, local communities and public institutions”.

 On the other hand, the OHADA Common Court of Justice and Arbitration (CCJA) has a moderate interpretation of article 30 of AUPSRVE. For the CCJA, by stating in paragraph 1 the rule whereby the forced execution or protective measures may not be applied against persons enjoying immunity from execution, and by contemplating in paragraph 2, the possibility to oppose the compensation to legal persons incorporated under public law and public companies, article 30 lays down the principle of the immunity from execution for such persons. The compensation that may be opposed to them can be interpreted only as a moderation of the principle of immunity benefiting them[9].

 To further emphasize the personal immunity from general execution, articles 50 and 51 of the same Uniform Act expressly entrust States with the role of defining inalienable assets and rights, thus conferring to each of OHADA member states the entire freedom or absolute power in this regard[10].  Therefore local jurisdiction should draw up the list of persons enjoying immunity from execution and specify assets and rights exempt from attachment.

In view of the above, one may consider that collective procedures stricto sensu (receivership and liquidation of assets) will not adversely affect the DRC state-owned companies transformed into commercial companies.

 In this regard, it is worth underlining that across the OHADA jurisdiction, the case law enshrines sovereign immunity of enforceable proceedings. It was therefore decided that “the immunity, which a state-owned company enjoys per article 30 of AUPSRVE is public in nature and the judge may invoke it ex officio on appeal even for the first time. Therefore, the judge in chambers has wrongly ordered the garnishment on accounts of such company. The garnishment must be cancelled and its release must be ordered[11].

 Furthermore, the Cameroon case law explains that the term “person” as used in paragraph 1 of article 30 of AUPSRVE must be construed in the general sense, which leads to believing that all public legal entities enjoy the said immunity, including: the State and its divisions including Territorial Communities and Public Institutions as they appear, as well as public enterprises irrespective of their form and mission[12].

 Above all, it is worth underlining the CCJA landmark case of 7 July, 2005, which laid down the principle of the immunity from execution of public companies together with compensation mechanism which can only be construed as a temperament of the principle[13]. Furthermore, CCJA refused to apply a provision from domestic (Togolese) law solely on this ground. As a result, CCJA excluded state-owned companies from the regime of public law and placed them under private law, thus, depriving them of the immunity from execution, which they henceforth enjoy under article 30 of AUPSRVE. CCJA’s stance in this case, based on the repealing effect of article 10 of OHADA Treaty and article 336 of AUPSRVE, is at the same time illustrative of the application of the effects of a softer law upon public companies and those in a similar category[14].

 It is nonetheless worth stressing that article 29 of AUPSRVE obligates the State to provide assistance in enforcing court decisions and other enforceable instruments under penalty of committing its liability. But, in practice, this provision seems difficult to apply because the Public Prosecutor may oppose or suspend court decisions by giving orders to bailiffs or enforcement officers.

 Besides, it can be seen that the principle of immunity from execution may be relaxed in the event of express waiver in cases involving national and international arbitrations. Hence, as part of OHADA arbitration (with binding and enforceable nature of its arbitration awards being affirmed respectively as per article 23 of the Uniform Act on Arbitration and article 27 of CCJA Arbitration Regulation), arbitration awards may be implemented by forced execution, failing spontaneous execution, by virtue of the binding effect of contract and its bona fide performance.

 However, the acceptance of an arbitration agreement and, therefore, the waiver of immunity does not entail in seizure of assets destined to the accomplishment of a public utility mission[15].

 All in all, it appears that the special status of public corporations grants special protection under OHADA law from the Collective Proceedings for Wiping Off Debts, due in particular to very important limitations to non-attachable assets, which renders liquidation hard to contemplate.

 IV. Suppletive competences granted to the DRC as statutory and regulatory measures of domestic law additional to OHADA law

 By principle, the domestic legislator may adopt domestic laws and regulations not contrary to or identical with the provisions of OHADA law. Consequently, as the process of transforming state-owned companies into commercial companies is not finalized, the extension of the transitional system provided under Chapter V of Act No 08/007 of 7 July 2008, particularly the one laid down in articles 14 and 16, required amending the Law in order to endow the economic and financial measures with required legal foundation, more-so as these measures substantiate the continuation and completion of the said process.

 The two articles mentioned above have been amended by the Law of 31 December 2012. The new article 14 grants a new regime of exemption, which shall remain valid for 36 months as from 31 December 2012, for companies that are unable to settle their debts as per special provisions set forth in a Decree debated by the Counsel of Ministers. The Prime Minister has not as yet taken any implementation decree. However, pursuant to paragraph 2 of Article 14 which makes the definitive finalization of the process of state-owned companies transformation contingent upon the satisfaction of all restructuring operations, the DRC legislator seems to have implicitly provided for the extension of the special regime of state-owned companies beyond 36 months.

 It is the new article 16 which grants the Prime Minister the competence to determine inter alia the legal, economic, and financial measures necessary for the protection of state-owned companies. Whether the enumeration of protective measures should lead to measures or provisions of a different nature remains to be seen.

 In conclusion, it appears that the adoption of other legal and/or regulatory instruments, which comes under the residual jurisdiction of the DRC, may strengthen the protection of commercial companies where the State is a sole shareholder or owns shares. Amongst measures that are worth passing is the Law on the Public Ownership of State Companies Assets. This Law would clearly define inalienable assets and rights in line with the provisions of the Uniform Act on Simplified Recovery Procedures and Measures of Execution, more specifically article 50 which stipulates: “Attachments may apply to all assets belonging to the debtor even if such assets are held by a third party, except if said assets have been declared inalienable by virtue of the domestic law of each member state” and article 51 which specifies that “Inalienable Assets and rights shall be defined by each member state”.

It should be ensured that the Law to be adopted, on the one hand, provides a clear-cut definition of state-owned assets and private assets by determining their substances and, on the other hand, organizes measures aimed at protecting state strategic interests in any procedures alienating assets from state private domain and state-owned companies, including during liquidation, while imperatively paying attention to the interests of creditors through just and equitable compensation.

[1]Article 916 of AUSCGIE stipulates that: « This uniform Act shall not repeal the statutory provisions to which are subjected companies under a special regime. Clauses of articles of associations of such companies, compliant with provisions repealed by this uniform Act, but inconsistent with the provisions of this uniform Act and not provided for in the special regime of such companies, shall be harmonized with this uniform Act in accordance with conditions set forth in article 908 of this uniform Act».

[2]Article 30 of AUPSRVE: « Compulsory and preventive measures shall not be applied to persons enjoying the immunity from execution. But, genuine liabilities, liquid debts and debts due of legal entities incorporated under public law or public companies, whatever the form and mission, give rise to a compensation with also genuine liabilities, liquid debts and debts due, which anyone shall be responsible thereto, subject to the reciprocity.

Debts of persons and enterprises defined in the preceding paragraph may be regarded as genuine under the provisions of this article only if they acknowledge these debts or a security to be enforced in the territory of the State wherein such persons and enterprises are based».

[3]Article 919: « All statutory provisions opposite to this uniform Act are repealed, subject to their interim application for a period of two years as from the commencement date of this uniform Act, for companies, which have not harmonized their articles of association with the provisions of this uniform Act. Notwithstanding the provisions of article 10 of this uniform Act, each State-member may, for an interim period as of the commencement date of this uniform Act, keep its applicable domestic legislation as a matter of form of establishing articles of association ».

[4]See article 6 of law 008/007 dated July 7, 2008, DR Congo Official Gazette, special issue, July 12, 2008.

[5]See articles 5, 6 14 and 17 of law 08/007 of July 7, 2008, mentioned supra, note 5.

[6]LUKOMBE NGHENDA, Le droit des entreprises publiques, né de la réforme du 7 juillet 2008, PFDUC, 2009,

p. 144.

[7]See article 30 of said uniform Act.

[8]Filiga Michel SAWADOGO, OHADA. Droit des entreprises en difficultés, Bruylant, Bruxelles, 2002, pp.167-171.

[9]Order No 043/2005 of 17 July 2005 in the case of Aziablevi Yovo et al vs Togo Télécom.

[10]Pursuant to article 50, paragraph 1, « Attachments may concern all assets held by the debtor even if they would be held by the third parties, except if they have been declared inalienable by domestic law of each State member. Article 51 stipulates that « Alienable assets and rights shall be defined by each of States members ».

[11]CA Littoral, n°120/ REF, 18-9-2000: CDC c/ Sté. Fresh Food Cameroon, www.ohada.com, Ohadata J-07-72.

[12]Court of First Instance of Ngaoundéré, Summary Order No 03 of December 20, 1999, Case University of Ngaoundéré C/NANG MINDANG Hyppolite, Published in the Revue Camerounaise Juridis Périodique n°44, October November December 2000, Obs. Fometeu ; Court of First Instance of Douala, Order No 339 of November 3, 1998, Case ONPC vs.SFIC ; Published in the Revue Camerounaise Juridis Périodique n°44, October November December 2000, Obs. Fomete

[13]CCJA, N° 043/2005, 7-7-2005 : Aziablévi YOVO and others vs. Sté TOGO TELECOM, Case Report of CCJA, n° 6, June- December 2005, p. 25.- Juris-Ohada n° 1/2006, p. 8. See obs. Filiga Michel SAWADOGO in Ohadata D-07-16; www.ohada.com, Ohadata J-06-32.

[14]Note 15: Read Comments of Jimmy Kodo CCJA, N° 043/2005, 7-7-2005: Aziablévi YOVO and others vs. Sté TOGO TELECOM, Case Report of CCJA, n° 6, June-December 2005, p. 25.- Le Juris-Ohada n° 1/2006, p. 8.

[15]Gaston KENFACK DOUAJNI, The specific performance against state-owned companies in the OHADA area, Cameroonian Magazine of Arbitration, n°18, July-August-September 2002.

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