N OW that the National Assembly is back in session, the topic of the hour - in
and out of the legislature - is the trio of new commercial laws under debate. In
the March 24 issue of this newspaper, I briefly reviewed the three major
commercial laws, including the topic of this week's column, the draft Commercial
Officially titled the "Law on Commercial Regulations and
the Commerce and Company Register", the Commercial Register law is just the kind
which promoters of the Rule of Law would like to see promulgated and properly
implemented in Cambodia. It is not perfect - few laws are - but it is, by Rule
of Law standards, very good. It is particularly progressive when one considers
the past and current procedures for registering businesses in Cambodia.
Significance of Register
The importance of a commercial
register for the efficient and judicious functioning of a free market system
cannot be over-estimated. A market economy thrives on free-wheeling interaction
among private parties within the wide parameters set by state regulation and
A commercial register promotes this atmosphere by
helping to define these parameters, and in doing so accomplishes two objectives.
One, it provides information that the market needs for efficient interaction.
This enables businesses to interact with each other on a factual basis rather
than on conjecture and belief. For example, a business which wants to find out
whether the person signing the supply contract has the legal authority to do so,
can simply check the commercial register. All information recorded in the
commercial register should be available to the public. Second, it provides
information to the government for regulatory purposes, i.e. immigration, work
permits, labor, tax, customs, etc.
At present, Cambodian law and practice does
not require business entities to register at any central place. Under the
current system, "registration" occurs when a company licensed to operate in
Cambodia files its application and corporate documents at the relevant licensing
agency (CDC, Ministry of Commerce, Ministry of Tourism, National Bank, etc.).
This filing/licensing system currently serves as an ad hoc registration
The problems with this are many: there is no one centrally
located place for registration; the information on file frequently is not
relevant and not readily available to the public. Moreover, many local and
smaller companies are not "registered" anywhere.
Overview of Draft Law
According to the daft Commercial Register
Law, nearly every business and business person in Cambodia - companies,
partnerships, branches or agents of foreign companies, and individuals - must
register with the Clerk of the Commercial Court. As there is no Commercial Court
at present, the Ministry of Commerce will handle
Registration is a simple process by which the business
submits a "declaration" to the Clerk of the Commercial Court and the Clerk
issues a "certificate" with a registration number.
The Declaration must
contain basic information about the business, such as business name, location,
capital, name of directors, name of shareholders, capital contribution of
shareholders, and authorized signatories. Also to be included in the Register
are list of patents, trademarks owned by the business, mortgages and liens on
company assets, and judgments for and against the company. These items are
usually supplied by third parties, such as the judiciary or the patent
Changes to any of the information in the Register must be
reported to the clerk as well, but no reporting time limit is mentioned in the
After the clerk personally verifies that all the information
has been supplied, the clerk will issue an acknowledgment of receipt of the
declaration, called a "certificate", which includes the registration number.
This information will be recorded in a chronological and analytical registration
The draft Commercial Register Law also addresses other issues
affecting the operation of a business in Cambodia. For example, the law requires
that every business maintain a bank account, keep accounting records, make a
duplicate copy of all trading transactions, and use a check or money order for
transactions over $10,000,000.
The key purpose of a commercial register is to
make available to the public the information registered with the clerk, within a
reasonable time frame. The draft law seems to satisfy this. Any person is
entitled to obtain information recorded in the register within one month from
the request. Failure to meet this deadline results in disciplinary action
against the clerk and damages to the applicant.
The process for
registering is clearly set out. A business or business person will know what is
required of him or her under the law. The clerk's role is clarified and the
manner in which the Register will be kept is adequately detailed.
The draft Law deals with most aspects of a
commercial register. However, there is one glaring hole in the draft law. While
the draft requires registration of mortgages and liens on assets of individual
business persons, it does not require such registration for companies. It is
just as important for mortgages and liens to be registered for assets owned by a
company, as it is for assets owned by an individual business person.
The procedural safeguards in the draft
law are good. The draft requires businesses to register information within a
certain time, and requires the clerk to issue a certificate within one month
from the date of the request. The law also makes it clear that it applies to
businesses set up before the promulgation of the law.
procedural shortcoming of the draft is that it fails to set a time limit on when
a business must report any changes to the registered information. A time limit
for reporting changes is very important for the efficient and just functioning
of a market economy. If there is no such time frame, businesses will not be able
to rely on the information in the register because there will be no guarantee
that the information has been updated. Hopefully, such a time limit will be
added by the National Assembly before promulgation of the draft, or by the
Ministry of Commerce in the implementation regulations.
The enforcement and penalty provisions of the draft
have been vigorously debated these past two weeks. Some feel that criminal
penalties are not appropriate for violations of a commercial law, especially
where abuses of the judicial system may occur.
On the other hand, fines
without imprisonment may not have the desired deterrent on prohibited activity.
If a small fine is the only punishment for violation, a business may decide that
the benefit of violating the law - i.e. hiding the true activity of the
business, or deceiving other businesses - is worth the potential monetary
penalty. If the penalty were imprisonment, business persons would think more
seriously before violating the law.
The draft Commercial Register Law
only punishes "bad faith" registration of false information and forgery with
criminal sentences. If such actions were not done intentionally, they would not
appear to be subject to criminal punishment under the draft . It is common in
many countries for commercial fraud and other intentional commercial
misrepresentations to be punished by incarceration, as well as fines. This is so
because in many cases, monetary penalties alone are not a deterrent to violation
of the law.
The draft adequately provides for the
accountability of officials involved in registration. The draft law stipulates
that a clerk who knowingly delivers a false certificate is subject to criminal
penalties-but does not give the degree of penalty. Moreover a clerk who takes
bribes will be sanctioned under the Law-but again no parameters are
On paper, this draft Commercial Register Law meets the
standards required by the Rule of Law. The key question, however, is whether
these standards will be satisfied once the Law is implemented; whether the law
will be consistently applied, and will be enforced against violators.
- David Doran is the resident Director in the Phnom Penh office of Dirksen
Flipse Doran & Le. He has been working in and out of Cambodia-and writing on
Cambodian legal issues-since 1992.