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

Register Law.

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

judicial precedent.

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.

Brief Background

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

system.

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.

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

office.

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

draft law.

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

book.

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.

Transparency

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.

Substantive Scope

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.

Procedural Safeguards

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.

A significant

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.

Enforcement

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.

Accountability

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

provided.

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.