By Derrick Khoo, General Counsel, Marga Group
Like a phoenix rising out of the fire, Myanmar is soaring and embracing its new role as the go-to investment destination in Asia. To spur the country forward, the Myanmar government has wisely emphasised on the introduction of new modern laws and revision of obsolete ones as a key priority for its administration.
Recent encouraging developments in the Myanmar legal landscape are clear signs that the country is headed in the right direction to further cement businesses’ and investors’ confidence. Various progressive laws have been discussed, in consultation with industry stakeholders and the general public, and as advised by leading law firms. Many of these have already or are slated to take effect.
For example, the Condominium Law (2016) and its implementing rules (2017) have allowed foreigners to own units in a qualifying “condominium”. The Myanmar Investment Law (2017) combined the previous two separate regimes of Foreign Investment Law (2012) and the Citizens Investment Law (2013) to provide a level-playing field for foreign and local investors alike. Among many developments introduced by the Myanmar Investment Regulations (2017), one that stands out is the permitting of foreign investors to now enter into long-term leases subject to qualifying conditions, and this has also been affirmed by the relevant authorities.
The most anticipated change in recent times comes in the form of the New Myanmar Companies Law which was passed into law by President U Htin Kyaw on 6 December 2017 and is expected to come into effect in August 2018. This will replace the existing Myanmar Companies Act 1914 and will be largely similar to prevailing company law regimes in Hong Kong, Singapore and other common law jurisdictions. In anticipation of this, the Directorate of Investment and Company Administration (DICA) intends to release a model constitution for private companies limited by shares – this is currently at the public consultation and feedback stage.
The most exciting change that the New Myanmar Companies Law introduces is that foreigners are now permitted to own up to 35% shareholding in a local Myanmar company whilst still retaining the company’s status as a local company and thereby allowing foreigners a minority stake to invest in sectors or economic activities that are reserved for Myanmar companies, such as ownership of land or investment in “locals-only” industries. In addition, this effectively means that foreigners are now not restricted from trading public stocks on the Yangon Stock Exchange, subject to the 35% threshold.
The New Myanmar Companies Law also codifies directors’ duties, minority shareholder protection rights, and shareholder derivative rights, effectively adopting current corporate governance best practices found in other jurisdictions. In terms of structuring, corporate group structures were previously not frequently used in practice due to policy reasons, however the New Myanmar Companies Law now expressly recognises the use of them and includes provisions regarding managing of corporate groups.
Another welcome clarification by the New Myanmar Companies Law will undoubtedly facilitate much-needed loans from foreign banks to Myanmar companies with property interests. Under the existing regime, the mortgage of immovable property to a foreign person is prohibited by the Transfer of Immovable Property (Restrictions) Law 1987. This prevented many foreign banks from making loans to Myanmar companies as the foreign banks were unable to take security over property and property interests. The New Myanmar Companies Law expressly removes this restriction by explicitly stating that granting of security to foreign persons is permitted under the law and the exercise of such security is not in breach of such law.
These crucial developments in the legal landscape are just some of the many that are being planned or have already been passed. Whilst they take root, they will continue to be tested and challenged, and only continued persistence, tenacity and a strong rule of law will allow them to continue to grow and flourish. Myanmar has indeed progressed rapidly on many fronts since opening up its market in 2010, and a more attractive and vibrant investment climate heralds those who are quick to seize the moment.