How 'ghost' firms choke Registrar of Companies

The acting Registrar-General of Companies, Yves Sangano, is facing an exigent job of weeding out companies that opened after fulfilling all the legal requirements but have since exited through the backdoor without following the procedures of closing a business. The New Times has learned that while it can take a matter of hours to open a business in the country, many Rwandans are ignorant of what to do when it comes to winding down their ventures. Sangano said the company registry has more than 50,000 registered businesses but admitted that many of them could have long folded and therefore not active. He said on average, between 30 to 50 businesses are opened daily through Rwanda Development Board (RDB), with more than 10, 000 registered every year. “Confidently, all those businesses are not active because of the normal business life cycle, which means that a business is started, grows and folds at any time,” Sangano said. RDB records show more than 130,000 registered taxpayers at Rwanda Revenue Authority (RRA), but Sangano said not every taxpayer is registered as a business. “Figures from RRA can’t be the same as ours because all tax payers are not registered with RDB for instance they have NGOs, cooperatives, and others who are registered for other purposes such as importing, all those categories are only registered with RRA,” Sangano said. However, owners of taxpaying firms that are registered with both institutions are fond of closing one business and opening another in different names, a tactic many use to evade taxes, according to Aimable Kayigi Habiyambere, the commissioner for domestic taxes at RRA. The challenge of informal closure of businesses is reflected on Rwanda’s ranking regarding the ease of resolving insolvency – one of the 10 indicators measured under the World Bank’s Doing Business annual survey. Rwanda is currently ranked 137 out of over 185 economies in the 2014 report though it was an improvement from 167th where it was ranked in the 2013 survey. The biggest problem hindering Rwandans from closing business formally, according to Sangano, is “ignorance that it is required by the law to close the business officially.” Statistics from the registrar’s office indicates that in 2012, at least 251 businesses were formally closed and the number doubled in 2013, where at least 437 enterprises folded legally. “In the current year [2014] up to date 377 businesses have already been closed, officially,” Sangano revealed. Work with PSF Private Sector Federation (PSF) chairperson Benjamin Gasamagera said while informal closure of business remains a major problem, it’s not insurmountable. “Like other challenges that we have worked together with government to solve, this too can be addressed, all our people need is sensitisation and education and we can easily do this through PSF’s decentralised structures and associations,” Gasamagera said. However, he added that while winding down a business closure could be inevitable at times, more efforts should be put in addressing factors why businesses are closing in the first place. “As a leader of the business community, I obviously don’t want to see a business closing, so while we educate our members how to go about insolvency, we also need to be addressing constraints to doing business,” Gasamagera said. Rwanda’s private sector is mainly composed of small- and medium-sized enterprises, which government has placed among its priority areas in a bid to create jobs. However, many of them are struggling with tax administration, a major challenge. RRA officials claim that when some of these firms fail to meet their tax obligations, their proprietors seek a fresh start by closing one stressed business and opening a new one, under new names. “This is a major problem mainly emerging from our easy process of opening a business,” Habiyambere said. But Gasamagera said tax compliance is a culture that can only be promoted. “This is something that requires close partnership between us [private sector] and government and to educate our members on the role of taxes and why it’s important to be compliant, but these are things that we are already doing and we can only double our efforts,” he said. How to close a business Closing a business officially is not only beneficial to an investor but also government agencies. For instance, after closing legally, the Registrar-General strikes the affected company off the register and notifies relevant agencies such as RRA. “That way, we know that the company is not in business and therefore don’t expect it to meet its tax obligations, but when they close without notification, they pile up liabilities which they would be liable to settle at any point,” Habiyambere said. Official closure of a business also helps the registrar general’s office to keep a clean and updated register of all active businesses in the economy. ********************** Legal procedure of closing business Where a company is to be closed down, the Registrar General shall be given notice thereof two (2) months before it is removed from the register. The Registrar General shall within seven days, cause the notice to be published in twowidely circulated newspapers. Where a notice is given of an intention to remove a company from the register, any person may deliver to the Registrar-General, not later than the date specified in the notice, an objection to the removal on grounds that: l the company is still carrying on business or there is other reason for it to continue in existence;l the company is a party to legal proceedings; l the company is in receivership or liquidation, or both; l a person is a creditor or a shareholder, or a person who has an undischarged claim against the company; l the person believes that there exists, and intends to pursue, a right of action against the company; l for any other reason, it would not be just and equitable to remove the company from the register. The Registrar-General shall not proceed with the removal unless they are satisfied that; 1) the objection has been withdrawn; 2) any facts on which the objection is based are not, or are no longer, correct;3) the objection is frivolous or vexatious. The Registrar General shall give notice to the person objecting that their objection is receivable or not and provide grounds thereof. The property of a company which is removed from the register includes leasehold rights and all other rights vested in or held on behalf of or on trust for the company prior to its removal but do not include property held by the former company on trust for any other person. The removal of a company from the register of companies shall not affect the liability of any former director or shareholder of the company in respect of any act or omission that took place before the company was removed from the register and that liability continues and may be enforced as if the company had not been removed from the register.

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How 'ghost' firms choke Registrar of Companies