SRI LANKA Law and Practice Contributed by: Ayanthi Abeyawickrama, Varners
Compliance With Listing Rules In the event of investments in companies that are listed on the Colombo Stock Exchange, compliance with the Listing Rules of the Colom - bo Stock Exchange will be required. The prior approval of the Securities and Exchange Com - mission of Sri Lanka (SEC) is required for any private placement of shares in a listed com - pany if the proposed share issue will result in an increase of 20% or more of the company’s post-issue outstanding shares. 2.2 Procedure and Sanctions in the Event of Non-Compliance Foreign investors may generally invest in Sri Lanka without the requirement for obtaining any special purpose approvals, provided that the investment is made in compliance with the For - eign Exchange Act, No 12 of 2017, and regula - tions. Nevertheless, if the proposed investment requires BOI approval or if the foreign investors want to set up their business within Colombo Port City, they must submit an application along with a detailed business proposal, including information about the nature of the project, pro - posed shareholding, and funding arrangements. Once the application is reviewed and approved, the investor will enter into a formal investment agreement with the BOI or the Colombo Port City Economic Commission. If an investor proceeds without obtaining prior approval, the investment may be treated as unauthorised. This could lead to restrictions on repatriation of profits and capital, possible penalties or regulatory enforcement, and legal complications. Procedural non-compliance may arise in various forms, including: • failure to channel foreign investment through an IIA;
• undertaking investments in restricted sectors without prior approval; • engaging in foreign exchange transactions without the prior approval of the Central Bank of Sri Lanka where such approval is legally required; and • breach of conditions imposed under the BOI or Port City agreements, or violations of sector-specific approvals (eg, operating out - side permitted business activities). Where such non-compliance is detected, the rel - evant regulatory authorities (such as the Direc - tor of the Department of Foreign Exchange, the Central Bank of Sri Lanka, the Board of Investment of Sri Lanka, the SEC, etc) may initiate investigative or enforcement action. In some cases, a compoundable offence may be resolved by payment of a penalty determined by the relevant authority. However, in more serious or wilful breaches, sanctions may include: • monetary fines; • suspension or cancellation of licences or investment approvals; • prohibition on repatriation of profits or capital; • forfeiture of improperly held assets; and • criminal prosecution, in cases of deliberate fraud, misrepresentation or evasion. Furthermore, non-compliance may adversely affect investor credibility and future dealings with regulatory authorities. In cases involving BOI or Port City registered enterprises, the BOI or the Commission may also exercise its right to terminate the investment agreement and recom - mend cancellation of associated approvals and exemptions.
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