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WORKING GROUP I:

MEDIUM, MICRO AND SMALL ENTERPRISES

The Mandate

 Mandate

The present mandate of Working Group I is to reduce the legal obstacles that confront micro, small and medium enterprises (MSMEs) throughout their lifecycle. To date this work has included:

  • consideration of a best practices in business registration;

  • work towards the development of a new, simplified limited liability organisation suitable for entrepreneurial and innovation enterprises; and

  • liaising with Working Group V to share insights on the nature of MSMEs relevant to the development of an insolvency regime suitable for small scale insolvencies.

 

A number of models and suggestions have been put to the Working Group indicative of the diverse range of approaches currently adopted by the countries actively contributing to the work of this group. Some of these models have been discussed in dedicated Colloquia, including:

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Since 2014, the Working Group has produced one key document and accompanying materials:

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The future work of the group has been flagged as addressing barriers to access to finance for MSMEs. Difficulties with access to finance were in fact the stimulus for the current mandate of Working Group I. These issues were explored in two colloquia:

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Amid UNCITRAL’s work directed at facilitating trade law enabling economic recovery post COVID-19, access to finance for MSMEs has been identified as critical. Consequently, it is high likely that access to finance will become an immediate priority for Working Group I in fulfilling its present mandate:

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In the past, the mandate of Working Group I has included:

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This page was last updated in September 2020.  

The Mandate
Registration of MSMEs

Registration of MSMEs

Processes reflective of good practice in business registration have been considered extensively by WG I, beginning in 2015. In 2017, the Group discussed the prospect of developing a draft consolidated guide for business registration. Finally, in 2018 the Working Group adopted the text by consensus, before it was endorsed in a resolution of the General Assembly. The final text and accompanying materials are available above. The corresponding UN General Assembly Resolution is available here.

A new organisational form for MSMEs

A new organisational form for MSMEs

Working Group Group I has been working on legal issues relevant to simplifying of incorporation of MSMEs and unifying the forms which they take. This lengthy process began at the 23rd session (February, 2014). There has been considerable debate as to the form that the text should take. The Working Group’s progress on the text was deliberately slowed by a decision of the Working Group to prioritise finalisation of the Legislative Guide on Key Principles of a Business Registry. The Secretariat initially produced a draft model law around which to focus discussion of the legal issues surrounding simplification of incorporation. The initial draft model law was quite short containing only 39 Articles, but attracted debate as to whether it was still too complex to serve the needs of small simplified entities. The text of the draft model law is here.

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The proposed text of the Legislative Guide on the UNLLO was finalised at the 35th Session of the Working Group. At the conclusion of the session, the Working Group reached two agreements of significance. First, the Working Group approved the text of the draft legislative guide on the UNLLO and agreed that the text would be revised by the Secretariat to reflect the deliberations, agreement and decisions of the Working Group in the 35th session and that the text would then be transmitted for finalisation and adoption by the UNCITRAL Commission at its fifty fourth session scheduled for mid-2021. The document number for the final text is to be advised. Secondly, the Working Group agreed to request that the UNCITRAL Commission mandate the Secretariat to draft guidance, with the assistance of experts, to assist member States in the preparation of model organisation rules on the establishment and management of the UNLLO and the rights and obligations of its members that UNLLO members may use where appropriate. The conclusion of this session marked many years of working on the legislative guide for the UNLLO, a process in which LAWASIA’s delegation has been actively involved throughout.

UNCITRAL Legislative Guide for a Limited Liability Enterprise

UNCITAL Legislative Guide for a Limited Liability Enterprise

The UNCITRAL Legislative Guide for a Limited Liability Enterprise has been approved by the UNCITAL Commission. The Guide will be made available here in due course. 

 

The new simplified business form

The Guide is part of a series of UNCITRAL texts that have been developed to address legal obstacles encountered by micro, small and medium-sized enterprises (MSMEs) in the course of their lifecycle. This Guide facilitates the creation of a new simplified legal form for businesses. The legal form is a new type of entity. It is not a company. It is a separate legal entity with limited liability: a Limited Liability Enterprise (LLE). The Guide has been developed from a ‘think small first’ perspective and is designed to assist nascent MSMEs. 

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Who will the business form suit? 

The LLE is purpose built for both high income and emerging economies. It is hoped that the LLE will:
•    allow for nascent MSMEs to take part in the formal economy
•    provide a flexible, simplified business structure suitable to assist nascent MSMEs in their emergence, start-up and on their road trip to scale
•    offer a separate legal regime for MSMEs designed to avoid the legal obstacles that MSMEs may experience when taking business forms more suitable for large corporates.

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What does the Guide contain? 

The Guide is comprised of 32 recommendations and includes extensive commentary reflecting the ‘best practices of States representing the legal traditions around the world and deal with the main legal aspects of the formation and operation of micro, small and medium-sized limited liability enterprises (LLEs)’ (UNCITRAL, 2021). Core matters covered by the Guide include:
•    registration, governance, business management, dissolution, and dispute resolution. 
•    protection of third party rights
•    members’ rights, decision making and contributions, distributions to members, and procedures for removal.

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Mandatory recommendations seek ‘to strike a balance between the interests of the MSMEs and those of the State, creditors and other third parties’ (UNCITRAL, 2021). Most recommendations are not mandatory. Rather, they form part of a set of ‘default provisions which the members of the LLE may exclude or adapt to their own needs’ (UNCITRAL, 2021).

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Model Organisational Rules

The UNCITRAL Secretariat has been given a mandate to draft accompanying model organisational rules. This mandate is broad enough to allow the Secretariat to rename the rules in the Legislative Guide if necessary. It is anticipated that the text of the Guide will not be publicly released until these organisational rules are finalised.

 

Limited Liability Enterprise (LLE)

Finalisation of the Guide was the first order of working group business considered in the June/July Commission meeting. One controversial point before the Commission was what the entity should be called. 

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For some years now WGI had been tentatively describing the new entity as an UNLLO (an UNCITRAL Limited Liability Organisation). However, this has been abandoned in favour of ‘Limited Liability Enterprise’ or LLE. Strict rules associated with the use of the words UN and UNCITRAL prevent either acronym forming part of an LLE’s name. Numerous delegations at meetings of WGI have, in the past, identified that the proposed acronym did not translate well in all languages. 

 

LLE was proposed as a possible solution and this was accepted with alacrity by the Commission. The words ‘enterprise’ and ‘limited liability’ are considered appropriate to convey to the public and those dealing with the entity that the MSME is a separate legal entity, and that the enterprise is one where the investment of members is protected by limited liability. 
 

Future Work of WGI: Access to Credit

Future Work of WGI: Access to Credit

At the June/July 2021 UNCITRAL Commission Meeting, consideration was given to the future work of WGI. Quite a long discussion lead by the Commission offered clarity and insight into the WGI mandate regarding Access to Credit. 

 

Access to Credit forms part of WGI’s existing mandate to ‘devote full attention to access to credit’. This is not a new mandate. WGI’s mandate has extended to considering all aspects of the legal obstacles encountered by MSMEs in their lifecycle. To date, WGI has completed its work on business registration and the simplified business form, the Limited Liability Enterprise. 

 

Work on Access to credit will begin at the next meeting of WGI. A report on Access to Credit has been prepared by the Secretariat. This report will form an important foundation for WGI to identify the legal obstacles that must be resolved for MSMEs. The report includes an inventory of measures relevant to MSME access to finance and their implications. Delegates raised concerns before the Commission that the goal for the next meeting of WGI were unclear because the Secretariat’s Report raises such a broad spectrum of issues. The Principal Legal Officer of UNCITRAL clarified that next meeting of WGI is to consider:
•    the MSME Access to Credit Report prepared by the Secretariat, and confirm that the research and the topics that the Secretariat has addressed are the right ones, that the legal issues raised in the Report are sufficiently comprehensive and that there are no loopholes or missed issues. 
•    the scope of the Secretariat’s analysis in that report, and focus on the analysis of legal issues related to MSME Access to Credit.  Other topics may be added and some may be removed. 
•    whether a specific legislative guide is needed. 

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It was acknowledged that government policy to promote access to credit may involve a range of issues, not all of which are legal in nature. The Secretariat’s report aims to provide an overview of relevant issues, but some of these are merely narrative, fall outside the mandate of UNCITRAL, and would not form part of any legislative guide. 

 

To the extent that the Secretariat’s report refers to registers for securities, UNCITRAL does not intend that a legislative guide developed by WGI on access to credit for MSMES would be aimed at harmonization or unification of any laws regarding the substance and nature of securities. Rather the focus of the work will include consideration by the WG of the importance of the transparency and effectiveness of those systems and associated registers, in order to be able to mobilise MSME access to credit. 

 

It was acknowledged that legislators and decision makers/policy makers in different countries who express an interest in facilitating access to credit by MSMEs may benefit from a heightened awareness of the different fields of the law that could have a negative or positive impact on access to credit. In this regard, it is anticipated that WGI will consider how MSMEs can use assets in order to access to loans. 

 

With regards to securities transactions, the Principal Legal Officer clarified that WGI would not be required to reinvent the wheel. The idea is for WGI to consider whether the existing range of UNCITRAL instruments adequate cater for the needs of an MSME. A parallel was drawn with what WGV has recently completed on MSME insolvency. WGI would not be redesigning other model laws, but its work may extend to seeing what UNCITRAL has done or can do with different types of enterprise. WGI may consider whether existing model laws designed for large multinational companies can be used for smaller companies, or if there are specific challenges or legal obstacles that arise for MSMEs.  

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In short, the mandate of WGI may result in early work that is very different from a model law or a legislative guide. 

 

It was suggested that in shifting to a new focus of the existing mandate of WGI may require different experts. WGI will have a new Chair and it is expected that delegates within WGI may change as part of a handover to those different experts.
 

Further Information

Further Information

As with other Working Groups, WG I maintains an online record of its latest work and agendas for forthcoming meetings. The relevant information is available here.

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Reference List:

UNCITRAL, ‘UNCITRAL adopts the Legislative Guide on Limited Liability Enterprises’ (UNIS/L/318, 28 July 2021)

Australia's Attendance at WG I

Australia's Attendance at Working Group I

The Australian Government does not presently send an official delegation to Working Group I, however past meetings of this working group have been attended by:

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  • Tim Castle, Barrister and Immediate Past Chair UNCCA;

  • Diane Chapman, UNCCA Fellow;

  • Dr Anne Matthew, QUT School of Law;

  • Ms Jennifer Anderson, UNCCA Fellow;

  • Ms Ashna Taneja; 

  • Mr James Keir; 

  • Mr Heath Mitchell; 

  • Ms Kaleigh Smith; and

  • Ms Catherine Qu.

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