12th August 2020
A dominant feature in developed economies is the simplified and flexible processes of incorporation and management of corporate entities which underscores the importance of creating an atmosphere that promotes ease of doing business and making of strategic investments. It is for this reason that the significance of the Companies and Allied Matters Act, 2020 (“CAMA 2020”) cannot be gainsaid.
For instance, the CAMA 2020 which repealed the Companies and Allied Matters Act, 1990 (“CAMA, 1990”) introduced essential reforms geared towards whittling down regulatory hurdles thereby promoting ease of doing business in the corporate sector. It is hoped that the extant legal regime will attract more foreign investors to Nigeria since the salient and innovative changes made by the CAMA 2020 are in line with international best practices.
Some of these salient and innovative changes are highlighted as follows:
A. COMPANY INCORPORATION AND RELATED MATTERS
- The Single Shareholder
Interestingly, a private company can now have a single shareholder based on the provisions of Section 18(2) of CAMA 2020, subject to the requirements of the Act relating to private companies and capacity of an individual to form a company.
This innovation offers an attractive option to start-ups by allowing small and medium businesses operating previously as sole proprietorships, an avenue to enter the corporate domain, which would also grant much wider access to banking facilities and corporate finance options.
- The Minimum Issued Share Capital
Section 27 of CAMA 2020 replaces the previous requirement of an “Authorized Share Capital” under the CAMA, 1990 with a “Minimum Issued Share Capital” in respect of the Memorandum of Association of a company, which would have fair implications on businesses as per shares not needed at a specific time.
It further sets out the minimum amount for each type of company, in the case of a private company the minimum issued share capital must not be less than N100,000.00 (One Hundred Thousand Naira) and N2,000,000.00 (Two Million Naira), in the case of a public company.
- Withdrawal/Cancellation/Revocation of a Company’s Certificate of Incorporation
By the provisions of Section 41 (7) of CAMA 2020, the Corporate Affairs Commission (“the Commission”) reserves the right to withdraw, cancel or revoke a company’s Certificate of Incorporation, where it is discovered that the certificate was fraudulently, unlawfully or improperly procured which may be published in the Federal Government official Gazette. This serves as a welcomed development and paves a path towards preventing the exploitation of corporate entities for fraudulent purposes by lifting the corporate veil.
- Re-registration of a Public Company as an Unlimited Company
A striking addition under the CAMA 2020 can be glimpsed from the provisions of Section 55 (e), which now provides for the re-registration of a Public Company as an Unlimited, subject to compliance with the requirements stipulated under Section 75 of CAMA 2020.
- Exemption from Registration for Foreign Companies
The general rule remains, that where a foreign company seeks to carry on business in Nigeria, it must take all necessary steps to obtain incorporation as a separate entity in Nigeria for that purpose. Under the CAMA 1990, a Foreign company may be exempted from incorporation, on an application to the President of the Federal Republic of Nigeria, addressed to the Secretary to the Government of the Federation.
However, under Section 80 (2) CAMA 2020, the application for exemption by a Foreign Company will now be made to the Minister charged with responsibility for Trade. It is thought that this change was implemented in line with the ease of doing business mandate of the Federal Government.
- Statement of Compliance
The stringent requirement of submitting a “Declaration of Compliance” during company registration, which must be signed by a lawyer or attested to before a notary public under the CAMA, 1990, is now replaced with “Statement of Compliance” under Section 40 (1) CAMA of 2020 which can be signed by the applicant, an agent or a lawyer.
B. CHAIRMAN, DIRECTORS AND COMPANY SECRETARY
- The Positions of Chairman and Chief Executive Officer in a Public Company
The provisions of section 265 (6) of CAMA 2020 expressly prohibits the Chairman of a public company from serving as the Chief Executive Officer of such a company. The above provision falls in line with the Federal Reporting Council’s Code of Corporate governance for Public Companies, 2018 (2018 Code).
- Number of Directors in a Company
Under the repealed CAMA 1990, all companies were mandated to have at least two (2) directors, however by virtue of Section 271 (1) of CAMA 2020, a company which qualifies as a small company as per the provisions of Section 394 CAMA 2020, can operate with a single Director.
- Minimum of three Independent Directors in Public Companies
In recognizing the key importance of a good Corporate Governance structure in any corporate enterprise, the CAMA 2020, under Section 275 (1) features a stringent requirement of at least three Independent Directors in all public companies. Worthy of note is that the provisions of the CAMA 2020 as regards the definitions of an Independent Director do not whittle down the relevant provisions on same under the 2018 Code.
- Multiple Directorships
Based on Section 278 (2) CAMA 2020, any person who is proposed to be appointed a Director of a public company shall disclose any position he holds as a Director in any other public company at the meeting he/she is proposed for appointment. Where such a person fails to disclose the fact of his/her multiple Directorship as required above, by the provisions of Section 278 (3) CAMA 2020, he/she shall be liable to a penalty in such amount as the Commission shall specify in its regulations.
Furthermore, unlike the repealed CAMA, 1990 which did not restrict multiple Directorships, section 307 (1) of CAMA 2020 prohibits a person from being a Director in more than five (5) public companies at a time.
- Appointment of the Company Secretary
Under Section 330 (1) of CAMA 2020 the appointment of a company secretary optional is made optional for a small company whilst retaining its mandatory nature for public companies and private companies that do not fall under the classification of a small company under Section 394 of CAMA 2020.
C. PROVISIONS RELATING TO INCORPORATED TRUSTEES AND COMPANIES LIMITED BY GUARANTEE
- Merger of Incorporated Trustees
Based on Section 849 of CAMA 2020, two or more associations such as Incorporated Trustees (NGOs, Foundations, Charities, etc.) with similar aims and objects may merge under such terms and conditions as may be prescribed by the Corporate Affairs Commission.
Furthermore, by the provisions of Section 164 of the Federal Competition and Consumer Protection Act, 2018 (“FCCP Act”), any enactment relating to or connected with matters of competition and consumer protection are to be read with such modifications as are necessary to bring them in conformity with the FCCP Act. Therefore, all provisions relating to Section 849 CAMA 2020 must be interpreted or read to be in conformity with the FCCP Act.
- An Alternative to the Consent of the Attorney General
Generally, promoters of a Company Limited by Guarantee must obtain the consent of the Attorney General of the Federation prior to incorporation.
However under Section 26 of CAMA 2020, an alternative is provided where no decision has been made by the Attorney General within the 30 (thirty) days period of making the application (does not apply to a refusal or an objection), allowing the Commission to step in and assent or withhold its assent to the application authorizing the incorporation, subject to the provisions of Section 26 (7)-(10) of CAMA 2020.
D. INTRODUCTION OF A NEW BUSINESS STRUCTURE
- Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs)
Section 746 of CAMA 2020 provides a dynamic business structure in the form of a Limited Liability Partnership (LLP).
E. INTRODUCTION OF A NEW BUSINESS STRUCTURE
- Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs)
Section 746 of CAMA 2020 provides a dynamic business structure in the form of a Limited Liability Partnership (LLP).
The LLP under CAMA 2020 enjoys the flexibility and tax status of a Partnership and also the limited liability status of a Company. Another significant feature of an LLP is that it is a legal entity with perpetual succession. This makes it easy for start-ups to choose between incorporating an LLP and a company.
Limited Partnerships (LPs) are also now registrable as business names under Section 797 of CAMA 2020. Therefore, Partnerships may now comprise of a general partner and limited partners.
- Ratification of Improperly Issued Shares
Previously, the ratification of shares which were improperly issued or allotted can only be done by the court upon an application to the court on the ground that based on the circumstances, it is just and equitable to validate the allotment.
Section 148 of CAMA 2020 authorises companies to validate the issuance and allotment of shares which were improperly issued or allotted by way of a special resolution.
However, where the company refuses to ratify an improperly issued or allotted share, an application can be made to the court for the ratification of such improperly issued or allotted share.
- Prohibition of delegation of the power to allot Shares to Directors of Public companies
Generally, the power to allot shares is vested in the company [members in General meeting]; likewise, under the repealed CAMA 1990, such power can be delegated to the directors by the members of the company.
Interestingly, Section 149 of CAMA 2020 prohibits the delegation of the power to allot shares to Directors of public companies. Consequently, only private companies can delegate their power to allot shares to the directors of the company subject to the articles of association and the members in general meeting. Additionally, it should be noted that the power to allot shares of a public company remain subject to the provisions of the Investments and Securities Act.
- Share Certificate
As a result of the provision of CAMA 2020 making the possession of a common seal optional, where a company chooses not to have a common seal, its share certificates may be signed as a deed by the company. See Section 171(1) CAMA 2020.
- Power to Vary Rights
Section 166 of CAMA 2020, same as the repealed Section 141(1) of CAMA 1990 provides that the rights of a class of shares may only be varied with the consent of the holders of three-quarter of the issued shares of that class in writing, or by a special resolution passed at a separate general meeting of the holders of the shares of the class where the articles of the company do not provide for the variation of those rights.
However, Section 166 of CAMA 2020 goes further to provide that all other amendments or inclusions in a company’s Articles relating to the rights attached to a class of shares, shall be treated as a variation of those rights.
Therefore, before the commencement of the procedure for the amendment of the articles, the written consent of the holders of three-quarter of the issued shares of that class must be obtained.
- Disclosure of significant control and beneficial ownership
Section 119 of CAMA 2020 makes transparency in shareholding and corporate governance more assuring as it provides that every person with significant control over a company shall, within seven days of becoming such a person, indicate to the company in writing the particulars of such control.
Previously, this was a requirement for only public companies. Therefore, the companies must inform the Commission within one month of receipt of the information, disclose the information in their annual returns to the Commission and update their registers of members with the appropriate details
- Obligation to disclose substantial shareholder in Public Companies
Section 120 (2) of CAMA 2020 defines what constitutes a person with substantial interest in a public company as one who he holds, under his name or by his nominee, shares in the company which entitle him to exercise at least 5% of the unrestricted voting rights at any general meeting of the company.
The Public company is mandated to give notice to the Commission, of the any person who is a substantial shareholder, within 14 days of receipt of the notice from the substantial shareholder or upon becoming aware that a person is a substantial holder; and any person who ceases to be a substantial shareholder, within 14 days of becoming aware of such cessation.
- Disclosure of the remuneration of managers of a company
The joint reading of Section 257 of CAMA 2020 and Section 238 of CAMA 2020 demands that the issue of the remuneration of managers of a company must be disclosed to members of the company at the AGM and that such disclosure is categorized as a key business to be transacted at an AGM which can be deemed an ordinary business.
Irrespective of the above, it is necessary to note that the “disclosure of remuneration of managers of a company” was not included in the list of business to be transacted as ordinary business at an AGM under Section 242 of CAMA 2020. This omission creates a bit of conflict as to the stance of CAMA 2020.
- Location of meetings for Small Companies and Companies with a single shareholder
A small company or any company having a single shareholder is exempted from mandatorily having its Annual General Meetings in Nigeria based on Section 240 (1) of CAMA 2020.
- Virtual/Electronic meeting for Private Companies
Section 240 (2) of CAMA 2020 provides that a private company may hold its Annual General meeting virtually subject to the articles of association of the company.
- Persons entitled to receive Notice of a General Meeting of Public Companies
Section 243 of CAMA 2020 includes the Commission as a party entitled to receive notice of general meetings of public companies. This was previously a requirement that only applied to incorporated trustees. However, this innovation is geared to foster the supervision over the management of Public companies by the Commission.
- Exemption from Audit requirement
Under CAMA, 1990, all companies were mandated to appoint an auditor or auditors at their AGM to audit the financial records of the company.
However, going by the provisions of Section 402 of CAMA 2020 a small company or any company having a single shareholder is exempted from the requirements of the Act relating to the audit of accounts in respect of a financial year.
H. CORPORATE RESTRUCTURING
- Pre-emptive rights or right of first offer of members of Private Companies
Section 22 of CAMA 2020 introduces statutory pre-emptive right (or right of first offer) of members of private companies. In other words, subject to the provisions of the articles of association of a private company, members of a private company cannot transfer their shares in the company to a non-member, without first offering the said shares to the existing members of the private company.
Section 22 of CAMA 2020 further provides that a shareholder or a group of shareholders, acting in concert, cannot agree to sell more than 50% of the shares of the company to a non-shareholder without such non-shareholder agreeing to buy the shares of the other existing shareholders on the same terms.
- Modification of the provisions on financial assistance by Company for the acquisition of its shares
The CAMA 2020 expands the definition of “financial assistance” to include any other financial assistance given by a company and unlike the repealed CAMA 1990, the CAMA 2020 defines “net assets”. Accordingly, Section 183 of CAMA 2020 states that “net assets” are the “aggregate of the company’s assets less the aggregate of its liabilities”
Furthermore, a company can now render financial assistance for the acquisition of its shares where the shares are to be acquired in furtherance of an order of the court under a scheme or restructuring of a company; or where the financial assistance is given in good faith and in the interests of the company for the principal purpose of reducing or discharging any liability incurred by a person in the acquisition of the shares in the company or its holding company.
- Share Buyback – Company’s acquisition of its own shares
CAMA 2020 stipulates the procedure to be adhered to by a company seeking to acquire its own shares and the persons from whom a company may buy back its own shares in Sections 184 (1) of CAMA 2020 and Section 186 of CAMA 2020 respectively.
- Jurisdiction on Mergers and related matters
The CAMA 2020 lays to rest the jurisdictional controversy between the Federal Competition and Consumer Protection Commission (“FCCPC”), the Corporate Affairs Commission (CAC) and the Securities and Exchange Commission (“SEC”) on Mergers giving the FCCPC precedence over SEC and CAC in line with FCCP Act.
Therefore, Mergers will now be subject to Guidelines on mergers jointly issued by the FCCPC and the SEC.
- New Corporate Restructuring Options
The CAMA 2020 also provides new corporate restructuring options which are geared towards aiding insolvent companies to modify their structure and also secure their finances. The new corporate restructuring frameworks which will aid companies in distress are – Company Voluntary Arrangements under Sections 434 – 442, Administration under Sections 443 – 549 and Netting under Sections 718 – 721.
- Arrangement or Compromise between two or more companies
Under a proposed restructuring scheme between two or more companies, the whole or any part of the undertaking or the property of any of the companies concerned in the scheme is to be transferred to another company, the Court is empowered by virtue of Section 711 of CAMA 2020 to order separate meetings of the companies upon an application in summary of any of the companies to be affected by the scheme.
The Court can only sanction the scheme where in such separate meetings, at least three-quarter of the members of the companies present either in person or by proxy agree to the scheme.
Section 711 of CAMA 2020 provides a legal framework for mergers in the stead of the repealed Sections 118 – 128 of the Investments and Securities Act (“ISA”) (repealed by the FCCP Act).
- Provisions applicable to Scheme or contract involving transfer of shares in a company
Furthermore, Section 712 of CAMA 2020 provides that where a scheme or contract, not being a take-over bid under the ISA involving the transfer of shares or any class of shares in a company to another company, has, within four months after the making of the offer in that behalf by the transferee company, been approved by the holders of at least nine-tenth in value of the shares of the company (other than shares already held at the date of the offer by a nominee for the transferee company, or its subsidiary), the transferee company may at any time within two months after the expiration of the said four months give notice in the prescribed manner to any dissenting shareholder that it desires to acquire its shares.
It can be noted that Section 712 of CAMA 2020 is in line with the provisions of Section 129 of the ISA.
- Moratorium on creditors voluntary Winding Up in a Scheme of Arrangement
Under Section 717 of CAMA 2020 provides a moratorium of 6 (six) months for creditors voluntary winding up in a scheme of arrangement; the Court shall not entertain any winding up petition or enforcement action by a creditor (secured or unsecured) against any company or its assets that has commenced a process of arrangement and compromise with its creditors for a period of 6 (six) months from the time that the relevant company provides all the requisite documents for such arrangement or compromise to the Court by way of affidavit.
However, where the conditions stated in Section 717 (2) of CAMA 2020 are met, a secured creditor may, by application to the court filed within 30 days of notice of the arrangement and compromise, discharge the 6 (six) months’ moratorium period provided that the company, upon the approval or consent shall file a further affidavit updating the court of the dissipation of the said asset.
I. DEBENTURES/SECURED CREDIT
- Constructive notice of registered Floating Charges
Section 204 of CAMA 2020 stipulates that everyone shall be deemed to have constructive notice of a floating charge where notice of the existence of the said floating charge is registered at the CAC.
In addition, according to Section 223 of CAMA 2020, where there is a notice indicating the existence of any provisions in a floating charge that prohibit or restrict the company from granting any further charge ranking in priority to, or pari passu with, the floating charge, the Commission is mandated to indicate such notice in the register.
- Priority of fixed charges
Furthermore, Section 207(4) of CAMA 2020 provides that, notwithstanding any provision in the CAMA 2020 or any other law to the contrary, the holder of a fixed charge shall have priority over other debts of the company including preferential debts.
- Elimination of the restriction on substantial shareholders
Previously, substantial shareholders of a company were restricted from acting as trustees of a debenture trust deed to which the company is a party.
However, this provision has been omitted in the CAMA 2020. Consequently, it could be implied that the restriction on substantial shareholders has been jettisoned.
- Registration of Charges created by Companies
Under the previous regime, registration of charges cost N10,000 for every N1,000,000 or part thereof for private companies; and N20,000 for every N1,000,000 or part thereof for public companies.
However, Section 222 (12) of CAMA 2020 provides a significant reduction in fees payable for filing of a charge. Under the new regime, filing has been reduced to 0.35% of the value of the Charge.
- Avoidance or Attachments etc
Where a company is being wound up, only a fixed charge holder (or any other validly created and perfected security interest other than a floating charge holder) will be able to enforce security, sequestrate, attach or levy execution on the assets of the company. This proviso in Section 577 of CAMA 2020 was not in the repealed CAMA 1990.
- Application of bankruptcy rules in certain cases
Section 656 of CAMA 2020 further introduces a proviso which states that nothing shall affect the power of any secured creditor to realise or otherwise deal with its security during the winding up of an insolvent company registered in Nigeria.
J. WINDING UP
- Preferential Payments
Insightfully and in line with current trends in employment rights, the CAMA 2020 under Section 657 (1) (b)(c) grants a significant preferential payment priority upon winding up, to deductions made from the remuneration of employees, contributions of the company under the Pension Reform Act and contributions and obligations of the company under the Employee’s Compensation Act.
- Fraudulent Preference
In all aspects of corporate practice, there remains the ever present need to curtail fraudulent acts or omissions. Perceptively, Section 658 of CAMA 2020 dilates the provisions on fraudulent preferences under the repealed CAMA 1990 by providing that where a company at any time within the period of years ending with the onset of insolvency or the period of three months does anything or procures anything to be done which has the effect of putting a person, being one of the company’s creditors or a surety or guarantor under undue advantage, it shall be deemed to be a preference of that person, and be considered invalid accordingly.
The above is however subject to the provisions of Section 658(1) CAMA 2020, which holds that, a preference given to any person is not invalid unless the company, which gave the preference was influenced in deciding to give it by a desire to produce in relation to that person the aforementioned effect.
K. MISCELLANEOUS COMPANY OPERATIONS
- Restrictions on Distributable Profits
Section 427 of CAMA 2020 restricts the profits of a company available for payment of dividends only to, the company’s accumulated, realised profits (so far as not previously utilised by distribution or capitalisation) less the company’s accumulated, realised losses (so far as not previously written off in a lawfully made reduction or reorganisation of capital).
In other words, in a financial year, the part of a company’s profits utilised for purpose of capitalisation and the losses incurred by a company as a result of legally valid business reorganisation shall not be considered in determining the distributable profits of the company.
- Common Seal
Based on Section 98 of CAMA 2020, the procurement of a Common Seal is no longer a mandatory requirement. Howbeit, where a company has a Common Seal, the design and use of that seal shall be regulated by the Company’s articles. This salutary provision is in line with international best practices, especially as local and cross-border transactions are increasingly negotiated and finalized timeously without parties having to physically meet each other.
- Electronic transfer of shares and Electronically filed documents
Worthy of note, is the provisions of Section 176(1) of CAMA 2020, which provides that Register of transfer of shares includes electronic register of transfer and also Section 860(2) states that a certified true copy of an electronically filed document, filed at the Commission shall be admissible as evidence in all proceedings and rank pari passu in validity with the original documents.
The provision for the admissibility of electronic filing and electronic share transfer are in line with the provisions of the Evidence Act and promotes ease of doing business by curtailing the need to visit the branch offices of the Commission for filing purposes.
- Display of the audited accounts of Public companies on their websites
In line with the Nigerian Stock Exchange and SEC requirement, Section 374(6) of CAMA 2020 requires public companies to display its audited accounts on their website.
It is trite to note that by the provisions of Section 869 (2) CAMA 2020 transactions or acts which had been validly commenced and still in force immediately before the commencement of the CAMA 2020 will remain unaffected and shall continue in force.
In conclusion, the CAMA 2020 provides a paradigm shift which is in tune with the international best practices and the current realities of virtual interactions and also, will promote transparency and accountability in corporate governance. To deepen these gains, it is more than necessary to review the Companies Regulations (as amended) and the Companies Procedure Rules to align with the new legal regime.
WIGWE & PARTNERS
The information provided in the write-up does not, and is not intended to, constitute legal advice; instead, the information contained herein are for general informational purpose only. Readers of this write-up should contact their solicitors to obtain advice with respect to any particular legal matter. No reader should act or refrain from acting on the basis of the information herein without first seeking legal advice from their solicitor. All liability with respect to actions taken or not taken based on this write-up are hereby expressly disclaimed.