Law & Politics, Regulatory Alerts

The Companies and Allied Matters Act: Prospects and Hurdles for the Nigerian Business Sector

By Uche Osita

The Nigerian Companies and Allied Matters Bill[1] was recently passed by the senate on the 15th of May 2018. It seeks to repeal and re-enact the erstwhile Companies and Allied Matters Act 1990.[2] The bill is set to transform the business sector in Nigeria, strengthen its current regulatory framework and bring it in line with global best practices. The bill if and when it does receive presidential assent, is expected to boost Nigeria’s ranking on the World Bank ease of doing business index.[3]

There are several notable innovations visible from the bill. In this article for the sake of clarity, the innovations have been categorized into several relevant subject matters and discussed accordingly as follows;

  1. INNOVATIONS IN MEETINGS AND PROCEEDINGS OF COMPANIES

The provision governing the extraordinary general meetings is essentially the same under the Bill. However, there is a slight amendment with respect to the place of meetings. Whereas in the existing Act, place of meeting for all statutory and annual general meetings  is required to be in Nigeria, the Bill[4] makes an exception for small companies and companies having a single shareholder. Thus all statutory and annual general meetings held in Nigeria save for those of small companies and companies with a single shareholder which are not required to have annual general meetings.[5] Furthermore, a private company may hold its general meeting electronically provided that such meetings are conducted in accordance with the articles of the company.[6]

CAMA requires every company to hold Annual general meetings on a yearly basis but no more than 15 months must lapse between the date of one AGM and the next. By virtue of the provisions of the Bill,[7] small companies are no longer mandated to convene and hold annual general meetings.

Also, under the provisions of the Bill[8], in addition to the notice of meeting given personally or by post to members contemplated under CAMA[9], notice may be given by electronic mail to any member. In addition, the Bill provides for notice to joint shareholders by notice to the joint holder first named in the register of members in respect of the share.[10]

  • INNOVATIONS IN SHARES ISSUANCE AND SHARE CAPITAL REQUIREMENTS

The Bill has replaced the requirement for companies to have an authorized share capital with a requirement to have a minimum issued share capital with a requirement to have a minimum issued capital.[11] The idea behind this amendment is to remove the extra cost, in the form of payment of stamp duties on the authorized share capital or upon increase in the authorized share capital of a company.[12] With the amendment, payment of stamp duties will only be on the issued share capital as opposed to the current regime of payment of stamp duties on the entire authorized share capital of the company at incorporation.[13]

Prior to the bill, there was a requirement of a court order for the confirmation of a special resolution for a reduction in share capital under CAMA[14]. However, under the Bill[15] the requirement of the court approval has been removed with respect to private companies.

It is worth noting that in section 27(2) of the Bill, the minimum share capital has been increased from NGN 10,000 to NGN 100,000 in the case of a private company and in the case of a public company, it has been increased to NGNN2, 000,000. The Bill contemplates that Subscribers shall pay up to at least 25% of the share capital of the company, including any increase in the share capital.[16]

The Bill[17] also now makes it unlawful for a company to issue its shares at a discount. And this in contrast with the provisions of CAMA[18] which stipulates that a company can issue certain shares at a discount.

  • INNOVATIONS ON EASE OF DOING BUSINESS PROVISIONS

The Bill introduced several things which will greatly affect the ease of doing business in Nigeria and amended several provisions which hitherto in their current state were ineffective and hindering of progress in the business sector.

The Bill has in its provisions[19] removed the requirement of the consent of the Attorney general of the federation for Companies limited by guarantee and in its place put the requirement of an advertisement in 3 national dailies. The Bill as well relaxed the requirement of having secretaries for private companies.[20] The Bill also made the keeping of statutory books electronically possible,[21] as well the use or having of a Company seal discretionary.[22] Finally, in order to reduce the entry barrier for SMEs, the bill provides that a private company can now be formed by one person.[23] This is to ensure that the Nigerian business regulatory environment is competitive and consistent with other jurisdictions.[24]

  • INNOVATION IN CORPORATE GOVERNANCE AND TRANSPARENCY

There have also been several innovative provisions relating to corporate governance and transparency. For instance, the bill has added a new provision[25] to the duties of directors. According to the Bill, the directors shall have regard to the impact of the company’s operations on the environment in the community where it carries on business operations.[26] In addition, the Bill (contrary to the provisions of CAMA) provides that a person shall not be a director in more than 5 public companies at a given time. Failure to adhere to this provision is considered an offence punishable by fine.[27] Also, with respect to derivative actions, a company as well as its subsidiaries can now be sued under the provisions of the Bill.[28] The bill has as well removed the requirement that the qualification of a company secretary in a public company shall include a person who has held the office of a secretary of a public company for at least three years of the five years immediately preceding his appointment in a public company.[29]

The Bill also makes provision[30] for the disclosure of multiple directorships held by any person to be appointed as a director of a public company. And lastly, under the Bill, all companies will now be required to disclose in their annual return and register of members the details of all persons with significant control of over 5 percent interest in their companies.

PROSPECTS AND HURDLES

The bill seeks to harmonize the Companies and Allied Matters Act, in line with the investment and securities Act 2007, while creating novel provisions on administration, registration and winding up of companies in Nigeria. While the bill if enacted as law will improve Nigeria’s ranking on the World Bank ease of doing business index, it will also place Nigeria strategically as the most dynamic economy in Africa, having not only resources but effective company’s regulations and administration mechanism. The relative ease which the Bill provides for the creation and running of private companies will also make opening and registration of companies attractive for individual, trickling down in turn by way of Company income tax for the government.

Also while the Bill has many prospects for both the Nigerian business sector and the Nigerian economy, there are as well hurdles which the country may face as a result of the Bill, when passed into law and enforced. One of such hurdles is administrative deficiency. While we are super excited about ideal and thorough provisions, we are at the same time cautious because we know of many good laws that have died on the pages of statutes because of lack of political will on the part of the government to enforce same. The Nigerian government should make strong effort to be dispassionate about the appointment of the officials of the commission – who without the requisite integrity are certain to doom our good law to an old dusty statute book. Lastly, some provisions[31] which hitherto in CAMA caused a lot of trouble have somehow found their way into the provisions of the bill. It is hope that before the Bill is finally assented by the president and presented as an Act of the national assembly that requisite amendments be made.

CONCLUSION

On the whole, the entire Bill is an improvement on the existing Act as it modernizes the company legislation where necessary, with inculcation of the use of electronic means of communication in the formation, an administration of companies. We are certain that the Nigerian business sector will be greatly improved if the bill eventually becomes law.


[1] Hereinafter “The Bill”

[2] CAP C20 LFN 2004 hereinafter “CAMA”

[3] Templars “ The Repeal and Re-enactment of the Companies and Allied Matters Act : A Bold Step Towards Business Reform” (May 2018) available at https://www.templars-law.com/wp-content/uploads/2018/05/The-Repeal-and-Re-Enactment-of-The-Companies-and-Allied-Matters-Act-A-Bold-Step-Towards-Business-Reform.pdf

(Last Accessed 7th December, 2018).

[4] See section 241 of the Bill

[5] Solola & Akpana “A Review Of The Companies And Allied Matters Act CAMA 2004 Repeal And Re-Enactment Bill 2018”(June 2018) available at  https://sololaakpana.com/2018/06/07/a-review-of-the-companies-and-allied-matters-act-cama-2004-repeal-and-re-enactment-bill-2018/  (Last Accessed 7th December 2018)

[6] See Section 241(2) of the Bill

[7] Templars, note 3 above. Also see Section 238(1) of the Bill

[8] Ibid. See Section 245(3) of the Bill

[9] Ibid. See Section 219 of CAMA

[10]Ibid. See Section 245(4) of the Bill. This provision is completely absent in CAMA.

[11] Ibid. See Section 27(2) of the Bill

[12] Ibid.

[13] Ibid.

[14] See Section 107(1) of  CAMA

[15] See Section 134(1) of the Bill

[16] Solola & Akpana, note 5 above.

[17] See Section 147 of the Bill

[18]  See Section 121 of CAMA

[19] See Section 26(4) of the Bill

[20] See Section 330 of the Bill

[21] See Section 858 of the Bill

[22] See Section 99 of the Bill

[23]KPMG, “Key Highlights of the Companies and Allied Matters Act Bill 2018” (November 2018) available at https://home.kpmg.com/ng/en/home/insights/2018/11/Key-highlights-of-the-Companies-and-Allied-Matters-Act-Bill-2018.html  (Last Accessed 7th December 2018). See Section 18 of the Bill.

[24] Ibid.

[25] Solola & Akpana, note 5 above. See Section 305(3) of the Bill

[26] Ibid. This is a fundamental shift from the agency theory operational in the corporate governance in Nigeria enacted under Section 279(3) of CAMA.

[27] Ibid. See Section 306 of the Bill.

[28] Ibid. See Section 344 of the Bill.

[29] Ibid. See Section 331 of the Bill

[30] Ibid. See Section 277(2) of the Bill

[31]  See section 246 of the bill where the consequence of the failure to give notice of meeting to people so entitled was exonerated in the cases of accidental omission. This is also the position under Section 221 of the CAMA. The provision is condemnable because it makes mockery of the Supreme Court decision in the case of Longe v. FBN.Plc (2010) 6 NWLR (Pt.1189) 1 S.C where a meeting was held void for failure to give notice to a director whose removal was conducted at such a meeting. The failure to present a notice of meeting should not be exonerated on the ground of accidental omission, especially since the fact of whether or not the omission is accidental is a fact entirely within the knowledge of the company. See also Section 254 of the Bill on qualification of votes

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