By Alkali Amana
In 2018, the Nigerian Senate, otherwise known as ‘The National Assembly’, in its 8th term sought to improve upon the Companies and Allied Matters Act, which is arguably Nigeria’s foremost business legislation with an amendment covered in Nigeria’s Regulatory Alert May – the same year, and His Excellency, the President of the Federal Republic of Nigeria, Muhammadu Buhari, declined assent to it requesting the National Assembly’s reconsideration of the Bill. After due reconsideration and intensive engagements with a view of establishing an efficient means of regulating businesses, minimizing the compliance burden of small and medium enterprises (SMEs), enhancing transparency and shareholder engagement and promoting a friendly business climate in Nigeria, the Senate in its 9th term on March 10 2020, passed the Companies and Allied Matters Act (Repeal and Re-enactment) Bill, 2020.
‘The CAMA Bill’ as it was referred received the assent of the President, Muhammadu Buhari, on August 7 2020, signing into law what will become the first reform of the Companies and Allied Matters Act (CAMA) since it was introduced 30 years ago in 1990. Critically appraised to be an overhaul long overdue, the repeal and re-enactment of Act (CAP C20, LFN 2004) to its present state is a major game-changer in the corporate regulatory landscape. Appraising the role of the present Act towards boosting SMEs, Techpoint Africa noted that the law sustains the gains made by the Federal Competition and Consumer Protection Act 2018 and the Finance Act 2020 towards improving business in Nigeria, with some amendments and fresh provisions geared towards further liberalization of Nigeria’s business environment.
The Act has 870 sections which are classified into chapters under Parts A to G. Part A deals with the composition and administration of the registry which functions as a regulator – the Corporate Affairs Commission (CAC). Part B has 29 chapters which stipulate the lifecycle of companies from their incorporation through to liquidation. Parts C & D have 11 and 2 chapters respectively and set out provisions that govern limited liability partnerships and limited partnerships. Parts E & F reprised sections on the registration and regulation of Business Names and Incorporated Trustees, with a few changes outlined in chapters 3 & 7, respectively. Part G introduces the quasi-judicial body – the Administrative Proceedings Committee – in its first chapter and covers general miscellaneous matters in its other chapter.
With so much to offer, it becomes necessary for the curious Nigerian business mind and African corporate with investments in the country (or planning to start an investment) to look into the Act and acquaint the mind with some of these fresh provisions if not all. Udo Udoma & Belo Osagie, a prominent law firm in Nigeria, in an issue written on the new CAMA, discussed the innovations brought about by the Act. Below are some of the relevant and key innovations:
- Single Shareholder/ Single Director Companies
It is now possible to have single shareholder/single director companies. This is available to small companies. Single-member and director companies will make it possible for business owners who currently trade as sole proprietors to register a company without the need to bring in new owners/directors at the initial stage, and continue to run their business as before but with added beneﬁts of limited liability and access to credit. Private companies that do not qualify as small companies are permitted to have a single shareholder; however, such private companies must have at least two directors.
- Small Companies Redeﬁned, With Additional Beneﬁts
The threshold for deﬁning small companies has been increased, to enable more companies to qualify as small companies and therefore enjoy the beneﬁts conferred on small companies by the CAMA 2020. Under the Companies and Allied Matters Act 2004 (“Repealed CAMA”), a small company was a company that, amongst other criteria, had a turnover of not more than N2 million and a net asset value of not more than N1 million. Under the CAMA 2020, a small company is a company that, in addition to the other criteria that existed under the Repealed CAMA, has a turnover of not more than N120 million and a net asset value of not more than N60 million. The additional beneﬁts that small companies enjoy are that they do not have to hold annual general meetings, appoint auditors or a company secretary.
- Electronic Innovations
CAMA 2020 contains several innovations that reﬂect the realities of conducting business in this digital age:
- Company records can be maintained in electronic format;
- Electronic share transfer forms will be accepted by all companies;
- A private company may hold its general meetings electronically provided that such arrangements are conducted in accordance with the articles of the company;
- In addition to the notice given personally or by post, notice may also be given by electronic mail to any member who has provided the company an electronic mail address; and
- Any document required to be annexed to the annual return may be delivered to the Corporate Aﬀairs Commission (“CAC”) either in hard or soft copy.
- Changes to Share Capital
There is no longer a concept of authorized share capital. Instead, companies are only required to ensure that they maintain the minimum issued share capital required under the CAMA 2020 and that a quarter of their issued share capital is paid up. The aim of this amendment is for the share capital of the company to provide a more realistic reﬂection of the true state of aﬀairs with respect to the capital of the company that has actually been issued and paid-up; the concept of authorized share capital did not reﬂect this. Another reason for this change is to eliminate the front-loading of costs associated with the creation of authorized share capital even where the company is not prepared to issue all of its authorized share capital. The minimum issued share capital for private companies is N100,000 while for public companies, it is N2,000,000.
- New Corporate Structures
New entities have been introduced into Nigeria’s company law. These are limited partnerships and limited liability partnerships. These new forms of the partnership will provide more options for investors seeking to structure their holdings in Nigerian businesses as well as private equity and venture capital fund managers who typically adopt such structures for their investment funds.
- Reduced Costs for Registering Security
Prior to the CAMA 2020, the CAC ﬁling fee for registering security interests was 1% of the secured amount (for private companies) and 2% of the secured amount (for public companies). Under the CAMA 2020, the CAC cannot charge more than 0.35% of the secured amount. This means that the cost of registering security interests at the CAC has been reduced by 65% for private companies and 82.5% for public companies. The implications of this for the cost to Nigerian businesses of obtaining credit cannot be overstated, as Nigeria, prior to the CAMA 2020, had a reputation for the signiﬁcant regulatory costs associated with creating security for debt ﬁnancing.
- Framework for Implementing Mergers
CAMA 2020 now contains a framework for implementing mergers or other forms of arrangement or reconstruction between two or more companies. This framework is set out in section 711. Under this framework, once the transaction is approved by at least 75% in value of the shares held by shareholders present and voting at the relevant court-ordered meeting and thereafter sanctioned by the Court, the merger becomes binding on the companies even before the court sanction is ﬁled at the CAC. The court sanction must, however, be ﬁled at the CAC within 7 days. An important point to note – these new provisions do not require the Court to refer the scheme to the Securities and Exchange Commission (SEC) to consider the fairness of the scheme. It is also possible to structure a scheme of arrangement or compromise under s. 715 of the CAMA 2020 but schemes under s. 715 can be referred by the Court to the SEC to determine the fairness of the scheme. Schemes under s.715 do not become eﬀective until the court order sanctioning the scheme has been ﬁled at the CAC.
- Private Company Acquisitions (Shares and Assets)
CAMA 2020 has implemented three key changes in relation to the sale of shares or assets of private companies. First, in order to transfer shares in a private company, the selling shareholder must ﬁrst oﬀer the shares to the other existing shareholders before the shares can be oﬀered to a third party. Secondly, shareholders cannot sell more than 50% of the shares of a private company to a buyer who is not a shareholder unless that buyer has oﬀered to acquire the shares of all the remaining shareholders on the same terms. Thirdly, in relation to asset sales, the approval of all shareholders is required before assets valued at 50% or more of the company’s assets may be sold. Investors in private companies will need to take the second point above into account when considering acquisitions of majority interests in private companies as this could have an impact on funding. CAMA 2020, however, recognizes that companies can speciﬁcally exclude these restrictions in their Articles of Association. Private companies can, therefore, amend their Articles to exclude these provisions so that they do not apply automatically going forward.
- Financial Assistance by Companies Now Lawful
Financial assistance by companies in relation to the acquisition, or proposed acquisition of their shares will now be permitted where (a) it is eﬀected pursuant to a court-sanctioned scheme of arrangement, merger or restructuring (b) the principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of acquiring shares in the company or its holding company, but rather, is incidental to a larger purpose of the company, and the assistance is given in good faith in the interests of the company. With respect to private companies, ﬁnancial assistance for the acquisition of shares of a private company (or a subsidiary of a private company) is now permitted subject to certain conditions must be approved by a special resolution; the net assets of the company must not be reduced (or if they are reduced, the assistance must be provided from distributable proﬁts); and the directors of the company must make a statutory declaration before the ﬁnancial assistance is provided by the company. These additional exceptions, especially those applicable to private companies, are a welcome development particularly in relation to companies seeking to raise much-needed capital and which may, for example, be required to provide certain indemnities to investors in connection with the capital raise.
- Introduction of Company Rescue Processes
These processes are administration and company voluntary arrangements. The introduction of these concepts will provide a way for Nigerian companies that are in ﬁnancial diﬃculty to explore ways by which they can rescue their businesses and continue operating as a going concern. Winding up will no longer be the only option available for dealing with insolvent companies.
- Updated Insolvency Test for Companies
The test for insolvency (i.e. inability to pay debts as they fall due) has been increased from N2,000 to N200,000, to reﬂect present-day realities.
- Companies Limited by Guarantee
Non-proﬁt organizations seeking to establish companies limited by guarantee will still need to obtain the consent of the Attorney General of the Federation prior to registration at the CAC. If, however, all required documents have been submitted, but the Attorney General does not grant his consent or communicate his refusal within 30 days, the promoters may place an advertisement in 3 national newspapers inviting the general public to make any objections to the incorporation of the company which will be considered the CAC. If the CAC is satisﬁed that the memorandum and articles of association of the company are compliant with the CAMA 2020, the CAC will advertise the application in 3 national newspapers, inviting objections from the public to the proposed incorporation. If no objections are received from the public within 28 days (or the CAC receives, considers, but rejects such objections), the CAC can assent to the application and register the company without the consent of the Attorney General. To reﬂect current economic realities, the minimum amount to be contributed to the assets of the company by its members in the event that the company is wound up has been increased from NGN10,000 to NGN100,000.
- Governance of Public Companies and Multiple Directorships
CAMA 2020 introduces certain governance requirements. For example, the chairman of a public company is not permitted to act as the chief executive oﬃcer of that company. In addition, public companies are now required to have at least three independent directors and speciﬁc criteria must be met before a director will qualify as an independent director. These are as follows: in the two years preceding his nomination as an independent director, the relevant director and/ or such director’s relative(s) (a) was not an employee of the company, (b) did not make or receive payments from the company exceeding NGN 20 million nor own (directly or indirectly) more than 30% of the shares of an entity that received such a payment from the public company; (c) did not own (directly or indirectly) more than 30% of the shares of the public company; and (d) was not engaged (directly or indirectly) as an auditor of the company. Finally, and notably, there are now restrictions on multiple directorships of public companies, and no person can be a director in more than 5 public companies. Any person who is currently a director in more than five public companies is required to resign as a director of all but 5 of the companies within two years from the date of the Act.
- Removal of a Director is Now a Basis for Disqualification
CAMA 2020 retains the procedure for removal of directors outlined under the Repealed CAMA. A key change, however, is that directors who are suspended or removed in a general meeting of the company in accordance with section 288 of CAMA 2020, will be disqualiﬁed from being directors of other companies.
- Oﬀences and Penalties
Only egregious oﬀences relating to matters such as fraud remain criminal oﬀences under CAMA 2020 and most oﬀences, such as failure to ﬁle resolutions etc., are now administrative oﬀences. The CAC is empowered to impose penalties for administrative oﬀences through ﬁnes prescribed in its regulations which will make it easier to increase those ﬁnes to ensure that they are set at a level that acts as a deterrent to breaches of the Act without having to amend CAMA 2020 in order to achieve this. The CAC will need to work through the CAMA 2020 and publish penalties for various administrative oﬀences under the Act.