1.1 On the 15th day of May, 2018, the Nigerian Senate passed the Companies and Allied Matters Act (CAMA), 2004 (Repeal and Re-enactment) Bill, 2018 ("the Bill") into law. The Bill which seeks to repeal and re-enact the existing Act, the Companies and Allied Matters Act, 2004, is aimed at addressing the shortcomings of the said existing Act, and when assented to by the President, is expected to promote the ease of doing business in Nigeria.
1.2 The Bill is divided into eight (8) parts as follows:
Part A – deals with the administrative aspect of the
Corporate Affairs Commission
Part B – deals with the incorporation of companies in Nigeria and incidental matters
Part C – deals with Limited Liability Partnership
Part D – deals with Limited Partnership
Part E – deals with Business Names
Part F – deals with Incorporated Trustees (non-profit organisations)
Part G – deals with establishment of Administrative Proceedings Committee
Part H – provides the Short Tittle of the Bill
2. Executive Summary
2.1 The Bill introduces a number of novel provisions and makes certain amendments to some of the existing provisions.
2.2 Some of the key amendments in the Bill include the following:
A single person can form a private company under Nigerian laws. The requirement of a minimum of two persons is no longer applicable as it relates to private companies;
The consent of the Attorney General in registering a Company Limited by Guarantee has been dispensed with. This provision has been replaced with newspaper publications in three (3) national dailies reflecting the proposed objects of the company, and to entertain objections from the public;
Small companies and/or any company having a single shareholder are not mandated to hold an Annual General Meeting;
A private company's place of meeting has been expanded to include meetings done electronically and in accordance with the company's Articles;
All statutory and annual general meetings shall be held in Nigeria, save for those of small companies and companies with a single shareholder which are not required to have annual general meetings;
Under the Bill, a small company is, inter alia, a private company whose turnover is not more than N120,000,000 [as against N2,000,000 under the existing Act] or such amount as may be fixed by the Commission from time to time, and whose net assets value is not more than N65,000,000 [as against N1,000,000 under the existing Act] or such amount as may be fixed by the Commission from time to time;
The minimum share capital has been increased from NGN10,000 to NGN100,000 in the case of a private company and in the case of a public company, it has been increased to NGN2,000,000;
Statutory books and records of companies can now largely be kept electronically;
It is unlawful to issue shares at a discount;
Electronic register of transfer of shares are now accepted;
It is now optional for a company to have or use its Company seal;
A derivative action can be commenced against a company and its subsidiary;
There is the introduction of Limited Liability Partnership as a business vehicle;
There is the introduction of Limited Partnership as a business vehicle;
The Bill provides for the first time in Nigeria the appointment of Administrators of a company to perform the functions of rescuing a company in distress and achieving better results for a company's creditors than would be possible if the company were wound-up;
The Bill makes it a requirement for a person to obtain authorization from the Corporate Affairs Commission (the "CAC" or the "Commission") in order to be able to act as an insolvency practitioner [a liquidator or a provisional liquidator or an official receiver; an administrator or an administrative receiver; a receiver and manager; or a nominee or supervisor of a company voluntary arrangement];
Provisions on Scheme of Merger similar to those in the Investments and Securities Act, 2007, especially with regard to Court ordered meeting and approval of the Scheme, have been incorporated into the Bill;
Under the provisions of the Bill, the Commission may by order suspend the trustees of an association and appoint an interim manager or managers to manage the affairs of an association. Also, the trustees of an association are required to submit to the Commission a bi-annual statement of affairs of the association. Additionally, two or more associations with similar aims and objects may merge under such terms and conditions as may be prescribed by the Commission from time to time; and
An Administrative Proceedings Committee is established under the Bill to provide a hearing opportunity for persons alleged to have contravened the provisions of the Bill or its regulations; resolve disputes or grievances arising from the operations of the Bill or its regulations; and impose administrative penalties for contravention of the provisions of the Bill or its regulations in the settlement of matters before the Committee. The decisions of the Committee are subject to confirmation by the Commissions' Governing Board. Parties dissatisfied with decisions of the Committee may appeal to the Federal High Court.
3. Key Amendments in the Bill
3.1 Upon a careful consideration of the Bill, we have highlighted the following amendments and new provisions as contained in the Bill:
3.2 Membership and Composition of the Governing Board of the Commission
3.2.1 Section 2 of the Bill identifies the membership and composition of the Commission as the 'Governing Board'. The new membership still consists of a Chairman, one representative of the business community, one representative of the legal profession, one representative of the accountancy profession, one representative of the Institute of Chartered Secretaries and Administrators of Nigeria, one representative of the Nigerian Association of Small and Medium Enterprises, one representative of the Manufacturers Association of Nigeria, one representative of the Securities and Exchange Commission not below the grade level of a Director or its equivalent, one representative each not below the grade level of a director of the following Federal Ministries – (i) Industry, Trade and Investment, (ii) Justice; and (iii) the Registrar-General of the Commission.
3.2.2 However, the following changes are reflected in the subsection (d) of the same section (2), where the representative of the accountancy profession, appointed by the Minister is now to be appointed after consultation with the professional bodies of accountants as opposed to basing it on the recommendation of this singular body, the Institute of Chartered Accountants of Nigeria. This amendment is to allow for an inclusion of the other accounting bodies in Nigeria such as the Association of National Accountants of Nigeria (ANAN).
3.2.3 In addition to the above, two new subsections (e) and (f) were introduced, allowing for the addition of one representative of the Institute of Chartered Secretaries and Administrators of Nigeria, appointed by the Minister on the recommendation of the Institute and one representative of the Nigerian Association of Small and Medium Enterprises, appointed by the Minister on the recommendation of the Association. This allows for accountability, enhances board diversity and knowledge specialisation, which carries many benefits because the monitoring and advising tasks of governing boards are complex and require specific knowledge, thereby increasing the Commission's effectiveness in carrying out its functions. It is worth noting that members of the Governing Board of the Commission can, however, become conflicted in their decisions and/or in exercising their duties.
3.3 Resignation of a Member of the Governing Board
Section 3 (3) (a) of the Bill allows for the resignation of a board member; this provision has been added to the other conditions listed under the subsections of section (3). Furthermore, sections 3(4), 3(5) and 3(6) cover instances where a vacancy on the Board arises. This flexibility is consistent with the realities in the business world thereby leading to knowledge continuity as well as independence.
3.4 Pre-Action Notices
Section 17 of the Bill is a novel provision dealing with a series of procedural requirements that are a pre-requisite to commencing a suit against the Commission. This provision is generally aimed at encouraging settlement, and where settlement is not achieved, narrowing the issues in dispute to facilitate a more efficient and cost-effective trial process. In jurisdictions where this has been implemented, it has been met with some criticism. However, it still has the potential to promote access to justice and efficiency.
3.5 Capacity of a Single Individual to Form a Company
3.5.1 The Bill has introduced a novel provision in section 18, which prescribes for the first time in relation to Nigerian companies, that a single person can form a private company. This provision is consistent with what is obtainable in several other jurisdictions. This flexibility would greatly improve ease of doing business and generally enhance the business climate in Nigeria for start-ups and small-scale businesses, as well as making Nigeria a more business friendly country.
3.5.2 Though, it might take a while for such a new concept to be incorporated with complete efficiency, it is expected that as time goes by, this concept will be embraced as a most successful business concept. The rationale behind this concept is the flexibility in decision-making it provides to the limited liability company structure. For example, it enables additional directors and members to join the business at any time after company formation or where one person forms a company without any additional shareholder, and if the member is willing to add shareholders, all he needs to do is to, inter alia, modify the Memorandum of Association. By adopting this structure, small scale entrepreneurs now have the ability to mitigate risks by limiting their liability using this structure of business, and avoid incidental complexities faced by individuals desirous of starting a company.
3.6. Companies Limited by Guarantee
3.6.1 A number of changes have been made to section 26 of the existing Act, as it relates to Companies Limited by Guarantee. Subsection 5 of the existing Act has been deleted and subsections 4, 5 and 6 were added to the Bill. Essentially, these sections provide that the requirement in section 26(5) of the existing Act to obtain the consent of the Attorney General for the registration of the memorandum and articles of association of Company limited by Guarantee has been deleted and replaced with the requirement to advertise the application in three (3) national daily newspapers to entertain objections within 28 days of the last publications in the newspaper, after which the Commission may assent to the application, register the Company and issue a certificate of incorporation (where there is no objection). This amendment is commendable as the prevailing bureaucratic rigors of the office of the Attorney General are dispensed with, regarding the registration of a Company Limited by Guarantee
3.6.2 Under the Bill, the total liability of a member of a Company Limited by Guarantee to contribute to the assets and liability of the Company in the event of its being wound up shall not at any time be less than N 100, 000 (Section 26 (6)), as opposed to the members contributing an amount not less than N10, 000 to the assets and liability of the Company in the event of the Company being wound up under the existing Act. The amendment solves the long debate as to whether the provision applies to each member or all the members.
3.6.3 Additionally, the undertaking to contribute must be reflected in the memorandum of association of the Company Limited by Guarantee as provided for in section 27 (4) (b) of the Bill.
3.7. Increase in minimum Share Capital
It is worth noting that in Section 27 (2) of the Bill, the minimum share capital has been increased from NGN10,000 to NGN100,000 in the case of a private company and in the case of a public company, it has been increased to NGN2,000,000. The Bill contemplates that Subscribers shall pay up at least 25 per cent of the share capital of the company, including any increase in the share capital. This increase in minimum share capital is long overdue as the amounts contained in the existing Act are no longer in tune with present realities.
3.8 Alteration of Name and Registration of Companies
3.8.1 Another example of where the provisions of the Bill are said to be in tangent with the technological realities of the 21st century is evident in Sections 30 (7), 31, and 36 of the Bill. Comparing s.30(7) of the Bill to s.31 of the existing Act, any alteration made in the name of a company is now published by the Commission on its website and in a national daily newspaper, rather than merely limiting such notifications to the Gazettes, as it were. Furthermore, Section 31 of the Bill now provides for the possibility of applications for reservation of names online through electronic means as opposed to strictly by written application delivered in hard copy. It is also worth noting that subsections (3), (4), and (5) of the Bill give the Commission extensive powers and discretion to withdraw, cancel or approve a reserved name under specified circumstances.
3.8.2 The registration process has also been made much easier and straightforward as part of the benefit of incorporating new and modern ways of registering a company, see sections 41 and 42 of the Bill. The provisions surrounding articles of association have also undergone changes by providing a default application of model Articles of Association for example, see sections 32 to 35 of the Bill.
3.9 Company Contracts, Authentication and Service of Documents
3.9.1 The Bill contains an amendment with regards to the use of a company's seal. In this regard, section 99 of the Bill makes it optional for a company to have a seal.
3.9.2 Section 101 of the Bill empowers a company to donate its powers to a person, via a deed of power of attorney, to enable that person execute deeds on behalf of that company in any place, within or outside Nigeria as its attorney. Furthermore, section 102 provides that the authentication of a document requiring same by a director or secretary of a company need not be signed as a deed except the law provides otherwise.
3.9.3 Also, section 103 and 104 of the Bill contains novel provisions regarding the execution of deeds by a company. Whilst section 103 is to the effect that a deed by a company need not have the company's seal affixed as such a document will be validly executed where it is described or expressed as a deed and signed by a director and the secretary of the company or two directors of the company, or a director of the company in the presence of a witness who shall attest to the director's signature, notwithstanding any written law or rule of law that requires the said document to be under or executed under the common seal of a company or provides for consequences of not sealing the document.
3.10 Power of the Court to Rectify Register
The Bill has by section 116 (4) prescribed a timeframe of 14 days, within which a company is expected to file a copy of an order and a notice of particulars of rectification with the Commission, in the event that a Court makes an order for rectification of the register of members of the company.
3.11. Obligation of Disclosure of Substantial Shareholder by Public Company
3.11.1 Section 121 (5) of the Bill requires a public company to inform the Commission by a written notice, upon receipt of notice or of becoming aware that a person is a substantial shareholder of the company. This is a novel provision introduced by the Bill as under the existing Act, there is no requirement for the company to notify the Commission of this fact. By Section 121 (2) of the Bill, a person is a substantial shareholder in a public company if he holds himself or by his nominee, shares in the company which entitle him to exercise at least 5 per cent of the unrestricted voting rights at any general meeting of the company.
3.11.2 Additionally, the Bill in section 122 (3) and (4) further makes provisions requiring the company upon receiving notice or becoming aware that a person has ceased to be a substantial shareholder, to give a written notice of that fact to the Commission. Failure to give such notice is considered an offence punishable by a fine.
3.12. Notice of Increase in Share Capital
3.12.1 The Bill lays down a more detailed process for providing the Commission with notice of the requirement of approval under any enactment other than the Bill. To this end, section 128 (3) of the Bill goes a step further than section 102 (3) of the existing Act by requiring a company to furnish the Commission with notice of any approval required to be obtained under any other enactment with regards to the increase in share capital within 15 days after the passing of the resolution to increase share capital. Such notice is now required to be accompanied by an affidavit sworn by a director of the company. The purpose of this amendment is to provide the company with enough time to obtain the other approval required by that other enactment.
3.12.2 The Bill also introduces a new subsection (subsection 6) which requires the amendment of the memorandum and articles of association by an ordinary resolution to reflect the new issued share capital of the company whenever there is an increase in share capital.
3.13 Restriction on Reduction of Share Capital
Section 131 of the Bill places a restriction on the reduction of a company's issued share capital. To this end, section 133 of the Bill requires the Commission to register the minutes of the meeting for reduction of the share capital of a private company, in order for the resolution for reducing share capital to take effect. Upon the registration of the minutes, it shall be deemed to be substituted for the corresponding part of the company's memorandum and such substitution deemed to be an alteration of the memorandum of association.
3.14 Issuance of Shares at a Discount
Section 147 of the Bill now makes it unlawful for a company to issue its shares at a discount. This is in contrast with the provisions of section 121 of the existing Act which stipulates that a company can issue certain shares at a discount.
3.15 Issuance of Redeemable Preference Shares
Section 148 of the Bill places a ban on a Company Limited by Shares regarding the issuance of irredeemable preference shares.
3.16 Transfer of shares
Under the Bill, Section 176 provides that except as expressly provided in the articles of association, transfer of shares shall be without restrictions. Register of transfer have been expanded to include electronic register.
3.17 Share Buyback
Sections 186 and 187 of the Bill provides for share buyback by a company. Whilst section 187 stipulates the classes of people from whom a company may buy back its shares, section 187 provides for the payment of the share buy back from the distributable profits of the company. The inclusion of share buyback provisions will go a long way in encouraging the growth and expansion of companies in Nigeria, as companies can now reduce their costs of capital or benefit from temporary undervaluation of their shares by buying back outstanding shares.
3.18 Holder of a Fixed Charge to enjoy preferential Payment
Section 208 (4) of the Bill grants the holder of a fixed charge priority over other debts of the company including preferential debts.
3.19 Place of Meeting
The provision governing extraordinary general meetings is essentially the same under the Bill. However, there is a slight amendment in the Bill as it concerns the Place of Meeting. Whereas under the existing Act, place of meeting for all statutory and annual general meetings is required to be in Nigeria, section 241 of the Bill makes an exception for small companies and companies having a single shareholder. To this end, all statutory and annual general meetings shall be held in Nigeria save for those of small companies and companies with a single shareholder which are not required to have annual general meetings. Furthermore, a private company may hold its general meetings electronically provided that such meetings are conducted in accordance with the articles of the company.
3.20 Persons Entitled to receive Notice of Meetings
In furtherance of the Commission's mandate to regulate the management of companies, the Bill in Section 244 (1) (e) amended section 219 of the existing Act to include the Commission as a party entitled to receive notice of meetings with respect to a public company. Before now, this requirement only applied to incorporated trustees under Part C of the exiting Act.
3.21 Service of Notice via Electronic Mail
In line with modern realities and advancements in technology, section 245 of the Bill now stipulates that 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. Furthermore, the definition of 'registered address' of a member under the section has been expanded to include both physical and electronic address supplied by that member of the company.
3.22 General Meetings
The Bill in section 238 provides that small companies and/or companies having a single shareholder are not mandated to hold an Annual General Meeting.
Under the Bill, the provision of the law dealing with voting largely has no major changes to it and the basic requirements for voting were kept the same. However, section 257 of the Bill, which deals with quorum was updated in accordance with the latest developments to exclude companies having only one member from the requirement of quorum.
The provisions of the law as regards adjournment of meeting were slightly modified by section 264 (5) of the Bill to exclude one member companies.
3.25 Requirement of Single Member to Provide Details of Decision
Section 266 (4) of the Bill was also modified to require that in a single member company, the single member must furnish the board with details of a decision where such a member takes a decision that may be taken in general meetings. Failure by the member to comply with this requirement constitutes an offence punishable by a fine, but such a failure does not invalidate the decision taken.
3.26 Small Company may have less than Two Directors
The provisions relating to the number of directors have been slightly modified in section 271 of the Bill to exclude a small company from the requirement of having a minimum of 2 directors. To this end, a small company can now have 1 director. This amendment is again aimed at encouraging small companies, by reducing the cost of management of such companies that would have ordinarily resulted from the remuneration of 2 or more directors.
3.27 Disclosure of multiple Directorships
The Bill makes provisions for the disclosure of multiple directorships held by any person to be appointed as a director of a public company. To this end, section 277 (2) provides that "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 in which he is proposed for appointment as a director".
3.28 Restraint of Fraudulent Persons
A new provision was added to section 254 of the existing Act in
Section 279 of the Bill regarding a period of disqualification of
fraudulent persons from acting as directors of a company. This
provision is a critical improvement to the existing Act. It states
in sub-section (2) that "the period of disqualification ...,
shall commence after the sentence for the offence has been served
or on the date the fine for the offence is paid".
3.29 Proceedings of Directors
3.29.1 Generally, these sections remain unchanged. However, while questions arising at meetings of the board of directors previously needed a blanket "majority" to pass under the existing Act, the Bill has amended this requirement from majority to simple majority. A reading of this reveals that the Bill provides some specificity as to what kind of majority was required to decide issues at a Board of Directors meeting.
3.29.2 The above position is as stated in section S. 288 (2) that "unless the articles provide otherwise, any question arising at any meeting shall be decided by a simple majority of votes, and in case of an equality of votes, the chairman shall have a second or casting vote".
3.30 Duties of Directors
3.30.1 The Bill has added a new provision to the duties of a director in section 305 (3) that directors "shall have regard to the impact of the company's operations on the environment in the community where it carries on business operations". Thus, there is now a codified requirement for Directors to be conscious of the community and environment in areas where the company carries out business.
3.30.2 This provision is most welcome and long overdue, considering the fact that environmental issues are fast taking the front burner in the global business community and businesses in the 21st century are proffering ways of conducting their activities in more environmentally friendly manner.
3.31 Multiple Directorships
In contrast to the existing Act, section 306 of the Bill provides that a person shall not be a director in more than five (5) public companies at a given time. Failure to adhere to this provision is considered an offence punishable by a fine.
3.32 Register of Directors
Contrary to the provisions of the existing Act, the Bill makes a separation between the Register of Directors and the Register of the Secretary, with requirements for only the Register of the Directors in the Bill. Note further that, the Bill in Section 323 -329 stipulates that protected information about any of the company directors must be used restrictively and with caution.
3.33 Secretary not required for Small Company
Another novel provision contained in the Bill is the exclusion of a small company from the requirement of having a company secretary – section 330 of the Bill. This amendment is done to bring the provision of the Bill in line with the provisions that permit the formation of a company by a single individual. It also helps in reducing the cost of running a small company by eliminating the financial burden that comes with the employment of a company secretary.
3.34 Qualification of a Secretary
Section 331 of the Bill 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.
3.35 Commencement of Derivative Action
Section 344 of the Bill has expanded the provisions with regard to derivative action. Under this amendment, a derivative action can now be commenced against a company and its subsidiary. Furthermore, a derivative action can now be commenced against a director and the claimant(s) shall have the right to obtain any relevant documents from the defendant(s) and the witnesses at trial and may in pursuance of that right request categories of documents from such person(s) without identifying specific documents.
3.36 Investigation of a Company on its own Application or that of its Members
Section 355 of the Bill introduces a provision requiring a company to protect an employee, who in compliance with an inspector's request, provides an inspector with information concerning the affairs of the company. Such an employee is to be protected from any form of discrimination and unfair treatment. There is also provision for compensation of such employee where he is relieved of his employment. Furthermore, the Bill now gives an inspector the clear ability to, when necessary, apply to court for contempt against any officer, agent or person. These are improvements in areas of whistleblowing and empowerment of investigators to properly investigate the affairs of any company.
3.37 Obligation of Companies to keep Accounting Records
3.37.1 Section 372 (5) of the Bill requires a parent company whose subsidiary is not required to maintain accounting records as prescribed by the Bill, to take steps in ensuring that the subsidiary maintains such accounting records as to enable the directors of the parent company to ensure that any accounts required to be prepared under the Bill is in compliance with the requirements of the Bill.
3.37.2 Furthermore, section 372 (6) of the Bill mandates every public company to keep its audited accounts displayed on its website. The purpose of this provision is to ensure that the investing public is seised of the necessary information as regards the financial standing of public companies.
3.38 Companies to keep Electronic copies or Registers of Records
Section 373 (3) of the Bill allows a company to keep, in addition to original copies, electronic copies or registers of any document or record it is obliged to keep or maintain by law. This is a welcome development as it conforms to modern realities in data management which has moved to electronic platforms/dematerialization.
3.39 Additional Financial Statements
Section 375 (2) of the Bill makes provisions for additional financial statements required to be prepared by the directors of a company in respect of each year of the company. These additional statements include a statement of cash flow as an alternative to a statement of the source and application of fund; and changes in equity. These essentially align with International Financial Reporting Standards.
3.40 Qualification of a Small Company
The Bill makes certain modifications to the qualifying conditions to be met in order for a company to be classified as a small company. Section 392 increased the maximum turnover of a company classified as a small company from N2,000,000.00 to N120,000,000.00, while the net asset value for such a company was also increased from a maximum of N1,000,000.00 to N65,000,000.00. Furthermore, for a company to qualify as a small company in its first financial year, it must meet these conditions in that year, while in subsequent financial years, such a company must meet these conditions in that year and the preceding financial year.
3.41 Qualification of a Small Group
In determining whether a parent company qualifies as a small company, section 293 of the Bill introduces the concept of a small group. Under this section, parent company qualifies as a small company if the group it heads qualifies as a small group. To this end, a group qualifies as a small group if the qualifying conditions of a small company as outlined by the Bill [as highlighted above] are met.
3.42 Replacement of the Nigerian Accounting Standards Board with the Financial Reporting Council of Nigeria
Section 398 of the Bill gives the Minister the power to make regulations altering the accounting documents required to be delivered to the Commission upon consultation with the Financial Reporting Council of Nigeria. This replacement of the Nigerian Accounting Standards Board (NASB) as contained in the current Act with the Financial Reporting Council of Nigeria (FRCN) is most welcome bearing in mind that the NASB is now defunct with the FRCN taking over its functions.
3.43 Exemption from Audit Requirement
Section 400 of the Bill exempts a company (excluding insurance companies and banks) from submitting its audited accounts in a particular year, if it has not carried on business since its incorporation or if its turnover in that year is not more than N10,000,000.00 and the balance sheet total is not more than N5,000,000.00. This provision is geared towards encouraging start-ups and small companies by eliminating unnecessary costs from the administration of these companies. This may, however, pose some corporate governance and reporting challenges in the long run.
3.44 Qualification of Auditors
In determining the qualification of auditors, section 401 of the
Bill deviated from the existing Act (which merely cross-references
the provisions of the Institute of Chartered Accountants Act) by
expanding its provisions to include cross-referencing to provisions
of any enactment establishing a body of accountants. This amendment
is apposite bearing in mind the fact that the accounting profession
in Nigeria is not only regulated by the Institute of Chartered
Accountants Act, but is also regulated by the Association of
National Accountants of Nigeria Act as well. The Bill also
disqualifies certain individuals from being appointed as an auditor
of a company.
3.45 Introduction of Corporate Responsibility for Financial Reports
The Bill in section 403, places on the chief executive officer and chief financial officer of a company, other than a small company, the obligation to certify the veracity of the statements contained in the audited financial statements. Failure to perform this obligation is an offence liable to a penalty upon conviction. This obligation placed by the Bill is geared towards stemming the tide of falsification of financial statements.
3.46 Improper Influence on Conduct of Audit
The Bill in section 404 also makes it an offence for any officer, insider or director of a company or any person acting under the direction of any of the above officers to take action to coerce, manipulate or mislead any external auditor of the company or to carry out an audit of the financial statements of the company in order to mislead.
3.47 Company Voluntary Arrangements
Section 432 of the Bill is a novel provision which allows the directors of a company to make arrangements with the creditors of the company for a composition in satisfaction of the company's debts or a scheme of arrangement of its affairs. The Bill further specifies the procedure for entering into such arrangements. This provision is beneficial to the companies, as it allows a company in distress to continue trading while also maintaining control of the company. It is also a good strategy to reduce debt, restructure the business model while also improving cash flow.
3.48 Provisions relating to the Administration of Companies
3.48.1 The Bill in Section 441 prescribes for the first time in relation to Nigerian companies, the appointment of an Administrator of a company.
3.48.2 The major objective in appointing an administrator will be to perform the functions of rescuing a company in distress and achieving better results for a company's creditors than would be possible if the company were wound-up. Note that by Section 494, the function of an Administrator is to do anything necessary or expedient for the management of the affairs, business and property of the company. A careful reading shows that this does not cover acts aimed at bringing the business to a close. An Administrator is therefore not a liquidator. The ultimate difference between administration and liquidation is that while Company Administration is entered into with a view to business rescue and recovery so that the company can avoid insolvency, Liquidation is the method used to realize a company's assets prior to closing it down.
3.48.3 A company going into administration is a new phenomenon in this clime but which has had a checkered history in other jurisdictions. Some of the advantages observed to accrue to companies undergoing administration include: a) any legal actions being taken by creditors are immediately stayed; b) administration is an opportunity to review the non-profitable aspects of the company to ensure that this is eradicated; c) it puts the company in the hands of a licensed insolvency practitioner acting as the administrator. This ensures that all actions taken during administration are carried out with the interest of the company and its creditors in mind; d) the administrator is given time to communicate a clear picture of the company's finances to its creditors and outline the ways in which he intends to conduct the administration and realize funds for creditors.
3.49 Limitation for Actions against Contributories of a Company being wound up
3.49.1 The Bill also makes a modification to winding up proceedings by prescribing a limitation period for actions to recover debts against contributories of a company that is being wound up. An action to recover debt, by the provisions of section 565 (2) of the Bill cannot be brought after the expiration of six years from the date on which the cause of action accrued.
3.49.2 Furthermore, the threshold of debt, which may trigger the winding up of a company has been increased from N 2, 000 (Two Thousand Naira) to N200,000 (Two Hundred Thousand Naira) [Section 570 (a)]. While this was necessary as a result of the change in the value of naira since the last Act was promulgated, the question to ask is whether this provision, as drafted, envisages no further inflation in the coming years. In the circumstance, it would have been better suited for the threshold to be as may be stipulated by the Commission via regulations published by the Commission from time to time.
3.50 Wrongful Trading by a Director of a Company in Liquidation
Section 671 of the Bill is to the effect that, on the application of a liquidator, the court may declare that a director who knew or should have known that a company will go into insolvent liquidation but carries on trading nonetheless, should be liable to make such contribution as the court thinks proper to the assets of the company.
3.51 Insolvency Practitioners
The Bill makes provisions for the definition, qualification, and authorization to act as insolvency practitioner. It also vests in the CAC the power to declare and recognize a body as a professional body for the purpose of the provisions of the relevant sections of the Bill on insolvency (sections 703 – 708).
3.52 Transactions at an undervalue
Another innovative provision of the Bill is as contained in section 657. Under this provision, where a company under liquidation or administration enters into a transaction at undervalue, the liquidator or administrator of the company can approach the court for an order restoring the company to the position it would have been if it had not entered into that transaction. This innovative provision of the Bill is aimed at protecting the creditors of a company under liquidation or administration by ensuring that the company derives benefit from its transactions.
3.53 Arrangement or Compromise between two or more companies
3.53.1 Section 703 of the Bill provides for court ordered separate meetings where under a scheme of compromise, arrangement or reconstruction between two or more companies or the merger of any two or more companies, the property or undertaking of a company is to be transferred to another company. The scheme is to be sanctioned by the court if it is agreed to by a majority of not less than three-quarter in value of the share of members present and voting at the separate meetings, thus making it binding on the companies. Further provisions governing the transfer of share from one company to another, and dissenting shareholders in such a scheme or contract are also provided for in sections 704 and 705 of the Bill respectively. These provisions essentially align with section 121 (4) and (5) and 122 (6) of the Investments and Securities Act, 2007.
3.53.2 Section 709 of the Bill places a moratorium on petitions
or enforcement actions by creditors against a company or its assets
where such company has commenced a process of arrangement or
compromise with its creditors for a period of 6 months from the
time the company furnishes the court with a document containing the
terms intended to be proposed to the creditors in an arrangement or
compromise; a statement of the company's affairs and a
statement that the company desires a protection from the winding up
process pending the completion of the arrangement or compromise.
The purport of this section is to offer the company some sort of
protection for the assets of the company undergoing the arrangement
3.54 Enforceability of Netting Agreements
Another new introduction of the Bill is that contained in sections 710 – 713 are provisions for the enforceability of Qualified Contracts and Netting Agreements.
3.55 The Introduction of the Limited Liability Partnership
3.55.1 One major highlight of the Bill is the introduction of the Limited Liability Partnership model of business in sections 738 – 786. Although the Bill allows an individual or a corporate body to be a partner of a limited liability partnership (section 739), it also prescribes a minimum of two designated partners who must be individuals and one of whom must be resident in Nigeria (section 741). Upon registration, the partnership becomes a legal entity separate from its partners, with perpetual succession, the power to sue and be sued in its own name, and the ability to acquire, hold and dispose of property (sections 738 and 748).
3.55.2 The limited liability partnership excludes a partner from liability for the wrongful conduct of another partner or from the liabilities of the partnership arising out of contract or otherwise. All foreign LLPs intending to do business in Nigeria are also required to be incorporated in Nigeria as a separate legal entity, except it is exempted from registration by the Minister.
3.55.3 The protection extended to partners in the limited liability partnership from the liabilities of the Firm or a fellow partner is a welcome development in the Nigerian business environment as it will encourage individuals to pull their resources together for the purpose of doing business, knowing that no individual partner will be liable for the acts of any of the other partner(s) or of the firm.
3.56 Introduction of Limited Partnership
3.56.1 Another structure of business introduced by the Bill is
the provision for limited partnership. Sections 787 – 802 of
the Bill allows for the formation of a limited partnership
consisting of not more than twenty (20) persons, with each partner
excluded from liability for the debts and obligations of the firm
beyond the amount he has contributed or agreed to contribute as
capital to the partnership. However, the limited partnership is
required to have one or more persons designated as a general
partner, who shall be liable for all the obligations of the firm,
while the other partners shall be designated as limited partners
3.56.2 Membership of a limited partnership is open to individuals and corporate bodies insofar as such a person is not disqualified from becoming a partner by the Act. Non-registration of a limited partnership as such will result in such a partnership being deemed to operate as a general partnership (section 788)
3.56.3 A limited partner is barred from participating in the management of the firm, and lacks the capacity to bind the firm by his actions (section 798(1)). A significant advantage of this form of partnership is that the death, lunacy or bankruptcy of a limited partner does not constitute grounds for the dissolution of the partnership (section 798(4)). Furthermore, the liability of the limited partner is only limited to his investments in the business and he is not personally liable for the debts and liabilities of the business.
3.56.4 However, section 800 of the Bill makes the provisions of the Partnership Act 1890 binding on limited partnerships insofar as they are not in contravention of the provisions of the Bill.
3.57 Incorporated Trustees
3.57.1 The Bill makes the possession of a common seal by an incorporated trustee optional rather than compulsory (section 822(1(b)). Furthermore, the Bill gives the commission the power to treat two or more associations having the same trustees as a single association (section 823(b). Section 841 also allows for the merger of two or more associations with similar aims and objects as may be prescribed by the Commission.
3.57.2 While it is understandable that two or more associations having similar aims and objects are allowed to merge into one association, the provision on the consideration of two or more associations with the same trustees as a single association is inappropriate. This is because consideration should be given to the objects of the association and not the identity of the trustees as the same set of individuals may form different associations for different purposes.
3.57.3 The Bill allows the Commission to suspend the trustees of an association and appoint an interim manager in their stead, in the event of a misconduct or mismanagement; or fraud in the administration of the association by the trustees; or where it is necessary to do so in certain instances. The suspension shall be by order of court upon the petition of the commission or one-fifth of the members of the association. The functions to be discharged by the interim manager or managers shall be as ordered by the court under the supervision of the Commission (section 831). The suspension of trustees and the subsequent appointment of an interim manager in the administration of an incorporated trustee is a welcomed development aimed at ensuring proper administration of Incorporated Trustees.
3.57.4 Other modifications made by the Bill with regards to Incorporated Trustees are in the area of dissolution of an incorporated Trustee. Section 834 empowers the Commission to dissolve an Incorporated Trustee where a bank notifies the Commission that the association's accounts held with the bank are dormant. In this instance, the Commission is required to request that the association provides evidence of its activities within 15 days, failure of which the Commission is entitled to dissolve the association. Section 842 (2) (e) includes a new ground for the dissolution of an incorporated trustee. Under this provision, a ground for the dissolution of Incorporated Trustees is that the certificate of registration of the association has been withdrawn, cancelled or revoked by the Commission.
3.58 The Establishment of the Administrative Proceedings Committee
The Bill establishes an Administrative Proceedings Committee (section 843), which shall provide persons alleged to have contravened the provisions of the Act or its regulations with an opportunity of being heard. The Administrative Proceedings Committee shall also be responsible for the resolution of disputes or grievances arising from the operations of the Bill and its regulations, as well as the imposition of administrative penalties for contravention of the provisions of the Bill. The establishment of the Administrative Proceedings Committee affords individuals and corporate bodies an opportunity of being heard, thus promoting the rule of natural justice.
3.59 Non-Registration for Fraudulent Practices
Section 844(4) of the Bill also bars the registration of any company, business name or incorporated trustee where there is irrefutable proof that such company, business name or incorporated trustee has previously been involved in fraudulent trade malpractices, either in local or international trade. This provision is aimed at stemming the rise of corporate bodies set up for the promotion of fraudulent activities in the country.
Section 854 of the Bill requires all companies, firms and corporate bodies registered under the Bill to retain the documents stored under the provisions of the Bill for six years from the date of storage (soft copies of archived records).
4.1 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, and administration of companies. It also provides further clarity on the requirements of various provisions and adds extra enforcement power to the regulators such as the court and the Commission. There is also a conscious alignment of the Bill with other relevant enactments, such as the Investments and Securities Act, 2007.
4.2 A cursory glance at the entire gamut of the Bill will reveal that there has been an all-round amendment to the provisions relating to the amounts payable as fines/penalties for contravention or non-compliance with the provisions of the Bill. These amendments are, in some instances, to the effect that the Commission now has the power to stipulate the amount payable as fines, as opposed to the prescription of the amounts payable as contained in the existing Act. Bearing in mind the time value of money as well as the rate and effects of inflation, these amendments are appropriate as they will afford the Commission the opportunity to review the amounts payable as fines without the need to amend the law when it finally comes into force. In other situations, there has been a mere increase in the amount payable as fines. Also, the Court has also been allowed in some cases to determine the amount payable as fines.
4.3 It is expected that, sooner than later, subsidiary legislations such as the Corporate Affairs Regulation, 2012, the Companies Proceedings Rules and the Companies Winding up Rules will be amended to better supplement the Bill.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.