Navigating Cross-border Restructuring: Legal Considerations For Nigerian Companies

1. Introduction

Cross-border restructuring often involves complex legal and regulatory requirements that can affect the timing, cost, and overall success of a transaction. For Nigerian companies that are part of a multinational group, these requirements include compliance with the Companies and Allied Matters Act 2020 (as amended) (the "CAMA") and other relevant regulations.

Beyond mergers, restructuring may involve recapitalisation, share reconstruction, or debt-to-equity swaps, either as part of a broader initiative or as standalone transactions aimed at achieving specific objectives such as capital strengthening, balance sheet restructuring, or strategic realignment without culminating in a merger. Given the scale and complexity of such transactions, they attract governance, disclosure, and regulatory compliance obligations. Many companies are unaware of these requirements, exposing them to legal and regulatory risks that may compromise the validity and effectiveness of the restructuring process. This article outlines the key legal considerations, common pitfalls, and practical guidance for Nigerian companies, while comparing Nigerian requirements with international best practices to strengthen governance in cross-border restructuring.

Furthermore, the article considers insolvency-led restructuring options for Nigerian companies, whether to stabilise a distressed entity or as a practical exit strategy, and highlights the legal and procedural risks of pursuing restructuring without alignment to applicable insolvency frameworks.

2. Some Restructuring Mechanisms available in Nigeria

2.1 Recapitalisation: Recapitalisation involves issuing additional shares to strengthen a company's capital base, often to remedy undercapitalisation or satisfy regulatory minimum capital thresholds, as commonly required for banks and other regulated entities. It is typically effected through the issuance of new shares, an increase in share capital, or, in some cases, a reduction of share capital to restructure the balance sheet. Under Section 127 of the CAMA, a company may, by ordinary resolution, increase its issued share capital through the allotment of new shares. The CAMA requires that the company amend its memorandum and articles of association to reflect the increase and notify the Corporate Affairs Commission (the "CAC") within 15 days. Where approval from another regulator is required, the company must still notify the CAC within this period and continue to file a notice every 48 days confirming that approval is pending. If the approval is not obtained within 9 months, the increase automatically becomes void.

Furthermore, an increase in issued share capital will not take effect unless at least 25% of the share capital, including the newly issued shares, has been paid up, and the directors have delivered a statutory declaration to the CAC confirming compliance.¹ Companies that fail to meet these requirements are subject to fines prescribed by the CAC for each day the default continues.

2.2 Share Reconstruction: Share reconstruction involves altering the structure of the company's share capital without necessarily injecting new funds. It usually involves altering how shares are denominated or classified, such as by consolidating shares (e.g., 10 ordinary shares of NGN 1 each consolidated into 1 share of NGN 10), subdividing shares (e.g., 1 share of NGN 10 subdivided into 10 shares of NGN 1 each), or reclassifying shares (e.g., converting ordinary shares into preference shares). It changes the form of share capital, not its overall quantum. Companies use this to clean up their balance sheet, adjust shareholding structures, or comply with regulatory directives. Under sections 125 and 126 of the CAMA, where a company consolidates, subdivides, or otherwise alters its shares in the course of a share reconstruction, it must notify the CAC within 1 month, specifying the nature of the change, whether consolidation, subdivision, or cancellation of shares, and the Commission is required to record the notice. Failure to comply attracts penalties against both the company and its officers. These requirements ensure that alterations to share capital are properly documented and transparent, thereby safeguarding shareholders and maintaining regulatory oversight.

2.3 Debt-to-equity swaps: Debt-to-equity swaps are not expressly defined in CAMA but may be effected through provisions permitting allotment of shares for non-cash consideration.² A debt-toequity swap allows a creditor to convert debt owed to it by the company into equity, thereby reducing the company's liabilities and strengthening its capital structure. This option is often used in distressed situations where the company cannot meet its repayment obligations, or in group reorganisations to stabilise balance sheets while preserving business continuity. CAMA addresses this type of restructuring by providing for the issuance of shares for a consideration other than cash. Section 161 of the CAMA clarifies that shares are only regarded as paid for in cash to the extent that actual cash has been received, while section 162 of the CAMA requires a public company to appoint an independent valuer to confirm the true value of any non-cash consideration. The company may only proceed if the valuer's assessment confirms that the value is at least equal to the amount to be credited as paid up on the shares, thereby safeguarding the company's share capital and creditor interests.

2.4 Reduction of share capital: This involves a company reducing the amount of its share capital. A company may reduce its share capital by cancelling unissued shares, cancelling lost or unrepresented capital, or returning surplus capital to shareholders. This process decreases the company's issued share capital and is often used to eliminate accumulated losses or to return excess funds to members. Under CAMA, a reduction of share capital must first be authorised by the company's articles and approved by a special resolution. As provided in sections 130 to 133 of the CAMA, such a resolution has no effect unless it is confirmed by the court, which ensures that creditors are protected, either by payment, consent, or adequate security. Once the court grants confirmation, the order and supporting minutes must be filed with the CAC, and the reduction takes effect upon registration in line with section 134 of the CAMA. Section 135 of the CAMA further provides that members' liability is limited to the revised nominal value of their shares, although past members may remain liable if a creditor was overlooked and the company later becomes insolvent.

3. Additional Regulatory Approvals and Compliance Requirements

Restructurings are often multi-layered, and as a result, may trigger additional regulatory approvals and compliance obligations beyond the immediate corporate approvals. These may include mandatory disclosure requirements imposed on the company in relation to market-sensitive information, as well as restrictions on the participation of certain interested parties in decisionmaking processes to mitigate conflicts of interest. We have broadly categorised them below:

3.1 Disclosure Obligations:

There are no public disclosure requirements for a private company. However, the notice periods prescribed by CAMA and the company's articles regarding the meetings required to be convened to approve the restructuring must be observed.³ These requirements may be dispensed with where written resolutions are validly executed, which eliminates the need for meetings and notice periods.

For public companies, notice periods prescribed by CAMA and the company's articles must be observed, alongside specific disclosure obligations under the Securities and Exchange Commission Rules and Regulations, 2013 (as amended) (the "SEC Rules"). Rule 401 of the SEC Rules provides that any sale or purchase of shares by an insider of a company must be disclosed by the relevant insider not later than 48 hours after such sale or purchase.

Publicly listed companies are required to comply with specific disclosure obligations under the Rulebook of the Nigerian Exchange Limited 2015 (as amended) ("NGX Rulebook") in addition to the notice periods prescribed by CAMA and the company's articles. Rule 19.2(b) of the NGX Rulebook requires the company to notify the NGX at least 7 business days before any board meeting where matters such as capital restructuring or other price-sensitive issues⁴ will be considered, and in practice, this notification is usually made at the same time as the notice of the board meeting. Furthermore, Rule 17.5(f) of the NGX Rulebook obliges the company to notify the NGX within 1 business day of board approval of any price-sensitive matter, including changes to its capital structure. Furthermore, a publicly listed company is required to notify the NGX within 2 business days after the relevant general meeting of the resolutions passed and the outcome of the business transacted. The notice period cannot be waived or abridged.

Footnotes

1 Section 128 of the CAMA.

2 Section 160 of the CAMA provides that the shares of a company and any premium on them shall be paid up in cash, or where the articles so permit, by a valuable consideration other than cash or partly in cash and partly by a valuable consideration other than cash.

3 Fourteen (14) days' notice is required to convene a meeting of the Board of Directors, while 21 (twenty-one) days' notice is required for a General Meeting of shareholders.

4 Rule 17.5(g) of the NGX Rulebook defines price sensitive information to include proposed capital raising or restructuring exercise or changes in capital structure, giving or receiving a notice of intention to make a takeover or mergers, or acquisitions, tender offers or divestments.

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