The Companies and Allied Matters Act (Chapter C20) Laws of the Federation of Nigeria 2004 ("CAMA 1990") was initially made law in Nigeria in 1990 as a decree of the military government.  For thirty years, there were no significant amendments to the CAMA 1990 and so Nigerian companies had to, essentially, rely on a 30-year old law to govern the way businesses operate in our dynamic and evolving global community.  However, this all changed on Friday the 7th of August 2020, when President Muhammadu Buhari gave his assent to the Companies and Allied Matters Act 2020 ("CAMA 2020"). 

In the course of a 12-part series, Udo Udoma & Belo-Osagie will provide a review of the provisions of the CAMA 2020, highlighting changes that have been introduced into the body of Nigerian company law by this groundbreaking legislation.

SHARE BUY BACK

A share buyback is a process by which a company acquires some of its issued shares from existing holders, thereby reducing the number of shares in issue and enhancing the value of the shares that remain outstanding after the share buyback process. 

Under the CAMA 1990, companies were prohibited from acquiring their own shares, and were only permitted to do so in limited circumstances, such as eliminating fractional shares and complying with a court order.  The CAMA 2020 now permits a company to purchase its shares and sets out the requirements for doing so.  The effect of this change is that public and private companies now have the option of repurchasing their issued shares provided certain conditions are fulfilled. 

Conditions for a Share Buy-Back

Sections 184 - 187 of the CAMA 2020 set out the law in relation to the purchase by a company of its own shares.  Under the CAMA 2020, a company can buy back its own shares provided that certain conditions are met:

  • The articles of the company must permit it;
  • The shareholders of the company must pass a special resolution authorising the share buy-back;
  • The shares to be purchased must be fully paid up;
  • The shares can only be paid for by the company from its distributable profits;
  • The company must publish the share buy back in two national newspapers within seven days after passing the special resolution and creditors or aggrieved shareholders will be entitled to file an action in court to cancel the resolution within six weeks of the newspaper publications;
  • The directors must file a declaration of solvency at the CAC within 15 (fifteen) days of the newspaper publications; and
  • A company may not purchase its shares if as a result of the purchase, there would no longer be any issued shares of the company other than redeemable shares or treasury shares.

How to execute a share buy back

Pursuant to section 186 of the CAMA 2020, a company may buy

back its shares in a number of ways - (1) from shareholders or security holders (on a proportionate basis); (2) from shareholders

pursuant to a scheme of arrangement that is sanctioned by the court; (3) from the open market; or (4) from its employee stock option scheme or any other similar scheme.

TREASURY SHARES

The CAMA 1990 did not specifically provide for treasury shares, except for a reference in the Second Schedule (Format of Balance Sheets).   The position of Nigerian company law regarding treasury shares, and the rules governing them, therefore, required greater clarity.  Treasury shares are now recognised and provided for in the CAMA 2020.

What are they? Treasury shares are previously issued shares of the company that the company acquires.  

A company may not hold more than 15% of its issued shares as treasury shares.  Where a company buys back more than 15% of its issued share capital, the company must, within 12 months, dispose of any shares above the 15% threshold.  The company can achieve this by reissuing the shares, cancelling the shares or reissuing or cancelling such number of shares as would bring the company's treasury shareholding to the 15% threshold.

What can the company do with Treasury Shares?

A company may:

(a)     sell its treasury shares to any person for cash;

(b)     transfer them to its share option scheme; or

(c)     cancel the shares.

A cancellation of a company's shares will result in a reduction in share capital of the company.         

Features of Treasury Shares:

  • They are not entitled to dividends or any other distribution (whether in cash or otherwise) of the company's assets (including any distribution of assets to members on a winding up);
  • They do not confer a right to attend general meetings; and
  • They do not confer a right to vote.

Where a company allots bonus shares to its members, however, treasury shares are also entitled to bonus shares.

SUBSIDIARIES HOLDING SHARES IN PARENT COMPANY

Section 190 of the CAMA permits subsidiaries to hold shares in parent companies.  In summary:

  • company which is a subsidiary may acquire shares in its holding company where the subsidiary company is concerned as personal representative or trustee;
  • a subsidiary may hold shares in a parent company but shall have no right to vote at meetings of the parent company and shall not acquire any future shares in it except on a rights issue; and
  • where a public company, or a nominee of a public company, acquires shares in the company, and those shares are shown in a balance sheet of the company as an asset, an amount equal to the value of the shares shall be transferred out of profits available for dividend to a reserve fund and shall not be available for distribution.

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.