Questions: Perspectives On Share Buy Backs Under The Companies And Allied Matters Act 2020

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It is no longer news that share buybacks is one of the innovations introduced by the Companies and Allied Matters Act 2020.
Nigeria Corporate/Commercial Law
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It is no longer news that share buybacks is one of the innovations introduced by the Companies and Allied Matters Act 20201 (CAMA). Previously, section 160(1) and (2) CAMA 20042 generally prohibited companies from acquiring their own shares, except if authorised by the articles and in limited circumstances of: "(2) ..... (a) settling or compromising a debt or claim asserted by or against the company; or (b) eliminating fractional shares; or (c) fulfilling the terms of a non‐assignable agreement under which the company has an option or is obliged to purchase shares owned by an officer or an employee of the company; or (d) satisfying the claim of a dissenting shareholder; or (e) complying with a court order."

Essentially, whilst share buy-backs can only be made from "distributable profits", as statutorily defined by the CAMA; it appears that many companies have either out of disinterest, ignorance, 'cultural' cum perception issues or absence of compelling necessity, not been utilising or considering utilising share buyback as a mode of capital restructuring.3 The significant and probably first publicly disclosed share buyback transaction involved Dangote Cement Plc (DCP);4 there appears to be inactivity regarding buybacks for private companies, whilst even listed companies have also not maximally stepped up to the share buyback plate.5

This article illuminates the CAMA share buyback regime, in the hope that corporates would be more disposed to utilising same as a corporate cum capital restructuring option.

The CAMA Share Buy Back Regime

Sections 182 –190 CAMA provides for transactions by a company in respect of its own shares. Specifically, section 184(1)(a)-(c) CAMA permits a company (the Coy) to purchase its own shares, if so permitted by its articles, and pursuant to a special shareholders' resolution in that regard; provided that only fully paid up shares are involved, and that the terms of purchase shall provide for payment for the purchase.6

By way of procedure, section 184(d)-(e) requires the Coy to publish in two national newspapers, a notice of the proposed purchase of its shares within 7 days of the special resolution;7 and within fifteen (15) days after the newspaper publications, the Coy's directors must make and file with the Corporate Affairs Commission (CAC), a statutory declaration of solvency (SDS), that the Coy is solvent and can pay its debts as they fall due, after the share buyback.

Section 184(f) provision that "a company may not under this section 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 shares held as treasury shares"8 will not apply, if the share buyback is to consummate exit for some, and not all the shareholders.9 It is noteworthy that section 187 limits the threshold of share buy-backs to no more than 15%, and otherwise mandates corrective action if the threshold is breached, within stated timelines.10 However, where threshold breach does not apply, the Coy has flexibility to undertake the second leg of the transaction at any time.11

By section 184(2), within six weeks of the publication in two national newspapers, any of the Coy's creditor can apply to Court for an order cancelling the special resolution, much as a dissenting shareholder who did not vote in favour of the share buyback can also apply to Court for same. Consequently, "The ability of the company to proceed with the share buyback shall depend on the order of the court, where applicable" (section 184(3)).12

Presumably, this should not be an issue for the Coy – once its creditors are agreeable to the planned share buyback, as well as all the shareholders.13 Furthermore, by section 185: "Where a company buys back its shares, payment for the share buyback shall be made from the distributable profits of the company."14 The question that then arises is "what is distributable profits?" and we consider this in detail below.

Computation: What is "Distributable Profit"?

Per section 426(5), dividends is payable to shareholders only out of the Coy's "distributable profits".15 By section 427: "(1) A company may pay dividends only out of profits available for the purpose. (2) The profits of a company available for payment of dividends are its accumulated, realised profits (so far as not previously utilised by distribution or capitalisation), less - its accumulated, realised losses (so far as not previously written off in a lawfully made reduction or reorganisation of capital)."16 Thus, CAMA obliquely defines "distributable profits" by way of section 427(2); section 427 therefore is a, if not the, key provision that resolves the distributable profits question.

Section 868(1) stipulates that: " 'dividend' means a proportion of the distributed profits of the company which may be a fixed annual percentage, as in the case of preference shares, or it may be variable according to the prosperity or other circumstances of the company, as in the case of equity shares".[17]

It is therefore apposite to draw analogy with dividends, since both dividends and price for the share buybacks are payable out of "distributable profits". Accordingly, if the directors can pay the dividends out of any amount in view, then same can be deployed to share buybacks, and vice versa. As a rule of thumb, it is safe to assume as much prudence in paying for the share buybacks out of distributable profits, as would have been required if the Coy were to declare and be paying out, dividends.18

It is noteworthy however, that the tax treatment is different, as only capital gains tax (CGT) will apply to the buyback consideration,19 instead of witholding tax (WHT) that would have been deducted from dividends, prior to remittance.

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November 2023


1. Act No. 3 of 2020.

2. Companies and Allied Matters Act Cap. C20, Laws of the Federation of Nigeria (LFN) 2004; originally enacted in 1990 (CAMA 1990).

3. Companies have either on their own or at the instigation of the Corporate Affairs Commission (CAC) been utilising the new provisions of theCAMA, such as incorporating single shareholder companies (section 18(2)); and cancellation of unissued share capital (section 124(3) and (5) ) at the risk of penalty for every day of default after the stated deadline of 31st December 2022; etc.

4. 'Dangote Cement Plans Nigeria's First Share Buyback', Punch, 22.12.2020: (accessed 24.11.2023).

5. It appears that DCP also has a share buyback programme, Tranche I of which it completed in July 2023. See Dangote Cement Plc, 'Share Buy-Back Programme by Dangote Cement Plc – Commencement of Tranche I', 07.07.2023: Cf. with erstwhile listed companies going private as a result of the majority shareholder buying out the minority (as in Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited); such transactions are not share buybacks. See Peter Egwuatu, 'NSE Approves Delisting of 7-Up After Buyout by Majority Shareholders', Vanguard, 12.-2.2023:; and Michael Eboh, 'Nigeria: Bottling Company Set to Delist From Stock Exchange', Vanguard, 15.12.2010: (all accessed 24.11.2023).

6. For many extant (pre-CAMA companies), there may be need to first amend the Coy's articles first as part of the process, given that the share buyback provisions were introduced by CAMA in 2020. This could impact transaction timelines, compared to if there is no need to amend the Coy's articles. Cf. the share buyback evolution in the UK: "Although treasury shares were not permitted under the original reforms of 1981, in 1998, in advance of the Company Law Review, the Government began consultation over the proposition that companies should be able to retain repurchased shares and re-issue them, as required. The main argument in favour of this reform was that it would permit companies to raise capital in small lots but at a full market price by re-selling the repurchased shares as and when it was thought fit to do so. ... However, where a company cannot fit its situation into the rules on treasury shares, the principle remains that the re-purchased shares must be cancelled and the amount of the company's share capital account reduced by the nominal value of the cancelled shares." See Paul L. Davies, et al, 'Gower and Davies: Principles of Modern Company Law', (8th ed. (South Asia) (2014), Sweet & Maxwell), p. 330. Emphasis supplied.

7. The attendant publicity may draw the attention of regulators, counterparties and the public to the Coy; but it is a necessary price to pay in order to consummate the share buyback. According to a commentator, "Returning cash to shareholders is always done at the expense of something else, be it investment, M&A or deleveraging. Buybacks, therefore, inevitably throw a company's capital allocation policy into the spotlight." See Jemma Slingo, 'Are Share Buybacks Really Worth It?', Investors' Chronicle, 05.06.2023: 06/05/are-share-buybacks-really-worth-it/ (accessed 28.09.2023).

8. This however confirms that ordinary shares may be the subject of the share buyback, and not just the preference shares that section 182 contemplates that the company may redeem.

9. This, on its own part, also imposes some challenges - as the buyback offer is, pursuant to section 186(a) CAMA, supposed to be made to all shareholders. The way to ensure that any envisaged exit of only some shareholders is achieved, is for the non-exiting shareholders to decline their pro rata offers, so that only the exiting shareholders can then take them up. Thus offer is made for (say 10 shares), with each shareholder's pro rata entitlement indicated but those not exiting will decline and the Coy can then offer them to the exiting shareholders, thereby achieving the original aim of consummating only their exit. Quaere: is section 186(a) not conclusive that the buyback must be with all shareholders proportionately, and no other variation is allowed? Answer: not necessarily, otherwise the utility of section 186(a) is seriously whittled down, and it would be unreasonable for section 186(a) not to cover an arrangement whereby share buyback is addressed to all shareholders proportionately but ends up being consummated with only shareholders desirous of exiting. Since buyback is consensual, no shareholder can be forced to sell their shares; what is important is that they had 'equal access' – they were offered like all other shareholders.

10.The provision stipulates that: "(1) A company shall not hold more than 15% of the nominal value of the issued share capital of any class of its shares as treasury shares. (2) Where a company buys back more than 15% of the issued share capital of any class of its shares, the company shall, before the end of 12 months beginning with the date on which that contravention occurs - (a) reissue, (b) cancel, or (c) reissue and cancel such number of shares that will ensure that the company holds not more than 15% of the issued share capital of any class of its shares as treasury shares upon the completion of the transaction." Emphasis supplied.

11. By the stipulation of section 189: "Where shares are held as treasury shares, the company may at any time - (a) sell the shares (or any of them) for a cash consideration, or (b) transfer the shares (or any of them) for the purpose of or pursuant to an employees' share scheme." Emphasis supplied.

12. Emphasis supplied.

13. See also section 184(4): "For the purpose of determining a company's creditors under this section [184], service providers whose fees are not yet due shall be excluded."

14. CAMA 2020 provisions allowing share buybacks represent some innovation to Nigerian corporate law.

15. Cf. with section 58(1)(c),(2),(5) reference to: "undistributable reserves". By section 58(6)(b)-(d), "undistributable reserves" comprises: "(i) share premium account, and (ii) capital redemption reserve; (c) the amount by which its accumulated or unrealised profits (so far as not previously utilised by capitalisation) exceed its accumulated or unrealised losses (so far as not previously written off in a reduction or reorganisation of capital duly made); and (d) any other reserve that the company is prohibited from distributing by any enactment (other than one contained in this Part) or by its articles."

16. Cf. the in pari materia provision of section 830 UK Companies Act 1986: "(1) A company may only make a distribution out of profits available for the purpose. (2) A company's profits available for distribution are its accumulated, realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made." See also the definition of "distributable profits" in Jonathan Law and John Smullen (eds.), 'A Dictionary of Finance and Banking' (4th ed., (2008)), OUP: (accessed 28.09.2023): "The profits of a company that are legally available for distribution as dividends. They consist of a company's accumulated realized profits after deducting all realized losses, except for any part of these net realized profits that have been previously distributed or capitalized."

17. Emphasis supplied.

18. By a community reading of sections 426 – 428 CAMA 2020: dividends are only payable on the recommendation of directors, the amount so recommended may not be increased (but can be reduced) by the general meeting, dividends are only payable out of "distributable profits", and there is prohibition against declaring/paying dividends if there are reasonable grounds for believing that the company would, after the dividend payment, be unable to meet its liabilities as they become due. Furthermore, by section 433, "All directors who knowingly pay, or are party to the payment of dividend out of capital or in contravention of this Part, are personally liable jointly and severally to refund to the company any amount so paid", albeit with right of recovery "from shareholders who receive it with knowledge that the company had no power to pay it". Emphasis supplied. Cf. commentary in 'Gower and Davies: Principles of Modern Company Law', (supra) at p. 331: "... Secondly, the shares must have been purchased out of distributable profits (not out of the proceeds of a new issue, whether wholly or partly). This limitation seems to have been imposed because it was thought that there would be little demand for repurchases out of new issues and because their exclusion enables the legislation to take a much simpler approach to the accounting consequences of treasury shares. ...The underlying rationale of the treasury share scheme is given effect by the provision that treasury shares may at any time be sold by the company for cash. When this happens, there is a sale by the company of existing shares, not an allotment of new shares." Emphasis supplied.

19. Per section 30(1) and (2) Capital Gains Tax Act (CGTA) as amended by section 2 Finance Act No. 2 of 2022, "gains accruing to a person on disposal of its shares in any Nigerian company" is liable to CGT at 10% unless the proceeds therefrom are reinvested within the same year of assessment in the acquisition of shares in the Coy or other Nigerian companies; and CGT shall accrue proportionately on the portion of the proceeds which are not reinvested as described above. There will also be exemption from CGT if "the disposal proceeds, in aggregate, is less than N100,000,000 in any 12 consecutive months, provided that the person making the disposals shall render appropriate returns to the Service on an annual basis". Given the above CGTA provisions, please note that CGT at 10% of the gains (i.e., disposal proceeds less acquisition costs), will apply to proceeds of the Coy's share buyback.

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.

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