On August 7, 2020, President Muhammadu Buhari assented to the Companies and Allied Maters Act, 2020 ("CAMA 2020"), which repeals and replaces the Companies and Allied Matters Act, 19901 (the "Repealed Act").
As noted in our earlier Newsletter2 which highlighted critical changes sought to be introduced by the new regime, shortly after the repeal and re-enactment bill was first passed by the National Assembly, this CAMA 2020 is undeniably a progressive development in the Nigerian business and economic landscape and a big boost to the Ease-of-Doing-Business (EoDB) campaign of the Government.
CAMA 2020 provides a robust framework for reforming identified onerous legal, regulatory and administrative bottlenecks which, for three decades, have made doing business in Nigeria substantially difficult (particularly for Micro, Small and Medium Enterprises (MSMEs)), and impeded investments into Nigeria.
In this article, we highlight key provisions in CAMA 2020 and their impact on current and future commercial transactions as well as business entities, generally.
1. MERGERS, ACQUISITIONS AND BUSINESS COMBINATIONS
(i) Right of first offer and other restrictions
CAMA 2020 introduces in Section 22, a statutory "right of first offer". In essence, subject to the provisions of the articles of association of a company, it is now prohibited for a member of a private company to transfer shares in said company to a non-member, without first offering the said shares to existing members.
Furthermore, a company cannot, without the approval of all its shareholders, sell assets having a value of more than 50% of the total assets of the company. Also, a shareholder or a group of shareholders, acting in concert, cannot agree to sell more than 50% of the shares of the company to a non-shareholder without such non-shareholder agreeing to buy the shares of the other existing shareholders on the same terms.
(ii) Provisions on Financial Assistance by Company for acquisition of its shares
The definition of financial assistance as it relates to a company's acquisition of its own shares has been updated in CAMA 2020 to include any other financial assistance given by a company, the net assets of which are thereby reduced by up to 50%, or which has no "net assets".
Whilst "net assets" was not defined in the Repealed Act, the term has now been expressly defined in section 183 (3) of CAMA 2020 to mean the "aggregate of the company's assets less the aggregate of its liabilities"; and these liabilities include any charges or provision for liabilities in accordance with the applicable accounting standards applied by the company in relation to its accounts.
Additionally, the exemptions to the financial assistance rule have now been expanded under section 183 (3) (a) - (f) of CAMA 2020 such that a company shall not be prevented from rendering financial assistance where:
(i) "it is done in pursuance of an order of the court under a scheme of arrangement; a scheme of merger or any other scheme or restructuring of a company done with the sanction of the Court";
(ii) "its principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of the acquisition of shares in the company or its holding company, or the reduction or discharge of any such liability, but an incidental part of some larger purpose of the company, and the assistance is given in good faith in the interests of the company".
(iii) Acquisition by a company of its own shares (Share Buyback)
Section 184 (1) provides for the procedure for the acquisition by a company of its shares and Section 186 outlines the persons from whom a company may buy back its own shares which are: (a) the existing shareholders or security holders on a proportionate basis; (b) the existing shareholders in a manner permitted pursuant to a scheme of arrangement sanctioned by the court; (c) the open market; and (d) by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or any other similar scheme.
Where a company buys back its shares, payment for the share buyback shall be made from the distributable profits of the company.
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1 Cap C20, Laws of the Federation of Nigeria 2004.
2 Follow the link to see our previous publication on CAMA 2020.
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.