Doing Business in Nigeria | |
Doing Business in Nigeria | |
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Tuesday, March 26, 2019 / 09:00AM / Toyin & Oluwatoba for Banwo &
Ighodalo
On Tuesday, January 22, 2019, the House of
Representatives of the Federal Republic of Nigeria, at plenary, considered and
adopted all the provisions of the Companies and Allied Matters Act (Repeal and
Re-enactment) Bill, 2018 (the "CAM Bill"). By this development, the CAM Bill has received concurrent
passage by the two chambers of the National Assembly; having been earlier
passed by the Senate of the Federal Republic of Nigeria on May 15, 2018. It is
expected that in the coming weeks, the CAM Bill would be transmitted to the
President for assent after which it will become the new governing regime for
setting up and running business entities in Nigeria.
The CAM Bill is a watershed in the Nigerian
business and economic landscape and a big boost to the Ease-of-Doing-Business ("EoDB") campaign of the
Government. By repealing and replacing
the Companies and Allied Matters Act, 1990 ("1990
Act2), the CAM Bill seeks to promote reform of the onerous legal and
regulatory framework as well as administrative bottlenecks which, for close to
three decades, have made doing business in Nigeria substantially difficult - particularly for Micro, Small and Medium Enterprises ("MSMEs") - and had made the economy less attractive to investments
hence less competitive.
This piece highlights some of the critical
changes which the CAM Bill has introduced to the principal framework regulating
the business climate in Nigeria.
A. Starting and running a business to become more seamless and less expensive:
The following alterations have been made to the
extant regime by the CAM Bill for the purpose of improving ease of registering
and running business entities in Nigeria:
Provision for
Single Member/Shareholder Companies
The minimum number of members/shareholders required
to form and incorporate a company under the 1990 Act is two (2). The CAM Bill
in section 18(2) has amended this provision by allowing a promoter to establish
a private company with only one (1) member/shareholder.
Declaration
of Compliance no longer required to be made by a Legal Practitioner
The documents required for submission at the
Corporate Affairs Commission ("CAC") in relation to the incorporation of
companies under the 1990 Act include a statutory Declaration of Compliance by a
Legal Practitioner. This requirement has
been replaced in section 40(1) of the CAM Bill with a Statement of Compliance
which can be signed by an applicant or his agent, confirming therein that the
requirements of law as to registration have been duly complied with.
Replacement
of Authorised Share Capital with Minimum Issued Share Capital
Under the 1990 Act, the limit on the maximum
amount of shares a company can allot is specified by the Authorised Share
Capital. In practice, shareholders sometimes agree to raise this limit above
the capital requirements of the company at any point in time, so as to avoid
the cost and time involved in raising additional capital where the need arises
in the future. Since the amount of stamp duty and filling fees payable for
company incorporation are based on the Authorised Share Capital, this leads to
front- loading of costs thereby making it a more expensive venture. The CAM
Bill in section 27 has eliminated the concept of an Authorised Share Capital
and replaced same with Minimum Issued Share Capital for companies.
Incorporation
of a Private Company Limited by Guarantee - Consent of AGF no longer required
Incorporation of a company limited by guarantee
is subject to the authority of the Attorneyâ€General of the
Federation ("AGF") under the
1990 Act and as such, no memorandum of a company limited by guarantee is
registrable by the CAC except the consent of the AGF is sought and obtained.
The CAM Bill in section 26 has dispensed with
the requirement for the approval of the AGF and has instead provided that where
the CAC is satisfied with contents of the Memorandum and Articles of
Association submitted by the promoters, it shall cause the application for
registration of a company limited by guarantee to be advertised in a prescribed
form in three (3) national daily newspapers, inviting possible objections from
the public.
Common Seal
no longer mandatory for companies
Every company is required, under the 1990 Act,
to have a Common Seal, the use of which is to be regulated by the Articles of
Association. The CAM Bill in section 98
has removed the mandatory requirement for a Common Seal and made its possession
and use optional for a company.
Provisions
for electronic filing & issue of documents, electronic Share Transfer and
e-Meetings for private companies
Documents required to be filed with the CAC for
registration can now be filed electronically through a e- portal deployed for
the process. As provided in section 861 of the CAM Bill, certified true copies
of such electronically filed documents are admissible in evidence; with equal
validity with the original documents.
In a similar vein, the CAM Bill provides in
section 176(1) that instruments of transfer of shares shall include electronic
instruments of transfer.
In addition to the foregoing, a private company
is permitted to hold its general meetings remotely, provided that such meetings
are conducted in accordance with the Articles of the company. This will
facilitate participation at such meetings from any location in the world at a
cheaper cost.
Exemption
from Audit & Annual General Meeting
Every company, without qualification, is
required under the 1990 Act to appoint an auditor or auditors at its Annual
General Meeting ("AGM") to audit the financial records of the company. This
mandatory provision has now been modified, in section 403 of the CAM Bill, to
exempt a set of companies from the requirements of the law relating to the
audit of accounts in respect of a financial year.
Hence, a company (other than an insurance
company or a bank or any other company as may be prescribed by the CAC) shall
be exempted from appointing auditors to audit its annual accounting records if;
(1) it has not carried on any business since its incorporation; or (2) it is a
small company as defined under the CAM Bill.
In like manner, a small company and/or any
company having a single shareholder (Single Member Company) is exempted, in
section 238(1) of the CAM Bill, from the requirement of holding AGM.
Appointment
of a Company Secretary - Optional for Private Companies
Under the 1990 Act, every company is mandatorily
required to have a Secretary. This requirement has changed under the CAM Bill,
which in section 331, has restricted the appointment of a Secretary to only
public companies. Appointment of a Company Secretary is henceforth not
mandatory but optional for private companies. This is expected to lessen the
regulatory burden of MSMEs and Single Member Companies.
Prescription
of Model Articles for adoption by companies
Every company is required to register an Article
of Association prescribing regulations for the company, in consonance with the
form and contents prescribed in the 1990 Act. However, in accordance with the
provisions of sections 32, 33 and 34 of the CAM Bill, a company may elect not
to register an Article of Association, in which case it will be deemed to have
adopted the Model Articles prescribed in the CAM Bill for a company of its
description.
Provisions
for Limited Liability Partnership (LLP) & Limited Partnership (LP)
The CAM Bill creates a new form of legal entity
known as a Limited Liability Partnership ("LLP"), which is to exist separately
from its members as a body corporate. An LLP is unique in that it combines
organizational flexibility and tax status of a partnership with the limited
liability of members of a company. In an
attempt to safeguard the interest of those dealing with LLPs, it is provided
that company law and insolvency law shall apply to LLPs with appropriate
modifications. In like manner, disclosure of significant control in a LLP is
also required.
The CAM Bill equally provides for the
establishment of a Limited Partnership ("LP").
The unique feature of a LP is that it must, at any point in time, have at least
one general partner and one limited partner. Other than this, an LP is not
materially different from the common form of partnership. LPs are run by one or
two partners, known as general partner(s) while other contributor(s), known as
limited/silent partner(s) provide capital but do not take part in managerial
decisions. This form of business entity is the most suited for private equity
(PE) funds. Notably, Lagos State, in a bid to bridge the gap in the 1990 Act
created a legal framework for forming LPs through the enactment of the
Partnership Law of Lagos State some years back; thereby attracting foreign
portfolio investments to Nigeria. The
provisions for LP in the CAM Bill has not only resolved the constitutional
issue around the legislative competence of the Lagos State House of Assembly to
make a law in respect of entities with limited liability but has also provided
legal framework for other States of the Federation to play host to LLPs and
LPs.
Reduction in
Filing Fees for Registration of Charges
The total fees payable to the CAC in connection
with the filing, registration or release of a charge in respect of a company is
prescribed, in section 223(11) of the CAMA Bill to be a maximum of 0.35% of the
value of the charge or such other amount as the Minister of Trade and Investment
may specify in a Gazette. This is expected to lead to up to a sixty-five
percent (65%) reduction in the associated cost payable under the regime in
operation pursuant to the 1990 Act.
Merger of
Incorporated Trustees
Under the new regime introduced by the CAM Bill
(section 850), two or more associations (Incorporated Trustees) with similar
aims and objects may merge under such terms and conditions as may be prescribed
by the CAC from time to time.
B. Corporate governance practice to improve within business organizations:
Disclosure of
persons with Significant Control in companies
Only a member of a public company is under
obligation, under the 1990 Act, to disclose in writing when required, the
capacity in which he holds any shares in the company; either as a beneficial
owner or as a nominee of an interested person.
The CAM Bill in section 119 has extended such
obligation (to disclose the particulars of shareholding by notifying the
company) to persons with significant control in all companies. Similarly, as
provided in section 120 of the CAMA Bill, a person who is a substantial
shareholder in a public company and holding (either by himself or by his
nominee) shares in the company which entitle him to exercise at least five per
cent (5%) of the unrestricted voting rights at any general meeting of the
company, is required to disclose such holding by notifying the company within a
stipulated time.
This new disclosure provisions are expected to
enhance transparency and prevent asset shielding as well as combat money
laundering, terrorism financing and all forms of illicit financial flows by
members of registered entities having limited liability.
Restriction
on Multiple Directorship in Public Companies
The CAM Bill in section 308 prohibits a person
from being a director in more than five public companies at a time. And where
any person becomes a director in more than five public companies at any time,
he is required to, at the next annual general meeting of the companies after
the expiration of two years from the commencement of the CAM Bill, resign from
being a director from all but five of the companies. This is expected to reduce
conflict of interest situations, enhance the performance of directors and
improve corporate transparency.
Public
companies to display their Audited Accounts on Websites
In furtherance of the objective of promoting
corporate transparency and accountability, the CAM Bill in section 375(6)
requires each public company to keep its audited accounts displayed on its
website.
C. Clear and practical framework for resolving insolvency:
Business
Rescue Provisions for Insolvent Companies
The CAM Bill contains frameworks for rescuing a
company in distress and keep it alive as against allowing it to go into
insolvency. Hence, provisions are made with respect to Company Voluntary
Arrangements (sections 435 - 443); Administration (sections 444 - 550), and
Netting (sections 719- 722).
Upon coming into force of the CAM Bill, the following provisions will be in full operation:
i. A financially distressed company (or a company likely to become financially distressed) will be able to partake in a business rescue re-organization such as a Company Voluntary Arrangement and Administration, as an alternative to Winding Up.
ii. Winding Up and Receivership will be converted to Administration.
iii. While a company is undergoing Administration, there will be a suspension on the enforcement of securities, court actions, sequestration of assets, etc.
iv. A company will now be able to disclaim onerous contracts with the leave of court.
v. If it is found that certain undervalued transactions may have led to a company's financial distress, such a company can obtain a court order restoring it to its previous position.
vi. During winding up or a re-organization, contracts for the supply of essential services may be entered into or continued on the basis that the supplier obtains a personal guarantee by the officeholder in charge of rescuing the company.
The CAM Bill has also modified the conditions
for Winding up and clearly set out the rights of secured creditors in Winding
up. Henceforth;
i. The minimum trigger debt for bringing a Winding up petition against a company will be N200,000 (Two Hundred Thousand Naira) as opposed to the former debt trigger of N2,000 (Two Thousand Naira).
ii. Interests/claims of holders of fixed charges will rank in priority to other claims and expenses of winding up.
iii. While a company is being wound up, only a fixed charge holder (or any other validly created and perfected security interest holder other than a floating charge holder) will now be able to enforce security, sequestrate, attach or levy execution on the assets of the company.
D. More statutory safeguards against oppression of minority shareholders:
Enhancement
of Minority Protection and Shareholder Engagement
There are various provisions in the CAM Bill which seek to either prevent injustice to, or further ensure justice for, minority shareholders in the events of actions of the company which are considered oppressive, prejudicial or illegal outright. In this connection, upon the CAM Bill becoming operational, the following conditions shall apply:
i. Restriction
of the appointment of the same person as Chairman and Chief Executive Officer
(CEO) of a private company.
ii. Full
disclosure of all material facts relating to buyer-seller transactions and the
existence of a conflict of interest, where it applies.
iii. Preservation
of the preemptive rights of existing shareholders where new shares are issued.
iv. Expansion
of the grounds under which shareholders can hold the Board liable for damages
caused by related third-party transactions, now to include conflict of
interest.
v. Disqualification
of erring directors from continuing to serve for a one-year period, for causing
loss to the company.
vi. The
requirement of a minimum of three (3) independent directors on the Board of
private companies.
vii. The
courts will now be able to rescind third party transactions which are proved to
be unfair or oppressive or cause economic harm to the company, in general.
viii. It
will now become mandatory to seek and receive the consent/approval of minority
shareholders whenever there is a proposed sale of more than fifty-one per cent
(51%) of the company's assets.
E. Regulation and Compliance
New mechanisms for making regulations more
effective, and compliance a lot easier, are introduced into the governing
framework for supervising business entities. These include the following:
A more
inclusive CAC Governing Board
In constituting the Governing Board of the CAC,
the CAM Bill provides in section 2(2)(f) that one representative of the
Nigerian Association of Small and Medium Enterprises shall be appointed by the
Minister of Trade and Investment on the recommendation of the Association. This
will ensure that inputs from MSMEs are factored into policy formulation at the
CAC. This is expected to promote policies and regulations that are conducive to
the growth of MSMEs.
Power of the
CAC to initiate investigation of a company
In addition to circumstances where the court
orders investigation into the affairs of a company, as is the case under the
1990 Act, the CAM Bill has in section 359(2) conferred on the CAC power to suo
moto initiate investigation into the affairs of a company, by appointing one or
more competent inspectors to investigate the affairs of the company and report
on them, where it appears to the CAC that there are circumstances suggesting
that the provisions
of the law
have been contravened
through acts of omission or commission by the company.
This is expected to enhance CAC's regulatory capacity and ensure quick
intervention in the affairs of companies in the interest of the public.
Treatment of
Related Associations as one
The CAM Bill in section 832 provides for the
treatment of any two or more associations having the same trustees to be
treated as a single association. This is without prejudice to the provisions of
section 850 on mergers of Incorporated Trustees. This provision is expected to
facilitate effective supervision and regulation of registered association with
related operations. It is equally
expected to promote accountability and enforcement of compliance, as well as
establish nexus between associations for the purpose of determining control and
ultimate ownership of property.
Pre-Action
Notice to precede institution of court actions
From the commencement of the CAM Bill, no suit
shall be commenced against the CAC before the expiration of a period of thirty
(30) days after a written notice of intention to commence the suit shall have
been served upon the CAC by the intending plaintiff or his agent. Section 17(2)
of the CAM Bill states that the required Pre-Action Notice shall clearly and
explicitly state: (a) the cause of action; (b) the particulars of the claim;
(c) the name and place of abode of the intending plaintiff; and (d) the relief
sought. This provision is expected to reduce litigation for the CAC as faster
resolution of issues is facilitated with reduced cost.
Comment:
Considering the far reaching provisions
contained in the CAM Bill, its passage by the National Assembly represents a
significant milestone in Nigeria's efforts at putting in place a framework that
promotes EoDB and reduces regulatory hurdles.
Promoted by the CAC with the collaborative
efforts of key public and private sector stakeholders supported by the Enabling
Business Environment Secretariat ("EBES"), the Section on Business Law of the
Nigerian Bar Association (NBA-SBL), Nigerian Economic Summit Group (NESG), the
National Assembly Business Environment Roundtable (NASSBER) and leading
commercial law firms; the CAM Bill is expected to receive presidential assent
and become operational without further delay.
Notably, substantial parts of the changes
provided in the CAM Bill have been promoted and are currently being implemented
as key reform initiatives of the Presidential Enabling Business Environment
Council ("PEBEC"), under the series of National Action Plans on the Ease of Doing
Business in Nigeria ("NAPs"). EBES was established in 2016 to implement the
mandate and vision of PEBEC with fantastic outcome of moving Nigeria
phenomenally twenty-four (24) places up the World Bank EoDB Index; from 169th
position to 145th position globally between 2017 and 2018 as well as naming
Nigeria as one of the top ten (10) most reformed economies in the world. It is
also expected that the provisions of the CAM Bill would enhance the current
aspiration of PEBEC/EBES to move Nigeria to a sub-100 position in the Doing
Business Report which would be released in October this year.
The Grey Matter Concept is an initiative of
the law firm, Banwo & Ighodalo
DISCLAIMER: This article is only intended to provide
general information on the subject matter and does not by itself create a
client/attorney relationship between readers and our Law Firm or serve as legal
advice. Specialist legal advice should be sought about the readers' specific
circumstances when they arise.
For further
discussions regarding the content of this publication, kindly contact Toyin
BASHIR via tbashir@banwo-ighodalo.com or Oluwatoba
OGUNTUASE via ooguntuase@banwo-ighodalo.com
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