October 25, 2017 10:00 AM / NSE
The Securities and Exchange
Commission’s (“SEC” or “The Commission”)’s alleged findings as outlined in
their correspondence to the Company’s (“the Company” or “Oando”) Group Chief
Executive (GCE) on October 17, 2017 have been presented below alongside the
Company’s position regarding each allegation.
Commission’s Alleged Finding: Breach of SEC Code of Corporate Governance
i. The Commission finds from
the Corporate Governance return submitted by the Company for the period ended
December 31, 2016, that the remunerations of the Group Chief Executive Officer
(GCEO) and the Deputy GCEO were approved by the Board, while the GCEO was
responsible for fixing the remuneration of other Executive Directors which is
in violation of Part B, 14.3 of the SEC Code of Corporate Governance.
ii. The last Board evaluation
of Oando Plc. was done by KPMG in 2012. This is a violation of Part B, 15.1 of
the SEC Code of Corporate Governance.
Oando is invited to note the
violations and henceforth ensure compliance with the SEC Code of Corporate
The Company wrote to the SEC on
July 21, 2017 updating them as follows:
The remuneration of all
Executive Directors of the Company was last reviewed prior to May 2014 and
before the SEC Code of Corporate Governance was made mandatory.
Furthermore, our 2016 Corporate
Governance Report filing dated January 31, 2017 contained an error which can be
seen when compared to our previous filings, including the H2 2015 Report sent
to the SEC under cover dated August 31, 2016. Both Oando’s Delegation of
Authority Document and the Remuneration Policy, approved by the Board of
Directors in October 2011 provide for the remuneration of all Executive
Directors to be approved by the Board upon the recommendation of the Governance
and Nominations Committee with input from the Group Chief Executive. The
Company informed the SEC that the error in our 2016 filing would be rectified
in subsequent filings.
The foregoing notwithstanding,
all employee remuneration, including those of all executive directors, goes
through a process of approval by the Board of Directors during the annual
budgeting process. It is important to note also that since May 2014, there has
been no new executive director appointed to the Board of Oando PLC and
accordingly there has been no requirement for the Board to approve the
remuneration of the executive directors of the Company.
The Company’s understanding was
that the SEC Code of Corporate Governance was made mandatory on May 12, 2014.
Prior to that date, the recommendation for an annual Board Evaluation was not
The Company has always been
above board and steadfast in its submissions to the SEC with respect to its
Annual Corporate Governance Report filings regarding its compliance with the
requirements of the Code prior to and post May 2014. The SEC has never until
now communicated to the Company the specific areas of non-compliance with the
Code from a review of our filed Annual Reports and the actions needed to remedy
Although a formal annual Board
Evaluation was not carried out for the 2015 and 2016 reporting years, the Board
did carry out an internal appraisal of its effectiveness as part of the
investigation initiated by the Nigeria Stock Exchange in 2015/2016 and prior to
that, as part of its successful participation in the pilot of the NSE’s
Corporate Governance Rating System (CGRS) in 2014. The Company is now in the
process of engaging a vendor for the conduct of a formal Board Evaluation
exercise for 2017.
Failure to Comply with the SEC Code of Corporate Governance
The Company is of the position
that even if it had breached provisions of the SEC Code, SEC is under
obligation under s.1.3 (d) of the said Code to notify the company “specifying
the areas of non-compliance or non-observance and the specific action or
actions needed to remedy the non- compliance or non-observance.”
The Company only received such
formal notification from SEC requiring compliance with the SEC Code on these
matters on October 18, 2017, five months after the commencement of its
investigation. The Company has since put remedial actions in place to cure this
2. The Commission
Alleged Finding: Breach of ISA 2007 on Disposal of Oando Exploration & Production
Limited (OEPL) by Oando PLC 2013
That the disposal of Oando
Exploration Production Limited (OEPL) to Green Park Management Limited was done
without the prior approval of the Commission
No section of the ISA is
referenced but the inference is that the disposal of OEPL to Green Park
Management Limited was done without the prior approval of SEC. The practice is
that SEC does not give consent unless and until the consent of the Minister
concerned with that transaction has been sought and obtained. The transaction
was one in which SEC’s approval was a condition subsequent to the Sale.
The transaction closed and the
accounting treatment accorded to the transaction at closing was in full
compliance with IFRS. However, when it became obvious that certain conditions
subsequent could not be satisfied within the period stipulated in the Sale and
Purchase Agreement (SPA), namely Ministerial Consent, the transaction was
terminated and reversed and reported accordingly in the 2015 Financial
Statements. The 2013 and 2014 position had to be restated in the 2015 audited
financial statements to show that the transaction, previously recorded as a
sale had been reversed in line with IFRS. The treatment of the transaction in
2013 as a sale and its subsequent reversal in the 2015 financial statements
were in full compliance with the accounting treatment under IFRS.
3. The Commission
Alleged Finding: Breach of ISA 2007: Misstatements in the 2013 and 2014 Audited
Financial Statements of Oando PLC arising from the OEPL Transaction
Following the structuring of
the OEPL transaction in contravention of the ISA 2007, Oando Plc. recorded a
profit of about N6 Billion from the sale of OEPL that erased the operating loss
of N4.68 Billion leading to a profit of N1.4 Billion for the year 2013. The
company subsequently declared dividends from the profit. Having admitted that
the action was in breach of the ISA 2007, Oando Plc restarted its 2013 &
2014 Audited Financial Statements which contained material false and misleading
information contrary to Section 60(2) of the ISA 2007.
This alleged breach flows from
the allegations regarding the accounting treatment on the disposal of OEPL.
There was no misstatement of profits in the 2013 and 2014 Audited Financial
Statements as the accounting treatment for the transaction was in full
compliance with the IFRS standards both in the 2013 financial statement when
the sale occurred and was recorded and in the 2015 financial statement when the
4. The Commission
Alleged Finding: Breach of ISA on Misleading Information contained in Oando PLC’s 2014
Rights Issue Circular
That the 2014 Rights Issue
Circular of Oando Plc contained information relating to the profit reported by
Oando Plc in 2013 arising from the sale of OEPL. Consequently, the said Rights
Issue circular contained material misleading information. This action amounts
to a violation as contained in Section 85(1), 86(1) and 87(1) of the ISA 2007.
Again, the SEC did not confirm
what portion of the ISA was breached but we assume that this purported breach
stems from its having alleged a breach of the ISA in the disposal of OEPL,
referenced above. The Company acted appropriately in the way it reported the
OEPL transaction, therefore there is no breach of the ISA in respect of
providing misleading information in Oando PLC’s 2014 Rights Issue Circular.
5. The Commission
Alleged Finding: Breach of SEC Rules and Regulations on Payment of Dividends
That Oando Plc in 2014,
remitted dividends to the Registrar in piecemeal in violation of Rule 44 (1) of
the SEC Rules and Regulations.
SEC Rules and Regulations, Rule
“Dividends declared shall be
paid en-bloc by the issuance of a check or transfer of funds to the registrar
not later than seven (7) working days after the annual general meeting where
the dividend was declared”
This is the first time that the
SEC is making such an allegation to the Company and Oando was not given an
opportunity to respond to this allegation. Nevertheless, even if this breach
occurred, which Oando is currently investigating, the penalties for breach are
as contained below:
The penalties for breach of the
provisions relating to payment of dividends are prescribed in Rule 44 (4) (a)
and (b) of the SEC Rules and do not require a forensic audit.
It is important to note that no
shareholder or whistleblower has petitioned SEC or complained about not having
received dividends due to them from the Company.
6. The Commission
Alleged Finding: Going Concern of Oando PLC
The Commission notes the Report
of the Independent Auditors of Oando Plc, Ernest & Young, which is
contained on Pages 63-68 of the 2016 Annual Reports & Accounts of Oando
Plc, more particularly in Paragraph 1 of Page 64 where the independent auditors
reported going concern status of the Company.
The SEC have noted the going
concern opinion raised by the Auditors of the Company. However it is unclear
how this issue of going concern is a SEC finding or how it amounts to a breach.
The Auditors were clear in their opinion that they were raising the going
concern issue as an emphasis of matter and that their opinion was not modified.
7. The Commission
Alleged Finding: Suspected Insider Dealing
The Commission observed that
certain persons classified as insiders within the provisions of Section 315 of
the Investment and Securities Act (ISA), 2007 and who were in possession of
confidential price sensitive information not generally available to the public,
had between January-October 2015 traded on Oando Plc shares prior to the
release of the company’s 2014 Financial Statement, where the company reported a
loss of N183 Billion.
On the allegation of insider
dealing made by Oando Plc against Alhaji Dahiru Mangal, although investigation
was initiated by the Commission, the attention of the Commission was drawn to a
letter dated September 21, 2017 from Oando Plc, informing it that a suit had been
filed in court in that regard, and that the matter was now sub-judice.
The Company has clear and
robust insider trading policies which it has communicated to all known Insiders
of the Company. The Company also operates a well-defined and articulated Closed
Period/Blackout process relating to trading in the securities of the Company by
Insiders, in line with Corporate Governance best practice.
The question as to whether
Insider Dealing occurred in the shares of the Company is a matter for the SEC
to raise with any affected Insider; it is also important to note that the
Company cannot be guilty of Insider Dealing since it only issues securities and
is not involved in the trading of its own securities. Furthermore, as a public
company with fully dematerialized shares, listed on both the Nigerian Stock
Exchange and the Johannesburg Stock Exchange all trading in the securities of
the Company takes place on the floor of both exchanges through the respective
Depository, Clearing and Settlement Agencies
Any investigation into whether
or not there has been a breach of Insider trading rules is a question of fact
which would be better addressed through an inspection of trading records of the
Exchange rather than through a forensic audit of the Company.
The Company forwarded to the
SEC, copies of the Company’s Insider Trading and Closed Period policies during
the process of its investigation.
Insider Dealing include the voiding of the affected transactions at the
instance of the Commission. There are further penalties contained in the ISA
which are stated below:
ISA –Section 115- Criminal
liability for Dealing in securities by insiders (Section 111)
Any person who contravenes any
of the provisions of this part of this Act commits an offence and is liable on
in the case of a person not being a body corporate, to –
a fine of not less than N500,000 or an amount
equivalent to double the amount of profit derived by him or loss averted by the
use of the information obtained in contravention of any of the provisions of
this part; or
to imprisonment for a term not exceeding seven years; or
in the case of a person being a body corporate, to a fine not
less than N1,000,000 or an amount equivalent to twice the amount of profit
derived by it or loss averted by the use of the information obtained in
contravention of any of the provisions of this part.
ISA – Section 116 (1): A person
who is liable under this part of this Act shall pay compensation at the order
of the Commission or the Tribunal, as the case may be, to any aggrieved person
who, in a transaction for the purchase or sale of securities entered into with
the first-mentioned person or with a person acting for or on his behalf,
suffers a loss by reason of the difference between the price at which the
securities would have likely been dealt in such a transaction at the time when
the first-mentioned transaction took place if the contravention had not
Again, the affected Insiders
are best placed to fully respond to this issue and not the Company.
8. The Commission
Alleged Finding: Related Party Transactions
The Commission identified
certain Related Party Transactions and observed that they were not conducted on
arm’s length basis.
The Commission claimed that
they have identified certain related party transactions that were not conducted
at arm’s length. All related party transactions are disclosed by the Company in
accordance with the SEC Code of Corporate Governance, the NSE Listing Rules as
applicable, IAS 24 under the IFRS accounting standards, and the Company itself
has an extensive Related Party Policy which was made available to the SEC and
is available on the Company’s website.
The related party
procedure of the Company ensures the following:
1. Related parties to a
transaction with the Company declare their interest in the transaction and are
not involved in the decision-making process;
2. The Company is not subject
to any duress or pressure from the related party to agree to the transaction;
3. There is no collusion
between the Company and the related party;
4. The transaction is entered
into on commercial terms at fair market value.
This is sufficient to make the
disclosed related party transactions transparent, of value to the Company and
in the best interests of the Company whether provided by a related party of
Again, we had reiterated to the
SEC in several correspondence that related party transactions are not in
themselves illegal or wrong. The only obligation imposed on the Company is to
disclose all related party transactions entered into during the course of the
year and this was properly disclosed. In fact the SEC have based their findings
on the disclosures made by the Company in its Annual Financial Statements.
The SEC have not specified what
aspects of the transactions were not at arms-length or the basis of their
There is also no penalty under
the SEC Code or Rules where a Company enters into related party transactions
that are deemed not to be at arm’s length except where those transactions are
not disclosed in accordance with the disclosure provisions or are entered into
in breach of the NSE Listing Rules which require shareholder approval to be
obtained for all related party transactions that are in excess of 5% of the net
asset value of the Company. None of the related party transactions disclosed by
the Company or entered into meet such criteria.
9. The Commission
Alleged Finding: Declaration of Dividend
The Committee noted that Oando
Plc declared dividends in 2013 and 2014 from unrealized profits.
The claim is that Oando PLC
declared dividends in 2013 and 2014 from unrealized profits. The Company has
repeatedly denied this claim and provided evidence to the SEC in its defense.
The interim dividend declared
in September 2014 and paid by Oando PLC in November 2014 was paid from the H1
2014 profits of Oando PLC. At that point in time, the Company had sufficient
distributable reserves and it is acceptable under the law to pay out dividends
if reserves exist at the point of declaration. The restatement of the OEPL sale
was done in 2015 and would not have affected the 2014 declaration of the
interim dividend, which was declared from H1 current period profit in 2014.
Thus, the declaration of the interim dividend on the basis of reserves
available at the point of declaration, complied fully with the provisions of
section 379 (2) of the Companies and Allied Matters Act. At all material times
that dividends were declared, same were paid out of the available distributable
reserves in the relevant period.
Again, even if there has been
an infraction, the penalty is as laid down in Rule 44 (4) (a) and (b) of the
SEC Rules as stated above.
Commission Alleged Finding: Shareholding Structure/Register of Members of Oando
The Commission observed
discrepancies in the shareholding structure of Oando Plc. While Alhaji Mangal’s
status as a shareholder in Oando Plc is not in contention or dispute, the exact
units of shares held by him requires reconciliation.
The SEC claims that the exact
unit of shares held by Alhaji Mangal in Oando PLC requires reconciliation.
However, Alhaji Mangal has not contested the contents of the Register of
Members maintained by our Registrars, First Registrars & Investors Services
Limited, or even made a request to the Registrars to reconcile the Register. We
are therefore unclear as to what discrepancies SEC are referring to here. If
Alhaji Mangal claims he holds more shares in the Company than is stated in the
Register of Members, then it is for him, directly, or through his brokers to
seek a reconciliation of the Register, providing evidence of the number of
shares that he acquired in the Company and when he acquired those shares. We do
not see how this “discrepancy” should therefore require a forensic audit to
ascertain its veracity when the burden is on Alhaji Mangal to show that he
acquired those shares
Related Oando / SEC Issue
Secures Court Injunction, restraining SEC, NSE