ANALYSIS OF THE SB 384
SB 384: Companies and Allied Matters Act 1990 CAP C20 LFN 2004 (Amendment) Bill, 2017. Sponsored by Sen. Ovie Omo-Agege
Bill type: Senate Bill
Sponsored by: Sen. Ovie Omo-Agege
Explanatory memorandum: The Bill seeks to amend laws of the Federation of Nigeria 2004 and for the establishment of state Corporate Affairs Commission for registration of business names.
First Reading: 24/11/2016
Second Reading: 01/03/2017
Committee Referred To: Trade and Investment
Consolidated with: Consolidated with SB 355
Third Reading: 15/05/2018
Bill Status: Passed (Awaiting Presidential Assent)
On Tuesday 15 May 2018, the Senate of the Federal Republic of Nigeria passed the Companies and Allied Matters Act, 1990 (CAP C20, LFN 2004) Repeal and Re-enactment Bill, 2018 (“the Bill”), following a recommendation of the Senate Committee on Trade and Investment (The Committee). The Bill consolidates the proposed amendments from two related bills: Companies and Allied Matters Act CAP C20 LFN 2004 (Amendment) Bill, 2016 and the Companies and Allied Matters Act CAP C20 LFN 2004 (Amendment) Bill, 2017.
The Bill has 860 sections which is an additional 247 sections to the Current CAMA with 613 sections and seeks to establish an efficient means of regulating businesses, minimize the compliance burden of small and medium enterprises (SMEs), improve transparency and accountability, enhance shareholder engagement and promote a friendly business climate in Nigeria.
- 8.3 of the Bill provides for e-incorporation to facilitate the automated reservation of business names which will result in a significant improvement in turnaround time for potential promoters of companies in Nigeria and improve the ease of registering new businesses. Other automated processes are provided for in Sections 176 and 177 which refer to electronic instruments for the transfer of shares. Section 182 also provides for a Certificate of transfer to include a certificate issued in electronic form.
By virtue of Section 18 (2) of the Bill, one person may form and incorporate a private company by complying with the requirements of the proposed CAMA in respect of private companies thus reducing entry barriers for SMEs. This provides a competitive Nigerian business regulatory environment that is consistent with other jurisdictions.
The Bill also seeks to discard Section 26 (5) of the CAMA which provides that “The memorandum of a company limited by guarantee shall not be registered without authority of the Attorney-General of the Federation”. This will materially reduce the timeline for the registration of companies limited by guarantee (LTD/GTEs).
S.120 of the Bill on provides for persons who hold nominal interest in a company on behalf of another, to disclose those beneficial interests. Also any shareholder (other than the beneficial owner) who holds shares entitling him to 5% voting rights in company should provide particulars of the beneficial owner to the company within 7 days. The beneficial owner should also disclose whether persons interested in the same shares are parties to any agreement or arrangement relating to the exercise of any rights conferred by the holding of the shares. Upon this disclosure, the company is to, within 7 days, inscribe against the name of every member in the register of members the information received and at the filing of its next annual return, notify the Commission of that information. By implication if the company defaults, the company and every officer of the company shall be liable to such fines as the Commission may prescribe by regulation for every day during which the default continues.
- 131 to 133 of the Bill enables companies to reduce share capital without the need for a court order, while S.148 prohibits the issuance of irredeemable shares and S.175 expressly prohibits Bearer shares.
The Bill provides exemptions to small companies including the removal of mandatory requirement to hold Annual General Meetings –S. 238(1); not having to hold the AGMs in Nigeria and the option of holding them electronically- S.241 (2); reducing the regulatory burden of having a Company Secretary –S. 329 (1); removing the requirement for a company to have at least 2 directors and allows for single directorship for small companies S.272.
- 404 of the Bill prohibits improper influence on conduct of audit of the financial statements of that company for the purpose of rendering such financial statements misleading by imposing a penalty to be specified by the Commission in its regulations, thus enforcing transparency in auditing processes.
The Bill provides a redress mechanism through S. 843 which seeks the Establishment of the Administrative Proceedings Committee (“APC”). The main function of the APC is to provide the opportunity of being heard for persons alleged to have contravened the provisions of the proposed Act or regulations made thereunder; resolve disputes or grievances arising from the operations of this Act or its regulations; and impose administrative penalties for contravention of the provisions of this Act or its regulations in the settlement of matters before it.
The Bill makes provisions for Business Rescue Proceedings which is targeted at rehabilitating financially distressed companies. These provisions seek to create an effective insolvency regime in Nigeria and has a dual aim: to save viable businesses, and to ensure that non-viable businesses can quickly exit the market, allowing deployment of assets to more productive firms.
On beneficial ownership, the amendments are targeted to increase transparency and combat asset shielding and are particularly significant, since they may mandate the disclosure of beneficial interests in a company where such are held through nominal holders or in trust. The Bill by seeking the establishment of a BO register, conforms to the Financial Action Task Force (FATF) international standards, particularly Recommendations 24 and 25 which emphasize the need for countries to prioritize for redress risks associated with obscurity of ultimate beneficiaries of corporate entities; as well as fulfils the commitments of the President at the 2016 London Anti-Corruption Summit convened by the UK Government and the Open Government Partnership Initiative.
The Bill complements the key objective of the Presidential Enabling Business Environment Council in building an enabling business environment by attempting to address the extant difficulties faced by businesses (administrative bottlenecks, high compliance costs etc.) which will lead to a significant improvement in the country’s Ease of Doing Business rankings.
On the whole, the Bill promises to improve revenue mobilization by the government as business entities can now be more efficiently regulated.
In a bid to reduce compliance requirements for small companies, the provisions for exemption from independent statutory audits may create an avenue for unsavory practices particularly for companies that may have gap years in their financial history. Hopefully, the harmonized Bill will have safeguards in place to enable users of financial statements other than shareholders have access to relevant financial information of a company that apparently does not do business in a particular year.
With respect to financial assistance, The Bill included provisions permitting private companies to provide financial assistance for acquisition of its own shares upon meeting certain conditions. These conditions include, non-reduction of net assets, or where reduced, such assistance should be financed out of distributable profits. A special resolution of the shareholders and a declaration of the directors in a form to be prescribed by the CAC are also required to accompany such transaction. These provisions may be deemed aggressive and the harmonized version should include safeguards to ensure that minority shareholders and creditors are not shortchanged by aggressive structuring of transactions on the basis of the removal of this prohibition. Most common law countries retain some kind of safety net in this respect, especially for private companies.
It is expected that the new Bill when enacted will ease the rigors of doing business in Nigeria thereby making investing in the country an attractive prospect to investors. This will have the effect of improving and strengthening the nation’s economy as the projected influx of new businesses will help it thrive and grow in bounds.
With the need to incorporate regulatory conditions which are modeled around international best practice, the Bill will indeed promote long-term investments and ensure that the Nigerian system of company law and corporate governance would be favorable to the emerging Nigeria.
Given its current status, the Bill should be assented to or rejected by the President, to allow its urgent re-introduction by the National Assembly. In the meantime, stand-alone frameworks like efforts by the Nigerian Extractive Industries Transparency Initiative (NEITI) and the Corporate Affairs Commission to establish registers for Beneficial ownership information in the oil and gas industry and the corporate sector, respectively, will serve as stop-gap measures to provide temporary succor to our bleeding economy.
By: Muna Ugochukwu