OAS Law Firm

Key Amendments To The Companies & Allied Matters Act 2020 & Its Effect On Businesses In Nigeria

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The enactment of the anticipated Companies and Allied Matters Act (CAMA) 2020 after 30 years to repeal the Companies and Allied Matters Act (CAMA) 1990, (Cap C20, Laws of the Federation of Nigeria 2004) brought about key amendments to eliminate some bottlenecks that hindered ease of doing business in Nigeria.

The Senate listed the following 7 benefits of the new CAMA Act:

  1. It will make Nigeria’s business environment as competitive as its counterparts around the world;
  2. One person can open and run a company – unlike the existing position that requires two or more people;
  3. It promotes the use of technology in the registration of businesses;
  4. It removes all the unnecessary regulatory provisions for small companies such as annual general meetings;
  5. It reduces the minimum share capital for all companies and start-ups;
  6. It creates a new category of legal identity for Nigerian businesses and;
  7. It ensures that Nigerians can now register their businesses from anywhere in the country through the e-registration system.

CAMA 2020, couldn’t have come at a better time, where the world and in particular Nigeria was immensely affected by the global pandemic known as Corona Virus Disease (COVID-19). The pandemic greatly impacted and shaped the business community. The CAMA 2020 comprises provisions to ease the manner of conducting business in light of technological advancement and e-commerce.

We have provided a detailed review of the effects of CAMA 2020 on the business environment and its impact on the ease of doing business in Nigeria in comparison to the previous Act.

Company Registration and Formation

  1. Introduction of Electronic Name Reservation and Filing: in line with modern technological capabilities and developments, CAMA 2020 has incorporated provisions for electronic reservation of name, filing of documents and registration for companies[1]. Despite the fact that the old CAMA 1990 did not stipulate electronic application and reservation of name, the Corporate Affairs Commission (CAC or Commission) started practicing electronic reservation and filing of documents from 2015. Therefore, the stipulation of these provisions in the new CAMA 2020 gives a legal backing to the current acts of the CAC. As at time of re-writing this article, the Corporate Affairs Commission (CAC) published a new website alongside Companies Regulations 2021. The website models the new e-filing procedure system and accepts e-signature. The Regulations gives practical guide on the implementation of CAMA 2020. It is still early days to determine the practical effectiveness of the website and Regulation.

In addition, the CAC is authorised to withdraw or cancel any approval for reservation of name where it is discovered that the approval was fraudulently, unlawfully or improperly procured[2]. This is an improvement on the existing practice where an aggrieved company/person will need to apply to the court for an order directing the CAC to withdraw or cancel the name which was improperly registered.

  • Provision of a Single Member/Shareholder for the Incorporation of a Private Company: the minimum requirement for the number of persons required to incorporate a private company has decreased to one (1)[3]. A minimum of two (2) shareholders is still required for a public company.

The new provision empowers one person to incorporate a private company by complying with the requirements of the Act in respect of private companies. This provision is indeed of immerse relief to individuals aspiring to incorporate a private company but do not have a second person to join as a shareholder of the company. In the past, most individuals simply in a bid to meet up the minimum requirements of two (2) shareholders for the incorporation of a private company have had to partner with other persons whom do not share the same interests or vision of the company.

  • Minimum Number of Directors: The Act stipulates that all companies, except small companies, are required to have a minimum of 2 (two) directors[4]. A small private company is permitted to have 1 (one) director whilst private companies other than small companies are required to have 2 (two) directors.

A small company is a private company which has a turnover of not more than ₦120,000,000, net assets of not more than N60,000,000, does not have any foreigner, government, government corporation or agency as a shareholder and its directors hold at least 51% of its equity share capital[5]. The exemption of foreign and government shareholding from qualification as a small company implies that the Act seeks to encourage registration of local small and medium enterprises.

This provision eases the constraint of individuals especially entrepreneurs whom are now encouraged to take part in business opportunities and incorporate their own private companies as sole director and shareholders.

  • Introduction of a Statement of Compliance: in addition to prior documentation, a statement of initial shareholding and a statement of initial issued share capital is now required for registration alongside a statement of compliance[6]. Unlike CAMA 1990, which required the production of a declaration of compliance to be signed by a legal practitioner and attested before the Commissioner for Oaths or notary public, the new provision in a bid to ease company incorporation has provided an alternative. An applicant may present a Statement of Compliance to the Commission, as opposed to a Declaration of Compliance. The Statement of Compliance to be delivered to the Commission is a statement by the applicant or his agent stating that the requirements of the Act as to registration has been complied with[7]. Further to this, in the case of a company limited by guaranty, a statement of guarantee is also required[8].

This has reduced the rigors and cost on the applicant associated with obtaining a Declaration of Compliance for the registration of a Company.

  • Consent of the Attorney General (AG) for the registration of a company limited by Guarantee:  the consent of the AG is now required to be given for registration of a company limited by guarantee within 30 days where there is no objection to the memorandum or cogent reason to reject the application[9]. Where the AG makes no decision within the 30days period and upon advertisement of the application for registration by the promoters in 3 National dailies and no oppositions from the public, the CAC can assent to the application and register the company without the AG’s consent[10].

The inclusion of a time limit, is a major improvement on the prior Act which did not indicate any time limit within which the AG must authorise the registration who may in his/her absolute discretion withhold such consent. This reduces the possibility of making the application process tedious, discouraging, encumbered with bottlenecks and prone to corrupt practices. Although the new procedure for application of company limited by guarantee, has its shortcomings such as the additional 30 days to consider the application where further information is required by the AG[11], we believe the additional 30days is lengthy and could inadvertently cause delay. It is equally unclear if the CAC is required to advertise the application again after the promoter’s initial advertisement[12]. 

  • Conducting Business Without Registration: a person or association of persons shall not carry on business in Nigeria as a company, limited liability partnership, limited partnership or under a business name without being registered or registration which has been refused or cancelled[13]. The Act further prescribes a fine of ₦200 per day for violation of this section.

While this section is laudable especially for taxation purposes, we are sceptical about the enforceability. For instance, there is little to no information on or about the informal sector and Small and Medium Enterprises (SMEs). Thus, the enforceability of this section may not be possible due to absence of a unified database that indicates or captures the persons or enterprises that are not registered with the CAC to carry out businesses in Nigeria. Furthermore, the question of reasonability of the requirement for individuals to compulsorily register a business or partnership must be answered. Will this section be more effective if targeted at specific group of people carrying on particular type of business or will the Corporation determine who and what enterprise must be registered. These are some of the issues which we believe needs to be clarified before this section can be enforceable.

Share Capital, Shareholding, Company Objects, Articles and Memorandum of Association

  • The replacement of Authorised Share Capital with Minimum Issued Share Capital: the concept of “authorised share capital” has been removed and replaced with “minimum issued share capital”[14]. The minimum issued share capital prescribed for a private and public company is N100,000.00 and N2,000,000.00 respectively.

The statement of initial issued share capital and initial shareholdings must state the amount to be paid up and the amount (if any) to be unpaid on each share (whether on account of the nominal value of the share or by way of premium)[15]. In the case of an increase in the issued share capital, at least 25% of the share capital including the increase must be paid up before the increase will take effect[16]. The implication is that shareholders will no longer benefit from the option of not being required to pay for shares upon allotment which was afforded by the CAMA 1990.

CAMA does not exempt foreign companies from compliance with the minimum share capital/authorised share capital requirements mandated by some sectors prior to registration as well as the issuance of relevant operating permits/licenses. Consequently, there is a need for synergy and cooperation between the Act and other sectoral requirements.

  • Unrestricted Objects of a Company: objects of a company are now unrestricted unless restricted by the Articles of the Company[17]. therefore, companies are at liberty to act beyond their stated objects. This is a welcomed change as it avoids the lengthy process and cost of changing the Articles of Association at the CAC when a company decides to divert from one object to another as is presently practiced.
  • Articles of Association: The Minister is authorised to prescribe model articles of association for companies and different model articles may be prescribed for different descriptions of company[18]. A company may decide to adopt all or any of the provisions of the model articles. However, if the company does not register its Articles or expressly exclude or amend the applicable model Articles, such model Articles will constitute part of the Articles of the company[19]. The Act does not address resolution of a conflict between a company’s Articles and the model Articles in cases where the model Articles is deemed to constitute part of a company’s Articles. Although, the CAC presently implements default articles during registration of a company, tailored model articles for different descriptions of company is an added improvement. It will also save time on composition of articles a company during registration. 
  1. Trust Arrangements: It is permissible for a shareholder who subscribes to the memorandum and Articles of a company to hold part or all shares in trust for another person[20]. However, the trust relationship and the beneficiary’s name are required to be disclosed in the memorandum of association. The act is however silent on disclosure of trust arrangements established post incorporation of a company. This therefore leaves us uncertain as to whether the intention is that all trust arrangements in relation to shares in a company should be disclosed or that this requirement only applies to such arrangements created at incorporation. Where the former is the case, companies in sectors where trust arrangements are often adopted in order to comply with local content requirements will come under increased scrutiny by the respective sectoral regulators and there could potentially be a change in parameters for measuring local content.

Shares; Issuance, Sale, Transfer, Acquisition and Securities

  1. Issue of Shares: Under the new Act, it is now unlawful to issue shares at a discount[21]. In addition, irredeemable preference shares can no longer be issued by any company[22].
  1. Allotment of Shares: a private company may delegate its power to allot shares to its directors[23] while, a public company’s authority to allot shares is subject to the provisions of the Investment and Securities Act and cannot be exercised by the directors unless express authority is vested on the board by the Company in a general meeting or in the company’s articles[24]. In addition, newly issued shares shall not be allotted without first being offered to the existing shareholder in the proportion of their existing shareholding[25]. Although, a lot of private companies already practice this rule also known as pre-emptive rights of existing shareholders when issuing new shares of a company. Its introduction into the CAMA 2020 Act endorses the practice and sets guidance on pre-emptive rights.
  1. Registration of Charges: It is important to note from the onset that companies have power to borrow money for the purpose of their businesses and for business certainty may secure the repayment of such money by charging or mortgaging all or part of its properties. A charge is used to describe all forms of security contract which gives a creditor a security interest in the property without the transfer of possession of the property and may be legal or equitable. It may include a mortgage, and said charge could be either fixed or floating. The CAMA 2020 stipulates the fees payable to the Commission for the filing, registration or release of a security document evidencing a charge and limits the fee to 0.35% of the value of the charge or such amount as may be determined by the Minister of Trade and published in the Federal Gazette[26]. The substantial reduction is expected to decrease the current cost of registration by 65%. This would certainly encourage companies to seek creditors for the progress and continuity of their business as fees for registering a charge would be reduced. This would in turn reduce the amount payable in running a company.

Furthermore, the holder of a fixed charge has priority over other debts of the company including preferential debts[27].

  1. Financial Assistance for Acquisition of Shares: Private Companies are no longer prohibited from offering financial assistance for the acquisition of its shares. A company may offer financial assistance in the acquisition of its shares, if it ensures that:
    1. its net assets are not reduced as a result of the assistance being provided out of distributable profits
    1. the assistance was approved by a special resolution
    1. the directors of the company or holding company make a statutory declaration in the prescribed form[28].

However, the Act prohibits financial assistance by means of a gift, credit, loan, guarantee, indemnity, any form of security or other financial assistance by a company for the purchase of its shares or its subsidiary’s shares where it results in 50% reduction of the total assets of the company[29] or where the company providing the security has no assets.

Unlike the CAMA 1990 where financial assistance is permitted in very limited situations, the CAMA 2020 allows for financial assistance to be provided by a company in broader circumstances. This encourages more individuals to acquire shares in a private company through financial aid which leads to more investors for companies.

  1. Share Buyback: the CAMA 2020 introduces a more flexible provision on share buyback. Compared to the old Act where share buybacks were limited to purchases for the purpose of:
    1. settling a company’s debt and claims,
    1. eliminating fractional shares,
    1. fulfilling the terms of a non-assignable agreement which the company is bound to purchase shares owned by an officer or an employee of the company
    1. satisfying the claim of a dissenting shareholder,
    1. complying with court order.

The CAMA 2020 allows a company to purchase its own shares provided that[30]:

  1. it is permitted by its articles,
    1. shareholders approve the acquisition by special resolution,
    1.  the shares are fully paid up,
    1.  a notice of proposed purchase is published in two (2) national dailies,
    1.  within 15days of publication, the directors make a statutory declaration of solvency at the Commission,
    1. the company must still have issued shares apart from redeemable and shares held as treasury shares,
    1. payments for such buybacks are made from distributable profit.
  1. Electronic Share Transfer Instrument: electronic instrument of transfer of shares and certificates of transfer by a shareholder to another person is now recognisable[31]. Also, the CAMA 2020 provides that instruments of transfer of shares by a company shall include electronic instrument of transfer[32].

Limited Liability Partnerships and Limited Partnerships

The CAMA 2020 introduces the concept of Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs) and lays out the procedure for its incorporation[33]. LLP and LP combines the organisational flexibility and tax status of a partnership with the limited liability of members of a company. LPs and LLPs are both businesses with more than one owner, but unlike general partnerships, LPs and LLPs offer some of their owners limited personal liability for business debts.

  1. Limited Partnerships: In LPs at least one of the owners is considered a ‘general’ partner who makes business decisions and is personally liable for business debts and obligations[34]. LPs also have at least one “limited” partner who invests money in the business but has minimal control over daily business decisions and operations. The limited partner’s liability is restricted to the amount which he contributed or agreed to contribute at the time of joining the partnership[35]. The membership is limited to 20 (twenty) persons (either corporate entities or individuals)[36]. The advantage for these limited partners is that investors can invest in a partnership without being personally liable for business debts and protects individual partners from personal liability for the negligent acts of other partners.
  1. Limited Liability Partnerships: LLPs on the other hand, is a similar business structure to LPs which  has no general partners. All of the owners (individual or corporate body) have limited personal liability except in cases of fraud where all partners bear unlimited liability[37]. The LLP has a separate legal personality from its partners and the partners are generally not personally liable for existence, rights or obligations of the LLP[38]. Also, the LLP has perpetual succession and any change in the partners does not affect the partnership. Upon incorporation, LLPs can sue and be sued in their name, acquire, own, hold and develop or dispose property, may choose to have a common seal, and do or suffer such other things as bodies corporate may lawfully do and suffer[39]. This Partnership under the LLPs is governed by a limited liability partnership agreement which is to be filed with the commission[40]. The LLP is bound by the acts of the partners carried out in the course of the business and with its authority. Such partners are regarded the agents of the LLP for the purpose of the business but not of the other partners and the LLP is not bound by anything done by a person who has no authority to act for the LLP and in fact knows that he or she lacks such authority[41].

In addition, foreign LLPs are required to incorporate a separate entity in Nigeria prior to carrying on business in Nigeria[42].

Where a partnership is not registered, it would be deemed to be a general partnership and every limited partner would be deemed a general partner[43].

In Nigeria, the common business practice is sole proprietorships (SPs), the structure of SPs is not scalable and the business dies with the owner. The creation of LLPs and LPs is progressive and would encourage more investors as well as provide  more flexibility  in its organisational structure which would lead to economic growth. It would also act as a step towards converting the informal, undocumented sector of Small and Medium Scale Entrepreneurs (SMEs) into a formal and regulated sector that has a scalable structure.

Corporate Governance

  1. Procurement of a Common Seal: procurement of a common seal by a company under CAMA 1990 was mandatory however, under the new Act, a company may choose to have a common seal[44]. Where a company has a common seal, the design and use of that seal shall be regulated by the company’s Articles of Association and it shall have its name engraved in legible characters on the seal.

The amendment of this provision, to make the procurement of common seal optional by a company is in accordance with international best practices as most jurisdictions around the world have expunged the requirement from their respective laws.

  • Provision of Virtual General Meetings: the new Act permits the holding of remote or virtual general meetings for private companies, provided that such meetings are conducted in accordance with the Articles of Association of the company[45]. Also provided is the issuance of notice for meetings to be given to any member electronically[46].

This provision brings a positive impact to shareholders, by facilitating and increasing participation at meetings from various locations around the world at minimal costs.

In addition, small companies and private companies with a single shareholder are now exempt from the general rule that requires all statutory and annual general meetings to be conducted in Nigeria[47]. For Public Companies, the Commission is now entitled to receive notice of the Public Company’s meetings.

  • Restriction on Multiple Directorship in Public Companies: The Act prohibits a person from being a director in more than five (5) public companies simultaneously[48]. While a person being a director in multiple companies can be favourable because such person may gain valuable experience in varied industries as well as building relationships within other regulatory environments. Sitting on multiple boards however, could be detrimental due to the distractions and time constraints which may affect the growth of the company and productivity of the director. Thus, the placement of limit on a person from holding more than five (5) director positions in company at a time, would help align the focus of the person to enable him properly cater to the companies and avoid the businesses suffering from neglect. While the CAMA 1990 recognized multiple directorships, there was no specific duty imposed on directors to disclose their positions or limit multiple directorships.
  • Separation of Powers and Duties of the Chairman from CEO: The Act proscribes the combination of the roles of the Chairman and CEO in public companies. This is in line with international best practices and the Nigerian Code of Corporate Governance, 2018 (“NCCG”)[49]. To properly understand the necessity of this provision, one has to examine the different functions of the CEO and that of the Chairman of the board.  The CEO is the top decision-maker for the company and the person who oversees the daily operations, resources and logistics. The CEO’s position entails focusing on the strategic plan, which includes strategizing on the competition and markets the business will enter into. The CEO reports directly to the board of directors. The chairperson of a company is the head of its board of directors. The board of directors is elected by the shareholders, and they’re charged with protecting the investors’ best interests. The board’s primary responsibilities are strategic planning, oversight and abiding by the principles of good corporate governance to ensure that the company’s interests are protected, stable and profitable. Where a person sits as the CEO and Chairman of a public company, there may be conflicts in making some decisions such as executive compensations. Additionally, in the case of implementation of corporate governance, the person acting as CEO and Chairman is responsible for driving the operations and monitoring his/herself which could lead to abuse of position. A board led by an independent chairperson is more likely to identify and monitor areas that the company is straying from its mandate and put in place corrective measures.
  • Property Transactions by Directors: Directors are now liable directly and derivatively to members of the company and shall account for loss or damage suffered by them or the company as a result of arrangements or transactions involving the acquisition of property by the company from such directors or controlling members of the company[50]. This is beneficial to a company as it ensures that directors or members are liable for making transactions that are not in the interest of the company or detrimental to the company.
  • Independent Directors in Public Companies: The trend of appointing independent directors can be traced to the need, for the avoidance of possible conflicts of interest on the board. Hence, the introduction of independent directors by the CAMA 2020 which was not mentioned in the old Act. The Act stipulates the appointment of at least three (3) independent directors. An independent director is a director who or whose relatives; was not an employee of the company in the preceding two years, did not receive payments not worth more than ₦ 20,000,000 from the company, do not own more than 30% of any type of share directly or indirectly in the company and was not engaged directly or indirectly as an auditor of the company[51].
  • Disclosing Remuneration of Managers: The disclosure of the compensation of the managers to members of the company is yet another introduction of the Act[52], which, together with the disclosure of director’s remuneration, would consolidate in the minds of the shareholders, the company’s remuneration policy.
  • Appointment of a Company Secretary: CAMA 2020 provides that, every company with the exception of a small company shall have a secretary[53]. By this provision, the appointment of a company secretary by a small company is now optional unlike a public company where appointment of a company secretary is mandatory. Although, the purpose of this provision is to reduce cost and increase ease of doing business, we believe that the presence of a company secretary is paramount to the operations of a company be it small or large.

Public companies and their directors are now liable to a fine to be determined by the Commission, where they fail to appoint a company secretary[54].

  • Disclosure of Substantial Shareholding in Public Companies: The Act redefines the definition of a substantial shareholder as it changes the shareholding percentage of a substantial shareholder from 10% to 5%[55]. Every person who has significant control over any company must notify the company within 7 days with particulars of such control and the company must within 30 days notify the Commission[56]. The Act introduces new transparency provision with an obligation for entities to disclose capacity in which shares are held, either as beneficial owner or as a nominee of an interested person. To ensure the smooth running of the corporate governance transparency it is important that all parties should have equal access to the same set of facts in the interest of fairness. A lack of transparency in corporate operations can lead to a financial crisis.

Financial and Reporting Obligations

CAMA 2020 has implemented the following financial and reporting responsibilities on the company to ensure accountability and transparency. It also issues penalties for failures to adhere to these obligations.

  • Execution of financial reports: The Chief Executive Officer (CEO) and Chief Financial Officer (“CFO”) of a company, except a small company are required to certify the Audited Financial Statement to the effect that there are no untrue statements or omission of material facts which would make the Audited Financial Statement misleading, and that the information contained in the Audited Financial Statement fairly represents the financial condition and results of the operation of the company for the period under review[57].
  • Failure to file Annual Returns: Failure of a company to file annual returns for a consecutive period of 10 (ten) years may result in deregistration of the company[58]. Companies may apply to the Commission for extension of time within which to file annual returns for a calendar year. Companies can also now deliver annexures to their annual returns through electronic means[59].
  • Obligations of a company where dividends are unclaimed: A company is required to publish a list of the unclaimed dividends and the names of the persons entitled to the dividends in two national newspapers and attach the list to the notice sent to the members of the company for each subsequent annual general meeting of the company[60]. The company is permitted to invest the unclaimed dividend for its benefit in investments outside the company three months after the publication and no interest shall accrue on the dividends against the company[61]. Where there is an omission to send dividend to some members, due to the fault of the company, interest will accrue on the dividends at the current bank rate from three months after the date on which they ought to have been posted[62].
  • Public companies are now required to keep their audited accounts displayed on their website[63]. This allows easy access to information that should be public.
  • Exemption from Appointing Auditors: companies are exempted from carrying out audit of accounts in respect of a financial year if[64]–
  • It has not carried on any business since its incorporation; or
  • It is a small company within the meaning of section 394.

By this provision, small companies and companies that have not carried on business since incorporation (with the exclusion of an insurance company, a bank or any other company as may be prescribed by the Commission) are no longer mandated to appoint auditors at the annual general meeting to audit the financial records of the company. This provision will help reduce the cost as well as compliance processes for these companies. On the other hand, it may deter investors/venture capitalists as they may be reluctant to rely on an unaudited account when deciding to invest in a small company.

Incorporated Trustees

CAMA 2020 initiates extra scrutiny and regulation of incorporated trustee (IT). This could be as a result of unaccountability, transparency, fraudulent and money laundering related activities that have become associated with Non-Government Organisations (NGOs), charitable organisations and other societies/associations. The Commission now determines the classification of associations to be registered[65].

  • Merger of Incorporated Trustees: Section 849 of the CAMA 2020 provides for merger between two or more associations with similar aims and objects under such terms and conditions as may be prescribed by the Corporate Affairs Commission (CAC). Incorporated Trustees are non-business and non-profit making organisation formed to facilitate acquisition of corporate personality by a community of persons bound together by custom, religion, nationality or any association of person established for religious, educational, literary, scientific, social developments, sporting or charitable purpose, section 823 of CAMA 2020.  Incorporated Trustees are usually Clubs, Associations of persons related by custom, tribe etc., Churches, Mosques and Non-Governmental Organisations (NGOs). It is an organisation registrable under Part F of CAMA 2020. The CAMA 2020 providing for the mergers of 2 or more associations with similar aims would reduce unnecessary duplicity of functions and increase their efficiency. Furthermore, it would to some extent curb the nefarious activity of some individuals who establish trust to receive grants and levies and squander such funds.
  • Suspension of Trustees: The Commission or members consisting of one-fifth of the association may, on presenting a petition with all reasonable evidence and obtaining a court order, suspend trustees of an association and appoint an interim manager to manage the affairs of the association where[66]:
    • there is or has been misconduct in the management of the affairs of the association,
    • it is necessary or desirable for the purpose of protecting the property of the association and securing the proper application of its property towards achieving its objects
    • it is in the public interest
    • the affairs of the association are being run fraudulently

The powers of the Commission to suspend can only be exercised with approval of the Minister of Trade.

  • Power to Direct Transfer or Credits in Dormant Bank: The Commission has powers to direct the transfer sums in dormant accounts of an association upon notice by the bank of such dormant account and upon the expiration of 15 days notice by the Commission to the association to provide details of its activities, where the association fails to respond satisfactorily[67]. The power of the commission to transfer sums would also apply where the Commission is unable to locate an association registered under the Act or any of its trustees after making enquiries.
  • Accounting records: The Trustees of an association are also required to submit to the commission a bi-annual statement of the affairs of the commission[68].

Insolvency and Winding Up

  • Business Rescue Provisions for Insolvent Companies: the new Act introduces a framework for rescuing a company in distress and keeping it alive as against allowing such entity to become insolvent. Provisions were made with respect to:

1)    Company’s Voluntary Arrangements[69]; these is a proposal made by the company to the creditors to satisfy debts or scheme of arrangement of its affairs. The proposals are usually made where an administrator orders the arrangement or a liquidator is winding up the company.

2)    Administration[70]; the purpose of administration is to rescue the company as a going concern, achieving a better result for the company’s creditors as a whole than winding it up and realising property to be distributed to secured or preferential creditors,

3)    Netting[71]; netting is the offsetting of value of multiple positions or payments due to be exchanged between two or more parties. Netting occurs during termination, liquidation or acceleration of any or delivery obligations under one or more financial contracts entered into.

Prior to CAMA 2020, when companies were in distress, government was usually reluctant to provide assistance to struggling companies. However, with this framework, government has decided to encourage businesses by assisting companies who are indebted in the sum exceeding ₦200,000 with a rescue regime/option to avoid winding up and liquidation thereby reducing economic growth. Also, the netting provisions in the Act would address the credit risk challenges, operational and legal bottlenecks of gross settlement for spot and derivatives transactions.

There are also new provisions on persons qualified to act as an insolvency practitioner. A person is qualified as an insolvency practitioner where he has obtained a degree in law or accountancy; has a minimum of 5 years post qualification experience in matters relating to insolvency; is authorized to act by a certificate of membership issued by the Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) and holds an authorization granted by the Commission[72]. Qualifications by an association is line with the global standard for insolvency practitioners.

The Act also stipulates the capacity in which a person can act as an insolvency practitioner; as a liquidator, official receiver, administrator or administrative receiver, receiver and manager or as a nominee or supervisor of a Company’s Voluntary Arrangement.

  • Winding Up: The class of persons who can apply to the court for the winding up of a company has been expanded to include directors[73]. In addition, a company can now be wound up by the court where the condition which necessitated its existence or operation has ceased to exist[74]. The minimum amount upon which a creditor can present an application for the winding up of a company has been increased from ₦2,000 to ₦200,000[75].

The requirement for the approval of the Attorney General of the Federation (AGF) no longer applies where the Commission intends to petition for the winding up of a company on the grounds that it is just and equitable to do so, or on the basis of the outcome of an Inspector’s report following an investigation into the activities of a company. Further, the Act introduces a time limit of 6 years to bring a claim against a contributory[76] upon winding up of a company[77].

In a Creditors’ voluntary winding up, directors of the company are now required to furnish creditors with a full statement of the company’s position which will include particulars of the company’s assets as well as its debt and liabilities within 14 days of the meeting of the creditors[78]. It is therefore an offence for which all directors of a company would be liable to fine, where these documents are not provided to creditors within 14 days to the date of the meeting of creditors[79].

The Act recognises the rights of creditors who are secured by a fixed charge, or any other validly created and perfected security interest to attach or levy execution on the estate of a company which is undergoing winding up[80].

Furthermore, providers of essential services such as gas, electricity, water or communication services are now allowed to request a personal guarantee for the payment of their charges from office holders (administrator, nominee, supervisor, liquidator or provisional liquidator) of companies undergoing administration, voluntary arrangement, liquidation or appointment of a provisional liquidator. Notably, such service providers cannot make the payment of outstanding charges (prior to administration, voluntary arrangement, liquidation or appointment of a provisional liquidator) a condition for the supply of the services[81]. We are uncertain if office holders will be willing to personally guarantee payment of the services as that means they will be taking on the risk.

Priority must now be given to preferential debts; local rates and charges due from the company and payable 12 months immediately before that date, PAYE tax deductions, deductions made from the remuneration of employees and contributions of the company under the Pension Reform Act, and contributions and obligations of the company under the Employees’ Compensation Act, wages or salaries of any clerk in respect of services rendered to the company among others[82]. A company’s debts shall now rank equally among themselves after the expenses of the winding up have been paid unless the assets are insufficient to offset the debt in which case the debt shall abate in equal proportions[83].

Directors or former directors of a company who make transactions knowing or ought to know that the company will go into insolvent liquidation may on the application of a liquidator to the courts be deemed liable to contribute to the company’s assets[84].

Electronic Execution and Authentication of Documents

The new Act introduced some electronic features to ease the time spent in production and forwarding of hard copies and also saves cost.

  • Electronic signature: a document or proceedings requiring authentication by a company can be signed electronically by a director, secretary or authorised officer and the electronic signature shall be deemed satisfactory[85].
  • Correspondence: Under the new Act, correspondence includes telephonic or other electronic means[86]. In addition, reference to a thing in writing includes reference to a thing in electronic form[87].
  • Electronic Filing: the production of certified true copies of electronically filed documents are admissible in evidence, with equal validity as the original documents[88].

Minority Protection

  • Major Asset Transactions: The Act provides for major asset transaction which means any purchase or other acquisition outside the usual course of the company’s business; or a sale or other transfer of the company’s property which is 50% or more of the book value of the company’s assets based on its most recently compiled balance sheet. The Act provides that in undertaking a major asset transaction, approval by special resolution must be obtained at the annual or extraordinary general meeting of which the notice of the proposed transaction, along with the board recommendation would be included in the notice of meeting to be sent to all members entitled to notice of or to attend the meeting or vote on the transaction[89].
  • Personal and Representative Action: A shareholder who institutes a personal action to enforce a right due to him personally or a representative action on behalf of himself and affected members, can now recover damages for any loss incurred on account of the breach of his/her right or a declaration or injunction to restrain the company or directors from doing a particular act[90]. Where the court finds a director liable for any wrongdoing, the erring director will be personally liable in damages to the aggrieved member.

Miscellaneous

  • Administrative Proceedings Committee: The administrative committee shall provide opportunity of being heard for persons alleged to have contravened the Act or resolve disputes or grievances arising from the operation of the Act and also imposition of administrative penalties for the contravention of the Act[91]. The proceedings must have a quorum of four members of the administrative committee and determination of issue shall be by simple majority of members present[92]. The proceedings must be recorded on audio or video tape or such other electronic devices and parties may be represented by a legal practitioner[93]. Parties dissatisfied with the decision of the administrative committee may appeal to the Federal High Court. This provision is  highly anticipated as it saves the time and cost spent in the adjudication of court proceedings in Nigeria as well as curbing bottlenecks and bureaucracy. It is hoped that it will be independent and impartial as majority of the members comprise of the representatives of the Commission.
  • A 30 days pre-action notice is now required before any action can be brought against the Commission[94]. This is line with most recently reviewed Acts and common laws, government agencies are required to be given 30days pre-action notice before any action can be brought against them.

Conclusion

In its entirety, the CAMA 2020 introduces new provisions to reflect the modern commercial realities as well as reduce compliance costs and regulatory hurdles to enhance the ease of doing business in Nigeria. The Act will give the country’s financial market and the economy a necessary boost to encourage economic development and investment. It would promote innovation in Small and Medium Enterprises encouraging them to register their companies, increase foreign investment and improve the general ease of doing business thereby energizing the private sector to be geared for maximum growth and output. It has further updated the Nigerian business space to fit today’s technological realities and global standards. Evidently, there are still several loopholes and ambiguities in the Act, which could give rise to regulatory issues and guidelines that address shortcomings in implementation. Clarity is equally required where there are conflicts between the existing legislation and liaison with relevant government agencies.

The upward review of fines throughout the Act and open-ended liabilities will empower the Commission to periodically review the applicable fines to ensure that it is in compliance with current value of money. This has been an aspect that was lacking in the previous Act, due to the outdated and negligible fines for violation of the Act. It is therefore hoped that the Commission will not abuse this revised authority/ power the Commission has been granted pursuant to the CAMA 2020 Act.

References

  1. Companies and Allied Matters Act, 2020.
  2. Companies and Allied Matters Act 1990, (Cap C20, LFN 2004).

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