HIGHLIGHTS OF CRITICAL CHANGES INTRODUCED BY THE AMENDED COMPANIES AND ALLIED MATTERS ACT, 2020
The President and Commander in Chief of the Armed Forces of Nigeria, Major General Muhammadu Buhari, GCFR, assented to the amended Companies and Allied Matters Act, 2020 (CAMA 2020) on the 7th August, 2020. The new Act repeals and replaces the Companies and Allied Matters Act, 1990 (the Repealed Act)
The new Act indicates a progressive development in the Nigerian business and economic landscape as it further strengthens the Ease of Doing Business in Nigeria.
The new Act also aims at boosting the capacity of Micro, Small and Medium Enterprises (MSMEs) in Nigeria.
Key new provisions in CAMA 2020
(i) Rights of first offer and other restrictions
Section 22 introduces right of first offer. Subject to the provisions of the articles of association of a Company, it is now prohibited for a member of a private Company to transfer shares in the said Company to a non-member, without first offering the said shares to existing members.
- Again, a Company cannot without the approval of all its shareholders, sell assets having a value of more than 50% of the total assets of the Company. Also, a shareholder or a group of shareholders, acting in concert, can not agree to sell more than 50% of the shares of the Company to a non-shareholder without such non-shareholder agreeing to buy the shares of the other existing shareholders on the same terms.
(ii) Provisions on financial assistance by Company for acquisition of its shares
Financial assistance has been defined in CAMA 2020 to include “any other financial assistance given by a Company the net assets of which are thereby reduced by up to 50% or which has no net assets.
Section 183 (3) of CAMA 2020 defines net assets as “aggregate of the Company’s assets less the aggregate of its liabilities or provisions for liabilities in accordance with the applicable accounting standard applied by the Company in relation to its accounts.
Exceptions to the rule have now been expanded thus:
- If it is done in pursuance of an order of the court under a scheme of arrangement a scheme of merger or any other scheme or restructuring of a Company done with the sanction of the court.
- If the principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of the acquisition of shares in the Company or its holding Company, or the reduction or discharge of any such liability, but an incidental part of some large purpose of the Company and the assistance is given in good faith in the interest of the Company.
(iii) Acquisition by a Company of its own shares (Share buyback)
Section 184(ii) of CAMA 2020 provides for the procedure for the acquisition by a Company of its shares.
Section 186 outlines the persons from whom a Company may buy back its own shares as:
* The existing shareholders or security holders on a proportionate basis
* The existing shareholders in a manner permitted pursuant to a scheme of arrangement sanctioned by the Court
* Open market
* By purchasing the Security issued to employees of the Company pursuant to a scheme of stock option or any other similar scheme
Where a Company buys back its shares, payment for the share buyback shall be made from distributable profits of the Company.
(iv) Mergers – Section 849 of CAMA 2020
Section 849 of CAMA 2020 provides for the merger of associations and states that two or more associations with similar aims and objects may merge under terms and conditions as the CAC may prescribe by regulation
(v) Disclosure of significant control and beneficial ownership
CAMA 2020 does not make a distinction between disclosure required by a Public Company and a Private Company.
Sections 119 and 120 of CAMA 2020 provide that persons who hold significant control in any type of Company are required to disclose particulars of such control to the relevant Companies within seven days of acquiring such significant control. All affected Companies must inform the Commission within one month of receipt of the information, disclose the information in their annual returns to the Commission and update their registers of members with the appropriate details.
(vi) Threshold of substantial interest
Section 120(2) of CAMA 2020 provides that a person is deemed a substantial shareholder in a public Company if he holds under his name or by his nominee, shares in the Company which entitle him to exercise at least 5% of the unrestricted voting rights at any general meeting of the Company.
The relevant Company is obligated (mandatorily) to give notice to the Commission, where
* any person becomes a substantial shareholder within 14 days of receipt of the notice from the substantial shareholder or upon becoming aware that a person is a substantial holder
* Any person ceases to be a substantial shareholder within 14 days of becoming aware of such cessation.
(vii) Floating Charges
Section 204 of CAMA 2020 stipulates that a person is deemed to have notice of a prohibition in a floating charge where a notice indicating its existence is registered with the Commission.
Section 207 of CAMA 2020 provides that notwithstanding any provision in the CAMA 2020 or any other law to the contrary, the holder of a fixed charge shall have priority over other debts of the Company including preferential debts.
(viii) Registration of charges (fees)
Section 222 stipulates that fees payable to the Commission in connection with the filing registration of a charge shall not exceed 0.35% of the value of the charge or such other amount as the Minister may specify.
Note: Registration of charges previously cost N10,000 for every N1,000,000 for private Company and N20,000 for every N1,000,000 for public Company.
Furthermore, Section 223 of CAMA impose obligation on the Commission to enter in the register of charges, a notice indicating the existence of any provisions in a floating charge that prohibits or restrict the Company from granting any further charge ranking in priority to, or pari pasu with, the floating charge.
(ix) Avoidance or Attachments
Section 577 now includes a provision, which contemplates that where a Company is being wound up, only a fixed charge holder (or any other validly created and perfected Security interest other than a floating charge (holder) will now be able to enforce security, floating charge sequestrate, attach or levy execution on the assets of the company.
(x) Application of bankruptcy rules in certain cases
Section 656 introduces a provision that states that noting shall affect the power of any secured creditor to realize or otherwise deals with his security during the winding up of an insolvent company registered in Nigeria.
(xi) Restrictions on distributable profits
Section 427 restricts the profits of a Company available for payment of dividends only to the company’s accumulated realized profits (so far as not previously utilized by distribution or capitalisation) less the Company’s accumulated, realized losses (so far as not previously written off in a lawfully made reduction or reoganisation of capital
The implication of this is that any part of a Company’s profits utilized for purpose of capitalization shall not count in determining the amount of profits available for dividend payment in a financial year.
In the same vein, losses incurred by a Company as a result of legally valid share capital reduction or business reorganization, shall not impair the amount of profits available for dividend payment in a financial year.
(xii) Common Seal
Section 98 now makes it optional for a Company to have a seal. Companies now have the sole discretion to choose whether or not to have one
(xiii) Authentication via Electronic Signature
In tune with the provisions of the Evidence Act, 2011 CAMA 2020 now provides that an electronic signature is deemed to satisfy the requirement for signing and that the register of transfers shall include electronic registers.
In addition, a document or proceeding requiring authentication by a company may be signed by a director, Secretary or other authorised officer of the company, and need not be signed as a deed, unless otherwise specifically required by CAMA 2020.
(xiv) Validity of improperly issued shares
Under the repealed Act, where shares were improperly issued or allotted, the court could upon being satisfied that in all the circumstances specified in the repealed Act that it is just and equitable to do so validate the issuance/allotment.
However, section 148 of the new Act now authorizes the Company itself to validate the issuance/allotment of such shares by way of a special resolution. Only where the Company refuses to do the above, will the affected party need to apply to court.
(xv) Authority to allot shares
The power to allot shares remains vested in the shareholders of the Company, whether private or public. Section 149 now restricts the authority to delegate to directors, the power to allot to only shareholders of private Companies, subject of course, to any condition or direction that may be imposed in the articles or by the Company in general meeting.
In essence, the power to allot shares cannot be exercised by directors without more or less expressly authorised by the shareholders at a general meeting or by the Company’s articles.
Consequently, the authority to delegate the power to allot shares can no longer be exercised by shareholders in public Companies and the power to allot shares in public companies remain subject to ISA (Investments and Securities Act 207)
(xvi) Share Certificate
Section 98 of CAMA 2020 provides that a share certificate may either be (a) issue under the company’s seal (where the Company has a common seal or (b) signed as a deed by the Company.
(xvii) Exemptions from audit requirement
Section 402 excempt small companies and Companies that have not carried out business since incorporation except – Insurance companies, bank or any other company as may be prescribed by the CAC, from the requirements of the law relating to the audit of accounts in respect of a financial year.
The requirements to be qualified as a small company are stated in section 394 as
- Turnover not more than N120million
- Net assest of not more than N60million
- No alien member
- Directors hold 51% of the shares of the Company.
(xviii)Public Companies to display their audited accounts on websites
Section 374 (6) now requires every public company to keep its audited accounts displayed in its website. This is in sync with the existing requirements of the NSE and SEC for same.
(xix) Shareholders/Board Meetings and Company Secretarial matters
New ordinary business to be transacted at an Annual General Meeting (AGM) has been introduced by CAMA 2020.
Section 238 now requires the disclosure of remuneration of managers of a Company as part of the business transacted at an AGM
Section 257 provides that the compensation of managers of a Company shall be disclosed to members of the Company at the AGM.
(xx) Place of Meetings
Section 240 (2) now permits private Companies to hold general meetings virtually. However, this amendment does not extend to public companies, meaning that public Companies are still required to hold general meetings physically.
(xxi) Persons entitled to receive notice of a general meeting of public companies
Section 265 (6) explicitly prohibits the office of Chief Executive Officer and Chairman of a public Company to be held by the same person. The separation of these two (2) roles is in time with international best practices and the NCCG 2018.
(xxii) Minimum Directors
Section 271 excludes small Companies from the requirement of having a minimum of two directors. Small Company is permitted to have one (1) director.
(xxiii)Independent directors in public Company
Section 276 stipulate that every public Company must now have at least three (3) Independent directors.
(xxiv)Duties of directors to disclose age
Section 278 makes provision for disclosure of multiple directorships held by any person to be appointed as a director of a public Company.
Section 307 stipulates that a person shall not be a director in more than five public Companies.
(xxv) Appointment of Company Secretary
Section 330 stipulates that the appointment of a Company Secretary is not mandatory but optional for small Companies.
It goes without saying that it is important to strategically select a reputable firm for the provision of Company Secretarial services as this is pivotal to the overall success of every business.
(xxvi)Register of Secretaries
Section 336 requires only public Companies to maintain a register of Secretaries and Sections 337 and 338 provides for the required particulars.
(xxvii)Ms MEs, NGOs & INCORPORATED TRUSTEES
Section 831 provides for the arrangement of any two or more associations having the same trustees to be treated as a single association.
Section 849 provides of the merger of associations. Two or more associations with similar aims and objects may merge under terms and conditions as the Commission may prescribe by regulation.
(xxviii)Introduction of Alternative to Attorney Generals Consent
Section 26 of CAMA 2020 maintain that the consent of the Attorney General of the Federation (AG) shall remain the primary pre-requisites for the grant of registration of a Company Limited by guarantee.
However, an alternative to the AG’s consent has been introduced in the event that the AG does not grant authority to the promoters within thirty (30) days where there are no objections or other cogent reasons for such. The alternative method allows promoters to place an advert in three (3) national dailies within twenty eight days. Where there are no objections, the Act empowers the CAC to assent to the application and register the Company without AG’s consent after advertising the application in three national dailies
(xxiv)A single person can form a Company
Section 18 allows a single member Company.
(xxv) Minimum issued share capital
MISC is now a minimum of N100,000 in the case of a private Company and N2,000,000 in the case of a public Company. For a Company Limited by guarantee, the minimum is N100,000. It is no longer required that subscribers to the memorandum of association must subscribe to a minimum of 25% of the Authorised share capital.
(xxvi)Limited liability partnership
Section 746 – 810 of the new CAMA introduces the concept of Limited liability Partnerships (LLP) and Limited Partnership (LPs). These continue the organizational flexibility and tax status of a partnership with the limited liability of members of a Company.
(xxvii)Exception for foreign Companies
Section 80 of CAMA 2020 required a foreign Company to file an application for exception directly to the Minister of Trade. After obtaining the exception, it is obtaining for such Company to notify the Commission within 30days, failing which the foreign Company will be liable to a fine.
Foreign Company is also required to provide an annual report to the Commission, the Company will be liable to a penalty for every year of default where currently no penalty is stipulated.
(xxviii)Provision for electronic filing
Section 861 now provides that certified true copies (CTC) of electronically filed documents are admissible in evidence with equal validity with the original documents.
Section 176 (1) also provides that instruments of transfer of shares shall include electronic instruments of transfer.