On 7 August 2020, President Mohammadu Buhari signed the Companies and Allied Matters Act, 2020 (“CAMA 2020”, “the Act”) into Law. The President’s assent capped almost a decade of executive and legislative efforts to berth a new Companies legislation and introduced an exciting dimension to the body of legislations governing the operation of business enterprises in Nigeria.
Indeed, Nigerians and the investing public had long craved for the amendment and, indeed, an outright repeal of the Companies and Allied Matters Act 2014 (“the Repealed Act”) which had its roots in the Companies Act 1968 and was viewed as one of the outstanding vestiges of colonialism being a wholesale importation of the English Companies Act 1900 and had basically modelled itself in line with the then prevailing realities. Surprisingly, whilst the UK Act had been amended severally in response to emerging realities, the Nigerian Act had remained largely untouched and gradually tilted towards obsolesce as its provisions continuously proved to be inadequate to tackle emerging economic issues.
The new Act scored many firsts and deserves the accolades that trailed its passage and assent as it provides the needed incentive for driving businesses in Nigeria and particularly seeks to advance government’s efforts to remove the bottlenecks that have continuously beleaguered the smooth conduct of commercial activities alongside promoting the ease of doing business in Nigeria. The Act also takes cognizance of the prevailing global economic and governance realities and practices that enhance smooth conduct of businesses by adapting provisions that would ensure overwhelming inclusion and participation of Nigerians and foreign Investors in the Nigerian economy. The Act amongst others made the process for the grant of exemption from incorporation easier for foreign companies.
Notable innovations introduced by the Act include single shareholder and director companies. Indeed, company legislation the world over had long recognised sole shareholder companies as a key driver of economic inclusion particularly for micro, small and medium enterprises. By extending the protection of limitation of liability and enabling upcoming entrepreneurs exercise exclusive rights in the management of their companies, the Act has eliminated a key bottleneck that often had impeded economic inclusion.
The Act also recognises the concept of independent directors as a key initiative in promoting transparency and accountability. The various Codes of Corporate Governance had long recognised the importance of having independent views on the Board and it is commendable that there is now legislative backing to this key governance initiative. The threshold set for Independent Directors is however a cause for significant concern and an area one expects a quick amendment as it completely negates the concept.
The Act further makes elaborate provisions for the administration, compromise, voluntary arrangements, netting and schemes of contract to ensure the sustainability of businesses and a formal cessation process. Furthermore, the Act abrogates the need for statements of compliance, replacing the concept of “authorised share capital” with “minimum share capital” to reduce costs of incorporation. The CAMA 2020 also allows for electronic filing of forms and resolutions, electronic share transfers, as well as virtual conduct of general meetings by private companies.
The Act also exempts small companies and companies that have not yet carried out any business since incorporation (save for banks, insurance companies and others to be prescribed by the Commission) from external audit requirements, whilst mandating public companies to display their audited accounts on their websites.
Also commendable is the whittling down of the Attorney General’s (“AG”) powers with respect to the grant of approval for the registration of a Company Limited by Guarantee. Obtaining the AG’s “No Objection” for the registration of Guarantee Companies had hitherto been a drawback in the registration process and thus the new requirement of publishing the registration of such companies in three (3) national newspapers in the event the AGs consent is delayed is a welcome development. The Act also removes the mandatory requirement for every company to procure a common seal and validates documents and certificates issued and signed by authorised Directors even if such documents are not sealed.
Commendable and bold as the provisions of the Act are, it is important to point out that it is not entirely perfect, indeed there is no such thing as a perfect law. The Act, in trying to make up for decades of ignoring advancement in business, seemed to have overstepped some boundaries and introduced not a few controversial provisions. A very contentious provision is the power vested in the Commission by Section 839 to suspend the trustees of an association and appoint an interim manager or managers to manage the affairs of the association where it reasonably believes that there is or has been any misconduct or mismanagement in the administration of the association or it is necessary or desirable for the purpose of protecting the property of the association.
It is widely thought that this power is unreasonably wide and constitutes a veiled indirect attempt to regulate religious organisations most of whom are registered as Incorporated Trustees. It is also doubtful that the Commission thought through the implications of a single shareholder and Director Company within the context of corporate governance, accountability and transparency. The access to finance by such companies is also debatable as they would be deemed to lack key corporate governance structures considered by many lenders in evaluating credit.
Another controversial provision is the power of the Commission to request a Company to change its name where it is found to be identical to an already registered name. It can be argued that this power seems to be overreaching as the CAC is deemed to be functus officio (as regards similarity of registered names) once the registration process is concluded. The power to direct the change of name in this circumstance should be reserved for the courts after determining the extent of similarity of the registered names.
Chinedu Ozor is a Partner at DCSL Law. Kindly, forward comments and reactions to cozor@dcsl.com.ng.
