The Companies and Allied Matters Act (CAMA) is the law that regulates the activities of companies in Nigeria. Because of how obsolete the 1990 law was, there was need to amend it to meet the current regulation needs of affairs of companies, incorporated trustees, partnership and business organizations in Nigeria. This lead to the enactment of Companies and Allied Matters Act on the 7th of August 2020. This new act repealed the CAMA 1990.
Now, following the repeal of CAMA 1990 by CAMA 2020, significant changes were made to both the Corporate Affairs Commission’s (“CAC”) and company administration in Nigeria. From the process of incorporation, to the companies’ post-incorporation affairs to suit the current demand in the formation and administration of business and non business organization. Significant changes were made by the Act in the area of corporate governance.
What is Corporate Governance
Gabrielle O’Donovan defined corporate governance as, “an internal system encompassing policies, processes and people, which serves the need of share holders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity accountability and integrity: sound corporate governance reliant on external market place commitment and legislation, plus a healthy broad culture which safeguard policies and process”.
Generally, corporate governance is the means and structure put in place to manage the activities of a company. It ensures accountability and transparency in the affairs of a company.
CAMA 2020 being the law that applies generally to companies, have certain provisions that deals with issues of corporate governance.
However, there are other laws that promote the principle of corporate governance in the affairs of a company. They are;
1. Code of Corporate Governance for the Telecommunications industry 2016, issued by the Nigerian Telecommunication Commission.
2. Code of Corporate Governance for Banks and Discount Houses 2014 issued by the Central Bank of Nigeria.
3.Code of Corporate Governance for Public Companies in Nigeria 2011 Securities and Exchange Commission.
4. Code of Corporate Governance for Insurance Industry in Nigeria 2009 issued by the National Insurance Commission.
5. Code of Corporate Governance for Licensed Pension Fund Operators 2008 issued by the National Pension Commission.
6. Code of Corporate Governance for Public Companies in Nigeria.
This work is concerned and will be limited to the principles of corporate governance as provided for in CAMA 2020.
Corporate Governance under Companies and Allied Matters Act 2020
CAMA 2020, has made intentional efforts to see to the efficient, accountable and transparent management of companies in Nigeria. This can be seen in the areas of directors, secretaries, audit and auditors, meetings, corporate finance. The following sections are to be considered.
Directors: In accordance with the corporate governance code, directors of public companies are now required to disclose not only their age at appointment, but also previous directorships in other public companies before taking up new appointments. A person, cannot be a director of more than five public companies at the same time. Upon nomination as a director, such persons must disclose their existing positions on the board of other public companies before taking on new appointment and anybody who before the enactment of this act was a director in more than five companies, has two years to comply with this provision.
Additionally, CAMA 2020, now requires public companies to maintain a minimum of three (3) independent directors at all times. While the foregoing is limited to public companies, small companies are now permitted to have a minimum of one director. A small company being a private company that has an annual turnover of N120, 000, 000 and net asset value of not more than N60, 000, 000, with no foreigner as its member and 51% share capital own by the directors. Also, any person, (shareholder) who nominate candidate for the board who would comprise a majority of the members of the board shall nominate at least three persons who would be independent directors.
All companies must now keep a register of directors address residential addresses. This register shall state the usual residential address of each director of the company. If a company fails to comply with this provision, it will be on default and liable to a fine as the commission may specify.
Meetings: In keeping with contemporary realities imposed by the outbreak of the global pandemic Covid 19, CAMA 2020, now permits the use of electronic means for meeting purposes so far as such meetings are conducted in accordance with the articles of the company. This is to facilitate attendance of members in a meeting at minimal cost. However, this concession is limited to private companies, as all public companies are still required to hold meetings physically. Also, statutory and annual general must be held in Nigeria.
The ordinary business of a company’s annual general meeting (AGM) has been amended to include the remuneration of its managers. According to the new provision, a company’s ordinary business includes the following:
Examining financial statements
Director appointment and removal
Appointing and compensating auditors (optional for small businesses)
Appoint a member to the audit committee (optional for small companies)
Disclosure of the compensation paid to the company’s executives
Company Secretary: All companies were previously required under CAMA 1990 to appoint a company secretary. This position has since been amended to exempt small companies from the mandatory appointment of a company secretary. In light of the fact that the CAMA, 2020 makes it optional for small companies, it should be stated that the importance of a company secretary cannot be overstated as it ensures the company’s administrative effectiveness.
Public companies are required to appoint a secretary within six months after the commencement of this Act in a situation where there was none. Where a person is appointed secretary of a company, a letter by such person consenting to act in that capacity shall be included in the documents to be filed at CAC.
Restriction on the President/CEO Position in a Private Company: To strengthen the protection of a company’s minority shareholders, the CAMA 2020 prohibits private companies from appointing a director to the position of Chairman and Chief Executive Officer.
Significant Control and Substantial Interest: To further ensure transparency in corporate governance, CAMA 2020 has extended the requirement to notify the company in writing of significant control or divestment of shares. Previously, this obligation applied only to public companies. This is no longer the case, as shareholders with a majority stake in any type of company are now required to make such disclosures. Notably, CAMA 2020 makes no definition of what constitutes significant control.
This is critical because both private and public companies are required to disclose significant controlling interests. The term “significant shareholder” as defined in Section 120 (2) of CAMA, 2020, applies only to public companies. Regardless, it is reasonable to assume that the same should apply to private businesses. Additionally, CAMA 2020 redefines a shareholder’s percentage interest in order to qualify as a substantial shareholder if the shareholder holds at least 5% of total voting rights. This is in contrast to the 10% cap imposed by the now-defunct CAMA 2004.
Shareholders’ Pre-Emptive Rights: In the case of private companies, the transfer of shares is governed by the company’s articles of association. CAMA 2020, on the other hand, now places some restrictions on the manner in which shares may be transferred in relation to existing shareholder rights. Although the term “pre-emptive right of shareholders” is not unfamiliar in Nigeria’s corporate world, it has frequently been left to a company’s discretion.
Progressively, CAMA 2020 now codifies this right by clarifying that a company may not sell the shares without first offering them to existing members in proportion to their existing holdings. This implies that a when a public company wants to issue shares through public or private placement, it has to conduct a right issue to the existing shareholders first. As a result of the foregoing, existing shareholders are protected from undue dilution and are given preference over non-members of the company.
This safeguards shareholders against nefarious acquisitions of the company through third-party arrangements. Additionally, to the foregoing, CAMA 2020 now requires a private company to obtain the consent of all its members prior to making any sale that exceeds 50% of the total value of the company’s assets. Note that this provision may be varied by the articles of association.
Common seal: The CAMA 2020 has now made the usage of common seal optional and when a company decides to have one, the design and use of the seal shall be regulated by the articles and its name shall be engraved in legible latters. Thus, an authorized signature of a company is now sufficient to execute any contract entered into by the business.
Netting: Notably, the introduction of netting is one of the most notable additions to CAMA 2020’s financial contract provisions. The use of netting to help assess and reduce financial obligations was unknown under the repealed CAMA 2004. Thus, this new addition represents a quantum leap in terms of corporate governance in Nigeria, as it is consistent with international best practices. Netting agreements can now be concluded and enforced against an insolvent party, guarantor, or other person providing security under the provisions of the CAMA 2020.
Audit Obligation: Generally, each company is required to appoint an auditor or auditors to audit its financial records and statements for the preceding fiscal year at its annual general meeting. This is no longer the case, as small companies and businesses that have ceased operations since incorporation (excluding insurance companies and banks) are now exempt from this requirement.
Additionally, public companies must now make their audited financial statements available on their website. Also, debtors of a company to the amount of N500, 000, shareholder or shareholder’s spouse of a company whose employee is an officer of the company, a person who is or whose partner is an employee of a debenture holder of the company and an employee of a consultant to the company who has been engaged for more than one year in the maintenance of any of the company’s financial records or preparation of any of its financial statements are disqualified from being appointed as auditors of the company.
In conclusion, these revisions to the Companies and Allied Matters Act would advertently help to improve the Nigerian business landscape by increasing the availability of commercial opportunities both within the country and beyond international borders. However, the challenge faced in the corporate sector in Nigeria it’s the implementation of these provisions. It is hoped that the CAC’s implementation of the CAMA, 2020 will alleviate the burden of doing business in Nigeria and enhance the country’s ranking in the worldwide index