Reforming The Business Climate In Nigeria: Critical Changes Introduced By The Companies And Allied Matters Bill, 2018

(B.) Corporate governance practice to improve within business organizations:

• Disclosure of persons with Significant Control in companies

  Only a member of a public company is under obligation, under the 1990 Act, to disclose in writing when required, the capacity in which he holds any shares in the company; either as a beneficial owner or as a nominee of an interested person.

  The CAM Bill in section 119 has extended such obligation (to disclose the particulars of shareholding by notifying the company) to persons with significant control in all companies. Similarly, as provided in section 120 of the CAMA Bill, a person who is a substantial shareholder in a public company and holding (either by himself or by his nominee) shares in the company which entitle him to exercise at least five per cent (5%) of the unrestricted voting rights at any general meeting of the company, is required to disclose such holding by notifying the company within a stipulated time.

  This new disclosure provisions are expected to enhance transparency and prevent asset shielding as well as combat money laundering, terrorism financing and all forms of illicit financial flows by members of registered entities having limited liability.

• Restriction on Multiple Directorship in Public Companies

  The CAM Bill in section 308 prohibits a person from being a director in more than five public companies at a time. And where any person becomes a director in more than five public companies at any time, he is required to, at the next annual general meeting of the companies after the expiration of two years from the commencement of the CAM Bill, resign from being a director from all but five of the companies. This is expected to reduce conflict of interest situations, enhance the performance of directors and improve corporate transparency.

• Public companies to display their Audited Accounts on Websites

  In furtherance of the objective of promoting corporate transparency and accountability, the CAM Bill in section 375(6) requires each public company to keep its audited accounts displayed on its website

(C.) Clear and practical framework for resolving insolvency:   

• Business Rescue Provisions for Insolvent Companies

  The CAM Bill contains frameworks for rescuing a company in distress and keep it alive as against allowing it to go into insolvency. Hence, provisions are made with respect to Company Voluntary Arrangements (sections 435 – 443); Administration (sections 444 – 550), and Netting (sections 719 – 722).

  Upon coming into force of the CAM Bill, the following provisions will be in full operation:

  1. A financially distressed company (or a company likely to become financially distressed) will be able to partake in a business rescue re-organization such as a Company Voluntary Arrangement and Administration, as an alternative to Winding Up.

  2. Winding Up and Receivership will be converted to Administration.

  3. While a company is undergoing Administration, there will be a suspension on the enforcement of securities, court actions, sequestration of assets, etc.

  4. A company will now be able to disclaim onerous contracts with the leave of court.

  5. If it is found that certain undervalued transactions may have led to a company’s financial distress, such a company can obtain a court order restoring it to its previous position.

  6. During winding up or a re-organization, contracts for the supply of essential services may be entered into or continued on the basis that the supplier obtains a personal guarantee by the officeholder in charge of rescuing the company.

     The CAM Bill has also modified the conditions for Winding up and clearly set out the rights of secured creditors in Winding up. Henceforth;

  7. The minimum trigger debt for bringing a Winding up petition against a company will be N200, 000 (Two Hundred Thousand Naira) as opposed to the former debt trigger of N2,000 (Two Thousand Naira).

  8. Interests/claims of holders of fixed charges will rank in priority to other claims and expenses of winding up.

  9. While a company is being wound up, only a fixed charge holder (or any other validly created and perfected security interest holder other than a floating charge holder) will now be able to enforce security, sequestrate, attach or levy execution on the assets of the company.

(D.) More statutory safeguards against oppression of minority shareholders:

• Enhancement of Minority Protection and Shareholder Engagement

  There are various provisions in the CAM Bill which seek to either prevent injustice to, or further ensure justice for, minority shareholders in the events of actions of the company which are considered oppressive, prejudicial or illegal outright. In this connection, upon the CAM Bill becoming operational, the following conditions shall apply:

  1. Restriction of the appointment of the same person as Chairman and Chief Executive Officer (CEO) of a private company.

  2. Full disclosure of all material facts relating to buyer-seller transactions and the existence of a conflict of interest, where it applies. 

  3. Preservation of the preemptive rights of existing shareholders where new shares are issued.

  4. Expansion of the grounds under which shareholders can hold the Board liable for damages caused by related third-party transactions, now to include conflict of interest.

  5. Disqualification of erring directors from continuing to serve for a one-year period, for causing loss to the company.

  6. The requirement of a minimum of three (3) independent directors on the Board of private companies.

  7. The courts will now be able to rescind third party transactions which are proved to be unfair or oppressive or cause economic harm to the company, in general.

  8. It will now become mandatory to seek and receive the consent/approval of minority shareholders whenever there is a proposed sale of more than fifty-one per cent (51%) of the company’s assets