In May 2017, UUBO Partner, OZOFU OGIEMUDIA was called on, to chair the technical advisory committee (TAC) to the Nigerian Senate on the review of bills to amend the Companies and Allied Matters Act, Cap C20, LFN 2004 (CAMA 2004) and the Investments and Securities Act 2007. The bill which was passed by both houses of the 8th National Assembly, did not receive the President’s assent, until August 7th, 2020 when a revised version of the bill (with amendments), was assented to by the President.
In this interview with BusinessDay Law Editor, THEODORA KIO-LAWSON, Ogiemudia speaks about the impact of CAMA 2020 on the ease of doing business in Nigeria, the cost reduction of registering security interests at the CAC and its implications for Nigerian businesses, the innovative parts of its provisions which reflect the reality of these times, as well as the need for the business and legal communities to learn and unlearn several concepts governing Nigerian company law in the last three decades.
The Business community received with joy the news of the President’s assent to the new Companies and Allied Matters Act 2020. You were involved in the process. Can you tell us more about this?
In 2016 when the Nigerian Bar Association Section on Business Law (NBA-SBL) advised the Corporate Affairs Commission (CAC) on changes that should be made to the CAMA, I got involved in the effort to support a bill to repeal and re-enact the Companies and Allied Matters Act, Cap C20, LFN 2004 (CAMA).
I was also part of the NBA-SBL team that participated in the Peer Review of the Business Environment Legislative Review which was organised by ENABLE 2, GEMS and the Office of the Senate President to review the report of the team led by Prof Paul Idonigie on the Review of the Business Environment Acts and Bills. The Peer Review identified that the CAMA stood out as one of the most important Acts that required immediate reform in order to enhance the Nigerian business environment.
In May 2017, I was asked to chair the technical advisory committee (TAC) to the Nigerian Senate on the review of bills to amend the CAMA and the Investments and Securities Act 2007. I am deeply honoured to have worked on the draft bill.
The signing of the Companies and Allied Matters Act (CAMA) 2020 has been received with much excitement in the legal and business communities. This is because the Act is one of the most impactful statutes of our time and is designed to enhance the ease of doing business in Nigeria, especially for micro, small and medium-scale enterprises which are the engine of the Nigerian economy.
The Act is the product of a collaborative effort amongst various stakeholders including the NBA SBL, the CAC, the Presidential Enabling Business Environment Council and the Nigerian Economic Summit Group under the National Assembly Business Environment Roundtable. It is the culmination of several years of hard work and reflective of the commitment of the government and the private sector to progressive legal reform through smarter regulation.
What are some highlights of the CAMA 2020 that we should look forward to?
The CAMA 2020 introduces a lot of long-awaited changes into Nigerian company law. I will highlight some of the most impactful changes.
- It is now possible to have single shareholder/ single director companies. This is available to small companies. Single member and director companies will make it possible for business owners who currently trade as sole proprietors to register a company without the need to bring in new owners/directors at the initial stage, and continue to run their business as before but with benefits of limited liability and access to credit.
- The threshold for defining small companies has been increased, to enable more companies qualify as small companies and therefore enjoy the benefits conferred on small companies by the CAMA 2020. Under the CAMA, a small company was a company that, amongst other criteria, had a turnover of not more than N 2 million and a net asset value of not more than N 1 million. Under the CAMA 2020 a small company is a company that, amongst other criteria, has a turnover of not more than N 120 million and a net asset value of not more than N 60 million. The additional benefits that small companies enjoy are that they do not have to hold annual general meetings, appoint auditors or a company secretary. This is expected to result in reduced costs and a lighter regulatory burden on such companies.
- Electronic copies of documents, electronic signatures and virtual meetings are now recognised.
- There is no longer a concept of authorised share capital. Instead, companies are only required to ensure that they maintain the minimum issued share capital required under the CAMA 2020.
- New entities have been introduced into our company law. These are limited partnerships and limited liability partnerships. This will provide more options for investors, such as private equity funds, seeking to structure their holdings in Nigerian businesses. This innovation puts an end to concerns raised over the constitutionality of limited liability entities created by the states and whether their limited liability would be recognized when they conduct business in other states of the Federation.
- The cost of registering security interests at the CAC has been reduced by 65% for private companies and 82.5% for public companies. Prior to the CAMA 2020, the CAC filing fee for registering security interests was 1% of the secured amount (for private companies) and 2% of the secured amount (for public companies). Under the CAMA 2020, the CAC cannot charge more than 0.35% of the secured amount. The implications of this cannot be overemphasised. It has substantial implications for the cost to Nigerian businesses of obtaining credit, as Nigeria has to date been infamous for the significant regulatory costs associated with creating security for debt financing.
- Company rescue processes have been introduced. These processes are administration and company voluntary arrangements. The introduction of these concepts will provide a way for Nigerian companies that are in financial difficulty to explore ways by which they can rescue their business and be able to continue as a going concern. Winding up will no longer be the only option available for dealing with insolvent companies.
- The test for an insolvency (inability to pay debts as they fall due) has been increased from N2,000 to N200,000 to reflect present day realities.
- Netting provisions based on the ISDA model netting law, have been introduced to facilitate the participation of Nigerian entities in qualified financial contracts such as derivatives, swaps and hedging transactions.
- Greater disclosure of substantial shareholdings including beneficial interests in shares, has been introduced in order to discourage asset shielding.
- There is now a requirement for at least three independent directors in all public companies and a limitation on the number of boards of public companies that an individual can serve on at the same time.
We understand that authorised share capital has been abolished. This sounds quite drastic and has several market participants concerned. Can you please put their minds at ease?
Yes, the concept of authorised share capital has been removed by the CAMA 2020. I do not, however, think that this should cause any alarm. The aim of this amendment was for the share capital of the company to provide a more realistic reflection of the true state of affairs with respect to the capital of the company that has actually been issued and paid up as the authorised share capital did not actually reflect this. Another reason for this change was to eliminate the front-loading of costs associated with the creation of authorised share capital even where the company was not prepared to issue all of its authorised share capital. With the changes made by the CAMA 2020, companies will only pay CAC filing fees and stamp duty on the share capital that they have issued. Companies are now only required to ensure that they maintain the minimum issued share capital under the CAMA 2020 and a quarter of their issued share capital is paid up. The minimum issued share capital for private companies is N100,000 while for public companies it is N2,000,000.
Under the CAMA 2004, a company was required to issue at least 25% of its share capital and there was no requirement for any of it to be paid up. This meant that the company could create its authorised share capital, issue a quarter of it, and never make a call for its shareholders to pay up the amount outstanding on their shares. Under the CAMA 2020, a company simply needs to pass a resolution issuing a specified number of shares. Thereafter, the company will be required to file a return at the CAC along with the resolution that was passed. Before doing so, the company will have to pay stamp duty on the issued shares, and CAC filing fees for the issued shares. Accordingly, the company will at all times have a certain number of issued shares and it would only be required to have paid stamp duty and CAC filing fees on the shares it has issued. In addition, at least 25% of the issued shares must be paid up.
The business and legal community will need to ‘unlearn’ some of the concepts that have governed Nigerian company law for three decades
What innovations have been introduced by the CAMA 2020 to reflect the reality of the digital age that we are in?
The CAMA 2020 is being celebrated for bringing Nigerian company law into the digital age. This is a particularly welcome development in view of the ongoing COVID-19 pandemic which has created difficulties with respect to public gatherings for the purpose of holding physical meetings.
Under the CAMA 2004, all statutory meetings and annual general meetings of all companies are required to be held in Nigeria. This did not contemplate virtual meetings and the CAC had to come up with guidelines to help companies navigate the difficulties of holding meetings during the COVID-19 lockdown. However, under the CAMA 2020, a private company may hold its general meetings electronically provided that such meetings are conducted in accordance with the articles of the company. Other innovations that reflect the current digital age are: company records can be maintained in electronic format; electronic share transfer forms will be accepted by all companies; notices of meetings can be given by electronic mail to any member who has provided the company an electronic mail address; and any document required to be annexed to the annual return may be delivered to the CAC either in hard or soft copy.
In addition to the CAMA 2020, it is noteworthy that the CAC, under the leadership of the Registrar-General, Alhaji A.G. Abubakar, is on a digital drive that will enable users of the CAC’s services submit filings electronically and receive physical documents by courier, thereby reducing the over-reliance on physical and manual processes. This is a welcome development, and I believe that the CAMA 2020 provides the perfect framework for further digital innovation at the CAC, leading to increased efficiency.
There will be lots of learning and unlearning as a result of the CAMA 2020. How do you propose to help the market get a better understanding of the CAMA 2020 and all that has been changed by the Act?
The CAMA 2020 has been many years in the works. There was a lot of consultation and stakeholder engagement around the bill that is now the CAMA 2020. As a result, the market has been aware of, and eagerly anticipating the innovations introduced by the CAMA 2020. I was deeply honoured to have worked on the draft bill and will continue advocating for changes to our business laws. I was privileged to interview Alhaji Abubakar at the first e-Conference of the Nigerian Bar Association Section on Business Law in July 2020, on the topic, ‘Changes on the Horizon: The Future of Company Law in Nigeria’ and that interview revealed some key changes that would be introduced by the CAMA 2020 as well as the CAC’s efforts to empower itself to be able to administer these changes. In the last week of July, I was part of a panel organised by the Institute of Directors that discussed the CAMA 2020 and engaged with a vibrant audience on what to expect from the new Act.
Now that the CAMA 2020 has become law, and given my understanding of the background to most of the changes introduced by the Act, I intend to continue engaging with clients, colleagues and market participants on knowledge sharing and ways to best navigate the uncharted waters of the CAMA 2020. The business and legal community will need to ‘unlearn’ some of the concepts that have governed Nigerian company law for three decades, such as authorised share capital, physical meetings, company seals, etc. In their place, we will have to learn and understand the new concepts of minimum issued share capital, effecting share buy backs, setting up limited partnerships and limited liability partnerships, mergers of incorporated trustees, company rescue processes, netting for qualified financial contracts and lots more.
The CAMA 2020 has expanded the CAC’s board to include more private sector representation. With representation from both statutory bodies of accountants, the Institute of Chartered Secretaries and Administrators of Nigeria and the Nigerian Association of Small and Medium Enterprises, we expect that there will be a stronger voice from the Nigerian business community advocating for processes that will enhance the Nigerian business landscape and help position Nigeria as an attractive market for investment in Africa.