On August 7, 2020, President Muhammadu Buhari assented to the Companies and Allied Maters Act, 2020 (“CAMA 2020”), which repeals and replaces the Companies and Allied Matters Act, 1990. The new Companies Allied Matters Act (CAMA) 2020 is expected to enhance the ease of doing business in Nigeria and make Nigeria’s business environment more competitive as it addresses previously identified legal, regulatory and administrative issues that have made doing business in Nigeria difficult (particularly for Micro, Small and Medium Enterprises (MSMEs) for the past 3 decades and hampered investments into Nigeria.
The New Act now makes disclosure compulsory for persons with significant control of companies in a register of beneficial owners to enhance corporate accountability and transparency. Furthermore, it provides an efficient means of regulating businesses; minimizes the compliance burden of small and medium enterprises (SMEs), and promotes a friendly business climate in Nigeria. It also addresses the outdated methods of doing business in Nigeria, and aligns with international best and leading practices.
Highlighted below are some of the key Governance issues addressed by CAMA 2020:
SHAREHOLDER/BOARD MEETINGS AND COMPANY SECRETARIAL MATTERS
New Ordinary Business to be Transacted at an Annual General Meeting (AGM)
Under Section 238 of CAMA 2020, disclosure of remuneration of managers of a company has been added as part of the business transacted at an Annual General Meeting (“AGM”), which shall be deemed ordinary business.
Additionally, Section 257 of CAMA 2020 also provides that the compensation of managers of a company shall be disclosed to members of the company at the AGM. However, Section 242 of CAMA 2020 appears to create a conflict with Section 238 of CAMA 2020, as it doesn’t include the “disclosure of remuneration of managers of a company” as part of the business to be transacted as ordinary business at an AGM where the notice of such an AGM indicates that a statement that the purpose is to transact the ordinary business of an annual general meeting.
Place of Meetings
Further to Section 240 (2) of CAMA, private companies are now permitted to hold general meetings virtually.This is commendable especially in consideration for smallness and cost on private, small businesses. However, this amendment does not extend to public companies. Consequently, public companies are still required to hold general meetings, physically.
Persons Entitled to Receive Notice of a General Meeting of Public Companies
In furtherance of the Corporate Affairs Commission’s (CAC) mandate to regulate the management of companies, Section 243 of CAMA 2020 includes CAC as a party entitled to receive notice of general meetings of public companies. Previously, this requirement only applied to incorporated trustees.
DIRECTORS AND COMPANY SECRETARY
Powers and Duties of the Chairman
CAMA 2020 in 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 line with international best practices and the Nigerian Code of Corporate Governance, 2018 (“NCCG”).
Section 271 of CAMA 2020 excludes small companies from the requirement of having a minimum of two (2) directors. To this end, a small company is permitted to have one (1) director. This further reduces running costs spent on compensations and perks for Directors, especially for a small business.
Independent Directors in Public Company
Section 275 of CAMA 2020 stipulates that every public company must now have at least three independent directors. Currently, the SEC Code of Corporate Governance (for public companies) and the NCCG provides that companies should have a minimum of one independent director. This provision of CAMA 2020 creates a higher threshold for this requirement and companies will be mandated to meet this higher requirement of three independent directors regardless of the requirement of the SEC Rules and the NCCG.
Furthermore, the definition of an independent director must also be read in tandem with the NCCG which provides even more stringent criteria that must be met, in order to attain best corporate governance practices.
Duty of Directors to Disclose Age and Multiple Directorship
CAMA 2020, in Section 278, makes provisions for the disclosure of multiple directorships held by any person to be appointed as a director of a public company.
This amendment is in tandem with the provision of the NCCG and pertains mainly to the ability of a director to discharge his functions given his multiple responsibilities/commitments and also to inform the company of any potential or existing conflicts of interest in respect of the multiple directorships. Additionally, subject to subsection (3) of Section 307(2), a person shall not be a director in more than five public companies. This undoubtedly narrows focus for company directors and increases efficiency and value they bring to these companies.
Appointment of Company Secretary
Under the Repealed Act, every company was mandatorily required to have a secretary. However, by virtue of Section 330 of CAMA 2020, the appointment of a company secretary is not mandatory but optional for small companies.
Whilst the purpose of this amendment is undoubtedly to reduce cost and boost the ease of doing business in Nigeria, 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.
Register of Secretaries
Whilst the Repealed Act required all companies to have a register of secretaries, CAMA 2020 in Section 336 requires only public companies to maintain a register of secretaries and Sections 337 & 338 provides for the required particulars. This is expected to reduce the operational requirements for private companies in furtherance of the Ease of doing business.
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.
COMPANY RESTRUCTURING – RESTRICTIONS ON DISTRIBUTABLE PROFITS
Section 427 of CAMA 2020 restricts the profits of a company available for payment of dividends only to, the company’s accumulated, realised profits (so far as not previously utilized by distribution or capitalization) less the company’s accumulated, realised losses (so far as not previously written off in a lawfully made reduction or re-organisation of capital).