President Muhammadu Buhari, on 13 February 2023, signed the Business Facilitation (Miscellaneous Provisions) Bill 2022, otherwise known as the Omnibus Bill into law. The Business Facilitation Act 2023 amends relevant legislation to promote the ease of doing business in Nigeria and institutionalize all the reforms to ease implementation.
One of the major amendments is as regards the provisions of the Companies and Allied Matters Act (“CAMA”) 2020. This short paper highlights some of the key amendments made to CAMA 2020 under Part 1, paragraphs 1-21 of the Business Facilitation Act (“BFA”).
- Alteration of Share Capital –Section 127(1) of CAMA is now amended by paragraph 3 to provide that a company can also increase its issued share capital by a resolution of the Board of Directors. However, it is subject to conditions that may be imposed by the Articles or the company in general meetings. Previously, this could only be done by the company in general meetings.
- Pre-emptive Rights– Section 142(1) of CAMA is now amended by paragraph 4 to provide that the right of an existing shareholder to be allotted newly issued shares now applies to a private company alone. Previously, it applied to all types of companies. A pre-emptive right or a right of first refusal is a right of existing shareholders in a corporation to purchase newly issued shares before it is offered to others. The right is meant to protect current shareholders from dilution in value or control. To mandate a public company to have the right of first refusal contradicts the essential principles of publicly traded company which is the issuance of shares to the public. Additionally, the time limit for the existing shareholders to accept the offer is 21 days. Previously, the applicable period was a reasonable time under Section 142(2)(c) of CAMA, 2020.
- Authority to Allot Shares – Paragraph 5 of the BFA has amended Section 149 by substituting subsection (3) for subsection (1) and deleting the previous subsection (3). The implication of the amendment is that the members in general meeting of a private or public company reserve the power to allot shares. However, such power is exercisable by the board of directors where express authority has been vested on them by the company in general meeting or by the company’s articles. Previously, the power of the company to delegate allotment of shares to the directors was only applicable to a private company.
- Return of Allotment– Section 154(1) of CAMA is now amended by Part 1, paragraph 6 of BFA to provide that the time limit for a company limited by shares to make a return of allotment to CAC is now 15 days. Previously, the timeframe was one month.
- Share Certification– Section 171(7) by the amendment in paragraph 7 now provides for share certificates in physical or electronic form.
- Instrument of Transfer – Paragraph 8 of the BFA has amended Section 181 by substituting “Certificate of transfer” for “Instrument of transfer” in the marginal note.
- Registration of Charges – Section 222 has now been amended by paragraph 10 of BFA by inserting in subsection (13), the following interpretations: cash, financial collateral, financial instruments, security interest. This inclusion would avoid the need for broad interpretation of words and mitigate frivolous suits from arising.
- Place of Meeting– Paragraph 11 of Part 1 of the BFA has made an amendment to the fact that all types of companies are now allowed to have their meetings electronically. Previously, this was only applicable to a private company under Section 240 (2) of CAMA, 2020. This amendment is laudable as it reflects modern realities particularly considering the Covid-19 pandemic that rocked the world in 2020. CAMA 2020 introduced virtual meetings; however, it was only applicable to private companies. The deletion of the word “private” under Section 240(2) of CAMA by BFA recognizes that virtual meeting is needed for the smooth and swift operation of all types of companies to ease the process of decision making.
- Notice of Meeting– Section 244(1)(b) has now been amended under paragraph 12 to the effect that Notice of meetings can now also be given electronically. Previously, this could only be done by sending it to the members personally or viapost. This amendment has widened the scope by which a company can serve their notice of meeting. Some of the means may include emails, social media, internet, among others.
- Voting– Section 248(1) of CAMA had been amended by paragraph 13 of the BFA to introduce electronic voting. Previously, the acceptable mode was by show of hands or by a poll. The inclusion of electronic voting compliments electronic meetings. A company having their meeting electronically may adopt or introduce any medium of voting electronically.
- Independent Directors– Section 275(1) of CAMA is now amended by paragraph 14 of the BFA to provide that a public company shall have 1/3 of the total number of its directors as independent directors. Previously, the required number of independent directors was at least three. Further, the Act amended section 275(2) by directing that any person who nominates candidates for the board who would comprise a majority of the members of the board shall nominate at least 1/3 number of persons who would be independent directors. This amendment is in consonance with the spirit of corporate governance to create transparency and accountability as it allows for more independent directors among the board of directors.
- Disqualification of Director– Section 283(c) is now amended by paragraph 15 to disqualify a person from being a director if he was removed under Section 288 provided the removal was on the grounds of fraud, dishonesty, or unethical conduct. Previously, there was no qualification or exception provided the removal was under section 288 of CAMA. Section 288 regulates the process for the removal of directors, and it allows a company to remove a director on whatever ground provided the procedures were followed. However, the amendment has provided the ground upon which a person removed from being a director gets disqualified. Consequently, for the removal of a director to amount to disqualification, it must be on the grounds of fraud, dishonesty, or unethical conduct.
- Resignation Timeline for Multiple Directorships – Paragraph 16 of BFA has amended Section 307(3) by including “not later than” before “the next annual general meeting. Previously, the subsection provided that any person who is a director in more than five public companies shall at the next annual general meeting of the companies after the expiration of two years from the commencement of the Act, resign from being a director in all but five of the companies. The inclusion of “not later than” implies that the resignation can be at any time as far as the timeline does not exceed the next annual general meeting of the companies.
- Qualification of a small company – Paragraph 18 of BFA has amended Section 394(2) by deleting paragraph (b) & (c) and retaining only paragraph (a) which provides that a company qualifies as a small company in relation to a subsequent financial year if the conditions qualifying it as a small company are met in that year and the preceding financial year. The deletions are justifiable because they were merely repetitions.
- Inability to Pay Debts– Section 572 of CAMA is now amended by paragraph 19 to the effect that the indebted sum to deem that a company is unable to pay its debt is to be determined by a regulation issued by the commission. Previously, a company will be deemed to be unable to pay its debt if it is indebted in a sum exceeding N200,000. One of the circumstances in which a company may be wound up by the court is the inability of the company to pay due debts where the demand for payment has been made. Therefore, there is a need to reflect modern realities and having a fixed sum for all types of companies may not achieve that purpose. Consequently, the threshold to determine that a company is unable to pay his debt would be issued by the commission. However, until such regulation is made, the sum exceeding N200,000 still applies.
- Forms and Content of Individual Financial Statements – Section 378(1) by the amendment in paragraph 17 of BFA now require the financial statements of a company to comply with the requirements of the accounting standards prescribed in the statements of accounting standard issued by the Financial Reporting Council of Nigeria. Previously, it was just compliance with the first schedule with respect to the form and content.
- Fraudulent Preference– Section 658(6) of CAMA is now amended by paragraph 20 to specify the relevant time referenced in Section 658(1) as a period of two years ending with the onset of insolvency. Previously, there was no specific period.
- Insolvency Practitioner– Paragraph 21 of BFA has amended Section 868 by deleting the definition of an insolvency practitioner. Section 705 recognized a member of the Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) as eligible to practice as an Insolvency Practitioner. However, section 868 was restrictive in its definition of an Insolvency Practitioner as it did not include members of BRIPAN. The deletion, therefore, clarifies that members of BRIPAN are eligible to practice as insolvency practitioners.
The Business Facilitation Act 2023 also amended some provisions of 20 other Laws including the Nigerian Export Promotion Council Act, Customs and Excise Management Act, and Export (Prohibition) Act, Investment and Securities Act, Nigerian Ports Authority Act, Nigerian Oil and Gas Industry Content Development Act, amongst others. The Act is commendable for strengthening the ease of doing business in Nigeria and ensuring transparency, productivity, efficiency, and their smooth operations, especially by the notable inclusion of electronic procedures in the administration of companies.
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Paul Usoro & Co
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