On the 14th February 2023, the President of the Federal Republic of Nigeria, Muhammadu Buhari GCFR, assented to the Business Facilitation (Miscellaneous Provision) Act (“the Act”) 2023. This Act is one of the government’s initiatives to foster an enabling environment for micro, small and medium-sized enterprises (MSMEs) in Nigeria.
The Act amends 21 business related laws, including the Companies and Allied Matter Act, (CAMA) 2020, eliminating bureaucratic obstacles to conducting business in Nigeria. This article focuses on the amendments made to the CAMA 2020 and their potential impacts.
Qualifications of an Insolvency Practitioner
The Act amended section 868 of CAMA 2020 by deleting the definition of an Insolvency Practitioner and the reason is not far fetched. Section 868 was restrictive in its definition of an Insolvency Practitioner as it did not include members of the Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN). This led to confusion when compared with section 705, which recognized a BRIPAN member as eligible to practise as an Insolvency Practitioner. The deletion, therefore, clarifies that a BRIPAN member is indeed qualified to practise as an Insolvency Practitioner, thereby eliminating any ambiguity or uncertainty that may have arisen.
Disqualification for directorship
In section 283(c) of CAMA 2020, one of the ways a person can be disqualified as a director is when such a person is suspended or removed under section 288. The Act has amended section 283(c) by eliminating suspension as a basis for disqualification. Thus, a suspended director still continues to be a director.
Further, the Act also amended section 283(c) to the effect that a person can only be disqualified under section 288 based on the grounds of fraud, dishonesty or unethical conduct. Section 288 is a statutory provision on the removal of directors, which allows a company to remove a director on any basis as long as due process is followed. This is an important addition because the former section 283(c) simply provided that a person ceases to be a director when he has been removed under section 288. This new alteration has provided the basis upon which a person removed from being a director gets disqualified. Therefore, removal as a director does not automatically disqualify one as a director. It has to be based on the three instances for it to be equated as such.
Moreover, while section 288 may not have laid down grounds of removal as a director, this addition has impliedly provided that when a person is to be removed as a director, it must be on the grounds of fraud, dishonesty or unethical conduct, as that is what will lead to disqualification. This is perhaps to discourage arbitral removal of directors or some form of witch-hunting by some majority shareholders and to provide for directorial job security.
Pre-emptive rights of existing shareholders
The Act has amended section 142(1) of CAMA 2020 by inserting the word “private” before “company.” The effect is that under CAMA 2020 a company is not allowed to allot shares except they are first offered to existing shareholders and this is known as Pre-emptive rights or the right of first refusal. The wording of CAMA 2020 appeared to make it applicable to both private and public companies. However, it is unreasonable for public companies to be mandated to have the right of first refusal as it contradicts the essential principles of a publicly traded company. These principles are centred on free-market competition, which determines the value of shares and serves the shareholders’ interests. As a result of that, only private companies are forced to have pre-emptive rights and public companies have been rightly excluded from inserting such.
The Act also defined the term “reasonable time period” as 21 days under subsection (2). Hence, the offer has to be accepted within 21 days of the notice of offer, or else it is deemed declined. It was important for the Act to limit the pre-emptive right to private companies for obvious reasons, whilst defining what a reasonable time period meant as well.
Definition of inability to pay debts
Initially, section 572(a) of CAMA 2020 provided for a fixed financial threshold of a sum exceeding N200,000 as being unable to pay debts for a company. However, there is a need to reflect modern realities and having a fixed sum may not achieve that purpose. The Act has then altered the current position to be that the commission is allowed to fix the amount at regular intervals. Although there is a current Corporate Affairs Commission (CAC) Regulations 2021, it was already made before this Act, so it could not have contemplated the amendment. As a result, it does not contain any specified financial threshold. The implication is that until such regulation is made to provide for such, the N200,000 amount is still applicable.
Returns of Allotment
A company limited by shares now has to make returns on the allotment of shares to the Corporate Affairs Commission (CAC) within 15 days of its allotment. This is as opposed to the one month timeframe previously stipulated under section 154(1) of CAMA 2020.
Increase of Share Capital
The Act has amended section 127(1) of CAMA 2020 by adding another way of increasing a company’s issued share capital. Not only can it be via the company in a general meeting but now by a Board of Directors’ resolution, subject to the conditions or directions imposed in the Articles of association or by the company in general meeting. Essentially, a board resolution will suffice especially in cases where no such restrictions exist.
The deletion of “private” under section 240(2) of CAMA 2020 by the Act categorically implies that both public and private companies can now hold their general meetings electronically, as long as the meetings are conducted in accordance with the articles of the company. This is commendable in the sense that the Covid-19 pandemic has created a new order and it has taught us a lesson that one of the traditional ways of doing things may not be sustainable. Reconciling the traditional and virtual modes is key because it affects the decision making process of a company. One of the ways a company makes decisions is at its general meetings. Under section 240 of CAMA 2020, only private companies could conduct electronic meetings, thereby facilitating the ease of doing business. This new amendment allows public companies to tap into the philosophies of virtual meetings and virtual decision making procedures.
Electronic Service of Notice
The Act provides that a company can now serve notice on any member electronically by virtue of the new section 244(b). It is no longer restricted to electronic mail as seen in CAMA 2020. This widens the scope of utilising any form of electronic means for a company, such as the internet, social media, and facsimile.
The new Act recognizes electronic voting under section 248(1). This is important because it compliments the holding of meetings virtually. At the company’s general meetings, votes can now be done electronically too.
Issuance of Share Certificates – section 171
The Act amended section 171 of CAMA 2020 by inserting a new subsection (7) to clarify that the share certificate issued may be in physical or electronic form. As previously mentioned, this reflects the realities of doing business in the modern era of technology.
Registration of Charges created by companies – section 222
The Act by amending section 222(13) of CAMA 2020 included the definitions of key terms such as cash, financial collateral, financial instruments and security interest. This essentially brings about conceptual precision. It facilitates ease of business in the sense that it will prevent needless suits from arising. If matters have to always go to court based on interpretation, it will slow down commerce. Also, where there is no precision, it allows judges to give a wide interpretation of words.
Independent Directors in Public Companies – section 275
According to section 275(1) of CAMA 2020, a public company is required to have, at least three (3) independent directors/non-executive directors. However, the Act has amended section 275(1) by requiring the amount of independent directors to be at least one-third (⅓) of the total number of its directors. Further, the Act amended section 275(2) by directing a person who nominates candidates for the board to also nominate at least one-third (⅓) number of persons to be independent directors. This alteration now allows for more independent directors on company boards. It is expected to improve the calibre of board appointments in Nigeria, as well as encourage accountability and transparency in decision-making. Corporate governance has moved in the right direction with this.
Resignation Timeline for Multiple Directorships
According to section 307(3) CAMA 2020, a person who is a director in more than five public companies has to resign in all but five of them at the next annual general meeting of the companies after the expiration of two years from the commencement of the act. This implied that the resignation could only take place at the next general meeting and not before. However, the Act amended section 307(3) by including “not later than” before “the next annual general meeting.” This signifies that the person does not have to wait for the next annual general meeting of the respective companies to hand in their resignation, since it can be anytime before that. However, the period of resignation must not exceed the next annual general meeting of the companies.
Form and Content of individual financial statements- section 378
The Act amended section 378(1) CAMA 2020 by limiting the financial statements of a company to comply only with the accounting standards laid down in the statements of accounting standards issued by the Financial Reporting Council of Nigeria (FRCN). It used to comply with the First Schedule with respect to the form and content as well, but this is no longer applicable.
Authority to Allot Shares – section 149
Under section 149(1) of CAMA 2020, members in a general meeting of a private company could delegate the power to allot shares to directors. It was not so clear for a public company. However, the Act has now amended section 149(1) by removing and replacing it with another subsection. The effect of the new subsection is that it is the members in a general meeting of a private or public company that can allot shares but such power to allot can now be exercised by the board of directors where expressly authorised to do so by the members in a general meeting or its articles. This is to facilitate quick response to commercial needs because usually, it is the directors that want to have an allotment of shares.
Fraudulent Preference – section 658
Section 658(1) of CAMA 2020 provides that where a company at any time within “the period” defined in subsection (6), does anything or procures anything to be done which has the effect of putting a person, being one of the company’s creditors or a surety or guarantor undue advantage, it shall be deemed a preference of that person, and be invalid accordingly. Although subsection(1) referenced subsection (6) to define the period of years, subsection (6) still failed to do so. The Act has amended section 658(1) by clarifying it to mean a period of two years.
Qualification of a Small Company – section 394
The Act amended section 394(2) by retaining only paragraph (a) and removing (b) & (c). The deletions are justifiable because they were merely repetitions of paragraph (a) which is to the effect that a company will qualify as small with respect to a subsequent financial year if the conditions qualifying it are met in that year and the preceding financial year. The qualifying conditions still remain the same. Therefore, for a company to be regarded as “small,” it ought to satisfy the conditions in that year, before and after that year.
Instrument of Transfer
The Act substituted “Certificate of transfer” for “instrument of transfer” in the marginal note of section 181. It also reflected the substitution in subsection 181(1).
The passage of the Business Facilitation Act 2023 is a significant development in Nigeria’s business environment. Its provisions are designed to address the challenges faced by businesses and promote economic growth by improving working relationships with regulatory authorities. The Act’s impact on the Companies and Allied Matters Act 2020 is noteworthy, as its amendments will enhance the ease of doing business in Nigeria, which can attract more investors. However, the success of the Act will depend on the regulatory authorities’ efficient implementation. We can only hope that they will act swiftly to ensure that the Act’s provisions are enforced to achieve the desired results.