THE NIGERIAN INVESTMENT CLIMATE
The past two years have seen significant corporate and tax reforms as Nigeria seeks to revamp and reinvigorate its corporate environment, whilst reducing its overt reliance on the oil sector.
The short-term uncertainties of the global market for oil in 2020/2021 largely brought about by the Covid-19 pandemic and long term uncertainties brought about by the underlying environmental pressures on oil production have adversely affected the Nigerian economy, surged the country’s debt profile and devalued the Naira.
According to published reports, Nigeria attracted a total FDI of $2.6 billion in 2020. This is $0.7 billion lesser than total FDI of $3.3 billion in 2019. 2021 saw more challenges although Nigeria retained its position as 3rd most attractive investment destination in Africa (behind South Africa and Mauritius). Nigeria’s performance across the six pillars namely: market depth, access to foreign exchange; market transparency, tax and regulatory environment, capacity of local investors, macroeconomic opportunities and the enforceability of the standard master agreement.
While the 2021 budget provides social investment programs to address the poverty and unemployment challenges, the Government has also taken some steps to improve the ease of doing business by reviewing some laws to align with Global best practices.
Measures taken to improve the investment environment and other initiatives have contributed to Nigeria’s ranking as 105 on the “Ease of Starting a Business Ranking” compared to countries like Ghana, Kenya and South Africa that rank 116th, 129th and 139th place respectively.
In 2020, the new Companies and Allied Matters Act CAMA was passed with the objective of greatly easing regulatory requirements for companies, reducing the time and cost implications of company registration, eliminating administrative bottlenecks and increasing corporate form options.
The Finance Acts of 2019 and 2020 were also enacted to improve the Nigerian tax regime and administrative framework. The Acts refined a wide spectrum of tax legislation, attuning them towards better responding to current issues, increasing investor confidence in the tax reform and reflecting economic realities. In particular, the Finance Act, 2020 was signed into law as an instrumental tool to improve the ease of doing business in Nigeria, widen the tax base, introduce response measures to the Covid-19 pandemic and bolster Nigeria’s fiscal profile.
KEY OBJECTIVES OF CORPORATE REFORMS: CORPORATE GOVERNANCE AND TRANSPARENCY
On 7th August 2020 the Companies and Allied Matters Act 2020 (“CAMA 2020”) was signed into law.The CAMA 2020 repealed the Companies and Allied Matters Act (Chapter C20) Laws of the Federation of Nigeria 2004 (“Repealed CAMA”), which originally come into force in 1990.
One of the overarching objectives of CAMA 2020 is to foster a much-needed robust corporate environment and transparency within public and private companies.
After the CAMA 2020 was signed into law, the Corporate Affairs Commission (“CAC”) subsequently issued the Companies Regulations 2021 (the “Regulations”) to provide the framework for the full implementation of the CAMA 2020. The Regulations came into effect on 1st January 2021 and the registration of limited partnerships and limited liability partnerships, commenced in April 2021.
THE BOARD OF DIRECTORS
The restrictions that were enshrined in the Nigerian Code of Corporate Governance 2018 (the “NCCG”), which preclude the chairman of a public company from acting as the chief executive officer (the “CEO”) of the same company have been incorporated into the CAMA 2020.
Public companies must now have a minimum of three independent directors, and it is obligatory for any shareholder that has the power to nominate the majority of the members of the Board, to nominate at least three independent directors for the company.
The appointment qualifications for an independent director stipulate that the nominee or his relatives must not, in the two years preceding the nominee’s appointment to the board, have: (a) owned (directly or indirectly) more than 30% of the shares of the company; (b) been employed by the company; (c) acted as an auditor of the company; (d) paid or received from the company, sums exceeding NGN 20 million, or held up to 30% of the shares (or acted as a partner, director or officer) of an entity that received or made such a payment to the company.
It is to be noted that there is some conflict, which remains unresolved in this 30% shareholding threshold requirement as against the requirement of the NCCG which stipulates that an independent director should not hold more than 0.01% of the paid-up share capital of the company.
Any nominee to the position of director of public companies must disclose their existing positions on the boards of other public companies, before taking up the new appointment. There is also now a cap on any person being director of public companies and the cap is 5 public companies. The CAMA provides for a two-year period for any person who is a director of more than 5 public companies, to comply.
REGISTER OF DIRECTORS’ RESIDENTIAL ADDRESS
All companies must keep a new register called a “Register of Directors’ Residential Addresses”, which must contain the usual residential address of the company’s directors. This register differs from the Register of Directors which, typically, will specify a “service address” for the directors that, in some cases, could be the company’s registered office.
The CAMA 2020 classifies information relating to the residential address of a director as being “protected information.” There are restrictions on how the company and the CAC can deal with such protected information.
REMOVAL OF A DIRECTOR NOW A BASIS FOR GENERAL DISQUALIFICATION FROM DIRECTORSHIP
The CAMA 2020 retains the procedure for removal of directors outlined under the Repealed CAMA. A key change, however, is that directors who are suspended or removed from office by a company will also be disqualified from being directors of other companies.
The concept of authorised share capital has been abrogated and replaced by a requirement that companies must have at least the minimum issued share capital of NGN100,000.00 for private companies and NGN2,000,000.00 for public companies. 25% of this issued share capital must be paid up.
Existing companies must fully issue their authorised share capital to comply with this and the CAC Regulations (Regulation 13) provide that companies that have unissued shares in their share capital must have issued those shares by 30th June 2021. Companies that comply with this directive will not be required to pay any CAC filing fees on the shares when they file their return of allotments at the CAC.
Therefore the CAC will recognise the fees previously paid by the companies on their unissued shares. Where, however, a company does not issue all its unissued shares by the specified date, the company and every officer of the company shall be liable to a daily penalty prescribed by the Commission. The Regulations state that the daily penalty payable by public companies is N1,000 while the daily penalty for private companies is N500 and for small companies is N250.
Private companies have exercised various options in order to give effect to this directive including bonus issues or a rights issue to existing shareholders; cancellation of unissued shares by reduction of share capital. For public companies where the approval of the Securities and Exchange Commission and other regulators might be required, the CAC has provided a more flexible timeline.
Under the old CAMA, the power to allot shares resided with the company and could be delegated to the directors, subject to any conditions imposed either in the articles or from time to time by the company in general meeting.
Under the CAMA 2020 and regulations, the power to allot only applies to private companies and has a similar result. The board of directors of public companies are more restricted as they can also issue and allot new shares, provided the board is expressly authorised by the articles to do so or has been so authorised by the shareholders in a general meeting.
MANDATORY PRE-EMPTIVE RIGHTS
All companies (public or private) are now required to first offer newly issued shares to their existing shareholders, in proportion to their existing holdings.
The implication of this for public companies is that any issue of new shares, whether by way of a public offer or a private placement, must be preceded by a Rights Offer/Issue to existing shareholders. Apart from the cost and time associated with carrying out a Rights Offer/Issue, one possible consequence is that if the shareholders of a company decide to take up the shares that are offered to them during such a Rights Offer/Issue, the company might not be able to issue the number of shares it needs for the transaction it originally intended to execute.
DISCLOSURE AND TRANSPARENCY – SUBSTANTIAL SHAREHOLDERS AND PERSONS WITH SIGNIFICANT CONTROL
The threshold for determining the substantial shareholders of a public company has been reduced from 10% to 5%. In addition, another new register called the “Register of Persons with Significant Control” has to be maintained by all companies. A person has significant control of a company where that person directly or indirectly holds at least 5% of the shares, interest or voting rights in the company; directly or indirectly holds the right to appoint or remove a majority of the directors in the company; or otherwise has the right to exercise or actually exercises significant influence or control over a company. Disclosures are required to be made by both substantial shareholders and persons with significant control.
Under the Repealed CAMA, the law recognised dividends as special debts due to and recoverable by shareholders within 12 years and actionable only when declared. The CAMA 2020 retained this position but went further to say in s. 432 that after 12 years, the unclaimed dividends could be included in the company’s distributable profits which could be distributed to the shareholders of the company. Other changes made by the CAMA 2020 are that companies are now required to publish their list of unclaimed dividends in two national newspapers. The list must be attached to the notice of the next annual general meeting circulated to the members of that company. The company may invest the unclaimed dividend for its own benefit three months after the publication and the issuance of the notice of the annual general meeting to shareholders. Shareholders are not entitled to receive any interest on unclaimed dividends.
The Finance Act, 2020 came into law on the last day of the year 2020. It established the Unclaimed Funds Trust Fund (“Fund”) and amended s.432 of the CAMA 2020. Specifically, section 432 of the CAMA 2020 has been amended to include two new sub-sections which have the effect of distinguishing the manner in which unclaimed dividends of a public company that is listed on the NSE should be treated. After a period of six years from the date of declaring any dividends, the unclaimed dividends of a public company that is listed on the Nigerian Stock Exchange (“NSE”) shall be immediately transferred to the Fund. Unclaimed dividends that are transferred to the Fund shall be a special debt owed by the Federal Government of Nigeria to the relevant shareholders and may be claimed by such shareholders at any time.
Public companies are still required to have a company secretary, even though this requirement has been dispensed with for private companies.
The use of company seals is now optional for all companies. The CAMA 2020 provides for how a company may execute certain documents in the absence of a seal.
REMUNERATION OF MANAGERS
The compensation of the managers of a company must now be disclosed to members of the company as part of the ordinary business to be transacted at the annual general meeting. The term “Manager” is defined in the Regulations to include any person, by whatever name called, occupying a position in senior management and who is vested with significant autonomy, discretion, and authority in the administration and management of the affairs of a company (whether in whole or in part).
VIRTUAL GENERAL MEETINGS
The provision in CAMA 2020 that permits private companies to hold their general meetings electronically, does not extend to public companies. This means that, absent any special dispensation from the regulators (such as those granted in 2020 as a result of COVID), public companies must continue to hold their general meetings physically.
VIRTUAL BOARD MEETINGS
Section 289(1) of the CAMA 2020 replicates s. 263(1) of the Repealed CAMA, and neither of these provisions make it clear that board meetings can be held virtually. Prior to the CAMA 2020, companies took the precaution of ensuring that their articles authorised the board to meet virtually, otherwise board meetings had to be held physically. Section 289(1) has been clarified by Regulation 16 titled ‘Electronic Meetings of Directors’. Regulation 16 provides that Directors may, in the exercise of their power to regulate their meeting as they think fit, hold their meetings electronically and by any means that would allow all directors to participate, speak and vote at the meeting.
Regulation 16, therefore, provides more flexibility to boards for holding their meetings, even where the articles of the company do not provide for this.
S. 240(1) of the CAMA 2020, which requires virtual general meetings of private companies to be held in Nigeria.