CAMA 2020: THE NEW VS THE OLD

Authored By :

Babatunde Adesoji Fasogbon

A principal feature in developed economies is the simplified and flexible processes of incorporation and management of corporate entities, which underscores the importance of creating an atmosphere that promotes ease of doing business and making of strategic investments. It is for this reason that the significance of the companies and Allied Matters Act, 2020 (“CAMA 2020”) cannot be overemphasized.

The Companies and Allied Matters Act (Chapter C20) Laws of the Federation of Nigeria 2004 (“CAMA 2004”) was initially made law in Nigeria in 1990 as a decree of the military government. It was modeled on the English Companies Act, 1985 and for thirty years, there were no significant amendments to the CAMA 1990, notwithstanding the fact that England has, over the past three decades, amended and replaced its own Companies Act. Nigerian companies had to, essentially, rely on a 30-year-old law to govern the way businesses operate in our dynamic and exponentially evolving global community. However, this all changed on Friday the 7th of August 2020, when President Muhammadu Buhari, gave his assent to the Companies and Allied Matters Act 2020 (“CAMA 2020”).

The CAMA 2020 which repealed the Companies and Allied Matters Act, 1990 (“CAMA, 1990”) introduced essential reforms geared towards whittling down regulatory hurdles thereby promoting the ease of doing business in the corporate sector. It is hoped that the extant legal regime will attract more foreign investors to Nigeria since the salient and innovative changes made by the CAMA 2020 are in line with international best practices.

Here are some of the essential changes made by the new CAMA 2020:

THE USE OF A COMMON SEAL

Under the CAMA 1990, every company was required to have a common seal, the use of which had to be regulated by the company’s Articles. This seal, which was also usually referred to as the “company seal” was typically affixed to agreements, deeds, and other official documents executed by companies. The affixation of the seal served as a way for companies to authenticate documents that emanated from them. However, by the provision of section 98 of the CAMA 2020, it has become optional and no longer mandatory for a company to have a common seal. By section 102 (2) and (3), a company can execute a document it describes or expresses as a deed without necessarily affixing its common seal on the document. The signature of either; a director and secretary, at least two directors, or a director in the presence of at least one witness who will attest to the signature now suffices. Such documents will have the same effect as though they were executed under the common seal of the company.

Essentially, a document emanating from a company need not carry the common seal of the company to be deemed authentic. This provision has simplified the procedure for authentication of company documents and is in line with international best practices, especially as local and cross-border transactions are increasingly negotiated and finalized timeously without parties having to physically meet each other.

TRANSFER OF SHARES AND ASSETS

Section 176 (1) of CAMA 2020, provides that the Register of transfer of shares includes an electronic register of transfer. Section 860 (2) also states that a certified true copy of an electronically filed document, filed at the Corporate Affairs Commission (the Commission) shall be admissible as evidence in all proceedings and rank pari passu in validity with the original documents. The provision for the admissibility of electronic filing and electronic share transfer is in line with the provisions of the Evidence Act and promotes ease of doing business by curtailing the need to visit the branch offices of the Commission for filing purposes.

CAMA 2020 has also introduced certain restrictions with respect to the transfer of shares and assets. Sections 342 (2) and 22 (2) (a) CAMA 2020 ‘major asset transactions’ (i.e. transactions outside the ordinary course of business) involving assets, or rights representing 50% or more of the book value of the company’s assets now require shareholder approval. Prior to this, the law was silent as to the requirement of shareholder approval for the disposal of significant assets. One area of note is the apparent contradiction between the approval thresholds stated in sections 342 (2) (which provides for a 75% threshold) and 22 (2) (a) (which provides for unanimous consent) for asset transactions.

Furthermore, Section 22(2) (b)-(c) provides for rights of first offer for all shareholders before shares are sold to third parties and for the sale of a majority equity stake to be subject to the remaining shareholders’ tag-along rights. There are, however, differences of opinion as to whether the provisions at section 22(2)(a)-(c) are default, mandatory or optional. Should they be mandatory, these provisions could significantly extend transaction timelines and investors will need mechanisms to mitigate their impact. It may also impact funding and existing shareholder rights. Existing agreements may need to be reviewed to ensure alignment with these provisions. Companies may also need to amend their articles of association to specifically exclude these restrictions where necessary.

FINANCIAL ASSISTANCE

CAMA 2020 has modified the rule on financial assistance. First, the definition of financial assistance is now “a gift, guarantee, any form of credit or any other financial assistance given by a company, the net assets of which are thereby reduced up to 50% or which has no net assets”. By this definition, financial assistance by a company only occurs where the act by the company reduces its net assets by up to 50% or completely erodes the net assets. The rule on financial assistance is further clarified by CAMA 2020 by the introduction of the definition of “net assets” as “the aggregate of the company’s assets less the aggregate of its liabilities”.

While the rule on financial assistance is applicable to both private and public companies, CAMA 2020 allows private companies to provide financial assistance (in most cases, collateral/security for acquisition financing) for an acquisition of its own shares or the shares of its holding company upon meeting certain conditions. These conditions include the passing of a special resolution (i.e. a 75% majority decision) of the shareholders approving the financial assistance, the making of a declaration by the directors in a form to be prescribed by the Corporate Affairs Commission, and the non-reduction of net assets, or where reduced, that such assistance be financed out of distributable profits.

MERGER OF ASSOCIATIONS

Based on Section 849 of CAMA 2020, two or more associations such as Incorporated Trustees (NGOs, Foundations, Charities, etc.) with similar aims and objectives may merge under terms and conditions to be prescribed by the CAC. The modalities for undertaking a merger of associations are unclear unlike the elaborate provisions of section 711 to 715 for companies. The applicability of this provision will be dependent on the regulations that will be issued by the CAC pursuant to CAMA 2020.

RECOGNITION AND REGISTRATION OF LIMITED PARTNERSHIPS (LP’s) AND LIMITED LIABILITY PARTNERSHIPS (LLP’s)

New corporate structures have been introduced in the form of Limited Partnerships (“LPs”) and Limited Liability Partnerships (“LLPs”). Prior to the enactment of CAMA 2020, LPs were recognized, but only under the partnership law of Lagos State. These structures are now available to investors across the Federation and will, in particular, allay the uncertainty around whether LPs would be recognized by federal courts or the courts of other states.

These structures are typically adopted by Private Equity firms in structuring their holdings and the absence of a universally recognized framework had been one factor limiting the appetite of fund managers to establish funds in Nigeria. The essence of these provisions is simply to incorporate the limited liability concept of companies into partnership arrangements, thereby creating partnerships that have the nature of a company with separate legal personalities and perpetual succession. One area of certainty that remains, however, concerns the new requirements for all LPs to be registered under CAMA and whether, as a result, previously registered Lagos State LPs will be required to re-register accordingly.

E-RESERVATION OF NAMES

By the provisions of section 31 (1), individuals or organizations who wish to incorporate a company can now apply to reserve names of their proposed companies electronically. Even though this provision is just being made expressly under the CAMA 2020, the practice of e-reservation of names has been established by the Commission some years ago based on the recommendation of the Presidential Enabling Business Environment Council (PEBEC) in furtherance of its objective on the ease of doing business in Nigeria.

INTRODUCTION OF E-SIGNATURE

Under the second leg of the provision of section 101 of the CAMA 2020, documents requiring authentication by a company can be electronically signed by the designated/authorized officers of the company and the same will be accepted as satisfying the requirement for signing. This provision implies that documents need no longer be physically signed by authorized officers of a company but can be signed electronically from any part of the world by authorized officers who may not be physically present do so.

E-MEETINGS FOR PRIVATE COMPANIES

By the provisions of section 240, private companies do not need to hold their general meetings physically or in-person and at a specific location which must be in Nigeria. Small companies can now validly hold their meetings virtually from any part of the world and these meetings will be deemed as properly constituted.

EXEMPTION FROM MANDATORY GENERAL MEETING OF COMPANIES

Formerly, all companies were mandated by the CAMA 1990 to hold annual general meetings, however by the provisions of section 240 (1) of CAMA 2020, a small company or any company having a single shareholder is exempted from mandatorily having its Statutory and Annual General Meetings in Nigeria and as earlier stated may hold its Annual General meeting virtually subject to the articles of association of the company.

In conclusion, the CAMA 2020 provides a paradigm shift that is in tune with the international best practices and the current realities of virtual interactions and also, will promote transparency and accountability in corporate governance.