CAM Bill 2018 and legal reforms to drive Ease of Doing Business

Once a company is recognised as a distinct entity upon its incorporation, in carrying out its function as a going concern, the majority of the members who command over 50 per cent of votes in the general meeting must be able to steer the course of the ship of the company in a direction they […]

Once a company is recognised as a distinct entity upon its incorporation, in carrying out its function as a going concern, the majority of the members who command over 50 per cent of votes in the general meeting must be able to steer the course of the ship of the company in a direction they feel it should go.

Today, a number of reforms have been proposed by the Presidential Enabling Environment Council (PEBEC) to protect the rights and interest of minority investors against misuse of corporate assets by directors for their personal gain.

The reforms also cover the strength of shareholder rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse.

Some experts, however said these initiatives can only materialize with passage of the Companies and Allied Matters (CAM) Bill 2018 into law.

The expansion of the provisions on minority protection in the CAM Bill, once it is passed, will ensure the expansion of the rights of shareholders, particularly the minority, and strengthen the extent of shareholders ownership and control of the company as well as strengthen corporate governance and enhance transparency.

The law as it stands today in the Company and Allied Matters Act (CAMA), allows the same person to be Chairman and Chief Executive Officer (CEO) of the same private company. It also allows a general disclosure of the existence of conflict of interest, without specifics but when the CAM Bill is eventually passed into law, it will place restriction on the appointment of the same person as CEO and chairman of a private company and require full disclosure (with specifics) of conflict of interests and all facts in buyer-seller transactions.

CAMA provides that the sale of new or unissued shares are first offered to all existing shareholders and the CAM Bill equally maintains the right of first refusal for existing shareholders when new or unissued shares are issued or sold.

The grounds upon which shareholders can hold the board responsible for damages caused by third-party transactions under CAMA exclude conflict of interest while the CAM Bill provides that the grounds upon which shareholders can hold the board responsible for damages caused by third-party transactions now include conflict of interest.

Equally under CAMA, the grounds for the disqualification of a director excludes situations where such a director causes financial loss to the company but under the CAM Bill, a director can be disqualified from serving on the board for up to one year when he or she causes a financial loss to the company.

No minimum requirement of number of independent directors is required under CAMA for a private company but the bill requires that the board of directors of a private company must comprise of at least three independent directors. No business rescue (administration) provisions in the CAMA.

A lawyer, Barr Aliyu Tijjani, said the debt trigger under CAMA is currently N2,000, an unreasonable amount given the current economic climate but that under the CAM Bill, a company’s debt would need to be at least N200,000 (not N2,000) for a winding up petition to be made against it.

Currently, he said, fixed charge holders do not rank in priority over other claims and expenses but under the proposed bill the interests/claims of shareholders with fixed charges are more important than claims and expenses of winding up.

Presently, only negligent transactions can be cancelled by the courts on behalf of a company but under the Bill, the courts can now cancel third-party transactions that are not only negligent but also proved to be unfair, oppressive or may cause economic harm to the company generally.

In the event of an intended sale of more than half of the company’s assets, majority shareholders’ permission is not required for the sale under CAMA but the new bill makes it compulsory to obtain approval from majority shareholders when there is an intended sale of more than half of the company’s assets.

Investigations shows that a lot of legislations are being rolled out by the PEBEC with the aim of enhancing the ease of doing business in the country.

These include the Small Claims Court and resolving insolvency that seeks to rescue businesses that are in financial problems and protect the rights of secured creditors when winding up. These reforms, according to sources have been proposed by PEBEC to make the time, cost and outcome of insolvency proceedings involving domestic legal entities more favourable.

Today, commercial disputes are quickly resolved in the Small Claims Court newly set up in Lagos and Kano states. Justice Abdullahi mentioned that most of the cases filed at the Lagos High Court can now be filed at the court and in effect decongest the courts.

A visit to the Small Claims Court showed that they followed strict time-lines. For instance, service of process must take place within seven days of filing of court summons; filing of the statement of defence must be within seven days of service of summons, and delivery of final judgment takes place within 14 days of the completion of hearing. Altogether, the entire proceedings from filing to judgment takes within 60 days and only one adjournment is allowed under exceptional and unforeseen circumstances.

It was also gathered that magistrates are expected to hear matters daily to conclusion, and are ordered to promote, encourage and facilitate negotiation among parties through the use of Alternative Dispute Mechanism (ADR).