Companies and Allied Matters Act: A score and three years yet not much to cheer

[easyazon_image add_to_cart=”yes” align=”left” asin=”B00D3WQMVI” cloaking=”default” height=”160″ localization=”default” locale=”US” nofollow=”default” new_window=”default” src=”http://ecx.images-amazon.com/images/I/51UWFjHzSIL._SL160_.jpg” tag=”thecorpro-20″ width=”160″]When the Companies and Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria 2004 (CAMA) was first promulgated as Decree No. 1 of 1990, it was received with a lot of expectations and excitement. This was so because it was made at a time when the previous Companies Registry system under the Companies Act 1968 had become a terrible pain in the neck. Also, its provisions were intended to eliminate numerous complaints regarding the Companies Act 1968 which it repealed and replaced. Furthermore, the process leading to its promulgation was quite rigorous.

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Unsurprisingly, therefore, the CAMA, as promulgated, contained a lot of innovative provisions. Some of the major innovative provisions contained in the CAMA are:

 (a)          The establishment of the Corporate Affairs Commission.

(b)          Capitalisation of companies through minimum authorised share capital requirement, minimum subscription and minimum paid-up capital.

(c)          Prohibition of guarantee companies with share capital and of unlimited companies without share capital.

(d)          Prohibition of non-voting shares and of weighted votes for shares.

(e)          Reform and codification of the rule in Royal British Bank v. Turquand.

(f)          Abolition of the common law rule of constructive notice of companies’ documents filed with the Corporate Affairs Commission.

(g)          Abolition of the common law rule of pre-incorporation contracts and providing for the ratification and adoption of such contracts.

(h)          Improved provisions in respect of company meetings.

(i)          Expanded provisions for relief against illegal and oppressive acts, including provisions for derivative actions and relief against unfairly prejudicial conduct.

(j)          Provisions for greater accountability and disclosure on the part of company directors.

(k)          Provisions for the appointment, qualification, duties and tenure of office of secretaries of public companies.

(l)          Improvement in the forms and contents of financial statements of companies.

(m)          Provisions for the establishment of audit committees by public companies.

(n)          More comprehensive provisions in respect of receivership.

(o)          Merger of the statutes dealing with the registration of companies, incorporated trustees, and business names.

The CAMA is now 23 years old. Within this period, it has been amended a couple of times. These amendments have not addressed all the complaints which have arisen in respect of the statute. In this series which shall appear on this website every Tuesday, from today up to the next couple of weeks, we shall review those aspects of the CAMA which should be considered for possible amendment to make the statute much more contemporary and relevant.

In this first article in the series, we shall consider the structure of the Corporate Affairs Commission established under the CAMA.

The establishment of the Corporate Affairs Commission to replace the old Companies Registry is one of the major innovative provisions of the CAMA. Since its establishment, it has succeeded in erasing the negative image of the Companies Registry under the Companies Act 1968. However, there is something structurally wrong with the provisions of the CAMA regarding the Corporate Affairs Commission. In the provisions of the CAMA regarding the Corporate Affairs Commission, there is a confusion between the Corporate Affairs Commission itself as a body and its governing body or Board.

According to section 2 of the CAMA, the Corporate Affairs Commission shall “consist of the following members”:

(a)           a chairman who shall be appointed by the President on the recommendation of the Minister, being a person who by reason of his ability, experience or specialised knowledge of corporate, industrial, commercial, financial or economic matters or of business or professional attainments would in his opinion be capable of making outstanding contributions to the work of the Commission;

(b)          one representative of the business community, appointed by the Minister on the recommendation of the Nigerian Association of Chambers of Commerce, Industries, Mines and Agriculture;

(c)           one representative of the legal profession, appointed by the Minister on the recommendation of the Nigerian Bar Association;

(d)          one representative of the accountancy profession, appointed by the Minister on the recommendation of the Institute of Chartered Accountants of Nigeria;

(e)           one representative of the Manufacturers Association of Nigeria, appointed by the Minister on the recommendation of the Association;

(f)           one representative of the Securities and Exchange Commission not below the grade of Director or its equivalent;

(g)          one representative of each of the following Federal Ministries, that is –

  • Commerce;
  • Justice;
  • Industry; and

(h)          the Registrar-General of the Commission.

It is worthy of note that of all these individuals listed as members of the Corporate Affairs Commission, only the Registrar-General is an insider. He is the only person who is an employee of the Corporate Affairs Commission. It is therefore awkward that the Corporate Affairs Commission could be said to be made up people who are essentially outsiders to the Commission. It is my view that what the section sought to provide for were members of the Board of the Commission and not members of the Commission itself as wrongly stated in the section.

Undoubtedly, there are several employees and other officers of the Corporate Affairs Commission; and these are members of the Commission, strictly speaking. They are not necessarily members of the Board or governing body of the Commission. There is a difference between a body and its governing body. An analogy can be made to the difference between a company and its board of directors. While the company can be said to include all employees and shareholders of the company, its board of directors consists of a group of individuals who are all not necessarily employees of the company, but are responsible for setting the strategic direction of the company which the chief executive officer of the company has a responsibility to accomplish, using the employees of the company.

The distinction being made between a body and its governing body or board is best illustrated using another Commission established by statute, as is the case with the Corporate Affairs Commission. The Securities and Exchange Commission shall be used for this illustration. Presently, the Securities and Exchange Commission is established by the Investments and Securities Act 2007. By virtue of section 1 of the Investments and Securities Act 2007, the Securities and Exchange Commission is established. However, section 3 of the Investments and Securities Act 2007 establishes a Board for the Securities and Exchange Commission and provides for its composition. The duties of the Board of the Commission are stated in section 4 and these are different from the functions of the Commission provided for in section 13.

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Clearly, there is fundamental flaw in the structure of the Corporate Affairs Commission which should be rectified during the next amendment to the CAMA. This amendment should recognise that the body mention in section 2 of the CAMA is not the Corporate Affairs Commission but the Board of the Corporate Affairs Commission. Also, there should be provisions clearly setting out the duties of the Board of the Corporate Affairs Commission. The functions stipulated in section 7 of the CAMA are not the type of issues a Board borders itself with. Those items are day-to-day matters which the Registrar-General and his team should be responsible for.

Another amendment regarding the structure of the Corporate Affairs Commission relates to the number of executives of the Commission on the Board of the Commission. As presently constituted under section 2, the Registrar-General of the Commission is the only executive members of the Board of the Commission. Having the Registrar-General of the Commission as the sole executive on the Board of the Corporate Affairs Commission is unhealthy, unduly restrictive, and can potentially prevent other Board members from having access to enough information for proper decision-making. The remit of the Corporate Affairs Commission covers three broad areas: companies, incorporated trustees, and business names. The Registrars in charge of each of these sections of the Corporate Affairs Commission should rightly be made members of the Board of the Commission. It is important though that the Board of the Commission continues to be made up of a larger proportion of outsiders (that is, those who are not employees of the Commission).

It is hoped that these issues shall be taken up at the next round of amendment of the CAMA to enhance its efficacy. In the next article in this series which shall be published on Tuesday 29th January, we shall consider another amendment candidate provision of the CAMA. Meanwhile, should you have any comments on this discussion on the structure of the Corporate Affairs Commission, kindly share them in the comments area of this post below. If you are already a registered user, you will be required to log in to comment on this post; otherwise, you will have to register before posting your comment. Registration is simple and FREE.

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One comment on “Companies and Allied Matters Act: A score and three years yet not much to cheer
  1. Ade87 says:

    Despite this law, many people still break laws all over the world! Individuals are more interested in fast profit and cutting corners (minimising cost and maximazing profit)! Besides, there are more poor and greedy people who would bypass the law and hide under other people’s already existing company names. Check this out: Posted on March 19, 2013 by Adam Greaves

    In a recent survey by accountants Ernst and Young, it is reported in HR Magazine they found that around half of British employers are failing to vet their suppliers for compliance with the Bribery Act.  This is surprising to anticorruption practitioners, taking into account that the Bribery Act provides strict liability for the acts or omissions of associated parties, including suppliers, in the situation where adequate procedures were not in place. One of those adequate procedures would be to vet your suppliers adequately.
    Other revealing statistics from the E & Y report:
    60% of firms with a turnover between £5 and £50m vet their suppliers to assess whether their businesses comply with the Bribery Act (hence 40% do not)
    16% of these midmarket firms would do nothing if their suppliers failed to comply (so one asks oneself: why bother asking them whether they do comply? )
    Among the 40% of firms which do NOT vet their suppliers, 60 % reported that they were not planning to implement any anti-bribery provisions in the future;
    Of the larger firms (turnover in excess of £50m) only 40% would terminate their suppliers if they failed to comply with the Act.

    So one can conclude from these statistics that many British firms have either missed the point of this legislation altogether or are making a positive decision to run a the risk of not being caught, perhaps based on their belief that the Serious Fraud Office and other prosecutors have insufficient resources to discover the fraudulent conduct.  We at the Bribery Library wonder whether business managers would be quite so cavalier about not insuring their offices and factories against the risk of fire and flood? The potential disaster which can befall a company which is the subject of an investigation and then a prosecution is not so well known on this side of the Atlantic.  But just look at the examples of Siemens and Innospec, to name but two companies which suffered very significant financial and reputational damage from their prosecutions in the US and other countries. 
    The head-in-the-sand approach, which this survey seems to suggest is taking place in many British companies, risks, amongst other things:-
    an unlimited fine for the company,
    a serious prison term for the directors or senior managers who permitted illegal acts to carry on or turned a blind eye to them,
    possible debarment from public procurement tendering in many parts of the world,
    very large legal costs
    consequential civil claims from competitors or others who claim to have lost business as a consequence of illegal acts committed by the company’s associated persons
    a fall in share price for publicly quoted companies
    In stark contrast with the Ernst & Young report which suggests not enough is being done, in fact many British businesses are complaining that they feel “hampered” by the Bribery Act and that the Act is unduly restrictive of British trade abroad. This other point of view is summarised, by way of example in a letter in the Financial Times online on 17 March 2013:

    “As a businessman I can testify to the shameful cost in executive time that it has caused British companies. In addition it has had an entrepreneurial cost as non-executive directors are understandably anxious about its implications”. 
    We at the BriberyLibrary can certainly understand that the Bribery Act will add a certain layer of cost, particularly initially, in order to make sure that you have a robust anticorruption compliance programme, but once it is on its feet, depending on the size of your business and how much you rely on overseas sales, it should not be especially expensive to maintain.  The costs of ensuring that you do not become involved in arrangements which might involve bribing and corrupting others will pale into insignificance when compared with the costs of being prosecuted (see the list of bullet points above).
    The Daily Telegraph reported recently that
    “…Crispin Simon, a senior executive in UK Trade and Investment, the Government’s export agency, disclosed the move when he gave evidence to the House of Lords committee on small and medium-sized enterprises. He said there was a “desire” that the Bribery Act should be tested by the Crown Prosecution Service to provide a “better sense of where it stands”, and acknowledged it was “possible” that the legislation had resulted in the loss of some business….”
    The House of Lords committee, however, believes that there should be some urgent scrutiny of the Act, which in its view has put British business at a disadvantage in the BRIC countries where trade involved  “challenging questions”,  which one assumes means repeated requests for bribes, although it is not entirely clear.

    The Daily Telegraph report continues
    “Tony Shepherd, of Alderley Group, told the committee: “The existing Act is virtually impossible to operate as far as a UK company is concerned. You cannot really take someone out to dinner without committing a crime. I am extremely in favour of trying to eliminate bribery, but to have a situation where we are subject to a law that is much more severe than anywhere else in the world is not good.”
    It should be said that the Serious Fraud Office, which will be the principal prosecuting body for offences under the Bribery Act , has made it clear on many occasions since the Act was passed in April 2010 (and also in the Government’s Guidance on the Bribery Act in March 2011) that it will not be prosecuting defendants for dinners and other reasonable entertainment. So there seems to be a certain amount of misunderstanding amongst business managers.

    The United States has been enforcing its anticorruption laws (under the Foreign Corrupt Practices Act) against American corporations and individuals as well as foreign corporations and individuals (who are subject to its very low jurisdictional hurdles) for many years now.  So in fact the UK is merely playing catch up with one of its allies and competitors in terms of both its laws and its attitude to proper enforcement.

    No one case being prosecuted will be able to test all parts of the  Bribery Act.  It may take several such cases to go through the courts (if they do not reach a civil settlement before any trial) to test all parts of the Act.  If the UK’s experience turns out like the United States’ experience, it could take many years, even decades, for enough cases to go through the courts for the law to be clarifies by the judiciary. We all await the first corporate prosecution under the Act with great interest, but we might have to wait some time longer yet as the Act has only been in force for some 21 months, and it takes time for acts and omissions to be reported to or discovered by the investigators, and then more time for a decision to prosecute, and then to go through the justice system.  In the meantime in our opinion, there really is no alternative for British business other than putting in place a robust compliance programme so that the company is best protected against rogue employees or others associated with the company.

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