CAMA Will Enhance Corporate Governance

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By Chuks Nwana

Background
The latest company law amendment to the existing legislation, has generated a lot of interest and opinions in the public space. Generally our company law has not been proactive as it has been unable to pre-empt the changes that happen every day and new processes of doing business. This reaction explains why Nigeria has been slow to keep pace in the fast and dynamic world of corporate evolutions, and so, we have had an amendment to the Companies Act Ordinance of 1912 in 1968 , subsequently updated in 1990 up until the latest codification. In other jurisdictions company law amendments occur at least every ten years. It is common knowledge that the corporate world is in a state of constant flux and changes happen on a regular basis, and government decided that a wholesale overhaul of the law will be better than ad hoc amendments .



In effect, some of the provisions become very obsolete in a matter of years as can be seen in some of the penalty provisions under the previous Act which are ridiculous in view of the present value of the Naira. In some situations, the innovations in the laws always reflect the preponderance of judicial opinion, either in Nigeria or from common law jurisdictions around the world.

It has come to be recognised that a proper and efficient legal framework is essential for business to thrive in an emerging economy, and for this reason, this present Government has aggressively promoted the ease of doing business in Nigeria, and sought to have favourable rating under the United Nations chart on friendly environments for investment of capital. It became obvious that the 1990 Act was insufficient to meet the evolving business environment where the world has become a global village, and international capital only goes to an environment where it is wanted. The new law is an attempt to approximate international best practices, but it has nevertheless, generated concerned observations particularly where some provisions have not taken into account our peculiar local circumstances.

The New Section 18(2) CAMA
I intend to dwell essentially on the provisions of Section 18(2) of the new law, which makes it possible for a single shareholder to incorporate a company. Hitherto, the law required a minimum of two shareholders for the incorporation of a company, and that was the prevalent attitude in many jurisdictions. Over time and for practical and expedient purposes, companies can now be incorporated with just one person, so that issues of compatibility and sometimes corporate warfare can be avoided. In almost all civil and common law jurisdictions, it has become the standard for companies to have a sole shareholder, and Nigeria finally joined the bandwagon. The provision of this section is also elastic enough to include companies that have a sole shareholder that is a company.

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Under the common law and statute, shares are considered to be personal assets or chattels like cars and clothes that inheres in an individual or corporate entity and over which they enjoy certain rights including alienation, sale, transfer or gift . Individual shares in a company enjoy the attributes of a personal property that can be freely transmitted to other persons, either testate or intestate. Under the repealed Act, the whole essence of having more than one shareholder was for the company to be sustainable in one way or the other, when any of the shareholders passes away. This was the logic behind family companies where perpetual succession was guaranteed not only by law, but by an operational device which allowed the company to go on with the other members of the family when the progenitor is no longer around.

For the reasons referred to above, sole shareholding is attractive for easy and fast corporate engagement, especially in advanced societies where the process and regulation in respect of transmission of shares upon death is seamless, and driven by technology.
Under our existing probate and succession laws, where a person dies his/her assets devolves on his personal representatives where he has written a will and has disclosed the sole shareholding in a company, or in the absence of a will, the assets both personal and real remain in abeyance until letters of administration are obtained .

The purpose of this contribution is to draw attention to the chaos, lack of data and confusion that obtains in most probate registries in Nigeria. With the possible exception of maybe one or two States, the probate registries belong to the Stone Age. Consequently, it takes an average of more than two years to obtain letters of probate or administration, and where they are obtained, they may be mired in bruising legal disputations which may not be resolved for several years. The available records and statistics show that about 80% of chieftaincy, land, estate, probate and succession issues in superior courts of record, go all the way to the Supreme court and may never get resolved until after about 15 years. It is therefore easy to imagine that where the family is even aware of the existence of the company , the issues about and around vesting or transmitting the shares to the personal representatives or administrators will take many, many years because of the slow and lethargic process of processing applications for grant of letters of probate or administration.

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Anyone versatile in probate and asset investigation knows that sole shareholding in a company will be difficult to discover, especially where the shareholder dies suddenly. The effect of this unsavoury situation is that the company will be in limbo and the registry will be holding details of companies that have ceased to exist in practical terms, and which vision has died with the sole share holder. This is the main reason why several businesses do not survive the death of their founder. It was for this reason that the law provided for two or more shareholders, so that the surviving shareholder(s) can continue with the vision especially in emerging economies where the macroeconomic structures are absent.



I draw attention to the validity of the Supreme court decision in TIKA TORE PRESS v ABINA (1973) 4 S.C. 53 where the court held that personal representatives do not assume automatic membership or shareholding of a company until the formal registration as a member, and can therefore, not exercise any rights of membership to attend any meetings, vote or even earn dividend . It is recognised however, that this position may not be tenable if the articles of association of the company provide otherwise. The important issue in this context, is whether a sole shareholder can get into a contract with himself to provide for rites of transmission of shares upon his demise, if we understand that an articles of association is actually supposed to be a contract between members of the company, and not one person. Section 155(5) of the 1990 Act, is in my view, actually a statutory repeal of the Supreme Court decision to the effect that, personal representatives are entitled to receive dividends, bonuses and the like, only after they have been formally registered as members of the company with the letters of probate or administration.

Shares are not automatically transmitted, and shareholders are either the shareholder, the personal representatives or to any other person to whom shares have been transferred by operation of law.
In some situations the personal representatives may not be interested in continuing with the line of business, and in the absence of any other shareholder who could acquire the shares, the company dies a natural death. I consider that in the particular situation of Nigeria, it cannot really be the intendment of the law that companies with single shareholders should die, the moment the shareholder ceases to exist. May I also add that, there are potentials to use a one man shareholding as an instrument for fraud when it becomes necessary to lift the veil, as tracking a sole shareholder may be almost impossible.

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It is my view, and under the Nigerian situation, that sole shareholding will only serve a transactional and narrow purpose, and businessmen are better advised to ruminate carefully on the consequences of having a company that dies a day after their death. Perhaps, we may need to undertake a big digital overhaul of our data base and the probate registry, to ensure that grant of letters of probate and administration can be achieved within 90 days in a network that is connected to the Corporate Affairs Commission databank. This overhaul and efficient processing of applications must be part of the objectives of easing the pains of conducting business in Nigeria.

Without prejudice to what the judicial attitude may ultimately be to these new provisions, the electronic filing of documents and some virtual meetings have been validated by the Evidence Act, and we can project that the courts will not unsettle the compliance with the digital age.
The situation of where a company is also the shareholder does not present a situation as challenging as that of an individual shareholder, because the company sole shareholder (provided that an individual is not the sole share holder in the holding company) will have perpetual succession and the company will be sustained, as against where the death of an individual share holder may result in the involuntary death of the company.

Conclusion
In the final analysis, the new Companies Act is a curious blend of keeping pace with international developments in the area of corporate governance, establishing a friendlier legal framework to satisfy the interest of businesses, and to ease business transactions, but at the same time, it is very important to pay attention to local sensibilities and actually drive the process with profound attention to our customary and digital situation.

Chuks Nwana

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