Statutory Validation of Corporate Transfer of Liability; A Critic of Section 30(1) & (2) of CAMA 2020


By: Arotiba Olawale Affluence

The primary legislation governing the formation, administration and final disposition of a company is the Company and Allied Matters Act 2020 (“CAMA 2020”) (See Section 8(1)a of CAMA 2020). The Business Facilitation (Miscellaneous Provisions) Act 2023 (“BFA 2023”) was enacted to compliment the provisions of CAMA 2020.

By virtue of Section 4(g) & 8(1)a CAMA 2020, the Corporate Affairs Commission (“the Commission”) was established as the regulatory body with juristic personality saddled with the responsibility of ensuring compliance with the provision of CAMA 2020, administering the Act including the registration, regulation and supervision of the formation, incorporation, management, striking off and winding up of Companies etc. 

The statutory duty of the Commission can be likened to that of a gatekeeper at the passage of the portal between the spirit realm and physical realm, whose job is to scrutinize, verify and confirm that all qualifying requirements of a spirit-being applying for a body/flesh to come into the physical world are fulfilled before giving it the needed body and passage into the physical world.

For the successful incorporation or registration of a Company, the first step to take as provided for by Section 31 of CAMA 2020 is to conduct an online availability check/search to confirm the availability of the proposed company name and reserve such name upon confirmation of its availability. The performance of this step requires the payment of a prescribed fee.

The essence of this step is to investigate if the name proposed for the registration of a business organisation is already in use. The rationale behind this is to ensure that an incorporated business organisation enjoys its rights and bears its liabilities as a natural person of full capacity, as provided in Section 43 of CAMA 2020, without the possibility of corporate impersonation such as PASSING OFF.

Prior to the enactment of CAMA 2020, the process of name search and reservation was quasi-manual and solely within the capacity and power of the Commission.  No applicant is privy to the Commission’s archive to know what names are already in use or otherwise. However, the CAMA 2020 provides for electronic search. Thus, in practice today, promoters and/or accredited agents visit http://publicsearch.the to search and ensure that their proposed names are not already in use by an existent business organisation after which they proceed to apply for the reservation of the proposed name.

The procedure for availability check/ search and reservation of names places 30% of the burden of confirming the availability of a name on the applicant while 70% of the burden is placed on the Commission. The onus is on the Commission to confirm and determine from its database whether or not the proposed names are in existence. This position can be safely and incontrovertibly inferred from the literal interpretation and the combine reading of Section 8 of BFA 2023 and Section 31(1) of CAMA 2020. Section 8 of BFA 2023 and Section 31(1) of CAMA 2020 provides thus:

Section 8 of BFA 2023 

The Registrar-General of the Corporate Affairs Commission (CAC) shall, within 14 days of the commencement of this Act, ensure that all application processes at the CAC are fully automated from the start to completion.

Section 31(1) CAMA 2020

The Commission may, upon receipt of an application delivered to it in hard copy or through electronic communication and on payment of the prescribed fees, reserve a name pending registration of a company or change of name by a company “upon confirmation of the availability of such name.”)

It is therefore safe to say that whatever degree of negligence done by the applicant during his search via the weblink above, is immaterial because his application is by all means and at all times subject to confirmation by the Commission who is the allodial custodian as well as alpha & omega of all readily registered names. As such, it does not matter the number of times the applicant does so, no penal measures should be sanctioned on the applicant for submitting existing business names for registration because even the repeated payment of application fee is enough pecuniary penalty for him and to the benefit of the Commission.

By virtue of the provision of Section 31(3) of CAMA 2020, which states thus;  Notwithstanding the provisions of subsections (1) and (2), the Commission may at any time before a certificate of incorporation is issued, withdraw or cancel a reserved name if it discovers that such name is identical with that by which a company in existence is already registered, or so nearly resembles it as to be likely to deceive, the Commission has, until the issuance of a certificate of incorporation, the power to withdraw or cancel a name inadvertently reserved by it.

Despite having such power as identified in Section 31 (3) of CAMA 2020, the Commission is probably too busy to exercise this power until the promoter/applicant has expended valuable time and money in the completion of the incorporation of the company, publishing the name of the company on all print and electronic media, and the company has by this name found its footing amongst its peers in the same business sector after which the Commission will then come with impunity to advise or compel the company to change its name on the ground of passing off which was occasioned as a result of the Commission’s mistake and consequently attach penalty to default. 

In such cases, the question that comes to mind is, who is liable or who should be held accountable if a proposed name submitted for search by an applicant to the Commission is confirmed and reserved by the Commission without requisite due diligence by the Commission despite the name or a similar name being in existence? My unapologetic answer is the Commission.

Regrettably, the provisions of Section 30 (1) & (2) of CAMA 2020 places the liability of such inadvertence on the company.  The provision of Section 30(1) & (2) of CAMA 2020 reads thus; 

30.—(1) If a company, through inadvertence or otherwise, on its first registration or on its registration by a new name, is registered under a name identical with that by which a company in existence is previously registered, or nearly resembling it to be likely to deceive, the first-mentioned company may, with the approval of the Commission, change its name, and if the Commission directs, the company concerned shall change its name within six weeks from the date of the direction or such longer period as the Commission may allow.

(2) If a company defaults in complying with a direction under subsection (1), such company shall, without prejudice to any other lawful action which the Commission may take against it, be liable to a penalty as prescribed by the Commission, for every day during which the default continues.

In my opinion, it is unjust and unfair for a person (a company) to be punished for the error committed by another. It is even more heinous and enraging to make the latter person the Judge, Jury and Executioner in the administration of such undeserved penalty on the innocent person. It is hereby submitted that the provision of Section 30(1) & (2) of the Company and Allied Matters Act, 2020 is a legislative endorsement and encouragement of corporate despotism and high-handedness on the part of the Commission.

Flowing from the foregoing, I hereby recommend that the provision of Section 30 (1) & (2) of CAMA 2020 be amended to tow the line of this reasoning. Afortiori, instead of the Commission penalizing the innocent company for their own wrong, the Commission, being a body corporate as provided in Section 1(2) of CAMA 2020, should bear legal liability in specific and general damages for its negligence because it owes would-be Companies the duty of care of ensuring flawless corporate christening to avert corporate impersonation.

Olawale Affluence is a bar aspirant (NLS 2022/2023)

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