Garba Abubakar, Registrar General of Nigeria’s Corporate Affairs Commission (CAC), in this interview with John Osadolor and Harrison Edeh, speaks on the controversial
Companies and Allied Matters Act (CAMA) 2020. He gives a blow-by-blow explanation of the various sections of the Act and what makes it different from the CAMA 1990.
Talk to us through some of the new developments in the new CAMA at it replaces the one of 1990.
As you may be aware, on the 24th of July, 2020, Mr President assented to the new Companies and Allied Matters Act (CAMA) bill which repealed and replaced the CAMA Act 1990. The new law will soon be gazetted and it’s supposed to take effect immediately after it is gazetted. There are major developments in the new law that will change the face of our company’s regulation and supervision framework.
Let me start with the major areas of differences between the new CAMA and the repealed Act. The new law has 870 sections as against 612 sections in the former law. This means we have 258 new sections. Of this difference, 167 sections are completely new, while 91 were modifications of some of the provisions of the repealed law. And unlike the repealed law that was divided into four parts, the new law is divided into seven parts.
Under the old law, the law provided for only three legal entity types; companies, business names and incorporated trustees. We now have two new legal entity types that have been added; we have limited partnerships and limited liability partnerships. These are new legal arrangements that were alien to our law before, but they have now been introduced and they are consistent with what obtains globally.
My approach will be to discuss the different sections. I’ll highlight some of the major changes as it relates to companies. I will start from the administrative part of the law and even the composition of the commission.
We have additional board members that have been introduced; we now have the federal ministry of finance as a member of the board, the Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN) will also be on the board and the National Association of Small Scale Enterprises. This will bring the membership of the board to about nine (9).
Then, other issues related to companies. So many changes have been introduced in line with the ease of doing business initiatives of the government and to strengthen the legal framework and provide for greater disclosure by registered entities.
On the ease of doing business, some of the major changes that I will highlight relate to capacity to form a company and access to registration services. Under the former law, to register a company, you’ll require a legal practitioner to depose your declaration that the requirements of the law have been complied with before that company can be registered. Although, over the years, the commission had tried to introduce regulatory measures to reduce the impact of the provision, particularly on small entrepreneurs that may not afford the services of a legal practitioner. But, what the law has done now is that the owner of the business or agent can simply sign a statement of compliance that you have met the requirements of the law, it doesn’t have to be under any statutory declaration. So, with that, CAC can go ahead and register.
But, if you decide to use a legal practitioner in the registration process, the window for statutory declaration is still there. This will actually reduce the cost of registration because, in the ease of doing business measurement criteria, the World Bank is looking at the totality of the cost, not just statutory fees that you are paying. While calculating the cost of the registration they factor all the monies that you ordinarily pay to agents or intermediary to do the registration.
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So, this approach is now optional. You can do it yourself if you choose. But, we recognize that not everybody has the time to do it themselves, there are people that have the resources. But, the concern is about the small entrepreneurs, they may not even have the capital, they may even have to borrow the money to even pay the registration fees. Such kind of person should not have the additional burden of having to engage a professional.
Secondly, the minimum share capital threshold for companies’ registration has also been increased. Under the old law, with N10, 000 share capital, you can register a private company. And the N10, 000 doesn’t mean that you have to provide the money, at least, that is the authorized share capital. The assumption is that you can have other sources of running your company, you can borrow and run your company, you don’t have to bring the capital at the point of registration except if the company is coming to a close.
Under the old law, all you are obliged to share among the shareholders is 25℅, you can leave 75% unallotted and this can remain in your books for an inordinate period. This means that when you have new investors you can give them those shares. The new law says no, whatever share you register, you must distribute it at the point of registration, to cure any mischief that may arise.
But, that doesn’t remove your right to increase the share capital whenever you intend to. And, the essence of this is that you don’t have to spend money registering share capital that you may not have any immediate need for. So, if all you require is N100, 000 to operate, you don’t have to register a company with N500, 000 share capital, just register with N100, 000. When you are ready to increase, if you have grown to a size that necessitates an increase, then you increase and pay at the point of this increase. So, this is the analogy.
Then, the concept of the one-man company, until this new CAMA, to register a company, you require a minimum of two persons; shareholders and directors, they could be individuals or cooperate bodies for shareholders. Over the years, in the course of discharge of our statutory responsibility here, we’ve come across cases where companies were faced with a challenge, particularly 2-man companies when the principal owner dies.
In most cases, we discover that the second person was included merely to satisfy legal requirements. In actual sense, he doesn’t even know how this business is being run, he doesn’t contribute anything. But because on the record he is a shareholder and a director, you can’t do anything without his consent and knowledge. So, in most cases, you have hostile succession process when the principal owner dies, and at the end of the day, you’ll discover that the estate of the deceased is always at the receiving end, because one person who never partook in the running of the business can hold him to ransom, simply because somebody decided to put his name there to satisfy other requirements.
So, with this, as an individual, you don’t need a second person, not even your wife. You can register your company alone and it will have the same legal capacity as any company that has 1000 shareholders. It will have a separate legal personality from you, it can sue and be sued in its own name and it can exist in perpetuity. Even after you are gone, somebody else can take over and continue and it can hold an asset in its own name. This is a very good development because people have the freedom to use their own businesses.
In the past, only business names can have one person. The challenge with business names is that the business name dies with the owner because it doesn’t have a separate legal personality. But, in companies, it can exist in perpetuity. If you have any property in the name of the company, somebody can take over the company and indirectly, he also owns the property.
So, this will go a long way in minimizing cases of disputes particularly succession and inheritance and also provides a good avenue for people that cannot work with others to manage their own business alone.
The next issue has to do with small companies, the law has provided so many exemptions for small companies. We are taking into cognizance their own circumstance as ‘small’. The strict requirement for annual audit and filing of annual financial statements, mandatory appointment of secretary, all these things have been removed. A small company is a private company that has a turnover of not more than N100 million and net assets of not more than N50 million and the majority of shares have to be held by the directors of the company. And the government should not have an interest in that company, there shouldn’t be any foreigner or foreign company that has an interest.
Once you meet this requirement, you qualify as a small company, but, what we are trying to do is to align some of the provisions of this law, with the provisions of the Finance Act, as it relates to the turnover threshold because incidentally, the law says turnover of N100 million, net assets of N50 million or such other amount as may be set by the CAC.
So, we intend to bring down the turnover threshold to N25 million to make it consistent with the Finance Act, so that we will have at least a predictable system. Anybody that knows that he is exempted from tax, is also exempted from this. Because, that is what brings regulatory arbitrage if you have a different standard for different regulators, but when we have a uniform standard, that will reduce cases of regulatory arbitrages.
So, as soon as the law is gazetted, part of some of the regulation we are going to come up with will include this; it will provide for a lower threshold, in line with what obtains in the Finance Act.
The other changes that are significant, have to do with beneficial ownership disclosure. We call it “person with significant control.” As you may know, there is global attention on knowing the ultimate beneficiaries of companies, because companies by their nature have separate legal personality from their owners and the law allows a company to own another company.
So, sometimes it’s difficult to know the ultimate individuals that are actually benefitting from these companies. And because of concerns about corruption, money laundering and others, global attention has shifted to lifting the veil to know those persons that are actually benefitting. We are focusing on the extractive sector under the EITI, the Open Government Partnership Commitments, we also have the financial action task force recommendations, all these international bodies, as part of the condition of membership. Members are supposed to have a registered beneficiary of owners of these companies.
And if you recall in 2016, during the annual anti-corruption summit, Mr President made this pronouncement that Nigeria is going to establish registered beneficiary owners of companies. Unfortunately, due to the absence of a legal framework that could not be realized, that gap has been closed now. We have provisions under the new CAMA Act that allows for mandatory disclosure of persons with significant control.
We decided to adopt the wider framework of control as opposed to a strict definition of ownership. Our provisions are in line with the United Kingdom model and it’s not just limited to ownership of shares. If you own shares up to a threshold of five (5) percent or voting rights of 5 percent, or, while by virtue of your position, either as a shareholder or otherwise, you control the employment of the majority of the directors, or, under any guise, you have any form of authority as to the manner the company is managed, then you fall within the definition and you must disclose your status.
You are required to provide the information to the company within 14 days of falling into this category and the company has a window of 30 days to file this information with the Corporate Affairs Commission (CAC). This is a new requirement as I said and the Commission is required to establish registered beneficial owners.
The register will be publicly available, because this is what we have signed off in OGP, and this is what we have signed off in EITI. In fact, because of the absence of a legal framework, NEITI was forced to come up with an interim register, which is publicly available now to make the requirements of the EITI, because EITI had a deadline of January 2020, for the implementation of the register. The intention is that, by the time the central register is developed, you may not need sectorial registers, the central register will take over from this.
We are already getting support from the World Bank under the OGP multi-donor fund, they have earmarked 400,000 dollars to support the development of these registered beneficial owners. So, this is a very significant development and it will actually support our anti-corruption initiative, so that at a glance particularly for you journalists, you may have information that Mr A has an interest in a company that has an oil bloc or a mining lease, but this information may not be anywhere in the record. He may be using proxies or another fictitious identity. You can easily expose this and this will call for an investigation and if found to be true, there are sanctions provided in the law for non-compliance, so, this is actually the objective of this.
Other issues relate to public companies, by their name, any member of the public can own shares in a public company. The governance framework until now, was not robust, was not strict and the checks and balances were not stringent. Although different regulators had issued corporate governance code, you have a lot of unregulated areas where companies operate on their own. Incidentally, the new law now provides that every public company must have a minimum of three independent directors and the law has enshrined the qualifications of these independent directors. Some of these qualifications are: he shouldn’t be the director himself or his relative shouldn’t be an employee of the company, whether past or present; he shouldn’t have made or received any payment for an amount above N20 million, and he or his relative shouldn’t have any shares or interest in that company of up to 30 percent. So, if you fall into this category, you are not qualified as an independent director. This will ensure checks and balances. Since you are not affiliated to any of the major shareholding blocs, the assumption is that you will have the level of independence to actually operate objectively and call to question any issue that you are not actually satisfied with. This will bring better governance, particularly in our public companies.
Other issues have to do with being a multiple directors in public companies, and the combination of the role of chairman and chief executive. Under the new law, one individual cannot combine the offices of chairman and chief executive. This is to ensure checks and balances. You cannot be a director in more than five public companies, and even where it is less than five, you have to disclose those public companies that you are serving as a director.
This will actually ensure transparency so that you don’t end up being a director in a company whose activity conflict with each other. You use the knowledge you derive from one company to the benefit of the other. So, if you disclose that you are in company A & B, and they are in the same line of activity or trade, you may not be allowed.
Another issue has to do with general meetings. Unfortunately, the changes for public companies are not significant because nobody anticipated COVID-19, nobody thought we will be in an era where the whole world was at a standstill for months, where nobody could go anywhere. And people were forced to hold meetings electronically, so we didn’t anticipate this kind of scenario, we didn’t make provisions for electronic meeting for public companies.
But private companies can hold their meetings electronically, but moving forward, this is one area of the amendment that we are going to look at so that we can have a quick amendment of this area to allow for an electronic meeting by public companies in a manner that will ensure participation of all shareholders and in a manner that will not be manipulated by the presiding officers. This is a work in progress, there are areas we are compiling for possible amendment.
Then, the issue of dividends. Under the repealed law, there is no limit to when you recover unclaimed dividends. Now, after 12 years, the dividend will revert to the company and it will be distributed to the members as profit. And the law has also provided that companies should publish in two national newspapers the names of people that have not claimed their dividends.
Some people have raised concerns on this, on the issue of data privacy. The data privacy relates to personal information about your date of birth, address and other things, not just name. I don’t see anything wrong in publishing names of shareholders in companies, at least that will be publicly available and anybody that sees his name or the name of his late father or uncle can go for his money and provide proof. Some have raised concerns that fraudsters may take advantage of that and claim the money. I don’t think anybody will pay you without proper scrutiny and you have to provide nexus between yourself and the deceased.
For small companies, they are exempted from annual general meetings. They don’t have to hold formal annual general meetings. And, as I have said, they are exempted from the mandatory requirement of audit and appointment of secretary.
Then, the issue of a company seal is now optional, because this was one area of concern under the ease of doing business, a company need not have a seal. So, any document signed by a director or secretary, whether or not it has a seal is deemed to have come from an authorised source.
Another significant change for companies relates to the insolvency framework. Under the former law, immediately a company is at the verge of insolvency, the company was always at the mercy of the lenders. There was no provision for the company to initiate on its own, any resolution mechanism that will ensure that issues of insolvency are resolved on its own terms. They are always at the mercy of the lenders. And we have seen from the various reports, most companies that go through the process of receivership, they hardly survive, they end up being wound up.
We now have a new provision on company voluntary arrangement that will allow the company to approach the court, to appoint an administrator, who is independent of the lenders to manage the affairs of the company, to pay the liability and preserve the assets. So, in the process of that, you are preserving jobs, because, it’s not the creditors that are stakeholders. You also have the employees and even the government that receives taxes from these companies.
This is a very good development. From this, CAC will be accrediting insolvency practitioners, this was not part of the former law. This will actually minimize the high turnover of companies, the hostile process will be minimized and we will see more companies surviving insolvency because you have an independent person who is accountable to all the parties, not just one party. Where the creditor appoints, it’s the creditor that dictates in most cases how the receiver will conduct himself. So, this is a good approach and it will go a long way in helping some of these small companies that may have this kind of issues.
On business names, we also have more elaborate provisions on business names. It’s a name that allows you to trade under a name and style, there is no distinction between you and the business. But we have significant that changes relate to associations under part C. You must have read the reports in the media, people are questioning the provision that gives CAC the power to suspend trustees.
This is not a new thing, we are talking of ease of doing business, best practice and competitiveness. You cannot compete using your local standards. If you want to compete, you have to use the globally accepted standards and some of the changes that have been introduced, are nowhere close to some of the provisions that we have in the Charities Act of the UK, we just borrowed some provisions from the charities Act. They are not even as for reaching as what you have in the Charities Act.
And, as I have said, the difference between part C and part B and A is that registration under part C is not mandatory. You have a choice if you feel you can run your association on your own, without registration, go ahead and run your association. Whether a donor will give you contribution is another issue, or whether your congregation will agree with you is another issue, but you have the freedom.
But, where you agree to submit yourself to registration, then you must be subject to the oversight of that regulatory body. The fact that this law has not changed in the last 30 years does not make what we are doing right.
The provisions in the repealed law on associations were just a replica of what we had in the Land Perpetual Association Act which was a pre-1900 law. Developments globally on registration of associations and charities have moved beyond anybody’s imagination and in any case, these organizations are not for profit, there are physical issues involved. So, there has to be a lot of scrutiny on how the income and property of these associations are managed and there is to be a clear separation between the income of this associations and the income of the founders and the trustees.
The trustees are the legal representatives, they’re mere trustees and they have a fiducial relationship. They are not supposed to benefit personally from the income the Organization is making outside their out-of-pocket expenses, where they engage in activities on behalf of the association. They’re not supposed to share whatever income is made.
CAC will not arbitrarily remove or suspend a trustee. First, there has to be a petition, or there may be circumstances where there are reasons to believe that there are infractions. CAC will have to give an opportunity to the trustees to respond before you can take any further action. Even where they respond and you are not satisfied with the response or where you feel it is necessary for them to step aside, to allow for unfettered investigation, then you can suspend them, otherwise, you leave them in office. This power is not absolute, CAC has to exercise this power judiciously because we can be challenged.
So, I can’t see the hue and cry. Maybe because over the years people have been left on their own, unchecked, unregulated without any form of accountability. How many of these organizations even hold annual general meetings as provided by the law? How many of them render account to their membership? All these have to change!
In Part C of that Amendment, is there any provision that gives CAC power to tell a church to decide who will be appointed as a member of the trustee?
All these things are governed by the constitution if the members agree that this should be the trustees or governing body, once they meet the qualification criteria; that they are of sound mind, they have not been convicted for any offence involving fraud or dishonesty in the last five years, they have not been declared bankrupt and they are not below 18 years. Once you meet these qualification criteria you can be a trustee. If, it is the decision of the members to make members of the same family or father and son trustees, so be it. But, the snap there is, for most of the organizations, you will see that they may have a congregation of 500,000 to one million, but on the record, the membership may not be more than five or six. By law, it’s the members that will make the decision. If you are attending congregation either in a mosque or church and you do your worship there, you are not necessarily a member of the legal association, you may not exercise any power of voting or removing anybody.
The advice I’ll give is that people should read some of these constitutions. If somebody invites you to join, you need to know your rights, you need to know what the association constitution entails. But, the bottom line is, the organizations are supposed to be guided by their constitution and by law.
And as I said, there are no restrictions, if you don’t fall into the disqualification criteria, you are qualified to be a trustee. It behoves the members to change the rules and say look if you’re affiliated to Mr A or Mr B either by marriage or by blood, you cannot be this or that. That’s not our business. The area we are concerned with as regulators are how the income is managed. Whether the income is being shared contrary to law, these are the areas we are concerned and whether these organizations are operating in line with their constitution. Because you cannot do a constitution and act contrary to the constitution. So, that’s the areas we are concerned with.
And, as you may know, we have read some of the reports on the actions of the Charities Commission and some of the Nigerian owned churches or organizations in the UK, where some of the trustees were suspended. So, this is nothing new, nobody will be suspended without hearing from him. And, as I have said CAC will exercise its powers judiciously and if there is any petition against anybody, CAC will not just act on the basis of the petition from one side without hearing from the other side. Finally, our actions are subject to judicial review. So, even when CAC suspends, an aggrieved person can go to court and challenge the action of the CAC.
Will you go out of your way to willfully educate people about these things; will you be doing public enlightenment?
Very well, this is part of our public enlightenment, because this thing will be published, members of the public will read this. We intend to enlighten the public on the provisions of these new laws and the changes. We are taking out time in various media houses, FM stations, TV stations, other radio stations to do enlightenment.
But, beyond what CAC will tell you, we encourage people to read this law and get guidance from their lawyers. This law is beyond CAC, it’s not just for CAC, and it’s supposed to guide these entities in their actions. So, everybody should read the law, so that when CAC goes wrong, you challenge us and tell us that we have gone wrong, if we issue any directive that you think is contrary to law, write! Tell us that this is contrary to law. If we do not change our position, you are free to go to court, to challenge it.
But, the issue is whether a religious body, a socio-cultural organization, civil organization or humanitarian organization or whatever, once you submit yourself to registration, you have to behave in line with the framework that defined the scope of your activities by the law you are registered under. If you don’t want to operate strictly in line with your religious books, then don’t come and register.
Then it becomes an illegal association?
No, it may not be illegal, but nobody will recognize you, you can’t have a bank account in the name of the association. But, constitutionally, you have the freedom to associate. It’s not illegal.
The law says where any community of persons bound together by custom, religion or kinship, or anybody association established for any literary religious, cultural, social development or charitable purpose, they may register, so it’s still an option.
Will it not be better to help people appreciate what you are doing when people are encouraged to register, play by the rules, follow the terms ABD conditions of the law?
That’s what we do, nobody wants infractions, it makes our work easier, it makes our enforcement easier. For as long as you are operating within the confines of the law, you don’t have to fear anything. Most of these concerns are unnecessary, because your constitution is registered by CAC and it has outlined how your organisation is going to be governed and how you will manage funds, and it has stated clearly that the income and property will be utilised strictly for the purpose of the objectives for which your organization is established and will not be distributed by the members.
So, if you are operating in line with that, why the hue and cry. For as long as you are operating in line with that, you don’t have to entertain any fear of being removed. Nobody will remove you, but where you serve the property of the organizations as a trustee and you breach their trust, don’t expect CAC to look the other way.
Will CAC still be the judge when somebody flouts the rule and send them to jail? Sections 851 empowers CAC to act as a court
No. We don’t send anybody to jail.
CAC is not a court of law. The law has given us the power to suspend trustees. You don’t just suspend somebody except there is a reason. If there are credible allegations against somebody and he remains in office, he will not allow for a full-scale investigation to be carried out. CAC can suspend him. CBN suspends directors of banks, CBN even removes directors of banks, why are people not complaining? Insurance commission can remove a director of an insurance company, why are we not complaining?
We are not taking over the work of the clergy or NGOs, our concern is not about how the religious activities are carried out, our concern is mainly about the governing structure, whether they are operating in line with the law and in line with their constitution.
And as I have said, anybody that doesn’t want to come under this regulatory purview has the responsibility of not registering with CAC at all. You can still run your religious body without registering, but, when you submit yourself for registration, then you must abide by these rules.
CAC will act judiciously and whatever we do is subject to judicial review. Our power is not absolute, any aggrieved person can challenge our powers in court. The law did not say remove; it says suspend and when you suspend, you institute an investigation, if at the end of the investigation, the allegation is confirmed, that’s a different thing.
So, these are just negative publicity, just to blur the good aspects of this law. Because, over the years people are running their organizations without any form of accountability, some of them don’t even render account to their members.
We should bear in mind that these organizations are not- for- profit, the trustees and governing body are not supposed to benefit from the income.
As I have said, people don’t need to entertain any fear, if you are running your organization in line with the law, and your own constitution registered with the CAC, you don’t have to entertain any fear. But, those that are committing infractions, there is no hiding place for them.
What about their resources, what about CAC taking over the money of churches if they commit infractions?
It’s not permanent; the members will decide to appoint new people. CAC can prosecute if you embezzle the money belonging to the trust or to the church or mosque, then you can be prosecuted. The law is clear, this money is not meant for you.
And if you are removed, interim management is appointed and when they investigate and confirm the allegation, what will the person still be doing with the association? The members can now elect new people in their place, not CAC. CAC will only appoint interim management.
The issue I want you to note is that these provisions are not peculiar to us, go and read the Charities ACT in the UK. Our provisions are not as for reaching as what they have in the Charities Act. So, we are not taking over any church or any mosque. Anybody that operates within the confines of the law, need not fear anything, but those that run these organizations as their personal estate, and you don’t distinguish between the organization’s property and their personal property, then that era is over.
On BRIFA, this argument is mischievous because, under the CAMA, we have NACCIMA, even NBA, manufacturer association is also registered with CAC, so what is wrong with BRIFA?, These are professionals. To be a member of BRIFA, you are either a lawyer or a chartered accountant. The law has given CAC the option to audit other professionals, a lawyer or an accountant can come directly and get accredited even when he is not a member of BRIFA. These are just mischief-makers.