Background
The Companies and Allied Matters Act (Chapter C20) Laws of the Federation of Nigeria 2004 (“CAMA 1990”) was initially made law in Nigeria in 1990 as a decree of the military government. It was modelled on the English Companies Act 1985. For thirty years, there were no significant amendments to the CAMA 1990, notwithstanding that England has, over the past three decades, amended and replaced its own Companies Act. Nigerian companies had to, essentially, rely on a 30-year old law to govern the way businesses operate in our dynamic and exponentially evolving global community. However, this all changed on Friday the 7th of August 2020, when President Muhammadu Buhari, gave his assent to the Companies and Allied Matters Act 2020 (“CAMA 2020”).
In the course of a 12-part series, Udo Udoma & BeloOsagie will provide a review of the provisions of the CAMA 2020, highlighting changes that have been introduced into the body of Nigerian company law by this groundbreaking legislation.
Scheme of arrangement – the concept
Section 710 of CAMA 2020 defines an “arrangement” to mean “any change in the rights or liabilities of members, debenture holders or creditors of a company or any class of them or in the regulation of a company, other than a change effected under any other provision of this Act or by the unanimous agreement of all parties affected”. Simply put, a scheme of arrangement is an arrangement between a company and its shareholders or its creditors for the purpose of effecting a transaction which cannot be effected pursuant to any other provision of CAMA.
SEE ALSO: CRC Credit Bureau embarks on consumer education
Examples of transactions that are usually implemented using schemes of arrangement include mergers and corporate restructurings. A scheme of arrangement could also be used in the context of a share acquisition to ensure that the shares sought to be acquired by an investor are acquired from all shareholders on a uniform basis.
The focus of this article is on schemes of arrangement and mergers.
The process of implementing a scheme of arrangement or merger
Where an arrangement is proposed between a company and its members, an application is submitted to the Federal High Court (“Court”) and, pursuant to that application, the Court will order the company to hold a meeting of its members – commonly referred to as a court-ordered meeting. The resolution required to approve a scheme of arrangement (“Scheme”) is a special resolution, that is, a minimum of 75% of the votes cast by members present and voting at the court-ordered meeting.
Under the CAMA 1990, once the Scheme was approved by the shareholders, the Court had the power to refer the scheme to the Securities and Exchange Commission (“SEC”) to investigate the fairness of the Scheme and, thereafter, submit a report to the Court. If the Court was satisfied as to the fairness of the Scheme, the Court would sanction the Scheme and, once this is done, the terms of the scheme become binding on all the shareholders of that company. The Scheme became effective when a certified true copy of the Court order was registered with the Corporate Affairs Commission.
Re-introduction of provisions relating to mergers, share acquisitions and other forms of corporate restructuring
The CAMA 2020 re-introduces provisions prescribing the process for (i) effecting mergers and other forms of arrangements; and ( b) acquiring the shares of dissenting shareholders.
The background to this is that when the Investment and Securities Act 1999 (“ISA 1999”) was passed, it repealed Part 17 of the CAMA 1990. Some of the repealed provisions included sections 591 to 593 of CAMA 1990 which dealt with schemes of arrangement. Specifically, section 591 dealt with reconstruction and merger of companies, section 592 dealt with powers to acquire shares of dissenting shareholders and section 593 dealt with the right of dissenting shareholders to compel the acquisition of their shares. The text of these three sections was deleted from the CAMA 1990 and re-enacted as sections 100 to 102 of ISA 1999.
When the Investment and Securities Act 2007 (“ISA 2007”) repealed the ISA 1999, however, only sections 101 and 102 of the ISA 1999 made it into the ISA 2007 – as sections 129 and 130; section 100 of the ISA 1999 was omitted. The effect of this omission was that there was no longer a statutory basis for the market practice that had developed in Nigeria, in relation to the process by which schemes of mergers and other forms of reconstruction, were carried out (that is to say, the process of applying to the court for an order to convene meetings to approve the scheme and, ultimately, to sanction the scheme and make a wide range of orders relating to the transfer of rights and liabilities under the scheme).
The Federal Competition and Consumer Protection Act 2018 (“FCCPA”) was signed into law on 30th January 2019. One of its effects was the repeal of sections 118 – 128 of the ISA 2007 dealing with mergers and acquisitions. Unlike the previous repeal of Part 17 of the CAMA 1990 and the repeal and re-enactment of the ISA 1999 as the ISA 2007, the text of the repealed ISA 2007 provisions was not reproduced in the FCCPA. Fortunately, the CAMA 2020 re-introduces the texts of the previous sections 591 – 593 of the CAMA 1990 (which are very similar to sections 100 – 103 of the ISA 1999).
This re-introduction is significant for several reasons:
a) it will ensure that there is no lacuna in the process of effecting a scheme of arrangement and that the law once again sets out clearly the process by which all forms of schemes can be effected;
b) there will once again be statutory backing of the right to invoke the Court’s jurisdiction to make orders for various matters to be dealt within the context of a merger such as the transfer of rights, assets and liabilities from one company to another, the allotment of any shares or other interests and matters incidental or consequential to the Scheme;
c) the process for dealing with dissenting shareholders in a scheme (i.e. sections 129 and 130 of the ISA 2007) has been reunited with the provisions that set out how to conduct a scheme (i.e. the repealed section 591 CAMA 1990 and section 100 ISA 1999); and
d) as a consequence of the above, the CAMA 2020 contains a complete set of provisions for the conduct of schemes of arrangement including schemes of mergers.
The framework for implementing schemes was re-introduced with two important changes. Firstly, the merger becomes effective and binding on the companies once it is sanctioned by the Court and, therefore, even before the Court sanction is filed at the CAC. The Court sanction must, however, be filed at the CAC within 7 days. Secondly, section 711 does not empower the Court to refer the scheme of merger to the SEC to consider the fairness of the scheme – which section 715 does. Consequently, while it is possible to structure a scheme under both sections 711 and 715, schemes structured under s. 715 can be referred by the Court to the SEC to determine the fairness of the scheme and, schemes under s.715 do not become effective until the Court order sanctioning the scheme has been filed at the CAC. Certain companies (for example, private and unregulated companies) may, therefore, consider implementing mergers or other forms of arrangement or reconstruction using the simplified framework prescribed in section 711 of the CAMA 2020.
This series was produced by Udo Udoma & Belo-osagie for general information purposes only and does not constitute legal advice and does not purport to be fully comprehensive. If you have any questions or require any assistance or clarification on how the subject of this guidance note applies to your business, or require any company secretarial or business establishment services, please contact us at uubo@ uubo.org
