Seven publicly listed firms in Nigeria incurred N21.53 billion as legal fees in the first half of 2023 from N4.79 billion recorded in the same period of 2022, BusinessDay analysis has shown.
In Africa’s biggest economy, it is a statutory requirement for all publicly listed companies to have their accounts vetted and audited by legal and independent auditors.
This is because legal and external auditors examine the bookkeeping records of the companies without the filter of personal relationships, which could cloud their judgment.
Data compiled by BusinessDay revealed that these companies collectively experienced a 348.7 percent rise in legal fees compared to the corresponding period in 2022.
The surveyed companies included Seplat Energy Plc, Wema Bank Plc, Fidelity Bank Plc, MTN Nigeria Plc, Dangote Sugar Refinery Plc, Bua Cement Plc, and Bua Foods Plc.
The increase in legal spending is a reflection of the growing regulatory and legal complexity facing companies across industries where businesses face myriad risks that are unprecedented in yesteryears.
In the past, in-house legal teams were primarily responsible for providing legal advice to the company’s management. However, in recent years, the role of in-house legal teams has expanded to include risk management, compliance, and business strategy.
Several factors influence the determination of legal fees, such as company size, industry, corporate risk, profitability, and the duration of the audit, among others.
Furthermore, the nature of the legal issue, the lawyer’s expertise, reputation, and the outcomes achieved can also impact legal costs.
Firms Analysis
Seplat Energy Plc
Seplat Energy Plc recorded the highest legal fee of N14.13 billion in the first half of 2023 from N2.42 billion recorded in 2022.
This sparked reactions from the Independent Shareholders Association of Nigeria demanding a probe into the affairs of indigenous energy firms, over the amount they spent on legal fees.
Seplat Energy has been fighting a bruising battle to rein in a band of rebel shareholders who are calling for the head of its CEO, Roger Brown, a British citizen, over what insiders say may be his unwillingness to shunt established governance systems in investment decisions.
Acting on the petition, On March 3, the minister issued a letter to the company’s chairman Basil Omiyi, informing him of the withdrawal of the CEO’s work permit as well as his visa and residence permit. These were later restored by the courts.
Likewise, the Court of Appeal has also suspended the interim orders granted by the Federal High Court in Abuja in a case filed by minority shareholders of Seplat Energy Plc.
The interim orders were granted on March 28, 2023, and were the third in a series of duplicative petitions filed by the minority shareholders. The matter will now be heard on October 3, 2023, at the Federal High Court and October 31, 2023, at the Court of Appeal.
“The Board remains confident that the transaction will be approved, and all associated legal issues will be resolved,” the firm said in its financial statement.
“The distraction of frivolous legal actions is receding, and we are focused on developing our assets and launching our joint venture ANOH Gas Processing Plant, which will significantly boost our cash generation in the coming years,” Roger said in the firm’s financial statement.
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MTN Nigeria Plc
MTN Nigeria Plc recorded N5.96 billion as its legal fee in the first half of 2023 from N1.52 billion recorded in the same period of 2022.
According to the financial statement, the telecommunication giant reported that the group has N1.31 billion (December 2022: N1.48 billion) contingent liabilities arising from claims and litigations in the ordinary course of business and the Group is defending these actions.
“During the quarter, the facts and evidence before the court regarding those cases were reassessed and based on the best estimates, the value of possible obligation from those cases amounted to N1.31 billion.
“These matters are currently being considered by various courts and the timing of the judgements is unknown. In the opinion of the directors, which is based on advice from the legal counsels, no material loss is expected to arise from these claims and litigations,” the company said.
Fidelity Bank Plc
Fidelity Bank’s legal fee increased to N299 million in the first half of 2023 from N215 million recorded in the same period of 2022.
“The Bank is a party to legal actions arising out of its normal business operations. The directors believe that based on currently available information and advice of counsel, none of the outcomes that result from the proceedings will have a material adverse effect on the financial position of the bank either individually or collectively,” the tier-two bank said in its financial statement.
Bua Foods Plc
Bua Food’s legal fees amounted to N497 million in the first half of 2023 from N296 million recorded in the same period of 2022.
Bua Cement Plc
Bua Cement recorded an increase of 225 percent in its legal fees in the first half of 2023 amounting to N390 million from N120 million recorded in the same period of 2022.
Dangote Sugar Refinery Plc
Dangote Sugar Refinery Plc’s legal fee amounted to N114 million in the first half of 2023 from N82 million recorded in the corresponding period of 2022.
Wema Bank Plc
Wema Bank Plc recorded N145 billion as its legal fees in the first half of 2023, a reduction from N146 billion recorded in the same period of 2022.
Experts take
Mustapha Umaru, equity research analyst at CSL Stockbrokers Limited, said that the increase in legal fees can be attributed to a number of factors, including an increase in awareness, inflation and an increase in the cost of doing business.
“There has been a notable increase in the number of claims against corporate organizations, driven by a rising awareness of individuals’ rights. This heightened awareness spans consumers, and communities, and even extends to land use and environmental matters, resulting in legal fees,” Umaru said.
An anonymous lawyer noted that revisions have been made to the remuneration act, allowing legal firms to establish a fixed price in accordance with the new act. Failure to comply with this set price could potentially lead to legal consequences, including imprisonment.
“In the current landscape, companies recognize the importance of involving legal entities in their collaborations or agreements with other firms. This is because legal parastatals prioritize safeguarding the interests of all parties involved when drafting agreements and similar documents,” the anonymous lawyer stated.
Umaru also noted that bank customers are now more knowledgeable about their rights, particularly regarding the time value of money.
“For banks, customers are more informed, particularly regarding the time value of money. As a result, individuals are more likely to seek damages through legal claims against banks within a relatively short time frame. This trend has implications for companies, also like MTN, cases can also arise from disagreements over spectrum placement, particularly in rural areas or communities,” Umar said.
Sodiq Safiriyu, senior analyst at Merristem Nigeria, said that Seplat has had a number of corporate governance issues this year, which has led to an increase in legal fees.
“Seplat has faced challenges in corporate governance, contract withdrawals, and issues surrounding the CEO. These issues at Seplat have led to an increase in the company’s legal fees,” Safiriyu said.
An anonymous audit analyst also noted that the rise in legal fees can be attributed to multiple factors, including the impact of inflation and the elevated expenses associated with conducting business.
“Auditor companies may factor in the involvement of legal firms in various aspects such as incorporation, registration, or litigation during the current year, situations that might not have occurred in the preceding year. This expanded scope of legal services contributes to the increased legal fees,” the audit analyst said.
