Can a private company incorporated pre-CAMA 2020have a single shareholder?

A Review of The Federal High Court’s Decision on The Issue of Single Shareholding Based on The Interpretation and Applicability of Section 18(2) of CAMA 2020

Rebecca Ebokpo, Chijioke Ochogwu and Nahimat Yusuf

INTRODUCTION

On 30th July 2024, the Federal High Cout sitting in Abuja delivered a landmark judgment in Suit No: FHC/ABJ/CS/665/2023: Primetech Design & Engineering Nigeria Limited and Julius Berger Nigeria Plc v. Corporate Affairs Commission. The judgment addressed the applicability of Section 18(2) of the Companies and Allied Matters Act (“CAMA”) 2020 to companies incorporated before the enactment of CAMA 2020, considering the combined provisions of Sections 22(1), 118, 571 (c) and 869(1) of CAMA 2020.

This article examines the facts of the case, arguments presented by the parties, the court’s decision, and the implication of the Judgment.

SUMMARY OF FACTS

The Plaintiffs, Primetech Design & Engineering Nigeria Limited (“Primetech”) and Julius Berger Nigeria Plc (“Julius Berger”), filed a suit against the Corporate Affairs Commission (“CAC”), the Defendant in this suit, challenging the CAC’s refusal to approve the filing of a share transfer instrument between Primetech’s second shareholder, Martin Brack and Julius Berger.

Additionally, following the share transfer, the Plantiffs are challenging the CAC’s refusal to update Julius Berger as Primetech’s sole shareholder on Primetech’s Companies Registration Portal (“CRP”).

The CAC queried Primetech’s application, citing Section 18 (2) and stating that the concept of single shareholding applies only to companies incorporated under CAMA 2020. The CAC further contended that approving the application for a sole shareholding structure would constitute grounds for winding up of the company under 571(c) of CAMA.

ARGUMENT BY PARTIES

The Plaintiffs argued that Section 18(2) of CAMA 2020, which pertains to sole shareholding, should be interpreted by the Court in a manner that aligns with the obvious intent of the statute. They contended that CAMA 2020 permits all private companies incorporated in Nigeria to have a single shareholder, asserting that the legislature could not have intended to distinguish between companies based on their date of incorporation. The Plaintiffs also argued that the CAC’s refusal to approve applications for single shareholdings by companies incorporated before the enactment of CAMA 2020 effectively reinstates some provisions of the repealed CAMA 1990.

The Plaintiffs, citing Section 118 of CAMA 2020, further asserted that the legislature’s intent was to exclude public companies and companies limited by guarantee from sole shareholding, thereby permitting private companies to have a minimum of one shareholder.

The Defendant on the other hand argued that Section 18(2) of CAMA 2020 applies exclusively to companies incorporated after the enactment of CAMA 2020. The Defendant further argued that there is no provision in CAMA 2020 regarding sole shareholding that has a retrospective effect, asserting that statutes typically apply only to future events unless explicitly stated otherwise.

Thus, the Defendant maintained that Section 18(2) of CAMA 2020 does not apply to Primetech or any other company incorporated in Nigeria prior to the enactment of CAMA 2020.

Finally, the Defendant argued that the existence of Section 18(1) and 571(c) of CAMA 2020, which is a retention of Section 18 and 408(c) of the repealed CAMA 1990, clearly indicates that the legislature intended for companies incorporated before the enactment of CAMA 2020 to continue operating with more than one shareholder, even post-CAMA 2020.

COURT’S DECISION

The Court held that the CAC’s refusal to approve the application for a single shareholding structure for private companies incorporated prior to the enactment of the CAMA 2020 was discriminatory and contrary to the legislature’s intent to facilitate ease of business operations in Nigeria. The Court clarified that Section 18 (2) of CAMA 2020, which allows private companies to have a single shareholder, applies to all private companies regardless of their date of incorporation. Furthermore, the Court declared that CAMA 1990 had been repealed, and its provisions are not applicable to any company, including those incorporated before CAMA 2020.
The Court further held that the requirement for a company, its directors, and officers to be personally liable if the company carries on business with less than two members for more than six months applies only to public companies and companies limited by guarantee.
Additionally, the Court stated that a private company cannot be deprived of the opportunity to have a single shareholder as provided in CAMA 2020 unless such a restriction is stipulated in its Memorandum and Articles of Association.

CONCLUSION

The decision of the Federal High Court marks a significant milestone in providing clarity on the applicability of Section 18 of CAMA 2020 which many stakeholders in corporate law practice have long awaited. The decision has also eliminated previous hindrances on private companies incorporated prior to the enactment of CAMA 2020 from restructuring their shareholding to a sole shareholder. This Judgement also creates a uniform applicability of Section 18 (2) of CAMA and negates the effect of the already repealed CAMA 1990.

The Court also specified that Section 571 (c) of the CAMA 2020 applies to public companies and companies limited by guarantee. Therefore, the CAC cannot disapprove or reject applications for sole shareholding from private companies incorporated in Nigeria before the enactment of CAMA 2020.

While it is uncertain whether the CAC will appeal this decision, it remains the authoritative interpretation of CAMA 2020 regarding sole shareholding for private companies, until overturned by an appellate court.

Rebecca Ebokpo is a Senior Associate, and Chijioke Ochogwu and Nahimat Yusuf are Associates in AELEX’s Corporate and Commercial Practice which includes the Company Secretarial and Regulatory Compliance Practice Groups.
AELEX has significant expertise and experience in advising foreign clients on matters connected with investing in Nigeria as well as all the compliance issues related thereto. The firm provides company secretarial services to its clients through a dedicated company named AELEX Secretaries Limited (“ASL”). As Company Secretary, AELEX ASL advises and assists clients with Nigerian company law and regulatory compliance issues including, but not limited to company registration and post-registration filings at the Corporate Affairs Commission, corporate governance advisory services, boardroom management, maintenance of statutory registers and minutes book, board induction, and trainings, as well as stakeholders’ engagement.

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