Companies incorporated before the enactment of the Companies and Allied Matters Act (CAMA) 2020 can transition to a single shareholding structure.

BD LAW DIGEST WITH CLRN & ALP NG & Co.

PRIMETECH DESIGN AND ENGINEERING NIGERIA LIMITED & ANOR V. CORPORATE AFFAIRS COMMISSION (delivered on 30 June 2024) –

FEDERAL HIGH COURT OF NIGERIA (Abuja Judicial Division)
(Justice Obiora Atuegwu Egwuatu)

BACKGROUND FACTS

Primetech Designs and Engineering Nigeria Limited (1st Plaintiff), was a company incorporated in 2011. The company originally had two shareholders: Martin Brack, and Julius Berger Nigeria Plc (the 2nd Plaintiff). On the 25th of April 2022, Martin Brack transferred his entire shares in the 1st Plaintiff company to the 2nd Plaintiff, thus making the 2nd Plaintiff the sole shareholder of the 1st Plaintiff. The 1st Plaintiff notified the Corporate Affairs Commission (the Defendant) of the share transfer transaction and the change in its shareholding structure, for the Defendant to update its Company Registration Portal to reflect the share transfer and the new status of the 2nd Plaintiff as the sole shareholder of the 1st Plaintiff. The 1st Plaintiff did not receive any response from the Defendant thus prompting it to send a letter to the Defendant requesting the Defendant to update its Company Registration Portal.

The Defendant replied that it queried the application made by the 1st Plaintiff on the basis that it was incorporated before CAMA 2020 was enacted (section 18(2) of CAMA 2020 permits a private company to be formed and incorporated by one person which was not possible under CAMA 1990) and the share transfer was in contravention of section 571(c) which states that a company may be wound up by the court if the number of members is reduced below two in the case of companies with more than one shareholder. In response, the 1st Plaintiff wrote to the Defendant explaining why the Defendant’s position is inconsistent with the overriding policy objectives and the intention of the legislators in drafting CAMA 2020 as the introduction of section 18(2) was to also have effect on companies in existence before the enactment of CAMA 2020 and that the drafters intended for private companies to reduce their shareholders to one in line with section 18(2) of CAMA 2020.

The Defendant did not respond to the 1st Plaintiff’s reply nor did it update its Company Registration Portal. The 1st and 2nd Plaintiffs instituted an action via originating summons against the Defendant at the Federal High Court, Abuja Division. One of the issues considered for determination was: Whether, on a proper construction of sections 18(2), 22(1), 118, 869 (1) and other related provisions of CAMA 2020, the Defendant can validly rely on 571(c) to refuse and accept for filing, share transfer documents pursuant to which the 2nd Plaintiff became the sole shareholder of the 1st Plaintiff.

ARGUMENTS

The learned counsel for the Plaintiffs argued that a purposive interpretation of sections 18 (2), 22(1), 118, 571(c) and 869(1) of CAMA 2020 clearly shows that the legislature intended for section 18(2) of CAMA 2020 which provides a private company to be formed and incorporated by one person be applied to all private companies, irrespective of when such companies were incorporated before the enactment of CAMA 2020 and/or their shareholding structure at the time of incorporation; and it will be discriminatory to assert otherwise. Learned counsel also argued that the provision of Section 571(c) is inconsistent with Section 18 (2) as it prevents the operation of private companies that undergo restructuring to a single shareholding structure and ultimately defeating the intention of the legislature which is to improve the ease of doing business.

In response, the learned counsel to the Defendant argued that Section 18 (2) is not applicable to the 1st Plaintiff as it was incorporated under CAMA 1990 which does not provide for a single shareholding structure. The Defendant further argued that the full share transfer from the second shareholder of the 1st Plaintiff to the 2nd Plaintiff is inconsistent with the provisions of CAMA 2020 and void ab initio and a ground for winding up which was why it rejected the application of the 1st Plaintiff.

DECISION OF THE COURT

In resolving this issue, the Court held that:

Section 18(2) of CAMA 2020 is not limited to only private companies incorporated after the commencement date of CAMA 2020. The Court further held that to hold otherwise, will defeat a literal interpretation of section 18(2) of CAMA 2020 and the intention of the legislature to promote the ease of doing business which is manifest in section 18(2) of CAMA 2020. In relation to section 571(c) of CAMA 2020, which states that a company may be wound up by the court if ‘…the number of members is reduced below two in the case of companies with more than one shareholder…”, the FHC noted that the legislature took into account, the fact that some companies are allowed to have only one shareholder, that is, private companies pursuant to section 18(2) of CAMA 2020.

Consequently, the Court held that the Defendant was wrong when it relied on section 571(c) of CAMA 2020 as the basis for its refusal to register and record the change in the 1st Plaintiff’s shareholding structure. The Court ordered the Defendant to immediately accept for filing, the share transfer instrument pursuant to which the 2nd Plaintiff became the sole shareholder of the 1st Plaintiff; and, accordingly, the Defendant should update the 1st Plaintiff’s corporate records in the Company Registration Portal accordingly.

Issue resolved in favour of the Plaintiffs.

Kigai Zontong with C.H. Aluma for the Plaintiffs
Ojonimi S. Apeh with Naomi Osezele Aitomu, Faith Nwini, and Arnold D. Ubua for the Defendant.

This summary is fully reported at (2024) 8 CLRN in association with ALP NG & Co.

See www.clrndirect.com; www.alp.company