Written resolutions in Nigeria: Companies and allied matters act 2020 is too quiet

The Companies and Allied Matters Act (CAMA) 2020 is notable for its ground-breaking innovations designed to enhance the ease of doing business and develop the Nigerian corporate investment landscape. In keeping with this ideology, CAMA 2020 provides for written resolutions for private companies.

The justification for the introduction of written resolution is that it makes governance easy, cheap and swift for private companies whose small number of shareholders makes a formal general meeting a less significant forum for decision making. The idea of written resolutions resonates with the ‘think small first’ philosophy.

Section 259 of CAMA 2020 provides that “All resolutions shall be passed at the general meeting and are not effective unless so passed, but in the case of a private company a written resolution signed by all the members entitled to attend and vote are as valid and effective as if passed in a general meeting.”

From this provision, it is clear that ordinarily resolutions are to be passed at the traditional general meetings. However, private companies are allowed to circulate any proposed resolutions to all the members entitled to attend and vote at general meetings for their consent/dissent without a formal meeting.

While the introduction of written resolutions by the drafters of CAMA 2020 deserves commendation, it is saddening to note that the fragmental provisions on written resolution belie the good intentions behind this innovation.

First, the unanimity rule may be counterproductive. The hallmark of this principle is that the resolution will not pass as a written resolution except all the members that are entitled to attend meetings and vote have consented to it.

The adoption of the unanimity rule is targeted at preventing minority frustration. Without the unanimity rule, a resolution could be passed before it is circulated. However, with the unanimity rule, a tiny minority of the shareholders may hold the company to a ransom.

A single shareholder may force the company to adopt the traditional general meeting which is what the drafters seek to prevent by introducing written resolutions in the first place. Thus, such a company will have to adopt a formal meeting that is comparatively expensive and slow.

Furthermore, the unanimity rule may make decisions that are ordinarily easy to reach harder. At general meetings, decisions are reached by passing either ordinary or special resolutions.

However, with the unanimity rule, even when the company wants to make decisions that could have been passed as ordinary or special resolutions this becomes harder for a company that wants to do so through written resolutions because the latter would require 100% votes.

More so, the counting of votes at traditional general meetings relate only to those that are present and voting, not necessarily the votes of all the members notices were sent to.

However, with respect to written resolutions, the votes relate to every member that is entitled to attend and vote: this is harder than holding a formal general meeting.

Second, the Act is silent as to the mode of signifying consent or dissent. One would have expected that the Regulation would fill in these gaps but the reality is that the Regulation is also silent.

The implication of this is that companies are forced to provide for this in their Articles of Association. It is even more concerning to see that the prescribed model articles are also silent on this. It may be argued that this is not a serious problem since companies can simply provide for this in their articles.

However, the reality is that many private companies adopt model articles wholly. Therefore, the consequence is that their instruction book is silent on the mode members are to signify consent/dissent.

Third, the general application of the written resolutions may be problematic to the removal of a director and auditor of a private company.

The tenor of section 259 of CAMA 2020 is such that allows written resolutions to be adopted for every decision a private company needs to make.

However, the removal of a director or an auditor of a company is one that requires fair hearing according to sections 288 & 410 & 411 of CAMA 2020 respectively.

With written resolutions, this may be circumvented as the encumbered director/auditor may not be allowed to defend themselves through written representations or in person.

It is in view of this possibility that the UKCA 2006 which has a similar provision as the Nigerian position on the removal of a director/auditor expressly exempts removal of a director/auditor from ambit of written resolutions.

Fourth, the Act as well as the Regulations and model articles are silent as to the duration of the circulated written resolution. If a private company circulates a resolution proposed to be passed as a written resolution, when is it expected to lapse?

Read also: CAMA 2020 – drawing the curtain on unused shares of a company

It is assumed that companies would have to specify this in their articles of association but the question is why are the Act, Regulations and model articles silent on this?

It is submitted that a default provision as to the duration is needed: with such a default provision, companies can fix the duration for themselves and where they do not the default duration provided by the law applies.

This is the position that is obtainable in the United Kingdom which provides for 28 days if the company does not state otherwise.
Fifth, the written resolutions appear to apply only to general meetings and exclude class meetings.

From the wordings of section 259 of CAMA 2020, the section deals only with general meetings. Consequently, shareholders falling within a class may not be able to use the written resolutions and would have to convene formal meetings to make decisions.

By and large, the introduction of written resolution is a step in the right direction and is a catalyst for ease of doing business for private companies. However, as shown so far in this analysis, the Nigerian position may be counterproductive if the problems identified in this exposition are not resolved.