Companies and Allied Matters Act (Amendment) Bill, 2018 (CAMA)
Excerpted from sections of the 8th Senate 3-Year Report: Reviving The Economy, Creating Opportunities For Nigerians
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28 years after the passage of the original Companies and Allied Matters Act the Nigerian Senate has passed a Bill to repeal and re-enact the Act. The amendment of the Companies and Allied Matters Act (CAMA) 1990 is intended to strengthen the regulatory capacity of the Corporate Affairs Commission and improve the Nigerian business environment by encouraging the stimulation of economic activities. The amendment develops a legal framework that encourage the registration, regulation and growth of small businesses for Nigeria's economy.
The Companies and Allied Matters Decree No. 1 of 1990 was promulgated to repeal the Companies Act of 1968. Since its promulgation into law, the Companies and Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria, 2004 is now over 20 years old with minimal amendments during the period. It became apparent that the entire Nigerian corporate landscape was heavily hamstrung by several provisions in CAMA that impede modern business practices in the light of national and global reforms, particularly as legislations setting up most peer regulators have since been amended on different occasions.
The 8th Senate concluded that the provisions of the Act are no longer in line with global trends and requires extensive amendments. The proposed amendment to the Act is one of the most critical pieces of legislation with a direct impact to the Nigerian business climate and Micro, Small and Medium Scale Enterprises (MSMEs). It also directly affects the influx of Foreign Direct Investments (FDI) into Nigeria because it is relevant to ease of doing business and ease of investing in Nigeria.
So it is clear that the 8th National Assembly recognized the deficiencies in the business environment and placed strong emphasis on improving Nigeria's competitiveness.
Nigeria's system of Company Law and Corporate Governance is a critical part of this legal framework. It sets out the legal basis by which companies are formed, operated and managed, provides the corporate vehicle that enables individuals to collaborate in business as well as the legal structure through which companies are financed and sets the rules for company boards, shareholders and the exercise of decisions on business growth and investment. It is the means by which individuals are held to account for the exercise of corporate power. Therefore, an effective legal framework of company law is a key building block of a modern and business friendly economy. A genuinely modern and effective legal framework can promote enterprise, enhance competitiveness and stimulate investment. Conversely, an ineffective or outdated framework can inhibit productivity and growth and undermine investor confidence.
Companies and Allied Matters Act (Amendment) Bill, 2018 (CAMA)
This landmark reform by the 8th Senate will provide significant benefits to companies by reducing red tape and making it easier to comply with regulatory obligations. Most of the changes are aimed at encouraging investments that will allow small businesses and startups thrive, lower costs and ease regulatory burdens. Changes included in the Bill will mean that many of the over 75,000 private companies limited by shares which are established in Nigeria every year will be able to incorporate more easily, resulting in savings in professional fees and substantial improvements to the ease of doing business in Nigeria by comparison to competitors.
The Bill reflects several key provisions.
Single Member Companies
This makes it possible for a single person to form a private company is being introduced for the first time in Nigeria. This provision is consistent with what is obtainable in several other modern economies such as the United Kingdom, India and Singapore.
Reduction in Share Capital
To ease the process of doing business, amendments were proposed in the Bill provides a process for a company to reduce its share capital by enabling private companies to reduce share capital of such companies if a special resolution to that effect is passed, without the added burden of applying to court for a confirmation of the reduction.
The Bill introduced a rescue and insolvency legal regime for a company that is not focused on a company's demise but on rescuing companies from insolvency through inclusion of an insolvency framework. An effective insolvency regime in Nigeria has a dual aim. The first is to save viable businesses and, the second is to ensure that non-viable businesses can quickly exit the market and allow deployment of assets to more productive firms. The regime will also lower costs of credit, increase access and availability of credit, improve creditor recovery, strengthen job preservation through reorganization and business rescue and promote entrepreneurship, among other benefits for small businesses.
The proposed Bill further eases the regulatory burden of companies by making provisions which limit the requirements to appoint a Company Secretary to public companies. This then makes it optional for small companies and companies with one shareholder.
Annual General Meeting
The proposed Bill no longer mandatorily requires small companies to convene and hold Annual General Meetings.
Minority Shareholder Rights
One of the objectives of the Bill is to enhance minority shareholder rights. The amendment also regulates related-party transactions and shareholders access to judicial redress and protects the shareholders' rights in corporate governance as a proxy for Nigeria's overall corporate governance standards and ease of access to financing from capital markets.
The Bill mandates the disclosure of beneficial interests in a company's shares and prescribes punitive measures for failing to disclose such interests. In this regard, where a person holds interests on behalf of another in a nominal capacity in a company, both parties (the owner and the nominal holder) are required to disclose the beneficial interests to the company in question.
Exemption from Audit
The Bill exempts a company from appointing auditors if it has not carried on business since its incorporation or in a particular financial year and where the company's turnover is not more than N10m and its balance sheet total is not more than N5m. As earlier indicated, the introduction of these amendment to the Act greatly improves the ease of doing business and generally enhance the business climate in Nigeria. If they are passed into law, there will be economic benefits to the country. A more business-friendly regulation for Micro, Small and Medium Enterprises. The survey by the Nigerian Bureau of Statistics (NBS) and the Small & Medium Enterprises Development Agency of Nigeria (SMEDAN) referred to earlier had determined that the existing Act regulates mostly larger type companies and imposed unnecessary costs on smaller type companies. According to that survey, the MSMEs in Nigeria contribute almost 50% of the Gross Domestic Product (GDP) in nominal terms and account for 84.02% of all jobs. By making the provisions of the Act friendlier to MSMEs, the amendments have the potential to increase the activities of MSMEs, thereby growing the Nigerian economy.
Fewer reporting obligations for small companies.
Another impact of the amendment is to reduce the financial reporting obligations of small companies. Such companies will now be exempt from the yearly audit process and this invariably means that cost is reduced and more money can be ploughed back into the businesses for expansion. For the Nigerian economy, this translates into more jobs.
Reduction in Time and Cost for Setting up a Company.
The amendments to the Act make it more attractive for small businesses operating within the informal sector, which contribute about 64% to the GDP. These companies will be able to formalize their businesses by registering at the Corporate Affairs Commission and has the potential of widening the tax base of the country, increasing revenue earned from taxation of corporate entities and diversifying the economy.
Promotion of Financial Stability.
The introduction of model netting provisions in the amendments as a means of mitigating credit risks associated with over the counter derivatives promotes financial stability and investor confidence in the Nigerian financial sector. The amendments also minimize risks associated with the performance of certain large financial institutions, thereby making the financial positions of Nigerian financial institutions more secure.
Increasing Investor Confidence in the Nigerian Financial Sector as well as all sectors of the economy.
Investor confidence in the Nigerian financial sector, and indeed all sectors of the economy, is expected to significantly improve due to a competitive and business-friendly environment where companies are regulated in line with global best practice.
Nigeria's legal framework for undertaking business in the country must reflect the challenges of modern markets in which business and investment decisions are increasingly determined by global conditions. This increasingly global marketplace should incorporate regulatory conditions which are modeled around international best practice.