Business Facilitation (Miscellaneous Provisions) Act
An Overview of the Provisions that Modify the Companies and Allied Matters Act
Signed into law on the 13th of February, 2023 by President Muhammadu Buhari, the Business Facilitation (Miscellaneous Provisions) Act was enacted with the aim of promoting transparency and ease of doing business in Nigeria. In addition to stipulating certain transparency requirements to be satisfied by Federal Government Ministries, Departments, and Agencies, the Act also amends twenty- other legislations, including the Companies and Allied Matters Act, of 2020.
This article highlights some significant introductions and modifications under the Business Facilitation Act as they affect the Companies and Allied Matters Act specifically.
General Transparency Requirements
Perhaps the provision with the most wide-reaching impact under the Business Facilitation Act, the transparency requirements introduced by the Act apply to all Federal Government MDAs throughout Nigeria. By virtue of section 3, all Federal Government MDAs providing products or services are now required to publish a complete list of requirements to obtain the products and services, whether permits, licenses, waivers, tax related processes, filings, approvals, registrations, certifications, etc. The list of requirements must include all processes, documents, fees, and timelines required for the processing of applications and must be verified and kept up to date at all times. Additionally, the list must be conspicuously published on the website of the MDA and also available at the customer help desk or any other office designated for the purpose. Publication is so important that any conflict between a published list and an unpublished list is to be settled in favor of the published list. The Act stipulates a deadline of twenty-one days from the
commencement of the Act for the publication of the list.
The Corporate Affairs Commission is already in substantial compliance with these requirements as almost all the Commission’s application and registration processes have been moved to an online Companies Registration Portal where the requirements for applications are published. The Commission also has most of its timelines, fees, and processes published on its website. However, there are still some application processes and documents that are yet to be published by the Commission, such as industry-specific requirements that are required by various legislations to be submitted alongside applications for CAC services in particular industries.
The Requirement of Service Level Agreement
The BFA also provides that an MDA shall have a Service Level Agreement which shall be binding on it in the processing of applications. 1 The Service Level Agreement shall be published on the website of the MDA 2 and must provide for a list of the products and services rendered, documentation requirements, timelines for processing applications, applicable fees, a summary of the procedure for application, redress mechanisms, and such other requirements as the MDA may consider necessary. 3 Where an officer of the MDA fails to act within the timeline stipulated in the Agreement without lawful reason, it amounts to misconduct for which the officer shall be subject to appropriate disciplinary proceedings in accordance with the law or regulations applicable to the relevant civil or public service.
Exemption from Incorporation for Foreign Companies
The provision of CAMA requiring foreign companies to obtain incorporation in Nigeria before they can carry on business in Nigeria or exercise any of the powers of a registered company 5 continues to apply. However, CAMA provides for certain grounds for an exemption that may be available to a foreign company, allowing the company to carry on business in Nigeria without standard registration. The BFA adds a further ground providing for a foreign company to be exempted by any other extant Act of the National Assembly in effect.
Increase in Share Capital
Prior to the BFA, a company could only increase its share capital through a resolution of the general meeting and not otherwise, in line with section 127 of CAMA. That section of CAMA has now been amended by section 9(3) of BFA to provide companies with the alternative of increasing their issued share capital “by a resolution of the Board of Directors, subject to the condition or direction that may be imposed in the Articles or by the company in general meeting.” This provision will be majorly beneficial, especially to public companies, where it may not be expedient to call a general meeting for the purpose of increasing a company’s shareholding.
Pre-Emptive Rights of Existing Shareholders
One of the controversial provisions of CAMA 2020 was the provision for pre-emptive rights of existing shareholders such that a public or private company was prohibited from allotting newly issued shares without first offering the newly issued shares to all existing shareholders of the class being issued in proportion as nearly as may be to their existing holdings 7 (called a rights issue).
In addition to the cost of a rights issue in terms of the resources expended for the purpose, the effect of that provision was that public companies seeking to issue shares, whether by private placement or public offer, would be forced to first offer such shares to its existing shareholders, and where such shareholders exercised the right, it would affect the company’s ability to utilize the shares for the actual purpose for which they were created (for example, as consideration for services rendered by a third party).
This provision has been amended 8 to remove public companies from its purview, and the statutory pre-emptive right now applies only to private companies. The BFA also prescribes a time limit of twenty-one days for the exercise of the pre-emptive right and after which the right expires, as opposed to the previous position where CAMA merely provided for “a reasonable time period.”
Building on the electronic innovations of CAMA 2020, the BFA provides for more electronic activities in order to facilitate the ease of doing business. For example, the BFA allows for share certificates to be in physical or electronic form. 9 Also, notice may now be given by the company to any member electronically, 10 an improvement on section 244(3) of CAMA which only provided for electronic mail specifically and in addition to a notice given personally or by post. Similarly, electronic voting is now allowed as an alternative to showing hands at a general meeting.
In addition, the provision allowing for virtual meetings for private companies has now been extended to public companies by deleting the word “private” from section 240(2) of CAMA. 12 Thus, like private companies, public companies can now hold general meetings electronically provided that such meetings are conducted in accordance with the Articles of the company.
Independent Directors of Public Companies
Although the minimum number of directors allowed in a company is two directors (other than a small company which can have only one director) under section 271(1) of CAMA, section 275 of CAMA requires every public company to have at least three independent directors, bringing the minimum number of directors to three with respect to public companies. It might not even be very practicable for a company to have only three directors since independent directors are not executive directors and do not participate in the day-to-day running of the company.
The BFA has altered this requirement by providing that a public company shall have at least one-third of the total number of its directors as independent directors and that any person who nominates candidates for the board who would comprise a majority of the members of the board shall nominate at least one-third number of persons who would be independent directors. 13 Thus, the minimum number of directors has been returned to two in both public and private companies (except small companies), and where a public company has two or three directors, with only one of them being independent, the company would be in compliance with law.
Suspension and Removal as a Ground for Disqualification from Directorship
Another worrisome provision of CAMA 2020 is its treatment of the removal of a director as a ground for disqualification from directorship. That is, by section 283 of CAMA, a person becomes automatically disqualified from being appointed as a director of a company if he/she is suspended or removed as a director under section 288 (the removal section) of the Act. Under that provision, it does not matter the reason for the removal. The BFA has reviewed this position of law so that removal as a director is only a basis of disqualification if the removal was on the grounds of fraud, dishonesty, or unethical conduct.
Form and Content of Financial Statements
Section 378 of CAMA along with the First Schedule to the Act prescribes a particular form and content that financial statements prepared under the Act must comply with in addition to complying with the accounting standards laid down in the statement of accounting standards issued by the Financial Reporting Council of Nigeria. The form and content under CAMA are also given precedence over the FRCN standards, resulting in some rigidity as CAMA cannot easily be amended to reflect ever-evolving accounting principles.
Recognizing this, the BFA does away with the emphasis on the form and content provided for under CAMA so that a company’s financial statement is only required to comply with the FRCN standards. 15 In the same vein, the Financial Reporting Council of Nigeria Act has also been amended by the BFA to provide for general-purpose financial statements prepared by companies to be prepared in line with standards, regulations, rules, and pronouncements issued and adopted by the FRCN.
Under CAMA 1990, where a company that was indebted to a creditor in a sum exceeding N2,000 neglected to pay the sum or secure or compound for it to the reasonable satisfaction of the creditor within three weeks of a demand by the creditor duly served on the company, the company was said to be unable to pay its debts and was, consequently, liable to be wound up by a court. 17 CAMA 2020 inherited this provision but increased the threshold to N200,000. 18 However, as CAMA cannot easily be amended to reflect the rapidly-changing economic realities of Nigeria, the BFA has amended that section by doing away with the current threshold of N200,000 and empowering the CAC to determine the
threshold by way of regulation.
The Business Facilitation Act is welcome legislation as it reconciles a number of problematic provisions in favour of a more business-friendly environment. However, there are still difficult provisions of the Companies and Allied Matters Act that require legislative attention. There is room for more steps to be taken in the right direction to further facilitate the ease of doing business in Nigeria.