INTRODUCTION

The Companies and Allied Matters Act, 2020 which will be subsequently stated as CAMA 2020 or ‘the Act’ was signed into law on 7th August 2020. It is an amendment to the repealed Companies and Allied Matters Act, 1990. The CAMA 2020 is a major game changer in the corporate regulatory landscape. The Act introduces innovations to develop and guide the affairs of the business climate. Particularly this article focuses on the effects the CAMA 2020 has on the petroleum industry.

Below are few highlighted effects of the Act on the industry:

Registration of business
The Act establishes the Corporate Affairs Commission (CAC) as the governing body in the business climate. This makes the CAC responsible for the registration of all business outlets. CAMA 2020 requires the CAC to prescribe Model Articles of Association that would apply to all companies in the petroleum industry, except where a company specifically chooses to register its distinctive Articles of Association.

The Act eases the stress of business registration by creating an option of online registration which will encourage interested businessmen who would find physical registration inconvenient.

CAMA now admits a Statement of Compliance by an applicant or their agent as a sufficient alternative to a Statutory Declaration b by a legal practitioner affirming compliance with CAMA’s registration procedures. This measure would contribute to the ease of doing business by removing the need for legal practitioners to verify documents.

Relaxation of conformity requirements of Small and Medium Enterprises (SMEs)

SMEs participation in the oil and gas industry has remained low. The CAMA 2020 stipulates that the turnover of a small company should not exceed ₦120,000,000. (One hundred and twenty million naira) and its net asset value should not exceed ₦60,000,000. (sixty million naira). Small companies do not have foreign intervention.

For tax assessment purpose Nigeria now distinguishes companies; small, medium and large companies by the size of their gross turnovers. Respectively these three sizes of company have the following threshold: a gross turnover of not more than twenty-five million naira per annum for a small company; a gross turnover of more than twenty-five million naira but not more than hundred million naira per annum for medium-sized company; and a large company means any company which is not a small or medium-sized company.

This Act seeks to mitigate the entry barriers for SMEs by relaxing the compliance requirements which include:

Provision of single directorship
Exemption from mandatory provision for appointment of company secretary
Exemption from convening statutory and annual general meetings
Preparation of modified financial statements with fewer disclosure requirements
Exemption from the requirement to undertake a statutory audit
This is a commendable development which aligns with global best practice proposed by the International Federation of Accountants (IFAC)

Governance of companies
To further consolidate corporate governance principle in public entities the Act provides for the qualifications, appointment and minimum threshold for Independent Directors (ID) in public companies. CAMA 2020 also limits the numbers of public entities a person can serve as a director to five.

Section 265(6) of the Act also created the dualization of the position of Chairman and Chief Executive Officer in a public company. The Act reiterates the established CCG principle which prohibits the MD/CEO as the chairman of the same company. This principle is however persuasive to the private companies.

Furthermore, the CAMA 2020 spells out the responsibilities of the Chief Executive Officer and the Chief Financial Officer for financial statements and departs from the provision under the repealed CAMA that any two directors could attest to the audited financials. The Act stipulates that the CEO and CFO are to make the attestations and held responsible if the assertions prove to be wrong.

Virtual meetings
The Act permits private companies to hold virtual meetings subject to the stipulation of their articles. This has come for times when it would be extremely necessary, like in the COVID 19 period when physical gatherings were difficult. However, this does not extend to public companies. This is impliedly provided for in section 289.

Establishment of framework for handling insolvency issues
The insolvency mechanisms available to creditors in Nigeria were limited to receivership and/or liquidation. The Act has now introduced an expanded insolvency framework which includes tools focused on ensuring overall business continuity of challenged companies. In circumstances where business failures are inevitable, these tools may be a precursor to liquidation to ensure optimal outcomes. The new insolvency mechanisms include administration, voluntary arrangements, take-overs, striking off, and recognition of netting arrangements.

Protection of minority shareholders
Based on the Act, shareholders now have power to bring derivative action against a company and its affiliated entities. This amendment further enhances minority shareholders’ rights and seeks to promote transparency in the petroleum industry.

Company Re-registration
CAMA 2020 provides a robust framework on re-registration of companies, including their forms from private to public; from limited to unlimited or limited by guaranteed, vice versa. This is provided in chapter two of the Act.

Modification to share capital
The act replaces the concept of ‘authorized share capital’ with ‘minimum issued share capital’ with a minimum threshold of hundred thousand naira for private companies and two milli on for public companies. The aim of this amendment is for the share capital of the company to provide a more realistic reflection of the true state of affairs with respect to the capital of the company that has actually been issued and paid up; the concept of authorised share capital did not reflect this. Another reason for this change is to eliminate the front-loading of costs associated with the creation of authorised share capital even where the company is not prepared to issue all its authorised share capital.

The Act also entrenched pre-emptive rights of existing shareholders and included

electronic share transfer and clarity on treasury shares.

Company secretary
Private companies in the petroleum industry are not mandated to have a company secretary but are mandated for public companies.

Company seal
Both private and public companies are no longer mandated to make use of a company seal on their documents. The need for making it mandatory has been outworn in the sense that seals can easily be forged and cannot be guaranteed as the authority of the company.

11. Legalisation of financial assistance
Financial assistance by companies in relation to the acquisition, or proposed acquisition of their shares will now be permitted where

It is effected pursuant to a court sanctioned scheme of arrangement, merger or restructuring
The principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of acquiring shares in the company or its holding company, but rather, is incidental to a larger purpose of the company, and the assistance is given in good faith in the interests of the company, stipulated in section 183(3)
With respect to private companies, financial assistance for the acquisition of shares of a private company (or a subsidiary of a private company) is now permitted subject to certain conditions – it must be approved by a special resolution; the net assets of the company must not be reduced (or if they will be reduced, the assistance must be provided from distributable profits); and the directors of the company must make a statutory declaration before the financial assistance is provided by the company. These additional exceptions, especially those applicable to private companies, are a welcome development particularly in relation to companies seeking to raise much needed capital and which may, for example, be required to provide certain indemnities to investors in connection with the capital raise.

CONCLUSION

The outlined provisions above are not the only provisions of the Act, there are still other provisions which would in one way or the other affect the petroleum industry. In addition, the provisions above do not only affect the petroleum industry but all related outlets in the business climate.

Reference

Company and Allied Matters Act, 2020.
The sea is history – the Companies and Allied Matters Act, 2020 aspires to optimize corporate regulation in Nigeria, available at https://assets.kpmg/content/dam/kpmg/ng/pdf/tax/
20 innovations in the Companies and Allied Matters Act, 2020, available at https://www.mondaq.com/nigeria/shareholders/
The writer, Oluseyi Ugonna Ajayi is currently a legal intern at Elcrest exploration and production LTD and a 200 level law student of Adekunle Ajasin University, Akungba, Ondo State. He can be reached via email on [email protected]