New Provisions of CAMA 2020 Nigeria on Foreign Companies, Minority Rights Protection, Major Asset Transactions, & Derivative Actions

New Provisions of the Companies and Allied Matters Act 2020 on Foreign Companies 

Following from my last article on the subject matter of foreign companies, this article will be looking at the provisions of CAMA 2020 regarding the topics of :-

– Foreign company exemption in Nigeria

– Annual reports of foreign companies

– The legal status of foreign companies in Nigeria

– Sanctions applicable to foreign companies in Nigeria.

What does the act say regarding foreign companies intending to carry on business in Nigeria?

The act provides that:-

-Subject to relevant sections  of the act, every foreign company which before or after the commencement of this Act was incorporated outside Nigeria, and having the intention of carrying on business in Nigeria, shall take all steps necessary to obtain incorporation as a separate entity in Nigeria for that purpose, but until so incorporated, the foreign company shall not carry on business in Nigeria or exercise any of the powers of a registered company and shall not have a place of business or an address for service of documents or processes in Nigeria for any purpose other than the receipt of notices and other documents, as matters preliminary to incorporation under this Act.

– Any act of the company in contravention of subsection (1) is void.

-Nothing in this section affects the status of any foreign company-

(a) which before the commencement of this Act was granted exemption from compliance under the provisions of any preceding Companies Acts that had been applicable in Nigeria before the commencement of this Act ; and

(b) exempted under any treaty to which Nigeria is a party.

What are the provisions of the act regarding penalties on foreign companies under the act?

The act provides that:-

-If any foreign company fails to comply with the requirements of section 80 of this Act in so far as they may apply to the company, the company commits an offence and is, in addition to being liable to prosecution, also liable to such penalty as the Commission shall specify by regulation, and every officer or agent of the company who authorizes or permits the default or failure to comply is, whether or not the company is also convicted of any offence, liable on conviction to such penalty as the Commission shall specify by regulation, and where the offence is a continuing one, the company and every officer or agent of the company are liable to a further penalty as the Commission shall specify by regulation for every day during which the default continues.

What does the act say about the exemption of foreign companies under the act?

The act provides that :-

-A foreign company may apply to the Minister for exemption from the provisions of the relevant section of the Act if that foreign company belongs to one of the following categories, that is-

(a) foreign companies other than those specified in paragraph (d), invited to Nigeria by or with the approval of the Federal Government to execute any specified individual project ; 

(b) foreign companies which are in Nigeria for the execution of specific individual loan projects on behalf of a donor country or international organization ; 

(c) foreign government-owned companies engaged solely in export promotion activities ; and

(d) engineering consultants and technical experts engaged on any individual specialist project under contract with any of the governments in the Federation or any of their agencies or with any other body or person, where such a contract has been approved by the Federal Government.

What are the requirements of CAMA 2020 for foreign companies regarding annual reports?

The act provides:-

-Every exempted foreign company shall deliver to the Commission, in every calendar year, a report in the form prescribed by the Commission.

-An exempted foreign company that fails to comply with the provisions of the relevant sections of the act, is liable to such penalty as the Commission shall specify by regulation, for every year of default .

What is the legal status of a foreign company in Nigeria under the act?

Subject to the CAMA and save as may be stated in the instrument of exemption, a foreign company exempted pursuant to this Act shall have the status of an unregistered company and accordingly, the provisions of this Act applicable to an unregistered company shall apply in relation to such an exempted company as they apply in relation to an unregistered company under this Act.

What are the sanctions applicable to foreign companies? 

Except as provided under the relevant sections of this Act- 

(a) nothing shall be construed as authorizing the disregard by any exempted foreign company of any enactment or rule of law ; and 

(b) nothing in this Chapter shall be construed as affecting the rights or liability of a foreign company to sue or be sued in its name or in the name of its agent.

Minority Rights Protection , Major Asset Transactions, and Derivative Actions Under The Companies and Allied Matters Act (CAMA) 2020

This article will be focused on the protection of the rights of minority rights holders in companies under CAMA 2020, particularly on the topics of :-

– Who has the right to sue for a wrong or ratify irregular conduct

– The provisions of CAMA 2020 on the procedure for a major asset transaction

– The protection or minority rights, injunctions and declarations

– Personal and representative actions

– Members under CAMA 2020

Who under the act has the right to sue for a wrong or ratify irregular conduct?

Subject to the provisions of this Act, where an irregularity is made in the course of a company’s affairs or any wrong is done to the company, only the company can sue to remedy that wrong and only the company can ratify the irregular conduct.

What are the provisions of CAMA on the procedure for a major asset transaction?

The act provides that :-

-For the purposes of this section, “major asset transaction” means a transaction or related series of transactions which includes the-

(a) purchase or other acquisition outside the usual course of the company’s business ; and

(b) sale or other transfer outside the usual course of the company’s business, of the company’s property or other rights the value of which, on the date of the company’s decision to complete the transaction, is 50% or more of the book value of the company’s assets based on the company’s most recently compiled balance sheet.

-In undertaking a major asset transaction-

(a) the board of directors of the company shall recommend the transaction and direct that it be submitted for approval to an annual or extraordinary general meeting of members ;

(b) notice of the transaction, stating that a purpose of the meeting is to consider the transaction and including a summary of the transaction and of the recommendation of the board of directors on the transaction, shall be given to all members entitled to notice of or to attend the meeting or to vote n the transaction ; and

(c) at the meeting the members shall approve the transaction by a special resolution, unless the company’s memorandum of association provides for its approval by an ordinary resolution, in which case it is approved by an ordinary resolution.

What are the provisions of the act on the protection of minority, injunctions and declarations in certain cases?

The act provides that without prejudice to the rights of members under sections 346-351 and sections 353-355 of this Act or any other provisions of this Act, the Court, on the application of any member, may by injunction or declaration restrain the company or its officers from-

(a) entering into any transaction which is illegal or ultra vires ;

(b) purporting to do by ordinary resolution any act which by its articles or this Act required to be done by special resolution ; 

(c) any act or omission affecting the applicant’s individual rights as a member ;

(d) committing fraud on either the company or the minority shareholders where the directors fail to take appropriate action to redress the wrong done ;

(e) where a company meeting cannot be called in time to be of practical use in redressing a wrong done to the company or to minority shareholders ; 

(f ) where the directors are likely to derive a profit or benefit, or have profited or benefited from their negligence or from their breach of duty ; and

(g) any other act or omission, where the interest of justice so demands.

What are the provisions of the act regarding personal and representative actions?

-Under the act, where a member institutes a personal action to enforce a  right due to him personally, or a representative action on behalf of himself and other affected members to enforce any right due to them, he or they are subject to the act, entitled to-

(a) damages for any loss incurred on account of the breach of that right ; or

(b) declaration or injunction to restrain the company or the directors from doing a particular act.

-Where, in proceedings brought under this section, the Court finds the directors or any of them liable for any wrongdoing, the erring director is personally liable in damages to the aggrieved member.

-Where any member institutes an action under this section, the Court may award costs to him personally whether or not his action succeeds. 

– In any proceeding by a member under section 343 of this Act, the Court may, if it deems fit, order that the member shall give security for costs.

What is the definition of a member under the act ?

A company “member” as defined under the act includes-

(a) the personal representative of a deceased member ; and 

(b) any person to whom shares have been transferred or transmitted by operation of law.

What is the procedure for the commencement of derivative actions?

-Under the act, an applicant may apply to the Court for leave to bring an action in the name or on behalf of a company or a company’s subsidiary, or to intervene in an action to which the company or the company’s subsidiary is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the company or the company’s subsidiary.

-No action may be brought and no intervention may be made under the act, unless the court is satisfied that-

(a) a cause of action has arisen from an actual or proposed act or omission involving negligence, default, breach of duty or trust by a director or a former director of the company ;

(b) the applicant has given reasonable notice to the directors of the company of his intention to apply to the Court under the act;

(c) the directors of the company do not bring, diligently prosecute, defend or discontinue the action ;

(d) the notice contains a factual basis for the claim and the actual or potential damage caused to the company.

(e) the applicant is acting in good faith ; and (f ) it appears to be in the best interest of the company that the action be brought, prosecuted, defended or discontinued.

-An action under this act may be against the director or any other person (or both).

-In any action referred to in this regard, the plaintiff shall have the right to obtain any relevant documents from the defendant and the witnesses at trial, and may in pursuance of that right request categories of documents from such person without identifying specific documents.

What does the act say regarding powers of the court to make orders in derivative actions?

The act provides that :-

-In connection with an action brought or intervened under section 346 of this Act, the Court may, at any time, make any such order or orders as it deems fit.

– The court may make an order- 

(a) authorising the applicant or any other person to control the conduct of the action ;

(b) giving directions for the conduct of the action ;

(c) directing that any amount adjudged payable by a defendant in the action is paid, in whole or in part, directly to former and present security holders of the company instead of to the company ; and

(d) requiring the company to pay reasonable legal fees incurred by the applicant in connection with the proceedings.