It is no secret that at different stages and situations(like overwhelming debt or the need to expand)in a company growth, certain changes might need to be carried out in the framework of a company to reflect a particular situation or decision of that company’s management.

These changes are all classified under Corporate Restructuring, which is simply the process of  significantly altering a company’s financial, operational and sometimes legal/corporate features usually as a result of financial problems in the form of overbearing debt, the need to meet up with Regulatory Compliance requirements ,as a result of a court order or the reflection of a change in the company’s ownership/operating structure, geared ultimately towards profitability and efficient operation.

Flowing from the above, this article will be dealing with the following topics:-

– The Regulatory Framework governing Corporate Restructuring in Nigeria

– The types of Corporate Restructuring in Nigeria

– A description of the sub-categories under each type class of Corporate Restructuring in Nigeria.

What is the Regulatory Framework governing Corporate Restructuring in Nigeria?

Corporate Restructuring in Nigeria is governed by the following laws and agencies:-

1. The Corporate Affairs Commission CAC through the Companies and Allied Matters Act 2020.

2. The Federal Competition and Consumer Protection Commission (FCCPC) through the Federal Compensation and Consumer Protection Act 2019.

3. The Investment and Securities Act 2007 through the Securities and Exchange Commission (SEC) and the Investment and Securities Tribunal.

4. The SEC rules 2013 through the Securities and Exchange Commission as well as the Investment and Securities Tribunal.

5. The Federal High Court of Nigeria.

What are the types of Corporate Restructuring in Nigeria?

The 2 types of Corporate Restructuring in Nigeria are:-

– Internal Corporate Restructuring.

– External Corporate Restructuring.

What are the subcategories of Internal & External Corporate Restructuring respectively?

Internal Corporate Restructuring

Under this category we have the following:-

– Arrangement & Compromise

– Arrangement on Sale

– Management Buyout

– Employee Buyout

– Share Restructuring

Arrangement & Compromise

An arrangement is any change in the rights and liabilities of a company’s members, debenture holders or creditors or any class of them in the event of a change in the company’s financial fortunes while a compromise is where a company (usually insolvent) invites its members and creditors to accept less than the value of their interests or where their rights in the company are being modified.

This process is governed by the Securities and Exchange Commission and the Federal High Court.

Arrangement on Sale

This is the process of a company going through a phoenix-like ‘death and rebirth’ by effecting through a special resolution, a members voluntary winding-up giving rise to the appointment of a liquidator to sell the company’s assets and distribute the proceeds of such a sale among the members of the company according to their rights.

Management Buyout/Employees Buyout

This is a form of Internal Corporate Restructuring which happens when a company’s management (usually the company’s directors) acquires the controlling interest/shares of the company with or without external funding in a time of the company being in financial distress.

This process usually requires:

– An application to the Securities and Exchange Commission (SEC) for approval of the buyout to be filed by the company’s management team involved in the acquisition.

– A copy of the special resolution of the shareholders of the company approving the management buyout.

– A copy of the management team to undertake the management buyout.

– A copy of the Certificate of Incorporation of the company.

– A copy of the MEMART (Memorandum/Articles of Association) of the company.

– 2 copies of the company’s prospectus.

– A copy of the sale agreement between the company and the management team.

– Any other document required by the Securities and Exchange Commission from time to time.

When this buyout process as outlined above is carried out by the employees of a company, it is called an employees buyout.

Share Restructuring

This involves altering the Share Capital of a company by either cancellation, subdivision, consolidation or conversion.

External Corporate Restructuring

Under this category we have the following:-

– Mergers & Acquisitions

– Takeovers

– Purchases and Assumptions

– Cherry-Picking

Mergers & Acquisitions

A merger is a process involving the coming together of 2 or more companies by way of an acquisition or voluntary union based on the resolutions of the management and ownership structures of the companies involved.

It should be noted that for a company to be deemed as acquiring control over another company the following must occur :-

– The purchase by one company of more than half of the issued Share capital of another company.

– The acquisition of the right to cast a majority vote in the acquired company’s general meeting.

– The ability to appoint or veto the appointment of a majority director or the other company.

– The ability to influence the policy of the other company.

Mergers come in 3 types namely:-

– Horizontal Mergers :- Which involves the coming together of two companies that are direct business competitors in the same industry e.g. 2 banks coming together via a merger.

– Vertical Merger :- This is a merger involving non-competing but complementary product/service companies e.g. Clothing Companies and Cotton/Silk farming companies.

– Conglomerate Mergers :- These are mergers involving 2 totally unrelated and non-competing companies e.g. A construction company and an electronics manufacturing company.

Mergers also come in Statutory categories based on transaction value namely:-

– Small mergers – These are mergers with a transaction value of 1 Billion Naira and below.

– Intermediate mergers – These are mergers with a transaction value of 1Billion Naira – 5 Billion Naira.

– Large mergers – These are mergers with a transaction value of 5 Billion Naira – above.

The approval of mergers are governed by the Federal Competition and Consumer Protection Commission after ascertaining the merits of the merger, most especially that :-

1. The merger will not reduce competition by way of monopoly creation.

2. The merger will not go against Public interest.

3. It will lead to technological efficiency.

Acquisitions occur when a majority or most of a company’s shares are purchased with the aim of assuming ownership of that company without creating a new company and this is a process that is commenced by the buyer filing to the SEC (through Capital Market Operators, specifically a SEC-accredited law firm & Issuing house) , an application in the form of a letter of intent.

The SEC has the statutory duty of regulating acquisitions in both public and private/unquoted companies as well as the duty of carrying out post-incorporation inspections after the approval of Acquisition applications.

Takeovers

This is where one company known as the offeror acquires enough shares of at least 30% of the share capital in another company known as the offeree to enable control of the latter while the 2 companies continue their existence as 2 different corporate entities.

Purchase & Assumption

This involves another company purchasing the liability of a failing company and assuming ownership of its assets usually at an auction price, commenced via an application to the Federal High Court for the Purchase & Assumption to be sanctioned. 

The assumed company does not go through the final winding-up process but is dissolved through a judicial sale of its assets and liabilities to the purchasing company.

Cherry Picking

This is an external restructuring option for a failing company aimed at reducing the loss of investment where the investor does not take up all the liabilities of the failing company but is allowed to inspect the books, assets, business operations/activities of the failing company with a view to cherry-picking those aspects capable of reviving to profitability levels via integration into its own business operations.

Conclusion:- Corporate Restructuring, from the above write-up, should not always be seen as a means of terminating the life of a company but as a last resort bounce-back measure geared towards managing worst-case scenarios of low profitability after prior Insolvency practice tools have been applied. You can get further guidance on the detailed procedures involved in the methods of Corporate Restructuring mentioned above from your lawyer on further consultation.

In this piece, I made a case that Nigeria and the Central Bank of Nigeria are on autopilot waiting for that miraculous Dangote Refinery to save the Naira! You may not like the idea that a nation is waiting for one man or company for its currency revival.

Yes, Nigeria waits for Dangote because only him has a credible roadmap to change the economic trajectory of his nation. His position today is very vital and critical because he could be the only cousin to make Naira stronger. Naira looks as an orphan with no one helping it to compete globally. Dangote will come to assist it to find its space in the league of global currencies. Across human history, nations rise when pioneering entrepreneurs emerge. The moment of truth is here – and Naira needs pioneers in markets to save it from the ruins of the scale of Mexico, Venezuela, Argentina and even Zimbabwe, at different times of their histories.

A great point but read the latest on the GDP: “The oil refining sector contracted by -42.12 percent in the second quarter of 2022, compared with a contraction of -46.78 percent in the same period last year. The sector has also recorded a contraction of -44.26 percent in the first quarter of 2022.” 

Simply, in the worst six performing sectors in Q2 2022 GDP, oil refining was severely bad, destroying the currency along the way! Atiku, Obi and Tinubu will continue to run the shows, but if the oil refining sector continues to show the abysmal numbers we are seeing, a political optical illusion may become evident.

While you may not like it, asking why Dangote Refinery is not up and running may be a valid campaign question right now! Yes, who can help that company move faster? Indeed, if it is well with it, many things could get better, at least when it comes to the stability of Naira/USD exchange rate.

Relax and hold your emotions: the fact is this, someone needs to deal with our unfavourable balance of payment to help Naira. Today, Dangote Group holds the ace. And I want journalists to ask Atiku, Obi and Tinubu, what they could do where possible.

Comment on Feed

Comment: Thar refinery can become a reality in months if the Nigerian government will step aside and let the PRIVATE SECTOR function freely. KLEPTOCRACY is not a sustainable form of government.

My Response: Good point and that is why we need to ask “why is this refinery being severely delayed”.  I am waiting for many people who are betting against  the Naira to cry. But with this company yet to start operations, there is no way to actualize that.

Nigeria’s Worst Performing Sectors In Q2 2022

The Central Bank in Nigeria in it’s 2020 Circular for the Nigerian Payments System was aimed at creating a streamlined corporate structure for companies interested in offering a bouquet package of Fintech licenses that mainly revolve around engaging in Switching & Mobile Money Services. 

This led to the birth of Payment Service Holding Companies(PSHCs) which differ from the typical Holding company structure and which will be the focus of this article which aims to deal with the following topics of :-

– The definition of a Payment Service Holding Company.

– The Regulatory Framework governing PSHCs.

– The Licensing requirements for PSHCs.

– The permissible and non-permissible activities which PSHCs can engage in.

What are Payment Service Holding Companies?

PSHCs are defined as companies whose principal objects clause includes the business of a Holding company set up for the purpose of making equity investments in  2 or more companies being its subsidiaries which are Payment Service Providers (PSPs) across the following categories:-

– Mobile Money Operations.

– Switching and Processing.

– Payment Solutions Services.

What is the Regulatory Framework governing PSHCs?

PSHCs in Nigeria are licensed, supervised and regulated by the Central Bank of Nigeria through the Banks and Other Financial Institutions Act BOFIA and specifically the CBN Guidelines For the Licensing &  Regulation of Payment Service Holding Companies in Nigeria 2021.

What is the operating structure of a PSHC?

Under the CBN Guidelines, PSHCs are basically non-operating structures, created solely for the purpose of Investment in approved subsidiaries without engaging in the day to day management and operations of subsidiaries.

PSHCs are also corporate entities required to be registered with the Corporate Affairs Commission (CAC) are required to have the following:-

– a board size of 5-10 directors as determined by the CBN;

– not more than 2 hierarchies with a subsidiary which is a parent to another subsidiary (an intermediate company);

– the presence of at least 2 subsidiaries which must include a Mobile Money Operator (MMO) & Switching company for a PSHC structure to be created;

– the ability to acquire a controlling interest in any permissible financial and/or technological company subject to the prior approval of the CBN,a controlling interest in this case meaning a  minimum ownership of 51% of the subsidiary entity’s share capital.

Does a PSHC still need the approval of the CBN to transform to a single service company?

Yes it does. A PSHC desirous of changing to a mono-line/single service provider shall seek the prior approval of the CBN through an application which shall include or come with the following:-

– A divestment plan from the PSHC’s subsidiaries.

– Annual audited financial statements of the immediate past 3 years under the arrangement the PSHC seems to discontinue.

– Any other requirements as may be determined by the CBN.

Can the CBN compel a PSHC to divest from its subsidiary?

Yes it can . The CBN can do this by a directive which will mandate a PSHC to divest from its subsidiary where in its(the CBN’s) opinion, the PSHC is run in a manner detrimental to the subsidiary and/or the Nigerian Financial system.

What are the Licensing requirements for a PSHC?

The licensing of a PSHC is in 2 stages namely:-

– The Approval-In-Principle (AIP) stage.

– The Final Licensing Stage.

The AIP stage

To start, the promoters of a proposed PSHC are to send a formal application through their lawyer for the grant of a PSHC Licence addressed to the Director, Payments System Management Department. This application is required to have the following additions :-

– a non-refundable application fee of 1 Million Naira or any other amount that may be determined by the CBN from time to time, payable to the CBN via electronic transfer;

-evidence of meeting the prescribed minimum paid-up capital of more than the total equity of all its subsidiaries;

– a detailed Business plan or Feasibility report(consult your lawyer on what the compulsory contents of a business plan are under the CBN Guidelines);

– a written and duly signed undertaking by the promoters that the PSHC shall be adequately capitalized for the volume and character of its business at all times & that the PSHC shall be under the supervisory authority of the CBN as an Other Financial Institution(OFI);

– for regulated foreign Institutional investors that are promoting a proposed PSHC, the CBN will require a “no-objection” letter from the regulatory body in its home country;

– a shareholder’s agreement;

– s statement of intent to invest in the PSHC to be made by each investor;

– a Technical Services Agreement where applicable;

– a draft copy of the PSHC’s MEMART ( Memorandum &  Articles of Association);

– where the promoters/investors of the PSHC are corporate entities, the CBN will require the following:-

a). A Certificate of Incorporation.

b). A Board Resolution supporting the company’s decision to invest in the Equity of the proposed PSHC.

c). The names, biometrics, Bank Verification Numbers (BVNs) & addresses (business and residential) of owners, directors and their related companies if any.

d). Audited Financial statements and reports and Tax Clearance Certificates of the company for the past 3 years.

e). Certified True Copies (CTCs) of the company’s statutory forms showing returns on share allotment and the particulars of directors.

f). Any other document the CBN may require periodically.

The Final License Stage

A proposed PSHC should send an application through its lawyer to the CBN for the grant of a final license within 6 months after obtaining the AIP accompanied by the following:-

– a non-refundable licensing fee of 5 Million Naira, payable to the CBN via electronic transfer;

– evidence of promotion of or investment in a PSHC;

– evidence of payment of capital contributions by each shareholder;

– evidence of location of the PSHC’s Head office(rented or owned) for the takeoff of the PSHC;

– a schedule of changes, if any, in the board, management, IT infrastructure and significant shareholding of the PSHC since the grant of the AIP;

– evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, Telecommunications, etc. to perform PSHC operations and meet CBN & other Regulatory requirements;

– organizational structure , showing functional units, responsibilities, reporting relationship & grade of heads of department/units;

– board & staff training programme.

What is the permissible ownership and control structure for a PSHC?

– The acquisition of at least a 5% shareholding stake or any change in the ownership of a PSHC resulting in a change of control requires the prior approval of the CBN.

– Also, where such shares are acquired through the secondary market, the PSHC shall apply to the CBN for an approval within 7 days of the acquisition. Furthermore, subsidiaries of a PSHC are prohibited from acquiring shares in it (the PSHC) as well as acquiring shares of other subsidiaries of the parent PSHC including those of intermediate companies.

– Where a PSHC loses control of any of the 2 service subsidiaries- a switching & processing company or Mobile Money Operator for a period exceeding 6 months, the PSHC shall cease to be such & will be required to return its license to the CBN. The same situation will apply where the PSHC loses its controlling interest in either of the subsidiaries.

– Following the loss of a controlling interest in a subsidiary and the cancellation of its license, the PSHC shall divest completely from that subsidiary within 6 months.

– Where a PSHC loses a controlling interest in its subsidiary and the subsidiaries include a switching & processing company and Mobile Money Operator (MMO), the former and latter shall continue to operate independently of one another.

What are the permissible and non-permissible activities to be engaged in by PSHCs under the CBN Guidelines?

Permissible Activities

– The holding of equity stakes in financial and technological subsidiaries that facilitate and/or enhance innovative digital financial products.

– The provision of a broad policy direction, shared services and then entering into technical or management service contracts with any of its subsidiaries with the prior written approval of the CBN in respect of:-

1. Human Resource services.

2. Risk Management services.

3. Internal Control services.

4. Compliance services.

5. Legal services.

6. Information and Communication Technology.

7. Facilities ( office accommodation including electricity, security, cleaning services, etc.).

– Any other service as may be approved by the CBN from time to time.

Note that shared services shall be provided on an arm-length basis & transactions in respect of such services shall require the consent of the board of directors of the subsidiary company’s involved in such transactions.

Non-Permissible Activities.

– The establishment, divestment & closure of subsidiaries without the prior written approval of the CBN.

– The deriving or receiving of income from sources other than as listed therein:-

a). Dividend income from its subsidiaries/associates.

b). Income from shared services where applicable.

c). Patents, royalties & copyrights.

d). Profits on divestments from subsidiaries.

e). Income earned from idle funds invested in government securities or placement with Licensed Financial Institutions.

Conclusion:- It is hoped that a clearer basic understanding of PSHCs as a new special purpose vehicle for multiple participation in the licensed Fintech sector has been achieved by this article. An understanding of the Licensing requirements for switching & processing or Mobile Money Operations can be gotten from your lawyer on further consultations.