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The Companies and Allied Matters Act (Chapter C20) Laws of the Federation of Nigeria 2004 (“CAMA 1990”) was initially made law in Nigeria in 1990 as a decree of the military government. It was modelled on the English Companies Act 1985. For thirty years, there were no significant amendments to the CAMA 1990, notwithstanding that England has, over the past three decades, amended and replaced its own Companies Act. Nigerian companies had to, essentially, rely on a 30-year old law to govern the way businesses operate in our dynamic and exponentially evolving global community. However, this all changed on Friday the 7th of August 2020, when President Muhammadu Buhari, gave his assent to the Companies and Allied Matters Act 2020 (“CAMA 2020”).
In the course of a 12-part series, Udo Udoma & Belo-Osagie will provide a review of the provisions of the CAMA 2020, highlighting changes that have been introduced into the body of Nigerian company law by this ground-breaking legislation.
The CAMA 2020 has made several changes in relation to the regulation of directors. The most significant of these are highlighted in this final part of this series.
The chairman of a public company is now prohibited from also acting as the chief executive officer (the “CEO”) of the same company. This is in line with Principle 3.2 of the Nigerian Code of Corporate Governance 2018 (the “NCCG”) which states that the chairman of the board should be a non-executive director and should not be involved in the day-to-day operations of the company (which should be the primary responsibility of the CEO and the management team).
Section 275 of the CAMA 2020 introduces several important changes with respect to the appointment of independent directors of public companies.
Number of Independent Directors
Every public company must now have a minimum of three independent directors.
Who can be appointed as an independent director?
Specific criteria must be met before a person can qualify for appointment as an independent director. These are that in the two years preceding his nomination as an independent director, the relevant director and/or such director's relative(s):
i. were not employed by the company;
ii. did not make to, or receive from, the company, payments exceeding NGN 20 million;
iii. did not own (directly or indirectly) more than 30% of the shares of an entity that received such a payment (referred to in paragraph (ii) above) from the company or act as a partner, director or officer of an entity that made to, or received from, the company payments exceeding the specified amount;
iv. did not own (directly or indirectly) more than 30% of the shares of the company; and
v. were not engaged (directly or indirectly) as an auditor of the company.
The 30% shareholding threshold contained in the CAMA 2020 differs from the provision of the NCCG which stipulates that an independent director should not hold more than 0.01% of the paid-up share capital of the company. What this means is that persons holding not more than 30% of the shares of a public company (a significant percentage given that the shares of public companies are typically widely held) could still qualify for appointment as independent directors notwithstanding the stricter requirements of the NCCG.
As the CAMA 2020 is a statute and takes precedence over the provisions of subsidiary legislation such as the NCCG, it is not yet clear how these provisions will be harmonised in practice.
Anyone who controls the majority of the board must nominate the three independent directors
The CAMA 2020 also states that anyone who has the power to nominate the majority of the members of the Board must nominate at least three persons as independent directors. Consequently, if a controlling shareholder of a public company has the right to nominate more than half of the members of the Board, three of the persons that such a shareholder nominates must be persons that satisfy the requirements for appointment as independent directors, and shall be appointed as such by the company.
It appears that the reasoning behind this provision is to prevent the ability of a controlling shareholder of a public company to control the Board.
The CAMA 2020 requires any person that is proposed to be appointed as a director of a public company to disclose, at the meeting where he is to be appointed, any position he holds as a director in any other public company.
The CAMA 2020 also introduces a limit on multiple directorships of public companies by stating that no person can be a director in more than five public companies at the same time. Any person who is currently a director in more than five public companies is required to resign from some of those board positions in order to ensure compliance with this requirement, and must do so by the annual general meeting of the relevant companies that takes place after a period of two years from the commencement of the Act. Put simply, such directors should seek to comply within the next two years.
Directors in default after the expiration of the two-year timeframe will be liable to a daily penalty in an amount to be specified in the regulations that will be issued by the Corporate Affairs Commission (the “CAC”) and will also be required to refund all remuneration and allowances paid to them as a director in each company exceeding the limit of five companies prescribed by CAMA 2020.
There is no restriction on the number of private company boards that a director can be appointed to.
The CAMA 2020 now requires all companies to keep a Register of Directors' Residential Address which must contain the usual residential address of the company's directors. This register differs from the Register of Directors that section 318 of CAMA 2020 also requires companies to maintain because the Register of Directors only contains information on the “service address” of a director which, in some cases, could be the company's registered office. If, however, a director's usual residential address is the same as his service address (as indicated in the company's Register of Directors), then the Register of Directors' Residential Addresses only needs to contain an entry to that effect.
In order to protect the privacy of directors, the CAMA 2020 classifies information relating to the residential address of a director as “protected information”. This information does not cease to be protected information when the director resigns from the board of the company. Accordingly, the company cannot use or disclose this information in relation to any director without the consent of the relevant director unless it is for the purpose of (i) communicating with that director (ii) complying with the requirements of the CAMA 2020 or (iii) complying with a court order.
There are also restrictions on the CAC's ability to use or disclose such protected information. The CAC is permitted to use the protected information for communicating with the director in question1 but the CAC may only disclose such information to a credit reference agency or to a public authority – subject to any regulations issued by the Minister of Trade and Investment prescribing conditions that must be satisfied before such protected information may be disclosed to any such public authority. 2
CAMA 2020 retains the procedure for removal of directors outlined under the Repealed CAMA. A key change, however, is that directors who are suspended or removed from office by the company in accordance with section 288 of CAMA 2020 will be disqualified from being directors of other companies.3
The CAMA 2020, in section 284(2) makes the attendance record of a director one of the factors that should be taken into consideration when a director presents himself for re-election. Where any director is to be considered for re-election at a general meeting of a company, the record of his attendance at the meetings of the board during the year preceding the proposed re-election is required to be made available to the members at the general meeting where he is to be re-elected.
Footnotes
1. Section 326(1)
2. Section 326(2) and (3)
3.Section 283 (c)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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