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THE COMPANIES AND ALLIED
MATTERS ACT 2020 – REFORMS THE CAMA 2020 – THE CHANGES FROM A
FROM A FINANCE PERSPECTIVE. FINANCE PERSPECTIVE
September 21, 2020. The salient provisions of the New Act which we
consider pertinent to the Nigerian finance
On the 7th of August 2020, the Nigerian sector are as follows:
President, Muhammadu Buhari, gave assent to Exclusion of security financial collateral
the Companies and Allied Matters Act, 2020 arrangements from registration at the CAC
(the “New Act” or “CAMA 2020”), which
enacts the CAMA 2020 and repeals the Unlike the 1990 CAMA, the New Act excludes
Companies and Allied Matters Act 1990 (the security financial collateral arrangements (the
“1990 CAMA”). Although the provisions of the
New Act are yet to be fully implemented in “SFCA”), or any charge created over the same,
from documents that are registerable at the
practice by relevant agencies such as the CAC. This is a significant improvement on the
Corporate Affairs Commission (“CAC” or the provisions of the old law which was silent on
“Commission”), we believe that the New Act 2
the issue. Whilst the New Act defined SFCA , it
will become fully implemented once it is
1 did not define what is meant by “financial
published in the Federal Gazette. collateral” to which the SFCA relates.
The New Act will have significant impact on
finance transactions in Nigeria. This article, Nevertheless, it appears settled that financial
therefore, provides a synopsis of some of the collaterals include cash in deposits,
changes and novel provisions introduced in the securities/shares et al. Furthermore, guidance
New Act which will impact on finance may be taken from similar arrangements
transactions in Nigeria going forward. This contained in the Financial Collateral
information will be particularly useful for Arrangements (No 2) Regulations 2003 (SI
foreign investors and financial institutions 2003/3226) (“EU Regulation”). The EU
looking to provide or obtain loan for the Regulation defines financial collateral to
financing of projects and business operations include “cash” (money in any currency, credited
in Nigeria.
1 This is in tandem with Section 3 (2) of the Acts held, registered or otherwise designated so as to
Authentication Act 1962. be in the possession or under the control of the
2CAMA 2020 defines "security financial collateral collateral-taker or a person acting on its behalf;
arrangement" to mean “an agreement or any right of the collateral-provider to substitute
arrangement, evidenced in writing, where: (a) the equivalent financial collateral or withdraw excess
purpose of the agreement or arrangement is to financial collateral shall not prevent the financial
secure the relevant financial obligations owed to collateral being in the possession or under the
the collateral-taker; (b) the collateral-provider control of the collateral-taker; and (d) the
creates or there arises a security interest in collateral-provider and the collateral-taker are both
financial collateral to secure those obligations; (c) non-natural persons.”
the financial collateral is delivered, transferred,
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to an account) and financial instruments This will provide additional comfort to both
(shares, bonds and other securities). lenders and borrowers alike and will act as
incentive to perfect security interests for full
Accordingly, per the terms of the CAMA 2020, value in the Nigerian market.
it follows that it is now clear that security Amendments to the use of common seal and
documents such as account charges, charges acceptance of e-signatures for authenticating
over financial instruments etc., will not need to documents
be registered at the CAC for efficacy. Another novel introduction in the New Act is
that finance documents (including deeds) do
Furthermore, the New Act introduces a not need to bear the common seal of a
definition for book debts and clearly excludes a company to be binding (unless required by a
charge over negotiable instruments and company’s articles). CAMA 2020 further sets
marketable securities such as treasury bills from out an acceptable procedure for executing
the ambit of the definition. This makes it clear deeds which also includes a new process which
that charges over securities will also not be is that a sole director may now sign deeds in
deemed as book debts for the purposes of the presence of at least one witness who shall
registration at the CAC. witness the signature. This adds to the current
procedure where two directors or a director
We hope that the CAC will issue guidelines to and secretary are required to sign such
clearly direct the market on these issues in the documents.
coming months.
Furthermore, companies can now validly
Reduction of filing fees for registration of authenticate documents through e-signatures
Charges of a director, secretary or other authorised
One of the most significant changes in CAMA officer of the company.
2020 is the reduction of the fees payable for
creating charges over a company’s assets. As E-Filings
provided under the New Act, the total fees Under the New Act, the CAC will now accept
payable to the Commission in connection with electronically filed documents. In addition,
filing, registration or release of a charge shall certified true copies of electronically filed
not exceed the sum of 0.35% of the value of documents will be admissible in evidence in
the charge or such other amounts as may be Courts as same will have equal validity as the
specified by the Minister in the Federal original documents filed with the Commission.
Government Gazette. This is a significant This is a significant improvement and will mean
improvement on the 1990 CAMA regime where that electronic documents, which were
a percentage (1% or 2% for private and public erstwhile acceptable under the Evidence Act,
companies respectively) of the secured sum is have now been reaffirmed as acceptable, by the
paid. New Act.
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We believe this introduction will aid cross reduce the company’s net assets, or if
border deals as electronic documents will now reduced, said assistance will not be
suffice for perfection purposes in Nigeria and provided from distributable profits; (ii) the
parties will not need to send in physical financial assistance is approved by
documents containing wet-ink signatures. shareholders of the company by special
Provision of financial assistance to shareholders resolution in a general meeting and (iii) the
The erstwhile provision of the 1990 CAMA directors of the company file a statutory
restricts (in extensive terms) a company and its declaration in a form to be prescribed by the
subsidiaries from providing any form of CAC.
financial assistance in connection with the
purchase of its shares. In summary, the New We consider that these new provisions will
CAMA introduces, three significant provisions further assist in consummating acquisition
to the old law as follows: finance transactions in the Nigerian market as
lenders will normally like to reach the
• Firstly, the term financial assistance has assets/cash flows of the target for repayments.
been extended for additional clarity by the
provision of a definition as to what is meant Fixed vs Floating Charge: Notice and Priority
by “net assets” and when a company’s net There have also been some changes to the
assets may be said to have been materially provisions on priority of fixed and floating
reduced in the context of financial charges.
assistance. The New Act sets a 50%
threshold to guide on when reduction in net • Under 1990 CAMA, a fixed charge has
assets will be regarded as material. priority over a floating charge on the same
Furthermore, the new law defines net assets property, unless the terms on which the
as the “aggregate of the company's assets floating charge was granted prohibited the
company from granting another charge
less the aggregate of its liabilities”; and having a higher priority and the person in
these liabilities include any charges or whose favour the fixed charge was to be
provision for liabilities in accordance with granted had notice of this prohibition. In
the applicable accounting standards applied furtherance of this provision, CAMA 2020
by the company in relation to its accounts; now provides that a person is deemed to
have notice (constructive notice) of a
• Secondly, activities flowing from court prohibition in a floating charge where such
orders such as pursuant to a scheme of notice indicating its existence is registered
merger will not be regarded as constituting with the Commission.
financial assistance; and
The effect of the amendments is that notice of
• Thirdly, private companies will no longer be
restricted from providing financial the floating charge on a company’s record at
assistance if (i) said assistance will not the Commission will be deemed notice of
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prohibition from creating a fixed charge over Fraudulent Preference
the same property. We will expect the The New Act has made some changes impacting
Commission to provide practice directions in on the rule against fraudulent preference under
this regard in the coming months Nigerian law. The provisions of the new law
have amplified on the provisions of the old law,
• In addition, the New Act preserves the by among other provisions, clearly stating that
priority of a fixed charge over other debts, fraudulent preference will not apply in the
including preferential debts, which hitherto absence of an intention to grant that person
ranked ahead of a fixed charge during (e.g a lender) an undue advantage over others.
liquidation.
Whilst this is a welcome development, lenders
This would mean that lenders may now need to will still need to take necessary precautions –
prioritise holding a fixed charge security over particularly as it relates to conducting
thorough due diligence before advancing loan
borrower’s tangible assets to ensure their
security interest is effectively preserved during facilities and taking security over assets of
liquidation. companies. To ensure an up-stamp is not
caught by the fraudulent preference provisions,
Secured Creditors and Insolvent Companies lenders should consider creating an up-
Under the 1990 CAMA, bankruptcy rules apply stamping regime that is timely, reviewed yearly
in certain cases during the course of winding and adequately secures their risk exposure at
up of insolvent companies. However, the New each given period of review.
Act introduces a proviso which clearly preserves
the power of any secured creditor to realise or Liquidation and Administrators application to
otherwise deal with his security during the avoid transactions at an undervalue
winding up of an insolvent company registered Following the desire to bring Nigeria’s company
in Nigeria. law in alliance with international best practice,
the CAMA 2020 has introduced provisions
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The implication of this is that New Act has now relating to transactions at an undervalue .
clearly stated, as a general principle, that
secured lenders will be able to realise their These provisions allow an administrator or
security interest over duly perfected security liquidator to apply to the court for an order to
during insolvency. avoid any transaction made at an undervalue if
it, among other things, occurs within two years
before administration or liquidation.
3 In this regard, CAMA 2020 indicates that a transaction with that person for a consideration
company enters into a transaction with a person the value of which, in money or money’s worth, is
at an undervalue if the company makes a gift to significantly less than the value, in money or
that person or enters into a transaction with that money’s worth, of the consideration provided by
person on terms that provide for the company to the company.
receive no consideration, or enters into a
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