On August 7, 2020, President Muhammadu Buhari signed into law the Companies and Allied Matters Act 2020, repealing the Companies and Allied Matters Act of 2004. The new version of the Act came with attendant changes that required some getting used to.

Some of these changes include the appointment of at least three independent directors, the preclusion of the chairman of a public company from acting as its CEO, and the removal of the concept of an “authorised share capital”.

In this article, we’ll be analysing how Nigerian banks have responded to CAMA 2020, including the many ways some have adjusted to the Corporate Affairs Commission’s Regulation 13.

The signing of CAMA 2020 into law brought about the categorisation of allocated shares into “issued” and “unissued” shares. Before this enactment, the 1990 CAMA only made provision for allocating shares as “authorised shares”. CAMA 2020 also imposed a new responsibility on companies to decide what to do with their unissued shares.

What is Regulation 13?

In January 2021, the Corporate Affairs Commission (CAC) came up with Regulation 13 (R.13), which mandates all companies to allocate their unissued shares within six months of said regulation. This posed a challenge for many organisations, especially financial institutions that had already allocated their shares under the “authorised shares” rule of CAMA 1990. However, a lack of proper understanding from most companies led to extending the deadline to December 2022.

Under Regulation 13, companies with unissued shares in their share capital must issue them by the 30th of June. Companies that comply with this directive will not need to pay any CAC filing fees on the shares during their annual returns filing with the CAC. But those who don’t will face a penalty.

Udo Udoma and Belo-Osagie explain it this way, “The CAC will recognise the fees previously paid by the companies on their unissued shares. Where, however, a company does not issue all its unissued shares by the specified date, the company and every officer of the company shall be liable to a daily penalty prescribed by the Commission. 

The Regulations state that the daily penalty payable by public companies is N1,000 while the daily penalty for private companies is N500 and for small companies is N250.”

What are the implications?

Section 124 of CAMA 2020 expressly states that “no company shall have a share capital which is less than its minimum issued share capital and that every company with unissued shares must not later than six (6) months from the commencement of CAMA 2020, issue shares up to an amount, not below its minimum issued share capital”.  So, the “issued share capital” rule replaces the previous provision of CAMA that had the “authorised share capital” rule.

The 2020 rule in Section 27(2) has also placed the minimum issued share capital of private companies at N100,000, while public companies must have at least N2,000,000 as their minimum issued share capital. However, in Section 99 of the old act, private companies had an authorised share capital of N10,000, and public companies had an authorised share capital of N500,000.

What this means is that private companies that do not have issued shares up to the nominal value of N100,000 and public companies that do not have issued shares up to the nominal value of N2,000,000 have to allocate their shares to meet up with the new stipulation before the deadline made by CAC’s Regulation 13.

This, however, speaks to a lack of clarity around the provisions of Regulation 13 for some organisations, mainly because shares issued by banks under CAMA 1990 before the enactment of CAMA 2020 are not liable to be penalised by the Act. It also questions what will become of authorised share capital since the 2002 Act only recognises issued shares.

Moreso, both rules could be perceived as contradictory. While Section 124(3) of CAMA 2020 requires the companies to raise their share capital to meet up with the provisions of the rule, CAC’s Regulation 13 mandates the allocation of unissued shares to meet the existing minimum share capital.

A source of uncertainty for some financial institutions regarding the new enactment could be because of the June 30th deadline within which the unissued shares must be allocated and what sanctions might follow if that doesn’t happen. It raises the question, will Nigerian banks be more effective in complying with laid down rules if there are more equitable and flexible regulations to guide them?

How have company boards treated their unissued shares?

Many companies initially delayed in defining their approach towards allocating their unissued shares or have been ambiguous even when they did. But nearing the initial deadline in June, many of them, especially banks and other financial institutions, started to come up with proposals on what directions to take.

There are concerns about how banks like Wema Bank can meet up to allocate their share before the December deadline. This may prove to be difficult for new shareholders to buy or sell shares on the Nigerian Stock Market. Wema Bank, for example, has developed a well-structured plan for allocating unissued shares.

Between March and June 2022, a number of publicly quoted commercial banks (UBA, Access, Zenith and FBN) released statements related to their allocation of unissued shares ahead of their Annual General Meetings. However, it is unclear what the structure is for allocating their unissued shares. This raises questions as to whether the banks intend to cancel the unissued shares or allocate those unissued shares through processes that might affect the value of shares held by current investors.

Let’s look at a few examples: On the one hand, Wema Bank and UBA informed shareholders about the cancellation of unissued shares ahead of time. On the other hand, we have First Bank Nigeria Holdings (FBN Holdings), whose board used blanket powers and did not give shareholders a say in the treatment of its 14.2 billion unissued shares, which amounts to 28.4% of its total shares.

The problem, however, is that these unissued shares (which really are significant) can be turned into shares with voting rights and dividends without the institution informing existing shareholders. Even if this is not the case, it is a possibility. And the implication is that such a move can alter the ownership structure, which could further lead to the dilution of stock value.

As for Wema Bank, it resolved “that the Directors shall issue or cancel any of the Bank’s unissued Share Capital after the completion of the right issue exercise approved at the Extra- Ordinary General Meeting on December 315t, 2021”. It also announced the resolution to “amend Clause 5 of the Memorandum and Article 7 of the Articles of Association of the Bank to reflect the new issued Share Capital of the Bank after the cancellation or re-issuance of the unissued Share Capital.” It also made this resolution public, laying out all relevant information to its shareholders.

In the same vein, UBA resolved that “pursuant to Articles 46 & 47 of the Bank’s Articles of Association and in compliance with the requirements of Section 124 of the Companies and Allied Matters Act (CAMA) 2020 and Regulation 13 of the Companies Regulations 2021”, the Bank’s Unissued Share Capital of 10,800,000,000 ordinary shares of 50 kobo each would be cancelled.

FBN Holdings, on the other hand, decided that directors will be authorised to take steps to comply with the requirements of the Companies and Allied Matters Act (CAMA), 2020 Section 124 and the Companies Regulations 2021 concerning unissued shares that are currently standing to the company’s capital. What’s peculiar is that, in the case of FBN Holdings, the number of unissued shares is known.

While in April, Zenith Bank’s AGM passed a similar resolution “that  pursuant to Articles 56(1)(c) and 56(2) of the Company’s Memorandum and Articles of Association, the Directors be and are hereby authorised to take steps to comply with the requirements of the Companies and Allied Matters Act (CAMA), 2020 S.124 and the Companies Regulations, 2021 as it relates to unissued shares currently standing to the capital of the company including but not limited to cancellation of such unissued shares of the company.”

This raises the question of intention. Should shareholders not be aware of whether the unissued shares would be outrightly cancelled, just as Wema Bank and UBA did? Or should the shareholders have the right to purchase these shares? Shareholders should typically have a say in this matter.

Shareholders say in indiscriminate regulation

But the questions just don’t stop there. For instance, at the FBNH AGM, before this resolution was passed, a shareholder spoke of indiscriminate regulations carried out by the CBN. Okezie Boniface addressed CBN’s penalisation of the FBN in sums totalling 632 million Naira. The CBN has shown to be a super-regulator charging penalties on regulations that cannot be explained. This raises the need for better ways of checking companies.

There ought to be awareness amongst more Nigerian business owners and investors about their rights so that they can be more vocal about indiscriminate impositions by super regulators like the CBN. Some shareholders spoke up about their equitable rights.

For example, Okezie, suggested during the AGM “that the CBN can issue notices to inform defaulters early enough. The Central Bank can also publish defaulting operators on national dailies as a penalty. These are more effective approaches.”

There are many other ways for regulators to check operators early enough, as is the culture with Central Banks in many other climes. For instance, Ireland uses the Administrative Sanctions Procedure, a means for it to “investigate and sanction breaches of financial services law by regulated firms and individuals”. They also hand out fines, which are usually the last resort after exhausting other penalties.

In conclusion, it is clear that the new provisions of CAMA on “issued” and “unissued” shares reflect Nigeria’s economic realities at this time. But there is a lot more work required from both sides. There should be far more transparency regarding what boards disclose to their shareholders. The regulator must also be accountable in respect of penalising defaulters. Shareholders, too, must understand the importance of their rights in any company.

– David I. Adeleke is a writer, strategist, and analyst whose work explores business, technology, and the media. He publishes Communiqué, a newsletter analysing the media and tech in Africa. He is a former editor at Business Insider Africa, Ventures Africa, and TechCabal.