Sep 8, 2016

Of Reforms, Revolutions and the Ministry of Trade & Investment: Amendment of the Companies and Allied Matters Act


“In the sense that he tackled the stifling role of government in our economy, Bibi was not a reformer but a revolutionary. A reform happens when you change the policy of government; a revolution happens when you change the mindset of a country…” Ron Dermer speaking about the financial-sector reforms implemented by Benjamin “Bibi” Netahanyu in Israel in 2003.


The decision by the Corporate Affairs Commission (Commission) to “review and to bring the Companies and Allied Matters Act (CAMA) in conformity with global trends” is definitely commendable. The CAMA is our view, the most critical piece of legislation in the discourse around increasing FDI flows in Nigeria because of its primary relevance to the ease of doing business and ease of investing in Nigeria. It is refreshing to note that the Federal Government has also prioritized a possible review of the operations of the Commission as same forms part of the reasons for seeking emergency powers from Nigeria’s National Assembly. It certainly would not be an exaggeration to submit that the revival of our economy can depend, partly on the ongoing review of the CAMA. 

The approach adopted by the Commission in welcoming proposals from professional communities is also commendable and we hope that the collation of the proposals and the debate around the final amendments to the CAMA will be as robust and intellectually driven. Given the state of our economy and the need for economic revival, we affirm that ongoing reforms must go beyond merely scratching the surface. We affirm that in reviewing certain legislations and policies, government must be open to the level of innovation necessary to leapfrog economic revival. If that means yanking off all that we have been used to and starting on a new note then so be it. Government must not shy away from doing what is best in the interest of our dear country. 

A review of some of the changes that have already been proposed by the Commission, confirms clearly that the Commission is positioning itself to be a more efficient regulator. One of the proposals that we consider very strategic to the growth of entrepreneurial activity, is our proposal for a separate legal structure (typically referred to as the ‘One-Man Company’) that comes with the full complement of a lower tax rate relative to the prevailing income tax rate, lesser compliance requirements and the benefit of limited liability and separate legal personality. The One-Man Company essentially combines some of the benefit of a sole proprietorship and that of a limited liability company and has been adopted in varying forms in various jurisdictions, from UK, to US and to India as a strategy for promoting the growth of small and medium scale enterprises and driving growth in the venture capital/private equity space. Some of the other proposals which we consider strategic at a time of economic revival as this include (a) clarification of the rules around ‘doing business’ in Nigeria, a principle which has been subject of litigation in a number of cases; (b) the denomination of share capital in currencies other than the Naira; (c) review/abolishment of rules around non-voting/non weighted shares; (d) review/abolishment of the rules around financial assistance by a company for the purchase of the company’s own shares; and (e) a creation of a framework for valuation of sweat equity.

Beyond the substantive legal issues that are subject of ongoing reforms, what is far more concerning to us is the administrative machinery/structure for the implementation of the CAMA, as reviewed. Legal and policy reforms can hardly achieve desired objectives where there is no corresponding innovation around the administrative machinery for implementing reforms. A number of proposals have been put forward by the Commission to its administrative structure. Currently, it is being proposed that there should be a board for the Commission and also that nominations to the board should be accepted from the Accounting profession and from the Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN). However, the question that we ask is: should there not be a more elaborate debate around the administrative/implementation structure of the Commission? We answer this question in the affirmative, especially in the light of developments in other jurisdictions. Here are some possible legal structures:

Trading Fund Status
A Trading Fund is essentially a financial and accounting framework established by law to enable a government ministry, agency or department (MDA), or part of an MDA, to adopt certain accounting and management practices that are adopted in the private sector. A number of attributes differentiate a Trading Fund from a typical MDA. These include (a) A Trading Fund operates on a self-financing basis and does not thrive on subvention or funding from the legislature to finance its daily operations. Consequently, staff cost and other expenses are paid out of the revenues of the Trading Funds (b) A Trading Fund does not normally aim to make a ‘profit’ and the fees charged by a Trading Fund are usually for the full cost of services provided or on a cost recovery basis. A Trading Fund will usually fix its fees and charges in accordance with own financial target, which is normally to earn an average rate of return on capital employed at a pre-agreed, often regulated percentage, the primary objective being the need to achieve a reasonable rate of return based on the fixed assets employed. (c) As opposed to the practice whereby operating surpluses are remitted to the Government, surpluses are retained as reserves and can be re-invested to enhance existing services and explore new business opportunities (d) A Trading Fund has significant flexibility in human resources and staffing.

It is important to note that a Trading Fund remains part of the Government in the sense that its assets would remain government assets and its staff would remain civil servants. The underlying philosophy of a Trading Fund is that an institutional change would provide the appropriate flexibility in management of resources and help nurture a new working culture that will improve services in terms of both quality and cost-effectiveness. A number of jurisdictions have introduced the concept of trading funds as part of public service reforms aimed at driving a more customer-focused service culture and achieving sustainable improvements in efficiency, cost effectiveness and in developing new services. The trading fund model has been used with considerable success in a number of jurisdictions and across a number of traditional government agencies including immigrations, post offices, and corporate and public registries, The Companies House in UK is organised as a Trading Fund. Without a doubt, the Trading Fund structure can be used for other government MDAs as part of ongoing economic reforms. From a structural standpoint, the implementation of a Trading Fund will require passing a bill into law and the execution of requisite framework and service level agreements between the relevant MDA, here the Ministry of Trade and Investment and the Commission.

Registry Operator Licensing
It is also possible to restructure the Commission in such a way as to decouple the ‘registry’ function of the Commission from its core regulatory functions. This structure has the potential of making the Commission a more efficient regulator as it will enable the Commission to focus more on its core functions of administering the Act and also strengthening its capabilities to conduct investigations into the affairs of any company where the interests of the shareholders and the public so demand. Under this structure, the Commission will grant a Registry Operator’s License, (either on a regional basis or a unitized basis) to a private information technology/data company, seeing that the operation of a registry is increasingly a technology/digitization-based function. This is usually by way of a long term contract with a negotiated service level functionality based on predefined/objective criteria. The model shares some of the contracting features of the standard public-private partnership model but will require a number of legal innovations to make the model sustainable. Key considerations include data ownership, data retention and data privacy rights, retention of critical functions by the government, management of intellectual property rights, and management of software rights. It is also possible to implement a state-backed guarantee as a security option in the event of a default in the integrity of the companies’ register. This model will not only generate significant revenue for the Commission through royalties and/or sign-on payments, as the case may be, but also improve the delivery of services to Nigerian businesses, whilst also ensuring that the Commission is re-engineered to effectively carry out its core statutory responsibilities.

The argument that privatisation will lead to unemployment is in our view, mostly, a failure of contract and negotiation. An Operator’s License will typically be structured in such a way as to make extensive provisions for employee training and employee retention based on objective re-certifications, with a clear positioning that work is available for members of staff who are ready to adapt to changing circumstances and meet the new demands of their jobs.  In this event, the Commission can, in the public interest, back-out the cost of such re-examination out of royalty/sign-on payments. If anything, a modern registry will minimize capital investment, bring more businesses into the formal economy and encourage entrepreneurial activity.

Decentralization of Companies’ Regulation
For some reason, it appears that this proposition will be dead on arrival. The proposition is quite simple. Why should companies’ regulation be a matter for the Exclusive Legislative List? Why should trademarks, copyrights/intellectual property regulation be a matter for the Exclusive Legislative List? The Federal Government may need to urgently, revisit the economics of legislative power, as part of legal and structural reforms in a time of economic revival. The Federal Government needs to travel light. It is now no longer a question of political power but that of economic sense. Whilst decentralization of companies’ regulation will not by itself drive efficiency as a number of innovations will still have to be implanted by state registries, decentralization will engender competition amongst state registries and can drive efficiency. 

The foregoing propositions are examples of the trends we see globally in business registration and regulation. A number of other innovations have also been implemented in corporate registries around the world as part of public sector reforms to save costs and drive efficiency. In Belgium, all statutory registers have been merged into a single database under the auspices of one registrar. In Gibraltar, a private sector company has been appointed as Assistant Registrar with full authority to run the country’s companies’ registry. In addition to partnering with local agencies saddled with responsibility of promoting entrepreneurship to register new businesses, South Africa has merged the companies’ registry with the trademarks registry to form the Companies and Intellectual Property Registration Office. In India, a public partnership under a BOT arrangement with a private sector operator was used to strategically develop new systems, set-up and operating additional facilities and introducing online facilities.

The point has to be made that there is no one-size-fits-all approach. Indeed, a variety of legal structures can be used to implement far-reaching reforms in business registration and regulation. However, certain goals must, in our view, be of priority to the Commission, namely (a) substantive and administrative reforms must be data-driven and subject to market-testing procedures; (b) the Commission must seek to attain the highest possible standards of register integrity; (c) the Commission must aim to reduce the burdens associated with the provision of filing and search services; (d) the Commission must aim for digital transformation and to become a 100% digital organisation, it should be possible to register a business in 5-7 easy steps online; (e) the Commission must engender an open data approach which should, amongst other things, make the Companies’ Register, subject to relevant restrictions, accessible online.


By : Olubunmi Abayomi-Olukunle

Olubunmi Abayomi-Olukunle is a Managing Partner at Balogun Harold, a law firm focused on private equity and venture capital transactions and emergig high growth-tech companies. Olubunmi can be reached on olu@balogunharold.com and on 08060817371
Ed’s Note – This article was originally published here.
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