Company Law and practice in Nigeria has in the past few years witnessed some robust development and new frontiers have continued to emerge. Professor Joseph Abugu has for almost three decades taught Company Law, pioneering and specialising in company securities and secured credit transactions. In his interview with May Agbamuche-Mbu, Jude Igbanoi and Tobi Soniyi, he espoused the reasons why Nigeria’s Company and Allied Matters Act needs urgent reform, after 26 years. He discusses other sundry issues including “true federalism” and the need for a transparent Master Plan for the development of the Niger-Delta Region.
You have enjoyed a rewarding career as a law lecturer and it is well known that you have pioneered a specialty area of Company Law focussing on Securities in Nigeria. What informed your choice of this very specialised area of law?
My involvement in company securities is traceable to my interest in company law itself. At the University of Nigeria where I did my LLB, company securities was taught as a strand of company law. It is like that in most universities’ curricula. It was an area I quickly mastered as a law student. In no time, I became firmly authoritative in my research and writings on the subject at the LL.M level. This was further enhanced when I had my early legal practice in the law firm of Abdulai, Taiwo & Co, a renowned solicitors’ practice in Lagos. The firm has been very active in the capital market solicitors’ landscape. I then recognised the dearth of academic expertise in this area of the law. It was therefore an easy choice when I made companies securities the theme of my PHD thesis. I have since then produced the seminal academic and practice text book on Company Securities. The book titled Company Securities: Law & Practice is in its second edition and is being well received by students and practitioners of the subject.
The Companies and Allied Matters Act (CAMA) is the principal statute for regulating company law and practice. However company law experts have observed that certain sections of the law are outdated and due for amendment such as the Share Buyback provisions and the restriction of Financial Assistance to Public Companies. Do you agree that these provisions should be amended? What other changes to CAMA need to be made?
The CAMA has been with us since 1990, that is, some twenty-six years now. Very little amendment has been made to the Act during this time whereas company practice is a lively subject continuously evolving, driven by innovative market practices. The previous law, the Companies Act 1968 held sway for twenty-two years. Clearly we have not been very proactive in company law reforms. In England, company law reform is a continuous undertaking. A lot has happened in Nigeria since 1990: for instance, a democratic government is in place with its implications for the entire legal system with a constitution which espouses federalism; a capital market meltdown in 2008; cases of audit failures and abuses by corporate practitioners, a dearth of direct foreign investment, etc. Our company law ought to be responsive to these developments. I agree therefore that the CAMA is in dire need of reform.
With respect to share buybacks and assistance for purchase of own shares, I am not favourably disposed to eliminating the present restrictions with regard to these practices. Companies are generally prohibited from buying back own shares or granting third parties financial assistance for the purchase of their shares. The rules are designed to preserve company capital and underhand transactions that would otherwise undermine the shareholding of minority shareholders. It is true that advanced legal systems are relaxing the prohibitions but I do not think we are ripe yet. Our shareholders still need more protection against corporate directors and managers. Tracing of money and its use is in its embryonic stages. It poses difficulties when investigators seek to establish the origin of funds utilised in financial assistance schemes.
In the Banking sector, the current economic climate has led to an increase in the amount of non-performing loans totalling over N700 billion leading to loss of profits from bad loans which results in cost minimising measures such as staff retrenchments and reduction in staff remuneration. In your opinion what can be done to resolve the current crisis in the banking sector?
You have rightly identified bad loans as a drain on profits otherwise due to shareholders. What is a bad loan? It is basically one granted with inadequate security or a security not realisable. Hence upon default, the lending institution is helpless. The Central Bank’s solution is to request corporate directors to make provisions for the loans from earnings or have such debts sold to an agency like AMCON at a discounted undervalue. Either way, shareholders or tax payers bear the brunt and corporate directors can carry on with their escapades. Until corporate directors are made to pay for bad loans from personal funds, it will be a feature of our financial system with expanding proportions. It is not enough to sack a bank branch manager who facilitated the grant of a non-performing loan account and it is not enough for a board that approved a multi-million naira facility, ignoring all the red flags and unsupportable credit analysis, to simply look to earning to cover the black hole created by sheer negligence and incompetence.
You have previously suggested that the Nigerian Law Reform Commission should have the direct responsibility of proposing law reform legislation to the Legislature in the National Assembly and that the Solicitor General/Permanent Secretary of the Ministry of Justice be made a permanent member of the Commission and vested with executive approvals to proposals for law reforms. Can you explain the rationale behind these propositions?
Under the Nigerian Law Reform Commission Act, the Attorney-General drives the wheel of the Commission, everything to be done requires his initiative or approval. The Commission thus functions practically as an agency of the Attorney-General’s office. The Commission has no general mandate on reform or codification of laws, elimination of anomalies or repeal of obsolete, spent and unnecessary enactments. Under the Act, all end reviews/reports of the Commission shall be submitted to the Attorney-General of the Federation, who, as Chief Law Officer will study same and lay before the President such proposals for law reform. From thence, the proposals are processed for federal executive sanction, and submission to the legislative process of the National Assembly.
Whereas, in conception, the Commission should be able to embark on a continuous, sustained process of reviewing laws and proffering solutions through amendments. It is, therefore, imperative that its proposals must timeously reach the National Assembly whose leadership must see law reform as a primary duty. Attorneys-General change with the four-year term of each administration and, sometimes, changes are made in between. The absence of continuity results in unread law reform reports and expired dreams or efforts to initiate some reform. Hence it is my suggestion that the Commission should have direct responsibility of proposing law reform legislation to the legislative arm. Whilst the role of the Attorney-General cannot be completely eliminated in the process, it is recommended that the Solicitor-General/Permanent Secretary of the Ministry of Justice be a permanent member of the Commission and be charged with giving Executive approvals to proposals for law reforms. A proposal for law reform from the Commission should be submitted to the Ministry of Justice for review and comments which ministry shall have 60days within which to respond. In the event of any delay or default, the Commission shall have the right to forward such proposals to the legislative arm without further recourse to the Ministry of justice.
Last year you launched two books titled Principles of Corporate Law in Nigeria and Company Securities: Law and Practice. What are your comments on the current legal regime for company securities in Nigeria? How can companies minimise corporate malpractice?
The two books have been designed to enrich existing literature on corporate and securities law. They embody a conscious effort to separate securities law from company law strictu sensu. Principles of Corporate law in Nigeria offers a local compendium on corporate law principles. Whilst the second edition of Company Securities: Law & Practice expands available literature on securities law and practice. Topical issues like stockbrokers’ liability and liability of professional parties for lax due diligence are explored.
Conceptually, I conceive companies as providing veritable grounds for corporate monsters to abuse investors’ trust. Directors and managers are depicted as monsters that steal or fret away shareholders’ funds. Malpractices by these corporate actors abound and need to be checked by law reform. For example, directors’ expenses including perquisites of office are always written off as costs of doing business, which costs are not regulated by any law; again in many cases, directors’ remuneration are not tied to deliverables in terms of performance or profit indices. When it comes to issues of securities in the primary market, investors are at the mercy of corporate directors who using different stratagem manipulate stock prices and the entire issue process. Do you recall any prosecutions in this regard? Similarly, the accounting profession has failed the trust of shareholders and investors as corporate gate keepers. These and many more areas of the law need reform.
Many codes of corporate governance exist for the regulatory compliance of company administrators. Could you comment on the adequacy of our corporate governance codes? As an experienced corporate and commercial law practitioner what challenges affect the implementation of these codes and does their multiplicity aid or hamper their effectiveness?
Our corporate governance codes, in the English tradition, are merely prescriptive and compliance is permissive. They are not mandatory except for the SEC code that now prescribes sanctions for non-compliance by public companies. The codes embody best practices set albeit in non-statutory form by government agencies or self-regulatory organisations. The codes should be seen as a dynamic document defining minimum standards of corporate governance expected particularly of public companies with listed securities. A major shortcoming of the codes is that the regulatory institutions charged with the implementation of such codes notably the Nigerian Stock Exchange and the Securities and Exchange Commission do not have strict oversight functions over private or closely held companies. Public companies are thus favoured at the expense of small corporate entities where the bulk of investible funds are domiciled. If wide spread application of corporate governance codes constitute evidence of an investor friendly legal regime, it will be misleading if such codes do not apply to the rank and file of private and closely held companies.
I advocate the codification of the code of corporate governance in statute form. This will elevate code provisions to red letter law that can be enforced not only by regulatory authorities but also by shareholders and other stakeholders in the corporate enterprise. More worrisome however is the proliferation of codes. SEC has one; CBN has one in form of Prudential Guidelines for banks and other financial institutions; The National Insurance Commission has another for Insurance companies, etc. On the last count the International Reporting Council of Nigeria seeks to introduce another for the entire corporate sector. May be, the Corporate Affairs Commission will come up with another. This makes a ridicule of the regulatory landscape and increases the cost of doing business in Nigeria. It is a misnomer that section 50 of the International Financial Council of Nigeria Act empowers the IFC to prescribe corporate governance standards. It is contended that the appropriate institution to prescribe a national Corporate Governance Code is the Corporate Affairs Commission (CAC) and not the Financial Reporting Council. All companies have incorporation and reporting obligations to the CAC. Whilst it may be argued that statutory corporations and other entities engaged in financial reporting are outside the supervision of the CAC, many of those are subject to government audit and legislative oversight investigations. Hence such a contention does not justify a better qualification for the FRC to regulate corporate governance generally.
In light of dwindling Oil revenue the discourse about the structure and allocation of resources from the Federal Government to State Governments has been rekindled. There have been calls for the regionalisation of revenue generation in Nigeria to make states take greater responsibility for many issues within the purview of the Federal Government. Do you share that view?
I believe that a true federation should incorporate fiscal federalism as well. Whether you call this resource control or not is a matter of linguistics. There is no region in this country that is bereft of some mineral resource. It is just unfortunate that if a mining lease of limestone or tin or bauxite is granted in the north or middle belt, there is no production sharing agreement beneficial to the commonwealth, only a mining fee. The mineral can then be explored and exploited to any limit by the licensee. Hence it is commonly believed that some states have no economic resources. It is only with respect to oil that we see production sharing agreements. These are socio-politico-economic issues that must be addressed in a balanced federation. States should be allowed some modicum of financial independence in generation as well as in expenditure. Such independence can then be matched by additional responsibilities (devolution of powers and roles from the federal to the state governments).
It is widely reported and foreign business entrants into our market remark that a difficult business environment is not helped by our laws and regulatory authorities which may hamper instead of aid economic activities. What would you advise as the singular most important legal and regulatory area for which reforms are necessary to make doing business in Nigeria more competitive and attractive?
I see three major handicaps to doing business in Nigeria. The first is multiplicity of regulations and permits/approvals involving several agencies with overlapping jurisdictions. The second is the high tariff of fees collected by these agencies which increase the cost of doing business and ultimately the cost of our goods in the local and international market. The third is corruption in all the strata of carrying on business. Corruption plagues all the licensing and permit regimes for registering and doing business in Nigeria. The Buhari regime’s war against corruption is yet to touch these areas.
Recently, the Niger-Delta region has been witnessing some restiveness from militant insurgent groups. What in your view could have precipitated this round of violence with the grounding of key national infrastructure?
I do not advocate violence in the resolution of any grievance but when you have successive governments that would only listen in the face of violence, then you set the stage for recurrent expression of grievances via violence. Successive governments have neglected the Niger Delta area. Ogoni land, for example, repeatedly drained of oil since 1952 is only now receiving a Government plan to remediation. Oil Cities like Warri have become ghettos whilst other parts of the country flourish. State governments are not free from blame either. Successive state governments in the Niger Delta have neither advanced the welfare of people in the oil producing areas nor provided enough infrastructure, thus fuelling the embers of disaffection and discord between the people and Government as an institution. The solution, I think, is a master plan, to be effectively and visibly pursued, for the development of the entire Niger Delta.
There have also been calls for the establishment of a special court for the expeditious trial of corruption cases. The Special Crimes Court Bill, 2016, proposes that the proposed court will exclusively handle corruption cases including narcotic, human trafficking, kidnapping, cybercrime, money laundering and other related offences. Do you support this proposition?
First we need to identify why the existing courts, with the requisite jurisdiction, have not advanced the establishment of culpability and thus the war against economic crimes. I can list a few: inadequate number of judges and overloaded dockets; inadequate court rooms and investigative infrastructure; inadequate skilled investigators; constrictive court room procedures; etc. If these could be addressed, the present court system will deliver. If new courts are set up without addressing these issues, the new court and systems will be infected by the same diseases.
Do you think the legal framework for fighting corruption in the country is adequate?
Yes, I do believe in the reasonable adequacy of the existing legal regime. In some cases, stiffer penalties and sanctions, sufficiently deterrent, are required but what is mostly lacking is the infrastructural machinery for investigation, prosecution, execution of sanctions and the political will to ensure indiscriminate effectiveness.
The alleged padding of the nation’s 2016 budget by Legislators has continued to bring revelations that threaten to embarrass the Legislature and the Government. It has been revealed that every successive administration has had to contend with this anomaly. The Hon Speaker of the House of Reps, Yakubu Dogara has maintained that padding is not a crime. Do you share this view?
I am of the view that the use of constituency projects in budget padding is an abuse of office; it is illegal and an abuse of the doctrine of separation of powers. The role of the National Assembly in public finance is limited to passing the budget as contained in an Appropriation Bill, and their oversight functions through the Public Accounts Committee. They are not permitted to design, execute and oversee capital projects under any guise. Sections 80 of the Constitution established the Consolidated Revenue Fund for the federation and charged that no moneys shall be withdrawn from the fund or any other public fund of the federation except in the manner prescribed by the National Assembly. The roles and responsibilities of the Executive and the legislature in this process are clearly delineated in section 81 thus: The President shall cause to be prepared and laid before each House of the National Assembly at any time in each financial year, estimates of the revenues and expenditure of the Federation for the next financial year. The head of expenditure contained in the estimates (other than expenditure charged upon the Consolidated Revenue Fund of the Federation by this Constitution) shall be included in a bill, to be known as an Appropriation Bill, providing for the issue from the Consolidated Revenue Fund of the sums necessary to meet that expenditure and the appropriation of those sums for the purposes specified therein.
In the case of padded projects, the execution of the projects is often shrouded in secrecy. The legislators (in breach of the Public Procurement Act) determine which contractors execute the projects. Furthermore, the legislators, being the executors and beneficiaries of the vote hardly conduct oversight functions in relation to these projects. Between 2004 and 2013, it was estimated that over N900 billion had been appropriated by the National Assembly for constituency projects. These funds are also not subject to the regular accountability mechanisms for public spending, given that they are executed outside of the normal procurement process, without inherent checks and balances and there is no mechanism for monitoring contract performance and execution. In addition, the lack of formal oversight means that there is likely to be conflicts of interest in the selection of contractors by National Assembly members. In fact, there are allegations that some National Assembly members own the companies that execute these constituency projects. In some cases, the projects are not visible. This is a breach of the Public Procurement Act 2007, and should a National Assembly member be convicted, he/she should be liable to imprisonment.
Padding of budgets by Constituency projects enthrones “a culture of legislative corruption”, and in many instances, it is used as a tool for enriching lawmakers at the expense of the public.
Clearly, the Constitution has no room for the legislature to prepare some separate heads of expenditure and estimates to be presented separately or included in the estimates to be laid by the Executive. The practice of including Constituency projects is therefore unconstitutional and fraudulent abuse of legislative powers.
The exposé of Panama Leaks was a global scandal, which revealed the complex and rigorous instruments used to conceal controversial holdings by many politically exposed individuals across the world and here in Nigeria. The problem is many of these holdings were held legally through these schemes. Do you believe that there should be a tightening of the regulatory requirements for corporate bodies to make shell companies true ownership harder to conceal?
The existence and use of shell companies is a fraudulent stratagem and the product of legal systems that encourage lush funds. The earliest company frauds were perpetuated by faceless promoters or persons of uncertain identity. Shell companies encourage a return of the nefarious practices of yore. I strongly support the tightening or elimination of the practice of using shell companies. The Companies and Allied Matters Act needs to be amended to compel disclosure of beneficial ownership in shares.