Nigeria, Africa’s largest economy and second biggest market, is an important investment destination. One of her greatest challenges is archaic business laws. Fortunately, the past two years, has seen remarkable and historic positive developments in business laws. On Tuesday, the 5th February 2019, President Muhammadu Buhari, signed the Federal Competition and Consumer Protection Act (the “FCCPA”) as the first anti-trust and consumer protection law of Nigeria. An anti-trust regime for Nigeria is expected to influence the wider West African market as the Economic Community of West African States (“ECOWAS”) has been working on a regional anti-trust regulatory framework akin to the Common Market for East and Southern Africa (“COMESA”). Further on Friday, the 7th of August 2020 the Nigerian President assented to the Companies and Allied Matters Amendment Act 2020, effectively repealing Companies and Allied Matters Act of 2004 (“CAMA 2020” of the “new CAMA”). This move is hailed as the most significant development of Nigerian business laws within thirty (30) years.
We have provided a brief overview of the key elements of these changes and our view of the potential impact on our clients’ business. We have focused mostly on anti-trust provisions for the FCCPA and ease of doing business for CAMA 2020.
The objectives of the FCCPA fall into three (3) main categories: competition, consumer protection and economic development. From the competition perspective, the Act seeks to promote and maintain competitive markets by eliminating restrictive or unfair business practices that prevent or distort competition or constitute an abuse of a dominant position. It also seeks to promote economic efficiency. In relation to consumer protection, the FCCPA is expected to protect consumers interests and welfare as well as facilitate access to a wider variety of quality products. Sustainable development of the Nigerian economy is the third leg of the objectives of the Act.1 The scope of the FCCPA appears wide-ranging. Its provisions impact on:
- All sectors of the economy: all businesses fall within the scope of the Act. Even sectors that have specific regulations in relation to competition or consumer protection fall within the purview of the Act,
- All economic and commercial activities, undertakings and arrangements undertaken within Nigeria: whether undertaken by individuals or corporates and includes production and trade in goods as well as provision of services,
- Extra-territorial arrangements and conduct: all acts, undertakings, arrangements, economic and commercial activities having an effect within Nigeria, change of control transactions involving acquisition of shares or other assets ex Nigeria by individual or corporates as well as conducts outside Nigeria carried on by a Nigerian citizen or body corporate registered in Nigeria are within the ambit of the Act,
- Commercial activities of government agencies: at both Federal, State and Local Level.
In summary, all sectors and industries fall under the scope of the Act. This includes all offshore arrangements which have an effect in Nigeria, all business transactions occurring in Nigeria as well as asset acquisition which changes control in a Nigerian business. It is important to note however, that the FCCPA does not apply to professional services that are subject to the regulation of a professional body such as legal and accounting services.
The FCCPA appears to provide a superior2 and all-encompassing framework as the provisions of all other laws and subsidiary legislation relating to competition and consumer protection must be read in conformity with its provisions. This means that the Federal Government must align the current regulatory landscape which has sector regulators determining anti-trust and consumer protection issues, with the new Act. To that end, the Federal Competition and Consumer Protection Commission (the “FCCPC”), is expected to enter into agreements with sector specific regulators within one year of the FCCPA. These agreements are expected to streamline, harmonise and establish efficient procedures consistent with the provisions of the Act.
The FCCPC which replaces the Consumer Protection Council, is responsible for implementation of the Act and all other laws relating to competition and consumer protection. The Commission is to be run by an eight-member Governing Board. The Commission is empowered to conduct investigations, undertake inquiries, enter and search premises with a warrant issued by the Court, request for information and documents, summon attendance to take evidence or produce documents, issue directives, make orders and declarations, undertake hearings and reach decisions. Regulation-making powers are conferred on the Commission and these can be exercised in relation to restrictive agreements, abuse of dominant position, monopoly investigations, assessment of mergers, market definition, leniency programmes, consumer protection amongst other matters. The Commission can also issue guidelines, notices as well as procedural and enforcement rules.
The Act also establishes a Competition and Consumer Protection Tribunal (The “Tribunal”) to hear appeals from or review any decisions of the Commission as well as sector specific regulators in the area of competition and consumer protection. However, decisions from sector specific regulators must first be heard and determined by the Commission before such appeals can be heard by the Tribunal. The decisions of the Tribunal must be first registered with the Federal High Court in order to be enforceable. Appeals from the decisions of the Tribunal lie with the Court of Appeal.
The anti-trust provisions contained in the new law cover five (5) elements namely:
- Restrictive agreements,
- Prohibition of “abuse of dominance”,
- Price regulation,
- Merger control.
The introduction of the FCCPA repeals all aspects of the provisions of the Investments and Securities Act of 2007 (“ISA”), which empowered the Securities Exchange Commission as the principal merger regulating authority. The Act is now the principal statute for all mergers, acquisitions and joint ventures, with the assistance of any regulations and guidelines issued by the Commission from time to time. Sector specific legislation such as the Nigerian Communications Commission Act of 2003 and the Electricity Power Sector Reform Act of 2005 are disempowered where competition regulation is concerned. The Act maintains the distinction of notifiable and non-notifiable mergers of ISA. The Act does so by defining “small mergers”, as those not requiring notification as they fall short of the threshold whilst “large mergers” are notifiable as they fall within the threshold. Transacting parties to any large merger, cannot implement any transaction without first filing a merger notification and obtaining approval from the Commission. Any contravention deems the transaction illegal and attracts a penalty of up to 10% of the business’ turnover.
All merger transaction assessments follow the formal channels and procedures set out by the Commission, hence there is no room for an accelerated process, only standard timelines apply. The Commission publishes its decisions in the government gazette and any grievances may be taken up to the Tribunal for determination.
- CAMA 2020
CAMA 2020, tackles Ease of doing business, introduces new structures of business organisations, company management, company securities, mergers and acquisitions, and insolvency matters. The new CAMA introduces four (4) additional parts that include the following: Limited Liability Partnerships, Limited Partners, General (Administrative Proceedings Committee), and another part for Incorporation of Companies and Incidental matters. The introduction of Limited Liability Partnerships and Limited Partnership combines the flexibility and tax status of a partnership with the limited liability status of members of a Company. There are more options for incorporation in Nigeria with additional practical business advantages to these set-ups. Furthermore, businesses domiciled in Nigerian states without a Limited Partnership Law like Lagos State may now set up limited liability partnerships and limited partnerships.
CAMA 2020 walks the talk on ease of business. It is now possible for one person to incorporate a private company and the objects of a company are now unrestricted. 3Furthermore, such onerous requirements as a mandatory “declaration of compliance” by a legal practitioner have been removed. It is no longer necessary to get a lawyer to certify that pre-incorporated documents are compliant with the law, hence applicants can simply file a statement of compliance. 4
It is also particularly important to note that CAMA 2020 deliberately attempts to make business more affordable in Nigeria, especially using technology. Documents can be signed electronically and accepted as valid. 5 Private companies can now hold Annual General Meetings (“AGMs”), electronically and notices of meetings may be issued via electronic mail. 6Small companies (private companies with turnover of not more than N120million/USD304,000 and net assets not exceeding N60m/USD152,000)7, need not appoint a company secretary,8nor are they subject to audit requirements. 9 Further, filing fees for registration of security interests at the Corporate Affairs Commission (“CAC”) has been significantly reduced. Release of charges used to be 1% (private companies) and 2% (public companies) of the value of the charged assets. The total fee payable to the CAC shall not exceed 0.35% for both private and public companies, effectively cutting costs in debt financing by 65% and 82.5% respectively.10
Foreign investors will be encouraged to know that CAMA 2020 attempts to bring transparency and security to doing business in Nigeria. Disclosures are now required of persons with significant control (i.e. persons who hold 5% or more of the voting rights) in private and public companies11 and limited liability partnerships.12 The CAC will also maintain a register of such persons which will contain the information received from companies, thereby increasing transparency and discouraging such illicit acts as “asset shielding”. CAMA 2020 entrenches strict corporate governance principles for public companies with the separation of CEO and Chairman as well as restricting multiple directorships (a person cannot be a director in more than five public companies).13 Quite notably, major transactions in private companies such as restructuring are subject to a transparent framework, where a special resolution is required for approval.14 Shares must be offered to members on a “right of first refusal” before selling outside to third parties, furthermore, shareholders cannot sell more than 50% of company shares to a buyer who is unwilling to buy the remainder on the same terms and conditions. Assets of more than 50% of the value of the company’s total assets require unanimous consent of members.15These are key provisions that foreign investors need to be aware of for financial planning purposes.
Both FCCPA and CAMA 2020 are welcome developments in Nigerian business. FCCPA, brings confidence to investors that there are concrete efforts to levelling the playing field across sectors. There is still much work to be done in implementation framework as there is need for harmony between the FCCPC and sector regulators. Further, the FCCPA needs to give more teeth to the enforcement mechanism particularly the Tribunal with criminal sanctions instead of just administrative penalties. CAMA 2020 has significantly modernised the process of incorporation and governance of business structures whilst making it more affordable for stakeholders. Foreign investors, however, are advised to be more vigilant now as this shifting landscape means greater scrutiny of businesses across the entire value chain from set-up, administration and governance to transacting.
By Ruth Daimon and Marshal Mapondera , Daimon Consultancy Services