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The New Company Law and the Constitutional Rights of Nigerians

The Companies and Allied Matters Act, 2019 (“the new CAMA”) recently signed into law by the President of the Federal Republic of Nigeria is a welcome development to Nigerian businesses. It has addressed the bottlenecks in formation of business entities and improved Nigerian corporate governance. It has also given leverage to small companies to thrive and incorporated technological innovations to the processes of the Corporate Affairs Commission (“Companies’ Registry”) to facilitate the ease of doing business in Nigeria.

However, the legislature in extending the powers of the Companies’ Registry to effectively regulate the activities of Churches, Islamic Religious Organisations, Charity and Non-Government Organisation which are registered as Incorporated Trustees (“associations”) has introduced some new provisions in the new CAMA which are capable of usurping the fundamental rights of citizens to their freedom of thoughts, conscience and religion, freedom of peaceful assembly and association and constitutional rights of access to Courts.

It is upon this premise that the Plaintiff, a Nigerian Citizen and Legal Practitioner, commenced Suit No. FHC/ABJ/CS/1076/ 2020; Emmanuel Ekpenyong Esq. v. National Assembly, Corporate Affairs Commission and Attorney General and Minister of Justice of the Federation at the Federal High Court, Abuja Division, challenging the constitutionality of some provisions of the new CAMA.

The Plaintiff contends that Section 839 of the new CAMA which gives power to the Companies’ Registry to remove trustees and appoint an interim manager to take over an association where it reasonably believes that there is misconduct, mismanagement, fraudulent practices, for protection of the property of the association and public interest; Section 842, Section 843, Section 844 of the new CAMA which gives the Companies’ Registry the powers to control the proceeds of a dormant account of an association and dissolve an association on account of its dormant account; Section 845, Section 846, Section 847 and Section 848 of the new CAMA which directs associations to keep and submit their statement of affairs and accounting records to the Companies’ Registry, infringes the Plaintiff’s freedom of thoughts, conscience and religion enshrined in Section 38 of the Constitution of the Federal Republic of Nigeria, 1999 (as amended) (“the Constitution”).

The Plaintiff opines that Churches, Islamic religious organisations, Charity and Non-Governmental Organisations give hope to the Plaintiff and the Nigerian people. The activities of associations augment the efforts of government. They act as watchdogs for the people and put the government in check. It is unfortunate for the provisions of the new CAMA to put the activities of associations under the complete whims and caprices of the Companies’ Registry which is an agency of the Federal Government.

The law provides for every association to have a Constitution which regulates the affairs of the association and protect them against misconduct, mismanagement, fraudulent or other activities which are contrary to the objects of the association. Hence, the Companies’ Registry has no business whatsoever in suspending trustees and appointing interim managers for them. This is a sure recipe for disaster. The activities of associations are not against public interest to warrant such draconian provisions.

The funds of associations are not public funds. They are contributions, offerings and freewill donations of members to carrying out their objectives. There is no legal justification for the Companies’ Registry to be interested in the dormant account of associations. Associations are non-profit making organisations. They are not business ventures as such the Companies’ Registry cannot be ingrained in the affairs of associations by expecting them to submit statement of affairs or accounting records to the Registry.

The Plaintiff has a freedom to his thought, conscience and religion alone or in community with others. The Plaintiff has a right to propagate his religion, worship, teaching, practice and observance in public or private and does not even need to register same with the Companies’ Registry to propagate same. Therefore, giving powers to the Companies’ Registry who is an outsider and complete stranger to determine the affairs of a place where the Plaintiff professes his thoughts, conscience and religion is an aberration which is in contravention of Section 38 of the Constitution.

Furthermore, the Plaintiff contends that Section 839, Section 843, Section 844, Section 845, Section 846, Section 847 and Section 848 of the new CAMA infringe his freedom to peaceful assembly and association. This is because the Companies’ Registry has a wide discretion to appoint interim managers to replace suspended trustees. The interim managers to be appointed by the Companies’ Registry may have nothing in common with the members of the association and the members will not have a right to challenge such appointment.

This will impair the rights of members of associations to actively participate in activities of their associations and determine its direction. The enormous and dictatorial powers given to the Companies’ Registry to intrude and interfere with the operations and management of associations is not legally justifiable. The use of phrases such as “is satisfied”, “reasonably believes”, “deem it necessary”, “public interests” in relation to the powers of the Companies’ Registry over associations are ambiguous phrases that can easily lead to an abuse of power by the Companies’ Registry and contravene the Plaintiff’s freedom to associate peacefully with other persons enshrined in Section 40 of the Constitution.

Again, the Plaintiff contends that the provisions of Section 851 of the new CAMA which gives powers to the Administrative Proceedings Committee to hear cases arising from the provisions of the new CAMA limits the Plaintiff’s constitutional rights of access to Courts. Section 6 (1) and 6 (b) of the Constitution confers judicial powers to the Courts. Section 36 (1) of the Constitution gives citizens the right to access an independent and impartial Court to determine their civil rights and obligations. Section 251 (1) (e) of the Constitution provides for the Federal High Court to hear any matter arising from the provisions of the new CAMA.

Hence, the provision of Section 851 of the new CAMA comes as a very huge surprise. The composition of the Administrative Proceedings Committee is made up mostly of employees of the Companies’ Registry who are involved or aware of the issue which caused the dispute in the first place. It is against the principle of natural justice for a person to be a judge in his own case. In most disputes arising from the provisions of the company law or regulations, the Companies’ Registry is usually a party to the dispute.

The Companies’ Registry cannot independently and impartially determine a dispute which it is also a party. If this is allowed the Companies’ Registry will be a party and judge in its own case. It is without doubt that Section 851 of the new CAMA is contrary to the Plaintiff’s rights of access to Courts enshrined in Section 6 (1) 6 (b), Section 36 and Section 251 (1) (e) of the Constitution.

In conclusion, the Plaintiff contends that his freedom of conscience, thoughts and religion, freedom of peaceful assembly and right to access to Court are so serious and the only way to ensure that the rights are protected in the circumstance, is for the provisions of Section 839, Section 843, Section 844, Section 845, Section 846, Section 847 and Section 848 and Section 851 of the new CAMA to be expunge from the new CAMA. The Plaintiff prays for an order of mandatory injunction of the Court directing the Defendants to expunge the offending provisions of the new CAMA.

Benefits upon Discharge On Grounds of Redundancy in Nigeria

Like in other Countries, the COVID-19 pandemic has affected the survival of many businesses across all the sectors in Nigeria. In other to grapple with the rough tides and remain in business, owners of businesses have deliberately cut down the cost of running their business by reducing overhead costs, declaring some post redundant and reducing their workers by discharging them on grounds of redundancy.

This has created problems for both workers and employers. Whilst workers will lose their means of livelihood, it opens up employers to industrial actions by the discharged workers. It is therefore in the best interest of the employers and workers for employers to discharge workers on grounds of redundancy in line with the provisions of the labour law.

Section 20 of the Labour Act provides that in the event of redundancy, the employer shall inform the trade union or workers’ representative concerned of the reasons and extent of the anticipated redundancy. The employer shall adopt the principle of “last in, first out” in the discharge of the workers affected, subject to all factors of relative merit, including skill, ability and reliability. This means workers who have been in employment longer will be considered for discharge before the latest workers to come into the employment. The employer shall use his best endeavours to negotiate redundancy payments to the discharged workers who are not covered under any regulation.

However, it is settled law that where the employment of workers is wrongfully terminated i.e. terminated against the provisions of the labour law or their contract of employment, the remedy available to the workers is for their benefits which would have accrued to them had their employment been legally terminated, to be paid to them. Apart from employment with statutory flavour (i.e. workers in civil service or other employments protected by statutes), it has been settled by Nigerian courts that the law or Court cannot foist a willing employee on an unwilling employer and vice versa.

Hence, an employer has a duty to furnish the workers with a notice stating the reasons for their discharge on the grounds of redundancy and comply with the “last in, first out” principle in the labour law in discharging the workers. Nevertheless, the employer has the right to consider other factors like the relative merit, skill, ability and reliability of the workers in reaching a decision on which of the workers to be discharged on grounds of redundancy. The employer has a duty to rely on international best practices to reach a redundancy payment to the discharged workers who are not covered by any existing regulation.

Regrettably, where a worker was wrongfully discharged on ground of redundancy, the worker is only entitled to his redundancy benefits as stated in the relevant Employment Contract, Collective Agreement or regulation. The worker does not have a right to reinstatement, loss earnings, emotional or psychological pain. This is because the Court cannot force or foist a willing worker on an unwilling employer.

Setting Aside a Judgment in Nigeria

The essence of civil proceedings is for the judgment creditor to enjoy the fruits of his Judgment. This may be achieved by the judgment creditor executing the Judgment by the attachment and sale of the moveable or immovable property of the judgment debtor, attachment of funds belonging to the judgment debtor in the possession of a third party under the garnishee proceedings or committal of the judgment debtor to prison for refusal to settle the judgment debt under the judgment summons proceedings. However the following are the grounds upon which a Nigerian Court will set aside execution of a Judgment;

(i) If the judgment creditor executed the Judgment against a person other than the judgment debtor;

There are instances where a judgment creditor who is desperate to obtain payment of the judgment debt, attaches the movable property of a third party in the premises of the judgment debtor. Upon the application of the third party with proof that the property belongs to him and not the judgment debtor, the Court would set aside the execution of the Judgment.

(ii) If the person against whom the Judgment was executed, was never a party to the suit.

A judgment creditor cannot legally execute a Judgment against a person who was not a party to the suit upon which he obtained Judgment. This is so even if the person against whom the Judgment was executed is the judgment debtor’s successor-in-title. For instance, if a defendant dies before Judgment is delivered, the judgment creditor ought to bring an application to substitute the defendant’s name with that of his successor-in-title and serve the successor-in-title with all the processes in the suit.

If the judgment creditor fails do so and the Judgment is delivered against the defendant, the judgment creditor cannot sustain an execution against the defendant’s successor in title. This is because the successor-in-title was not a party to the suit. In law, the defendant and his successor-in-title are distinct and different persons.

(iii) Lack of service of the processes on the judgment debtor

If the judgment creditor failed to effect service of the processes in the suit on the judgment debtor in line with the provisions of the relevant statutes on service of processes, the Court would set aside the execution of the Judgment against the judgment debtor. This is because service of processes on the judgment debtor goes to the root of the suit and affects the jurisdiction of the Court to validly enter Judgment against the judgment debtor. Lack of service is a clear breach of the judgment debtor’s fundamental right to fair hearing and makes the proceedings conducted a nullity and of no legal effect whatsoever.

(iv) Lack of jurisdiction of the Court who delivered the Judgment

Jurisdiction of Court is a threshold issue. If the Court who delivered the Judgment which the judgment creditor executed against the judgment debtor had no jurisdiction in the first place over the subject matter of the suit or exceeded its statutory jurisdiction, the judgment debtor may apply to set aside the execution of the Judgment.

(v) Execution of a Judgment outside the stipulated statutory period

Order IV Rules 8 (1) and (2) of the Judgment Enforcement Rules provides that a Judgment shall be executed against the property of a judgment debtor within 6 (six) years and against the person of the judgment debtor within 2 (two) years from the date in which the Judgment was delivered, failing which the judgment creditor must file an exparte application for leave of Court to execute the Judgment outside the stipulated statutory period.

If a judgment creditor, without leave of court, execute a Judgment outside the stipulated statutory period, the judgment debtor may apply to the Court to set aside the execution of the Judgment.

Holding a Board of Directors Meeting in Nigeria

How many members may call for a Board meeting (“the meeting”)?

Section 263 (3) of the Companies and Allied Matters Act (“the CAMA”) provides that;

“A director may, and the secretary on the requisition of a director shall at anytime summon a meeting of the directors”

Except the Articles of Association of the Company stipulates otherwise, the following persons may call for the meeting;

  • (a) Any of the Company’s Directors; or
  • (b) The Company’s Secretary upon the requisition of any of the Company’s Directors.

What is the period between dispatch of the invitation notice of meeting and the meeting?

Section 266 (2) and (3) of the CAMA provides that;

  • “(2) There shall be given 14 days notice in writing to all directors entitled to receive notice otherwise provided in the articles.
  • (3) Failure to give notice in accordance to subsection (2) of this section shall invalidate the meeting”

Consequently, the meeting shall be held 14 clear days’ after dispatch of the notice for the meeting, failing which the meeting shall be invalid.

Who should sign the invitation notice of the meeting?

Further to the provisions of Section 263 (3) of the CAMA, the following persons may sign an invitation notice for the meeting;

  • (a) The Director who summons the meeting; or
  • (b) The Company’s Secretary who summons the meeting upon the requisition of a Director.

Where should the meeting hold?

Section 266 (4) of the CAMA provides that;

“Unless the articles otherwise provide, it shall not be necessary to give notice of a meeting of directors to any director for the time being absent from Nigeria, provided that if he has given an address in Nigeria, the notice shall be sent to such address”

Since the provisions of Section 266 (4) of the CAMA provides for notice to be given only to Directors in their Nigerian address, the CAMA envisages that the meeting shall be held in any State or location in Nigeria.

Though it is the practice for Nigerian Companies to hold their Board meetings at the registered address of the Company, there is no provision of the CAMA which is against holding a Board meeting at an address in Nigeria other than the registered address of the Company.

Who should attend the meeting?

In practice, the following persons shall attend the meeting;

  • (a) The Company’s Directors;
  • (b) The Company Secretary in order to take minutes and guide the Chairman of the Board on the proceedings;
  • (c) The Chief Financial Officer to present the financial statement of the company;
  • (d) Senior officers of the Company who contribute to the running and growth of the Company;
  • (e) Any other person whose submission is important to the agenda of the meeting.

Who should be notified of the meeting?

It is compulsory to send a notice of the meeting to all the Directors failing which the meeting shall be invalidated. Once notice of the meeting is sent to all the Directors, the Director or Secretary who summons the Board meeting has discharged his responsibility under the provisions of the CAMA.

The Directors present in the meeting, may proceed to deliberate on the agenda and pass resolutions to bind the Board in the absence of some Directors, provided that the quorum stipulated in the Company’s Articles of Association has been met.

It is important to send notice of the meeting to other persons and officers of the Company whose contribution is necessary for successful deliberation in the meeting.

What are other legal and practical details for the meeting?

(a) Board Pack

The notice of the meeting is usually accompanied by a Board Pack containing the agenda of the meeting, minutes of the previous meeting, management and committee reports, financial reports, proposals and other documents which are to be discussed at the meeting. The Board Pack should be sent alongside the notice to enable the Directors and other persons invited to the meeting to adequately prepare for the meeting.

(b) Service of notice

The invitation notice shall be sent to the Directors and other persons scheduled for the Board meeting, personally or by registered post.

(c) Quorum

Section 264 (1) of the CAMA provides that;

“Unless the articles other provide, the quorum necessary for the transaction of the business of directors shall be 2 where there are not more than 6 directors, but where there are more than 6 directors, the quorum shall be one-third of the number of directors and where the number of the directors is not a multiple of three then the quorum shall be one-third to the nearest number”

This means that if the Directors of the Company are less than 6 Directors, the quorum for the meeting shall be 2 Directors. But if the Directors of the Company are more than 6 Directors, the quorum shall be one-third of that number.

Workplace Injury PHOTO

Basis of assumption of jurisdiction by the NIC over workplace injuries

In the same Mr. Adewole Oluwasegun Ayotunde v Practical Habitat Limited (supra), the court also endorsed the principle that “the fact that the right of a person is infringed in the workplace is not sufficient to confer jurisdiction on the court [over an action for, or a claim over, the infringement] except an employment issue is involved”. On that basis, the court declined jurisdiction over the claimant employee’s claim, from the defendant employer, of damages for wrongful arrest, detention and molestation by the police, which acts took place at the claimant’s workplace in the defendant’s building site.

The relevant facts were that the claimant employee was arrested by the police on the premises of the defendant employer’s worksite. The police had come for one Mr. Fisher, who was a business partner of the defendant employer but, not finding Mr. Fisher at the site, arrested the claimant who was the only person present at the site. Mr. Fisher eventually reported at the police station and the claimant was released forthwith. However, the court declined jurisdiction over the claimant’s claim for damages from the defendant for the said actions of the police done to the claimant at the defendant’s site. The court explained that the basis for its assumption of jurisdiction over workplace injuries was employer’s liability, which did not cover the claim for damages for the arrest, detention and molestation by the police.

Contract Law PHOTO

Treatment of application for contractual leave

In a decision it delivered on 31 May 2018 in Mr. Adewole Oluwasegun Ayotunde v Practical Habitat Limited (unreported Suit No. NICN/LA/124/2015), the NIC held that where a contract of employment provides that leave is to be taken at a time that is mutually convenient for both parties, an employer, in refusing an application for leave as inconvenient, must communicate the convenient period when the employee may re-apply for (and take) the leave; otherwise, the employer would be taken to have denied leave to the employee. The court also held that any applicable leave allowance must be paid strictly in accordance with the provisions of an employee’s contract of employment, failing which the employer may be made to pay the allowance over again.

The facts of the case relevant to this issue are as follows: The claimant’s contract of employment provided that the claimant would be entitled to proceed on annual leave at a time that was mutually convenient for both parties, and that a leave allowance amounting to 10% of his annual basic salary would be paid to him when he is going on leave.

Notwithstanding these provisions of the contract, the defendant pro-rated the leave allowance into 12 equal parts and paid it in equal monthly instalments to the claimant together with his monthly salary. The defendant also declined the claimant’s application for leave on the ground that the period selected by the claimant was not convenient, and requested the claimant to re-apply for the leave at a convenient time. The defendant, however, did not inform the claimant when the convenient time would be. The result was that despite the pro-rated monthly payment of leave allowance by the defendant to the claimant for the particular year, the claimant was never, in fact, granted, and did not take, his leave for that year. Upon termination of his employment, the claimant instituted the action and claimed for his leave allowance for the relevant year, among other reliefs.

Although the defendant adduced evidence of the pro-rated payment of the leave allowance in the course of the 12 months of that year, the court took the view that since the contract provided for payment of leave allowance when the claimant was proceeding on leave, and the parties were in agreement that the claimant did not proceed on leave for the relevant year, whatever payment was made to him in the course of the year was not “leave allowance” notwithstanding how the defendant described that payment in the claimant’s pay slip. The court, therefore, awarded the claimant’s claim for leave allowance. Further, the court held that the defendant actually “denied” the claimant his leave for the period, in so far as it did not communicate any convenient time for the claimant to re-apply for leave, upon refusing the claimant’s first application therefor. However, the court did not award any “damages” for this act of breach of contract as the claimant did not make any such claim. The claimant had instead claimed for “encashment in lieu of leave” on the basis that same was provided for in his contract, but the court refused the claim on the basis that there was no such provision in the contract.

It would appear to us that by this decision the claimant would have received employment related payments from the defendant in excess of amounts contracted by the parties. The decision is therefore difficult to follow in our view. But notwithstanding the difficulty in understanding the basis for the decision, employers should very well follow the rules established in the decision in order to avoid exposure to avoidable liability.