THE CORPORATE AFFAIRS COMMISSION (CAC) AS REGULATORY AUTHORITY IN NIGERIA: A LEGAL APPRAISAL OF INVESTIGATORY FUNCTIONS AND

CHALLENGES

BY

ABDUL-HAMID OBA YUSUF ESQ1

ABSTRACT

The Corporate Affairs Commission (CAC) has the mandate to ensure compliance with the Companies and Allied Matters Act (CAMA). However, there are quite a number of hindrances militating against effective performance of that function and realization of the spirit and letters of CAMA by the CAC. There are serious gaps between the statutory standards and the actual practice by companies in Nigeria. The power of investigation represents a great weapon in possession of the CAC in order to attain its objectives it is also a casualty within the context in which the CAMA and indeed the CAC operates. But instead of an attempt to provide a holistic statutory solution, what existed are ad hoc approaches to particular sectors of the economy as the occasion demands. While the legislator may anticipate that such issues should be resolved via judicial activism that also has not been the case. This is due to the challenges faced by either the affected shareholders or stakeholders in bringing such matters before the court for redress or the CAC in performing its regulatory functions, corporate abuse has therefore continued unabated. This paper therefore seeks to examine the regulatory functions of investigation by the CAC with a view to indicating the challenges facing it and to suggest a direction to repositioning the CAC by proffering a broader statutory approach to the challenges in corporate regulation in Nigeria.

1 LL.B Ife, BL Lag, LL.M Ife, CERT. DPMIS Unilorin, M.Phil Corporate Law, Ife, Nigeria, Ph.D in Corporate Governance Law (in view @ IIUM Malaysia), Formerly Sub-Dean, Faculty of Law University of Ilorin, Ilorin Nigeria & Formerly Head, Department of Business Law, Faculty of Law University Of Ilorin, Ilorin, Nigeria.

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INTRODUCTION

There are numerous reasons for the renewed interest in the governance of corporations,

some of which include the fact that technological advancement and increase international

competition have resulted in persistent unemployment, especially in the urban areas. This calls

attention to the fact that private business can affect everyone and it possessed a possible private

solution to some social and economic problems such as unemployment, provision of social

infrastructure, environmental degradation and so on. This is particularly attractive in that most

economies today including that of Nigeria operate a capitalist ideology, which is opposed state

intervention in matters of private business.2 Therefore, there is the need for the law to properly

regulate business in order to balance the various interests including that of the society which is

one of the cardinal objectives of Law in the society.

The increasing economic power of public and multinational companies and the

implications of the separation of ownership from control in such companies have thrown up a

number of interrelated problems. Initially these were seen as limited to the control of the

management towards ensuring the good and indeed the best for their shareholders and other

stakeholders. However, this resulted in the abuse of power by the directors. In any case the

struggle to make the directors truly accountable and responsible to the corporate stakeholders has

continued to be of concern to company regulators and legislators. Traditionally, efforts, to

achieve this have always been through an increase in the information to be made available to the

stakeholders (principle of disclosure) and issues that need to either be discussed or ratified by the

shareholders at general meeting. With the emergence of globalization, it was soon realized that

the law need to be fortified in orders to provide a fair and necessary balance between directors’ 2 The popularity of the capitalist system today is a natural fall out of the collapse of communism and consequential pointing up of the merits of the market system. But the capitalist ideology as it were, accentuates corporate capitalism with its attendant consequences of creating wider gaps in the class divide within the social setup.

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and stakeholders interests. In England3 and the United States4 it has been recognized that what is

needed is a watchdog empowered to take action on behalf of the stakeholders either by

investigation, inspection, or institution of civil and criminal proceedings in deserving cases

The key issue in corporate regulation is ensuring company management performs their

functions in order to meet the legitimate expectations of the shareholders and other stakeholders.

In the words of Gower:

“It is now widely recognized in all countries that the only effective way of

preventing impropriety in the management of corporate enterprise is to ensure

effective supervision by some Government agency. The idea that shareholders can

be relied upon to supervise management and to take effective steps to protect

themselves is an anachronism… Even if shareholders have the determination and

the financial means they will often lack the inside knowledge of the fact which is

needed before any legal action can be commenced.”5

Lord Denning M.R while dealing with a matter relating to the power of investigation by a

regulatory body had said:

“It sometimes happens that public companies are conducted in a way

which is beyond the control of the ordinary shareholders. The majority of the

shares are in the hands of two or three individuals. These have control of the

company’s affairs. The other shareholders know little and are told little. They

3 Paul L. Davies, Gower’s Principles of Modern Company Law, (London: Sweet & Maxwell, 8th edn., 2001), 78.4 In the United States, there is a system of Private enforcement in which an Attorney so mutu investigate a perceived misconduct and institute an action for appropriate remedy. J C Coffee, “Understanding the Plaintiff’s Attorney: The Implication of Economic Theory for Private Enforcement of Law through Class Actions,” Colum. L Rev. vol. 86 (1986): 678.5 Final Report of the Commission of Enquiry into the Working and Administration of the Company Law on Ghana, p. 163, quoted by Okonkwo C. O. n. 20

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receive the glossy annual reports. Most of them throw them into the wastepaper

basket. There is an annual general meeting, but few of the shareholders attend.

The whole management and control is in the hands of the directors. They are a

self-perpetuating oligarchy and virtually unaccountable. Seeing that the directors

are the guardians of the company, the question is asked: quis custodiet ipsos

custodes? Who will guard the guards themselves?”6

Thus Regulatory institutions are expected to set standards for corporations in every spheres

considered important by the law and regulations in force at any material time. In specifics

external regulators sets standards for corporations on issues such as registration, disclosures,

filing of returns and so on. This paper seeks to appraise existing regulatory investigatory

challenges facing the CAC in Nigeria with a view to showing its areas of strength and

weaknesses.

THE CORPORATE AFFAIRS COMMISSION (CAC)

The present corporate legislation in Nigeria is the Companies and Allied Matters Act (CAMA).

Prior to this time the applicable statute was the Companies Act 1968. One of the major

innovations of CAMA is the provision for the establishment of the Corporate Affairs

Commission (CAC).

The Companies Act 1968 was administered by the Ministry of Trade. The Company

Registry under its Corporate Affairs Division was in charge of company registrations and

incidental matters. The Company Registry was headed by a Registrar designated as the Registrar

of Companies. The registry had a lot of problems some of which include lack of fund, as it was

6 Norwest Holst Ctd v. Department of Trade & Others (1978) 3 All E.R 280.

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not self-accounting. The Registrar of Companies is usually posted to the Ministry of Trade from

the Ministry of Justice on secondment, while the other staff in the Registry comes from the

Ministry of Trade. These along with other bureaucratic bottlenecks compounded the situation

with the result that the registry became grossly in inefficient in its primary responsibility of

company registration and supervision could not be efficiently performed under the

circumstances. Delay and in some cases outright neglect of its primary functions became in

evitable and apparent.

It was therefore, not surprising that when the opportunity came for a review of the 1968

Companies Act, the Companies Registry could not escape the eyes of the Nigerian Law Reform

Commission in 1987 and that of the Consultative Assembly on Company Law in 1988. Along

the line a number of options were considered some of which were:

(1) to allowing the registry to remain, but with some improvements in the problem areas earlier

identified;

(2) to establish a Board within the Ministry of Trade to supervise the work of the Registry;

(3) to form a guarantee company similar to the Stock Exchange with the mandate of running the

registry; and

(4) to establish an independent statutory body to perform the functions being performed by the

Company Registry. It was this last option which carried the day.

Thus CAMA in S. 1 – 17 made provisions from the establishment of a commission to be

known as the Corporate Affairs Commission (CAC). S. 1 of CAMA made provision for the

establishment of the Corporate Affairs Commissions (CAC) as a body corporate, with perpetual

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succession and a common seal. The headquarters of the commission must be situated at Abuja,

the Federal Capital Territory of Nigeria but offices are to be established in each state of the

federation.7

a. Governance Structure of the CAC

The Commission has 15 members which cut across various profession and interests. A

person to be appointed as chairman of the Commission by the President must have experience or

specialized knowledge in the areas of corporate, industrial, commercial, financial or economic

affairs and he is therefore in a position to make beneficial contribution to the work of the

Commission.8

S. 6 provide for the appointment of a Registrar General for the Commission who is to be

appointed by the Commission, after which he becomes a member of the Commission. To be

eligible for appointment as a Registrar General of the CAC, an individual must have been

qualified to practice law in Nigeria for not less than ten years and he must have had experience in

Company Law practice or administration for not less eight years. The Registrar General is Chief

Executive Officer of the Commission and he is subject to the directives of the Commission. He is

also the chief accounting officer of the Commission and qualified to personally represent the

commission in legal proceedings in court. That is, he is competent to practice as a Solicitor and

Barrister for the purposes of his office.9 The remaining 13 members are appointed by the

minister of finance and economic development with the recommendation of the relevant bodies

7 S. 1(3) of CAMA.8 S. 2 of CAMA.9 S. 10 of CAMA.

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to represent the fallowing interests and sectors of the economy: the business community, labor,

the legal profession, accounting profession, Manufacturers’ Association of Nigeria, Association

of Small scale Industries, the Institute of Chartered Secretaries and Administrations, the

Securities and Exchange Commission and the Ministries of Trade and Tourism, Finance and

Economic Development, Justice, Industry, and Internal Affairs.

A member of the Commission is appointed for a term of 5 years in the first instance and

he is eligible for another term of 5 years with the exception of the Registrar General other

members are to serve on part-time basis.

By the provision of s. 3(3) a member of the Commission ceases to hold office, if he

becomes of unsound mind or is otherwise in capable of carrying out his duties as a member.

Other condition which could lead to the termination of membership of the commission include

bankruptcy, conviction for an offence, involving dishonesty or felony, serious misconduct

connected to his duties, or where he is a professional, if he is disqualified, removed or suspended

from practicing his profession by a competent authority other than at his request.

Quorum of the meeting of the Commission is five, excluding the representatives of the

Institution of Chartered Secretaries and Administrators, the Securities and Exchange

Commission and the Ministries.10 The exclusion of the representatives of the Ministries from

quorum is understandable as the CAMA presumably treated them as a part of the Establishment,

even then one will expect that the Registrar General will be included in the list as those excluded

as those excluded cannot be more establishment than him. But what is even strange is the

exclusion of the representatives of the ICSA and SEC. This may also be due to the interest they

represent. Their Presence may be treated as very important and therefore not necessarily

10 S. 5 (3).

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representative of the diverse views necessary for a good deliberation at the meeting of the

Commission.

b. Functions and Powers of the CAC

The Primary Functions of the Commission are:

a) to administer the CAMA, including regulation, supervision of the formation, incorporation,

registration, management and winding up of companies;

b) to establish and maintain Company’s registries in all the States of the Federation;

c) to arrange or conduct investigation into the affairs of any Company, where the interest of

shareholders and the public so demand,

d) to undertake such other activities as are necessary or expedient, for giving full effect to the

provisions of the Act and

e) to perform such other functions as may be specified by the CAMA or any other law.11

In the course of discharging the forgoing primary duties the Commission performs some

other functions which include, receiving and registering stipulated documents, orders and

resolutions delivered to it;12 giving approvals, direction and extension of time;13 registration of

charges created by companies;14 keeping for each company a register of its charge(s) requiring

registration;15 calling or directing the calling of an annual general meeting where there has been

default;16 determining the standard of a small company within the context of the Act for the

purpose of preparing and delivering a modified and simpler financial statement;17 applying to the 11 S. 712 See for example s. 102(2) requiring a notice of increase in share capital of a company to be filled recorded by the Commission.13 See for example ss. 213(1) (b), 450(20, 467(10. 14 S. 19715 S. 19816 S. 213(2).17 S. 350.

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court for an order directing a defaulting receiver or manger of a company to render proper

accounts of his receipt; demand the filing of returns or other document;18 receiving a liquidator’s

account and causing it to be audited.19

Aside from the forgoing the Commission also has the mandate to ensure the prevention of

corporate irregularities, mismanagement, fraud and oppression of minorities. “Its role as a

corporate ombudsman is most noteworthy and should be the most pervasive of its function in this

regard.”20

c. The CAC’s Authority to Protect Minorities Shareholders

The CAMA no doubt has improved on the protection available for the minorities and

Public interests existing prior to its promulgation in the management of companies.

To this end the combined effect of ss. 310 and 311(2) (c) is that, the commission has the

power to file a petition before the court on any of the fallowing grounds:

(a) if it appears to it that the affairs of a company are being conducted in a manner that is

oppressive or unfairly prejudicial to, or unfairly discriminatory against a member or members

or in a manner which is in disregard of the public interest; or

(b) any actual or proposed act or omission of the company (including an act or omission on its

behalf) is in disregard of the public interest.

The forgoing empowers the commission to act proactively in defense of the minority.

This provides a complimentary or alternative means of protection for the minority where for

example they are unable to pursue their rights in this regard. This could be due to the cost of 18 S. 399.19 S. 429.20 Okonkwo, C.O. (1992) “The Corporate Affairs Commission” in E.O. Akanki (ed), Essays on Company Law (University of Lagos Press, Lagos), p. 18.

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litigation or some other reasons, which may include fear of victimization by the majority who

often control the management in such situation.

The commission by this provision is equally empowered to petition where a company’s

activities are being carried on in disregard of public interest. This power is given exclusively to

the commission and not to any group of shareholders. Public interest in this context extends

beyond investing members of the public who are interested in a particular company. It extends to

activities which may be detrimental to the interest of the country in that, they affect social,

moral, political and economic interests of the country. Thus activities contrary to public policy

will constitute a ground for petition by the commission. Thus corporate activities leading to the

production of obscene publications, smuggling, bunkering, oil pipeline vandalisation will come

within the purview of the provision.

Thus where the court has found that a petition by the Commission is well grounded it

may make such order or orders as it deemed fit in order to correct the situation for which the

commission has petition. For instance the court may make an order for the compulsory winding

up of the company concerned,21 it could also make an order regulating the company’s affairs

subsequently22 or an order for the purchase of a member’s shares by other members or by the

company itself,23 and also it could make an order directing an investigation by the Commission

into the company’s affairs.24

d. Investigatory Powers of the CAC

21 S. 312(a).22 S. 312(b).23 S. 312(c) & (d).24 S. 312(s).

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The CAC performs the function of the guard in relations to corporations in Nigeria. The

Commission is empowered to appoint one or more competent inspectors to investigate the affairs

of a company, as may be directed by the Commission.

i. Types of Investigations that May be Performed by the CAC

Investigation may be instituted by the Commission at the instant of members of the

company; the company, a court of law or the Commission itself.

1. Application for Investigation by Members: Application for investigation by members

can only be brought by a number of them holding not less 25% percent or one-fourth

of the total issued shares of the company, and where the company has no share

capital, as in the case of guarantee company, then on the application of members

totaling 25 per cent or one-fourth of the total membership of the company.

It has been observed that the number of members required under the Nigerian Law is

high which may impede the potential benefits drivable from the Commission’s Power of

investigation. This is due to the nature of share holding structure in Nigeria which is widely

dispersed. It is therefore a difficult task to get the required number of members to send a petition

to the Commission to investigate the affairs of a company. The rational for the present provision

appears to be prevention of frivolous applications for investigation. This is not likely to be the

case since there is also the requirement of showing good reason by the members asking for

investigation by the Commission. Experience has shown that the remedy of investigating is not

being employed by members of the company of Nigeria. There is therefore, the need to

encourage its use by relaxing the prevision.25

25 C.O. Okonkwo, n. 20

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The Ghanaian Draft Companies Code Bill, contained a provision to the effect that such

application should be brought by at least 100 members or by members holding not less than one-

tenth of the issued shares or not less than one-tenth in number of the total members.26

2 Application for Investigation by the Company: The Company may also bring an

application for investigation to be conducted on the company. This independent enquiry may be

conducted where members cannot come to an agreement on how to resolve problems confronting

the company. However in practice this is an unusual procedure. Similar to the case of members’

application for investigation, application by the company must contain good grounds for the

commission to appoint investors to investigate the company. This serves the purpose of

discouraging vexatious applications.

3. Application for investigation by the Court: The court is equally empowered to

order that the affairs of a company be investigated. Then the commission must

appoint one or more competent inspectors to investigate the affairs of the

company and report on them in such manner as it direct.27 This appears to be a

leeway for members who may not be able to obtain one-fourth requirement

contained in s. 314(2) (a). Such member although less than the required number

under the above provision may approach a court of law for an order directing the

Commission to carry out the investigation of the company.28

4. Investigation at the instance of the Commission: Under the provision of s.

315(2) the Commission can on its own appoint inspectors to investigate

26 Ghana Draft Companies Code Bill, S. 220(1).27 315 (1).28 This is akin to the right to ask for an order of mandamus to compel a public institution to carry out its duty under the law. It is not clear however where the members of a company or of the public can ask for tan order of mandamus simply sit a to compel the Commission to carry out investigation in this regard.

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the affairs of a company if it appears to it that there are circumstances suggesting

that:

(a) the company’s affairs are being or have been conducted with intent

to defraud its creditors, or the creditors of any other person; or

(b) the company’s affairs are being or have been conducted in

a manner which is unfairly prejudicial to some part of its members; or

(c) any actual or proposed act or omission of the company (including

an act or omission on its behalf) is or would be so prejudicial; or

(d) the company was formed for any fraudulent or unlawful purpose; or

(e) person concerned with the company’s formation or management or

its affairs have in connection therewith been guilty of fraud, misfeasance or other

misconduct towards it or towards its members; or

(f) the company’s members have not been given all the information with respect to its affairs

which they might reasonably expect.

The Commission can appoint investigators to carry out investigation on its behalf based

on information available to it about any particular company. However, in practice, a member,

officer, creditor or any other interested person(s) will usually make a report to it. The

Commission is also not obliged to disclose to the Company the information which it has and the

person(s) who supplied the information.29 This is particularly good in order to encourage

29 C.O. Okonfwo, n. 20

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concerned individuals or group to assist the Commission by supplying it with necessary

information in order to perform its important function of investigation. Nonetheless, the

commission hardly employs this power to investigate the affairs of the companies. This is

possibly due to the legion of challenges facing the Commission ranging from funding to

personnel, infrastructure etc.30

The Commission’s power of investigation does not abate by reason of a voluntary

liquidation processes.31 This is particularly useful as facts leading to investigation may be

revealed or occurred during a voluntary winding up process. It is equally good that winding up

does not by itself foreclose the right to remedy discoverable irregularities.32

S. 315(4) defines members to include, the personal representatives of a deceased member

and persons to whom shares have been transferred or transmitted by operation of law. Thus the

investigative power of the commission is an instrument of protection for the minority members.

e. The Conduct of Investigation by the CAC

30 Interview with Ilorin Regional Manager Corporate Affairs Commission on 14 to Dec. 2008.31 S. 315 (3).32 C.O. Okonwo n. 20. In compulsory winding up however, the court has the power to take necessary steps in relation to person suspected to be in possession of company’s property, funds or documents. See ss. 449 & 450.

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The Commission will normally make use of its staff in the conduct of investigation in minor

cases. But in serious cases, where facts available portends grievous irregularities it will normally

appoint a Senior Advocate of Nigeria (SAN) and a Chartered Account.33

The team of investigators seats in private in view of the serious implications a public

seating many have on the business, good will and public image of the company. Although the

presence of support and relevant staff of the company is allowed. Investigation of the inspectors

is not the same as court proceedings it is an investigation after which they are expected to report

to the Commission. It is meant to uncover facts upon which others may take action. However, a

report by the inspector may be far reaching in nature and could have serious implications for

individual’s career, reputation and integrity and such report could be made public.

Considering a similar provision under the UK Company Law in RePergamon Press

Ltd34 Lord Dinning M.R. had said: “They (inspectors) may accuse some; they many condemn

others, they may ruin reputations or careers. Their report may lead to judicial proceedings. It may

expose persons to criminal prosecutions or to civil actions. It may bring about the winding up of

the company, and be used itself as material for the winding up.”35

One may ask at this point, since the report of inspectors has such serious implication for

managers and officers of the company to what extent doest the rule of natural justice applicable

to it. Guidance may be found in the English case of RePergamon Press Ltd.36 In that case an

American company bought a large amount of shares in a British company called Pergamon Press

Ltd. The American company subsequently made a takeover bid for the entire company. The bid

33 This is inline with the practice in the UK where a Queen’s Counsel, assisted by an experienced Accountant is usually appointed for similar exercise.34 (1971), Ch. 38835 At p. 389.36 (1971), Ch. 388 supra.

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was later withdrawn about two months thereafter. This lead to a slump in the shares of the

company. Inspection was instituted. The American company removes some directors and filled a

suit against one of them for fraud and deceit in the process of selling the share of the company.

The sacked directors were concerned that the inspectors’ report may contain things that

are adverse to them and it may be used in the pending suit against them. They therefore, request

the inspectors to allow them access to allegations against them and to read the transcript of the

evidence of such allegation. They further requested that they should be given the opportunity to

reply to such by evidence or by oral or written submissions. The inspector responded by assuring

them that all effort will be made to ensure that no one is unjustly treated and that they will give

general notice to any one against whom any allegation is made and will allow such person an

opportunity to explain but not to read the manuscript of evidence on such allegation. They

further informed them that they could be represented by counsel if they so wish. Because they

considered the inspectors reply unsatisfactory, they refuse to answer questions put to them during

the investigation after which they filed a suit. The court held that the directors were not entitled

to assurances before answering questions puts to them by the inspectors during investigation.

Unsatisfied the directors appealed again. They contended at the court of appeal that the

investigation should be conducted as if it were a judicial inquiry; while it was argued on behalf

of the inspectors that they were not bound by the rules of natural justice.

The Court of Appeal however did not accede to either of the two extremes by the parties.

But I held that the inspectors have a duty to act fairly and to give everyone indicted in their

report an opportunity of correcting or contradicting what was said against them. And in this case

an outline of the allegation(s) is sufficient notice not necessarily the transcript of evidence. The

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court further held that inspectors are free to design their own rule subject only to the principle of

fairness. In the case at hand they have so acted.

The principle of fairness as it is known in law does not however apply to the procedure

for the appointment of inspectors by the commission, as this merely an administrative function.

The Commission is only expected to exercise its discretion in good faith in this regard.

In order to assist the body of inspectors to perform their duties CAMA has given them

sufficient powers in this regard. Thus in the process of investigating a company, the inspectors

may found that it is necessary to investigate another company which is or was in the past a

subsidiary, or holding company or a subsidiary of its holding company or a holding company of

its subsidiary, the inspectors can also investigate and report on such other company in so far as

they think that the result of such investigation are relevant to the investigation at hand.37

By the combined effect of s.s. 314, 315-316 all officers and agents38 of a company under

investigation are obliged to produce all books and documents of the company or related company

under investigation, to appear and render all possible assistance to the body of inspectors when

required so to do. Similarly, all other persons, who may be considered to be in possession of

information on the company’s affairs, are under the same duties as officers and agents. 39 These

persons may be examined on oath and statements made by them may be used as evidence against

them in the inspectors’ report.40

However, a legal practitioner is protected from disclosing previledged information and

communication which come into his possession or made to him by his client except his clients 37 Okonkwo C. O. n. 2038 Phrase “agents or officers” include present and past officers of the company and “agent” includes the true company’s bankers, solicitors, whether or not they are officers of the co. or other co. s. 317(4).39 S. 317(2).40 S. 317(3) & (5).

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name and address. In the same vein the company’s bankers are not obliged to disclose

information about their customers account or affairs except the company’s account with them41

However, inspectors may require information or documents relating to the banks account

maintained by a director past or present where they are of the view that they require information

on:

(a) emoluments of the director’s office, the particulars of which have not been disclosed in the

company’s financial statements for any financial year;

(b) any money resulting from or used in the financing of a transaction, the particulars of which

have not been disclosed in any financial statement of the company or in any statement

annexed to it for any financial year or the particulars of which have not been disclosed by the

director to the company.42

f. Inspectors’ Report

The inspectors can make interim report if they are of the opinion that such report is necessary or

where the Commission so direct. They are also at liberty to intimate the Commission of the facts

and findings in their possession in the course of their investigation which tend to disclose the

Commission of an offence. In any event the inspectors are under the obligation to make a final

41 S. 330(a) & (b).42 S. 318.

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written report as may be directed by the Commission. The Commission may also direct that a

copy be forwarded to the company itself.43

Where the investigation is at the instance of the court a copy of the report must be sent to

the court, including a preliminary report if any.44 In any other case, the commission may at its

discretion send a copy of any of its reports on request and payment of a prescribed fee to:

(a) any member of the company investigated;

(b) any person whose conduct is referred to in the report;

(c) the company’s auditors;

(d) the applicants for the investigation;

(e) any person whose financial inertest appears to the commission to be affected by the matters

dealt with in the report whether as the company’s creditors or otherwise.45

The Commission may also publish the inspectors’ report on a particular company where

it considered it necessary and proper so to do.46 The question to ask is whether such publication

will not violate the right of anyone indicted in the report? Although the report of the inspectors

enjoyed absolute privilege, what happens to an individual who has been criminally indicted or he

is damaged in his reputation since the inspectors is not the same as a court proceeding.

g. Proceedings out of Inspectors’ Report

1. Criminal proceedings: the duty imposed on officers, agents and any other person

considered by the inspectors to have information useful for the purpose of investigation 43 Ss. 320(1) & (2), 316(2).44 S. 320(3).45 S. 320(4) (a).46 S. 320 (4) (b).

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has sanctions attached. In other words, the CAMA has criminilised the obstruction of

inspectors’ investigation process or effort. Thus where a person refuses to produce

necessary documents or fails to appear before the inspectors or refuses to answers

questions put to him during inspector’s proceedings, a certified report of such an action

or omission may be forwarded to a court of competent jurisdiction which may punish the

offender accordingly after hearing his defense.

In Repergamon Press Ltd47 one of the directors in a company being investigated refused

to give an answer when he was asked “when did you first become associated with Pergamon

Press Ltd?” The trial judge who was very lenient with the director nevertheless found his action

unjustified and ordered him to pay the cost of the proceeding. However, Lord Denning on

appeal warned that if the director persisted in his stand he should expect no mercy and he would

be guilty of contempt.

Where an inspectors’ report discloses an offence against any person(s) in the matters of

the company investigated such report shall be forwarded to the Attorney-General of the

Federation by the Commission, who may direct the prosecution of the offender(s). All officers

and agents of the company, except the accused have a duty to give all reasonable assistance

towards the prosecution.48

2.Civil Proceedings: Where from the report made it appears to the Commission that a civil

action ought in the public interest to be brought by the company or anybody corporate, the

Commission may bring such proceedings in the name of the company or the body corporate.

47 (1971), Ch. 388.48 Ss. 322(1) & (2).

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Inspector’s Report is also a good source of information for shareholders as they are usually

required to provide such detailed information in order to file an action before the court.

h.Costs and Expenses of Investigation

Under the 1968 Act applicants who want the affairs of a company to be investigated are required

to give security not exceeding #400.00 for the payment of the cost of the investigation. The

requirement has over the years discouraged minority shareholders from invoking this provision.

Thus the Law Reform Commission noted in a report on the reform of Company Law that, the

expenses of investigation have:

“been responsible for the underutilization of these provisions by minority

shareholders, as a means of extracting necessary information which would assist

in the successful prosecution of an action”49

The Commission thus recommended the abolition of security especially with regard to the

application for investigation brought by minority shareholders.50

Thus security for cost is no longer a requirement for an application for investigation

under s. 314 of CAMA. The expenses of an investigation are now defrayed in the first in stand

out of the Consolidated Revenue Fund. But this could be recovered where the court has

convicted any person following the investigation or where in a civil proceeding anyone is

ordered to restore or pay damages in respect of a property.51

49 Working Papers on the Reform of the Nigerian Company Law, vol. 1, p. 249.50 Ibid.51 S. 322(3).

21

CAC: THE REGULATORY CHALLENGES IN NIGERIA

One of the key corporate governance issues is ensuring that the management of a company

performs their function in order to meet the legitimate expectations of the shareholders and even

the stakeholders. Our discussion above show that although the regulatory framework set down in

CAMA may appear adequate on the surface, there are quite a number of hindrances to the

realization of the objectives contained therein. Except for the standards recently set by the CBN

on the qualifications and limitations of persons to be appointed directors in Banks, the CAMA

does not set such necessary detailed requirements which will guarantee the appointment of

competent and honest directors. Also the duties of directors need further elaboration.52 While it

may be argued that issues involving a breach or a supposed breach of duty by the directors could

be redressed by judicial activism, sadly that has not been the case due to the challenges faced by

either the members in bringing such cases before the court or the CAC as a regulatory authority.

There are statutory provisions giving seemingly adequate powers to the CAC and even

protection of minority where there are dominant groups in the company. These provisions have

not been put to good use, neither have they made any contribution toward reducing the tide of

corporate abuse.

In Nigeria the share structure indicates that there are dominant group in most companies

that is, the typology of Nigerian companies is the dominant one. Therefore there is the need for a

different approach to stem the tide of corporate abuse. However the problem in corporate

regulation in Nigeria appears to be the wide gap between the statutory standards and the

52 Vincent O. Nmehielle & Enyinna S. Nwauche, External-Internal Standards in Corporate Governance in Nigeria. http://papers.ssrn.com checked on 18/12/2010

22

application, implementation and operation of those statutory standards. But instead of an attempt

to close this gap, what exist are ad hoc approaches to any particular sector of the economy as the

occasion demands. For instance, when there were dominant shareholder and management abuse

in the Banks, the BOFIA was enacted and a Tribunal was established under it, essentially to

enforce the Act. The insurance industry also came under increased regulation with the enactment

of the Insurance Act (IA) and the establishment of an Insurance Commission, to regulate the

sector in apparent response to a similar situation in that sector. Another pointer to the ad hoc

response in lieu of the application of the existing legal framework is the recent injection of # 420

B (Four Hundred and Twenty Billion Naira) in to 5 banks in Nigeria. The Nigerian Media is

replete with criticisms of this action by government 53

The reason for this could be explained on the ground that CAMA make general provision

which requires judicial activism in order to bring out the details and as stated above there are

bottlenecks in the way of bringing such matters before the court. The operation of CAMA in this

regard is also highly dependent on the prompting of the affected person(s), whereas as a result of

procedural difficulties or challenges such persons are unable to give that necessary push to the

CAC. For instance information to properly bring up such matter before the court are often not

available to the affected parties. With the exception of the banking industry no action has been

taken against directors and auditors for breach of duties or abuse of office leading to a violation

of the minority shareholders rights.

Even though it is a statutory requirement for companies to file annual returns which

contains valuable information on the health of the company, this has not prevented or even

53 www.newswatchngr.com, radionigeriaonline.com, www.news. daily trust.com Checked on 17th July 17, 2010

23

identifies potential corporate failure or abuse. This apparently underscores the serious challenges

facing the CAC.

Also the power of the Corporate Affairs Commission (CAC) to order company meeting is

an incomplete one. In view of the position of the law that the CAC can only exercise its power to

direct a company general meeting if there is an application from a member of the company. This

implies that in the absence of an application from a member even if the commission is in

possession of information to this effect it can do nothing. This provision is not in the spirit of the

Code of Corporate Governance as it makes the commission a toothless bulldog.54

Another challenge for the CAC is the power to receive reports from foreign Companies

exempted from domestic incorporation, this power like that on company meeting makes the CAC

a dummy, as the power to penalize erring foreign companies lies with the Federal Executive

Council which lack the time and expertise to handle such matter on many occasions. Therefore,

such companies escape the supervisory powers of the CAC even where they fail comply with

existing laws such as Environmental Protection Act, Standard Organization of Nigeria Act,

Consumer Protection Council Act and similar legislation.

CONCLUSION

Until shareholders and indeed stakeholders are allowed to bring up such matters before the CAC

or the court with the little information at their disposal, corporate abuse and judicial “inactivism”

will continue unabated. The CAC needs to be restructured, so as to be more proactive and

54 O.O Oladele, “Responding To the Problems of Practical Implementation Of The Companies Allied Matters Act (CAMA) 1990.” IFJR, vol. 1 p 2 (2000): 217-225. see also A. Almustapha, "The problems of Practical Implementation of the Companies and Allied Matters Act, 1990 CAMA and The Need for a Review," Nigerian Bar Association Annual Bar Delegates Conference, session on papers, (2004): 42. Almustapha is the Director General of the Corporate Affairs Commission of Nigeria. See s 213 (2) CAMA

24

independent in order to ensure the enforcement of the good provisions of CAMA.55 But more

importantly the CAMA is overdue for amendments in order address the challenges which were

never contemplated or anticipated some two decades ago when it was enacted.

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