CAMA 2020: Shareholders rights and the treatment of the unissued share capital

The introduction of ‘minimum issued share capital’ as contained in the Company and Allied Matters Act (CAMA) 2020, has brought to an end the era where companies retained unissued shares for future allotments, or freely floated shares for purposes such as the employee share scheme. The new rule now has a provision that mandates companies to have their capital shares fully issued at all times, with a possibility of only increasing share capital for specific issuance and allotment to new and / or existing shareholders.

The resulting company Regulations 2021 clarifies the reforms contained in the Companies and Allied Matters Act (“CAMA”) 2020 and stipulates also the deadline at which all existing companies must have done away with the “authorised share capital” rule contained in the previous CAMA 1990 .

Expounding further on the provisions of the Act, Aluko & Oyebode in a web post stated that “The new minimum issued share capital rule is that companies cannot have unissued shares after the June 2021 deadline. Companies (and their officers) who fail to comply by the deadline will be liable to a daily default penalty as prescribed by the Corporate Affairs Commission (“CAC”).

In a private chat, Chairman of Ibadan Zone of Shareholders Association Mr Eric Akinduro said that change is constant and the minimum issued share capital is a welcome change.

“I think it is good that the shareholders and the capital market operators can, at a go, know what they have as issued capital for the company. Companies will now have minimum issued shares capital as has been stated for both private and public. If there is any need to increase the issued shares, they have to get the approval of shareholders and state the purpose or what they want to use it for. I think it is going to bring sanity and control to the companies although the downside to it is the cost and inconveniences of increasing the issued shares when the need arises ”.

Although the deadline was moved forward to December 31, 2022, listed companies must now look for a way to dispose of their unissued shares before the new date. One option could be to do a bonus or rights issue to existing shareholders. Another would be issuing the shares to new shareholders. And a third option could be to reduce the company’s share capital by canceling all unissued shares (of course without breaching the new prescribed minimum share capital.

The question as to which of these options a company chooses to go to is not engraved in stone somewhere. It is a decision which will be reached by the company board, shareholders or any other body or group authorised to take such decisions within the company. For listed companies in the banking industry, one has to wonder what role the Central Bank of Nigeria (CBN) will have in all of these.

Meanwhile, some banks are already defining their paths in line with the CAMA 2020 requirements. Zenith Bank at its Annual General Meeting held on April 6, 2022, AGM reached a resolution on the matter, among several others.

The resolution reads “the directors are authorised to take steps to comply with the regulations of the Company and Allied Matters Act CAMA 2020 and the Company regulations 2021 within the timeframe specified under the law as it relates to unissued shares currently standing to the capital of the company including, but not limited to the cancellation of such unissued shares of the company. ”

With this resolution, the shareholders have surrendered their rights to make the decision and empowered the board of directors to reach a decision on their behalf: “The directors are authorized to enter into, and execute any agreements, deeds, notices and any other documents necessary for and or incidental to effecting resolution an above.”

It is very much the same story for Wema Bank Nigeria Plc where the shareholders resolved at the Annual General Meeting held on May 20, 2022, to let the directors choose whether to issue or to cancel the unissued shares. As contained in the AGM report, “It was unanimously resolved that the directors shall issue or cancel any of the Bank’s unissued share capital after the completion of the right exercise exercise approved at the extraordinary general meeting on December 31, 2021, and amend Clause 5 of the Memorandum, and Article 7 of the Articles of Association of the bank to reflect the new Issued Share Capital of the bank, after the cancellation or reissuance of the of the Unissued Share Capital. ”

There are others who choose to take a different path. For United Bank for Africa Plc, shareholders were informed of the development at the 60th Annual General Meeting held on April 11, 2022, and they passed the resolution to cancel the unissued shares.

The ninth resolution from the AGM reads “The cancellation of the Bank’s Unissued Share Capital of 10,800,000,000 ordinary shares of 50 kobo each, pursuant to Articles 46 & 47 of the Bank’s Articles of Association and in compliance with the requirements of Section 124 of the Companies and Allied Matters Act (CAMA) 2020 and Regulation 13 of the Companies Regulations 2021 ”.

With the Annual General Meeting of the FBN Holdings coming up on June 20, 2022, one can see from the notice that the shareholders will be presented with the decision to authorize the board of directors to do so on their behalf. The first item listed under special business says “(A) To consider and if thought fit, pass the following as ordinary resolution:“ That the Directors be and are hereby authorized to take steps to comply with the requirements of the Companies and Allied Matters Act (CAMA), 2020 S.124 and the Companies Regulations 2021 as it relates to unissued shares currently standing to the capital of the Company. ”

Akinduro opines that canceling unissued shares might be the more preferred option for most companies, including the banks.

“Most of them have been opting to cancel the unissued shares rather than issuing it as a bonus to shareholders, and why are they going that way? They have a very large capital base already so increasing shareholders’ units through bonuses is going to reduce the dividends per share because of the larger share capital. So it is a way to protect shareholders’ interest.”He said.

Other listed companies are going to have to reach a decision on what to do with their unissued shares as well, and preferably before December 2022 to avoid getting sanctioned.

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