THE FACE OF MERGERS AND ACQUISITIONS UNDER CAMA 2020
Under the recent CAMA 2020, there have been the several inclusions of innovative provisions that would help in shaping the modern corporate world. Merger and Acquisitions [hereinafter referred to as “M & As”] remain an important aspect of business and the law has introduced new rules which would affect M & As going forward. A few of them are:
1. Disclosure and Transparency
The new CAMA contains new provisions that promote transparency provisions with regards to the ownership in companies. Section 119 says that every person with significant control over a company shall, within seven days of becoming such an owner, inform the company in writing the particulars of such control and must also disclose this in all subsequent annual returns filed with the Corporate Affairs Commission [hereinafter referred to as “CAC”]. CAC is also compelled to maintain a register of persons with significant control. According to Section 120, a person who is a substantial shareholder in a public company must disclose such substantial shareholding to the company within 14 days of becoming aware of such substantial shareholding. He must also disclose whether or not he holds the shares as a beneficial owner or as a nominee of an interested person. After being notified of such disclosure or becoming aware of such substantial shareholding, the company in question has a duty notify the CAC of this. Furthermore, in Section 121 where a person stops being a substantial shareholder in a public company, within 14 days, he must disclose this to the company in writing stating the particulars of the change in his status. Again, upon being notified of or becoming aware of this, the company must notify the CAC within 14 days.
2. Court Sanctioning of Merger Schemes
Section 711 (1) and (2) provide that where under a scheme proposed for a compromise, arrangement or reconstruction between two or more companies or the merger of any two or more companies, the whole or any part of the undertaking or the property of any company concerned in the scheme is to be transferred to another company, the Court may, on the application in summary of any of the companies to be affected, order separate meetings of the companies to be summoned in such manner as the Court may direct. If a majority representing at least ¾ (three –quarter) value of the share of members being present and voting either in person or by proxy at each of the separate meetings, agree to the scheme, an application may be made to the Court by one or more of the companies, and the Court shall sanction the scheme.
3. Financial Assistance to Shareholders
Under the old dispensation, a company was barred from rendering financial assistance to a shareholder or an intended shareholder who sought to acquire shares in the company. However, the new CAMA of 2020 has come to make a way; Section 183(3)(e) and (f) permits companies to render such assistance in the acquisition or proposed acquisition of their shares where:
- It is done pursuant to a court-sanctioned scheme of arrangement, merger, or restructuring of the company; or
- The man reason purpose in giving the assistance is not to reduce or discharge any liability incurred by a person acquiring shares in the company or its holding company but is merely incidental to a larger purpose of the company, and the assistance is given in good faith in the interests of the company.
In addition, Section 183(4) provides that a private company may offer such financial aids for the acquisition of its shares, or that of its holding company if it is a subsidiary, where it is approved by a special resolution, the net assets of the company are not reduced or, if they are reduced, the assistance is provided from distributable profits; and the directors of the company make a statutory declaration in the prescribed form before the financial assistance is provided.
4. Repurchase of Shares
Under the old CAMA, companies were generally prohibited from acquiring their own shares. However, CAMA 2020 has now lifted such restrictions. Sections 184 permits a company may only purchase its own shares:
- if so permitted by its Articles;
- the shareholders shall, by special resolution, approve the acquisition by the company of the shares that it intends to purchase;
- only fully paid up shares of a company may be purchased by the company, and the terms of purchase shall provide for payment for the purchase;
- within seven days after the passing of the special resolution referred to in paragraph(b), the company shall cause to be published in two national newspapers, a notice of the proposed purchase by the company of its own shares;
- within 15 days after the publication in two national newspapers, the directors of the company shall make and file with the Commission, a statutory declaration of solvency, to the effect that the company is solvent and can pay its debts as they fall due, and that after the purchase of its shares, the company shall remain solvent and can pay its debts as they fall due.
However, paragraph (f) say that a company may not purchase its shares if, as a result of the purchase, there would no longer be any issued shares of the company other than redeemable shares or shares held as treasury shares.
5. Restriction of Shares
Under the old CAMA, private companies were compelled to restrict the transfer of their shares. But, under the new Act, it is no longer mandatory; private companies are at liberty to restrict or not. However, Section 22 (2) says they can do so, subject to the provisions of the Articles of Association, and still provide that:
- the company shall not, without consent of all its members, sell assets having a value more than 50% of the total value of the company’s assets;
- a member shall not sell that member’s shares in the company to a non-member, without first offering those shares to existing members; and
- a member, or a group of members acting together, shall not sell or agree to sell more than 50% of the shares in the company to a person who is not then a member, unless that non-member has offered to buy all the existing members’ interests on the same terms.
The underlying benefit of this provision in M & As is that, before private companies were forced to restrict transfer of their shares, therefore limiting M & A transactions. But now, there such shackles have been loosened. Private companies are no longer forced to restrict such transfers and as such M & As can be expanded as much as the contracting parties desire.
Conclusion
The CAMA 2020 has come to offer a new outlook for M & As in Nigeria. The recent provisions help in ensuring transparency, creates avenue for financial assistance to companies, repurchase and transfer of shares, etc. amongst other new innovations. These in general have helped in reducing bottlenecks which under the old dispensation would hinder the smooth operation of different transactions for companies especially for the ones involved in M&As. The new CAMA therefore helps companies who either want to merge or acquire shares in other companies. Thanks to it, M & As look much brighter and a safer form of investments.
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