The Companies and Allied Matters Act (Chapter C20) Laws of the Federation of Nigeria 2004 ("CAMA 1990") was initially made law in Nigeria in 1990 as a decree of the military government. For thirty years, there were no significant amendments to the CAMA 1990 and so Nigerian companies had to, essentially, rely on a 30-year old law to govern the way businesses operate in our dynamic and evolving global community. However, this all changed on Friday the 7th of August 2020, when President Muhammadu Buhari gave his assent to the Companies and Allied Matters Act 2020 ("CAMA 2020").

In the course of a 12-part series, Udo Udoma & Belo-Osagie will provide a review of the provisions of the CAMA 2020, highlighting changes that have been introduced into the body of Nigerian company law by this groundbreaking legislation.

NEGATIVE PLEDGE NOW REGISTRABLE

Section 197 of the CAMA 1990 specifies a list of security interests which must be registered with the Corporate Affairs Commission ("CAC") within 90 days of creation. Failure to do so would make the security void against the liquidator and other creditors of the company.

The CAMA 2020 retains the above requirements of section 197 with two significant amendments:

  • negative pledges are now required to be registered; and
  • registration of a charge at the CAC will constitute constructive notice of the matters specified in the particulars of the charge.

A negative pledge is a restriction that prevents a borrower or security provider from creating a subsequent security interest over any or specified assets, which would have the effect of jeopardising the security in respect of which the negative pledge is given.

There is no requirement under the CAMA 1990 for negative pledges to be registered at the CAC, although in practice many lenders register it to notify interested parties of the existence of the negative pledge. The change made by the CAMA 2020 will help subsequent debt providers and investors better assess the company's ability to deal with its assets. It is expected that going forward, the CAC will take steps to amend the prescribed form to make allowance for the registration of any relevant negative pledges.

SIGNIFICANT REDUCTION OF FEES FOR REGISTRATION

The cost associated with registering security in Nigeria is

prohibitive, with many borrowers and lenders agreeing not to perfect security, or to perfect for only a portion of the debt provided (which creates a significant risk for lenders). The CAC registration fees are a significant portion of these costs - private companies pay 1% of the amount secured while public companies pay 2%. As a result, a portion of debt raised by a Nigerian company has to set aside towards the cost of registering security, rather than being applied towards helping the borrower enhance its business.

Jurisdictions like England have long since reduced registration cost to a minimal flat fee. The CAMA 2020 does not quite achieve this but takes a significant stride in reducing the cost of perfection of security to a level that will provide much needed relief to lenders and borrowers alike. The CAMA 2020 specifies that the total fees payable to the CAC in connection with the filing, registration or release of a charge shall not exceed 0.35% of the value of the charge or such other amount as the Minister may specify in the Gazette. This represents a 65% reduction for private companies and an 82.5% reduction for public companies.

While the CAMA 2020 still provides an avenue for the Minister to increase the relevant fees, we are optimistic that the benefits of easing the process by which Nigerian borrowers, particularly small and medium scale enterprises, can access debt financing, will make this unlikely.

INTRODUCTION OF KEY DEFINITIONS

The CAMA 2020 introduces new definitions to clarify problematic concepts under the CAMA. The term "Book debt" has been defined in the CAMA 2020 to exclude negotiable instruments or marketable security (such as treasury bills and bonds). The CAMA 2020 now clarifies that a charge over treasury bills and bonds are not registrable as a charge over book debts.

The term "security financial collateral arrangements" has also been defined. The CAMA 2020 exempts security financial collateral arrangements from the requirement for registration. What this means is that if security is created over the relevant financial collateral arrangement such as bank deposits and securities, such security will be exempt from registration. The proposed amendment will be of benefit to organisations that trade in financial instruments such as derivatives.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.