THE NEW REGIME FOR MERGERS AND ACQUISITIONS

UNDER THE COMPANIES AND ALLIED MATTERS ACT

2020
BY AKOREDE FOLARIN, LL.B (Abuja), B.L*

Mergers and Acquisitions (“M&A”) are a veritable source of business combinations in any
thriving economy.1 They are arguably the most famous external corporate restructuring tools
employed by companies globally to achieve growth and maximize profitability. 2 Naturally,
therefore, with a new corporate law practice regime in place with the signing into law of the
Companies and Allied Matters Act (“CAMA”) 2020 by President Muhammadu Buhari on 7th
August 2020, it is not farfetched that companies and corporate restructuring (M&A)
practitioners alike are looking on interestedly to see where and how the new Act affects the
M&A landscape in Nigeria and consequently their business plans. In that regard, this article
explores the provisions of the new Act as they affect or change the existing M&A landscape
in Nigeria.

NEW PROVISIONS AFFECTING M&A

CAMA 2020 has a number of newly introduced or amended provisions that affect the
landscape for mergers and acquisitions in Nigeria. These include:

1) Pre-emptive Rights of Shareholders (Right of First Offer and Refusal)

• Akorede Folarin is an Associate Counsel in the Energy, Banking, and Finance Practice Group at Kevin
Martin Ogwemoh Legal, Lagos. He holds an LL.B from the University of Abuja and a B.L from the Nigerian
Law School. He can be reached by email at [email protected] or at [email protected]
1 “Merger and Acquisition is an important concept that contributes to the growth of a national economy through increase in

productivity and profitability.”: The Effects Of Mergers And Acquisition On Corporate Growth And Profitability:
Evidence from Nigeria, Global Journal Of Business Research, Vol. 7, No. 1, 2013, Pg. 1
2 M&A can lead to enhancement and cost savings through staff reductions and increased economies of scale; improved

market reach and industry visibility; increased capability; acquisition of new technology; diversification, etc.

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As against the regime under the old Act, the new Act no longer mandates private companies
to restrict the transfer of their shares.3 But they may, subject to the provisions of the articles
of association, still do so by providing that:
a) assets of the company valued at 50% of the total value of its assets shall not be sold or
disposed of without the consent of all the shareholders;
b) a shareholder shall not sell his shares to non-shareholders without first offering them to
existing shareholders; and
c) a shareholder, or a group of shareholders acting in concert, cannot sell or agree to sell more
than 50% of the shares in the company to a non-shareholder unless that non-shareholder has
offered to buy the shares of the other existing shareholders on the same terms.

These provisions are intended to protect existing shareholders from unnecessary dilution and
forceful acquisition through third party arrangements in Mergers and Acquisition and Private
Equity and Venture Capital. 4 As a result, it is highly imperative that, while conducting due
diligence, parties to M&A deals take cognizance of the existence or otherwise of this new
statutory pre-emption rights in the articles of association of target companies.

2) Share Buyback/Repurchase
Under the old CAMA, companies were restricted from acquiring their own shares except for
rare situations such as to redeem preference shares, settle a debt, and eliminate fractional
shares. CAMA 2020 has now lifted such inhibitions. A combined reading of sections 184 to 187
now allows companies to buy back their issued shares pro-rata from existing shareholders
pursuant to a court-sanctioned scheme, on the open market, or from the company's
employee stock option pool.

3See section 22(2)

4Even more so, once a pre-emption right is in place, the shareholders are not permitted to enter into any preliminary
arrangements in respect of their shares (for example, arrangements for future transactions, e.g. call and put option
agreements) until the pre-emption right extinguishes.

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To do this, however, certain conditions laid down under the above sections must be met,
namely: (a) the articles of association of the company must permit such acquisition; (b) there
must be a special resolution of the company approving the acquisition; (c) the shares must be
fully paid up; (d) the acquisition must be published in two national newspapers; (e) a
declaration of solvency must be made by the directors of the company; (f) payment for the
repurchase must be made from distributable profits; and (g) the company must not hold more
than 15% of its issued shares as treasury shares i.e. shares reacquired from shareholders.

This new and innovative provision will prove particularly useful in enhancing Nigeria's private
equity (PE) and venture capital (VC) market as it will increase the exit options available to PE
and VC investors and ease financing troubles for intending acquirers.

3) Financial Assistance to Shareholder's/Prospective Shareholder's Acquisition of

Shares Now Permitted
Under CAMA 1990, it was unlawful for a company to render financial assistance to a
shareholder or potential shareholder seeking to acquire shares in the company, even as an
indemnity incentive to private equity investors. This restriction has now been lifted under
section 183 of CAMA 2020. Section 183(3)(e) and (f) of the Act now allow companies to render
such financial assistance in the acquisition or proposed acquisition of their shares where (i) it
is done pursuant to a court-sanctioned scheme of arrangement, merger, or restructuring of
the company; or (ii) the principal 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.

Also, section 183(4) provides that a private company may render financial assistance for the
acquisition of its shares, or that of its holding company if it is a subsidiary, where (a) it is
approved by a special resolution; (b) the net assets of the company are not reduced or, if they
are reduced, the assistance is provided from distributable profits; and (c) the directors of the

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company make a statutory declaration in the prescribed form before the financial assistance
is provided.

4) Disclosure of Significant Control and Substantial Shareholding in Companies

Sections 119, 120, and 121 of the new CAMA have introduced new transparency provisions with
regards to the ownership stake in companies.

Section 119 mandates every person with significant control over a company to, within seven
(7) days of gaining such control, disclose the particulars of it in writing to the company which
must, in turn, notify the Corporate Affairs Commission (“CAC”) within one month and also
disclose such significant control in all subsequent annual returns filed with the CAC. The
section also mandates the CAC to maintain a register of persons with significant control.

Similarly, section 120 provides that a person who is a substantial shareholder in a public
company (i.e. holding - either by himself or by his nominee - shares in the company which
entitles him to exercise at least five percent (5%) of the unrestricted voting rights at any
general meeting of the company) is required to disclose such substantial shareholding to the
company within 14 days of becoming aware of such substantial shareholding. Such a person
must also disclose whether the shares are held as a beneficial owner or as a nominee of an
interested person.5 Upon receiving notification of such disclosure or becoming aware of such
substantial shareholding, the company must then notify the CAC of this fact in writing.

The New Act also provides in section 121 for what happens where a person stops being a
substantial shareholder in a public company. In such a case, the person must, within fourteen
(14) days of becoming aware that he has ceased to be a substantial shareholder, notify the
company in writing stating his name, the date he stopped being a substantial shareholder,
and the reason he stopped being a substantial shareholder e.g. through a merger or an

5In that regard, the provision of section 27(3) which now recognizes trusteeship in respect of shares, and the deletion
of the restriction in section 86 of the old Act which prohibited the recognition of trust over shares in the register of
members or the records of the CAC, will come in handy.

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acquisition. Upon being notified of, or becoming aware of, this fact, the company must also
in turn notify the CAC in writing within 14 days.

It is the belief of the author that these provisions will invariably make due diligence in mergers
and acquisitions in Nigeria easier with respect to verifying significant control in, and
substantial ownership of shares of, companies. Additionally, confidentiality provisions in
shareholders’ agreements may need to be revisited to require the parties to supply the
necessary information to the relevant reporting company to enable it to perform its new
regulatory disclosure obligations.

5) Court Sanction of Merger Schemes

Another place where the amendments introduced in the new Act will impact the M&A space
is the court sanction of merger schemes provision in section 711 which admirably steps in to
fill the void occasioned by the repeal of the hitherto applicable Sections 118 to 128 of the
Investments and Securities Act 2007 (“ISA”) by the Federal Competition and Consumer
Protection Act 2018 (“FCCPA”).

The section (section 711) provides 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 order
separate meetings of the companies affected upon application in summary by one of them. If
at each of these court-ordered separate meetings, members of the companies representing
at least three-quarter in value of the share of members being present and voting either in
person or by proxy agree to the merger scheme, one or more of the companies may then
apply to the Court to sanction it. Naturally, this sanction of the merger scheme by the court
makes it binding on the parties thereto.

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The court can also, by the order sanctioning the scheme or by any subsequent order, make
necessary provisions for actions/matters incidental for the merger to be “fully and effectively
carried out”, for example, a) the transfer of the existing business/property/liabilities of the
merging companies to the new entity; b) the allotting of shares, etc. in the new entity; c) the
continuation by or against the new entity of pending legal proceedings; d) the dissolution,
without winding up, of the merging entities; e) the appropriate treatment of dissenting
shareholders, etc.6

The introduction of this section is a truly welcome development as it fills the void left by the
aforementioned repeal of the hitherto applicable sections of the ISA in an otherwise
important step in merger transactions.

6) Offer for Dissenting Shareholders

Section 712 introduces the repealed section 129 of the ISA into CAMA 2020 by providing that
where a scheme or contract - not being a take-over bid under the ISA - involving the transfer
of shares or any class of shares in a company to another company, has, within four months
after the making of the offer by the transferee company, been approved by the holders of at
least nine-tenths in value of the shares of the company (other than shares already held at the
date of the offer by a nominee for the transferee company, or its subsidiary), the transferee
company may at any time within two months after the expiration of the said four months give
notice in the prescribed manner to any dissenting shareholder that it desires to acquire its
shares.

In such an instance, unless the dissenting shareholders apply to the court within one month
of receiving the said notice of the offer to acquire their shares, the transferee company is
entitled and bound to acquire those shares on the same terms agreed for the transfer by the
approving shareholders unless the court orders otherwise.

6The court order sanctioning the scheme must be registered with the CAC within seven (7) days and a notice of it
must be published in the Federal Government Gazette and at least one national newspaper. See section 711(6).

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 7) Jurisdiction on Mergers - the FCCPC or the CAC?
Section 849 of the new CAMA provides that two or more associations with similar aims and
objects may merge under such terms as may be prescribed by regulation by the CAC. What
makes this section particularly interesting – puzzling maybe? – is its significance given Sections
104 and 105 of the Federal Competition and Consumer Protection Act (“FCCPA”). Section 104
of the FCCPA provides that in all matters affecting competition and consumer protection, the
Act shall override the provisions of any other law (including the new CAMA in this case).

Section 105 then goes on to provide that between the Federal Competition and Consumer
Protection Commission (“FCCPC”) and any other relevant agency having similar jurisdiction
under any other law, the FCCPC will have concurrent jurisdiction with and also take
precedence over such other agency in matters affecting competition and consumer
protection. With regards to mergers and acquisitions, therefore, being activities that affect
competition and consumer protection, irrespective of the provision under section 849 of the
new CAMA, the FCCPC has the jurisdiction ahead of the CAC with regards to the terms on
which mergers will be effected in Nigeria. Even more so, Guidelines issued by the FCCPC in
conjunction with the Securities and Exchange Commission (“SEC”) on mergers and
acquisitions will also take precedence over any regulation issued by the CAC on the same
matter.

COMMENT
In its acclaimed bid to increase the ease of doing business in Nigeria, the new CAMA has made
noteworthy changes to the corporate practice landscape in Nigeria, and especially in the
mergers and acquisition subsector as highlighted in this article. Notably, the pre-emptive right
of shareholders of private companies has now been codified; the avenue for share buyback
and repurchase has been extended, and companies can now offer financial assistance in their
acquisition. Investors in public M&A deals are now obligated to notify companies, with
companies also now obligated to notify the CAC, within a stipulated time once they become

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a substantial shareholder or cease to be a substantial shareholder. The new Act also steps in
to fill the void left by the repeal of Sections 118 to 129 of the Investment and Securities Act
(“ISA”) 2007 by the Federal Competition and Consumer Protection Act (“FCCPA”) 2018 with
respect to the sanction of merger schemes by the court and the mandatory offer to acquire
the shares of dissenting shareholders.

However, one place where, in respect of M&A, the new Act caught a gaffe is its provision
concerning the jurisdiction of the CAC on the terms mergers are to be effected because, as
against the intentions of the draftsmen, the FCCPA and FCCPC take precedence over the new
CAMA and the CAC in the regulation of mergers and acquisition in Nigeria. Notwithstanding,
irrespective of this minor shortcoming, the amendments introduced by the new Act are
important to the regime for the flourishing Mergers and Acquisitions space and the Nigerian
corporate practice landscape overall.

Overall, it is important to bear in mind that this article merely highlights the amendments
made by the new Act to the regime for mergers and acquisitions and other business
combinations in Nigeria. Consequently, aside from the new CAMA, also (and still) relevant in
the regulatory framework for mergers and acquisitions in Nigeria are other laws like the
Federal Competition and Consumer Protection Act (“FCCPA”) 2018, the Investment and
Securities Act (“ISA”) 2007, the Securities and Exchange Commission (“SEC”) Rules, the
Companies Income Tax Act (“CITA”), the Capital Gains Tax Act (“CGTA”) and other applicable
sector-specific laws and regulations like the Banks and Other Financial Institutions Act
(“BOFIA”), the Petroleum Act, the National Insurance Commission (“NAICOM”) Act, etc.
These other laws still invariably apply to mergers and acquisitions transactions in Nigeria
where relevant and so still also need to be considered, but in tandem with the new CAMA.

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