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Shareholder Protection: A Comparative Review of the Corporate Legal / Regulatory Regimes in the UK and Nigeria

Published online by Cambridge University Press:  07 September 2020

Samuel E Ojogbo  and
Nwanneka V Ezechukwu
Samuel E Ojogbo*
Affiliation:
Delta State University, Nigeria
Nwanneka V Ezechukwu*
Affiliation:
Birmingham City University, UK
*
samojogbolaw@yahoo.com
nwanneka.ezechukwu@bcu.ac.uk
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Abstract

Foreign investment is a major source of the capital that Nigeria and other developing markets need to promote economic activities and drive economic development. While profit mainly drives the decision to invest abroad, such decisions are also influenced by the safety of any actual investments made. Thus, investors are interested in the laws and regulations that offer them protection against corporate insider opportunism. In Nigeria, the relationship between corporate actors is mainly regulated by the Companies and Allied Matters Act (CAMA). This article investigates the corporate legal and regulatory protection for corporate shareholders in Nigeria and the UK. Comparing the corporate regulatory regime in the two jurisdictions, this article argues that the identified weaknesses in the Nigerian regulatory framework negatively impact the growth of foreign investment in the country. In view of these weaknesses, the article suggests a major review of CAMA and other regulatory instruments with a view to addressing the protection of small investors and “outsiders”, such as foreign investors.

Keywords

Corporationscorporate lawregulationsshareholder protectioninvestment
Type
Research Article
Information
Journal of African Law , Volume 64 , Issue 3 , October 2020 , pp. 399 - 424
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Copyright
Copyright © SOAS, University of London, 2020

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Footnotes

*

PhD. Senior lecturer, Faculty of Law, Delta State University, Oleh Campus, Delta State, Nigeria.

**

PhD. Lecturer, Birmingham City University, UK.

References

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3 R La Porta et al “Investor protection: Origins, consequences, reform” (1999, Harvard Institute Economic Research discussion paper number 188) at 2.

4 Nigeria's current corporate legal regime is set out in the Companies and Allied Matters Act cap C20 Laws of the Federation of Nigeria 2004, which has undergone several reviews since it was enacted in 1990 and is currently under further review with a view to promoting economic activity. This is in addition to the plethora of other investor-friendly legislation, including the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act and Nigerian Investment and Promotion Commission Act, designed to attract foreign investment.

5 Listing Rules of the Nigerian Stock Exchange, available at: <http://www.nse.com.ng/regulation-site/IssuersRules/Rules%20for%20Listing%20on%20the%20Premium%20Board.pdf> (last accessed 6 August 2020).

6 Per Justice Marshal in Trustees of Dartmouth College v Woodward (1819) 17 US (Wheat) 518 at 636.

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12 Ibid.

13 Ibid.

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34 It is important to note that there are two ways through which a corporation is financed: equity finance and debt finance. Investors provide equity finance while creditors provide debt capital.

35 See the UK Corporate Governance Code (2016), above at note 26 at 5.

36 French, Mayson and Ryan Mayson, French & Ryan, above at note 28 at 26.

37 See Lord Cairns in Ferguson v Wilson (1866) LR 2 Ch App 177 at 89–90.

38 Ernest v Nicholls (1857) 6 HL Cas 401 at 432.

39 Villiers Corporate Reporting, above at note 27 at 21.

40 Ibid.

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42 UK CA, secs 281–87. See also, in Nigeria, CAMA, secs 224–32.

43 UK CA, sec 160. CAMA, secs 247–49.

44 UK CA, sec 168. CAMA, sec 262.

45 UK CA, secs 170–77.

46 Id, sec 172.

47 Talbot Progressive Corporate Governance, above at note 18 at 169.

48 UK CA, sec 172.

49 Protection for creditors also exists under the UK CA and Insolvency Act 1986. See Insolvency Act 1986, secs 213 and 214 with regard to directors’ responsibility to the company's creditors for ensuring that the company is not involved in fraudulent or wrongful trading. See also sec 172(3) requiring directors, in certain circumstances, to consider or act in the interest of the company's creditors. However, it is important to note that these sections are only applicable when a company has entered formal insolvency proceedings and therefore differ from provisions that give control rights to shareholders; they are remedial rather than directional. See also West Mercia Safetywear Ltd v Dodd [1988] BCLC 250.

50 UK CA, sec 994(1).

51 See id, part 30 (secs 994–99). The court sometimes permits members to bring “derivative claims” in the name of the company. A “derivative claim” by a member of a company may be brought under UK CA, part 11, chap 1 (secs 260–64). Relief on the grounds of unfairly prejudicial and oppressive conduct, derivative actions and court powers is also provided in CAMA, secs 310–33.

52 UK CA, sec 415.

53 Amendment to id, part 15.

54 The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, SI 2013/1970.

55 The authors acknowledge that UK CA also deals with the interests of other stakeholders, especially under sec 172(1) and the reform under the Companies (Miscellaneous Reporting) Regulation 2018. However, as discussed above, compliance with sec 172 is ultimately intended to enhance shareholder value.

56 UK LR, rule 9.8.6R(6).

57 Financial Conduct Authority “Primary markets”, available at: <https://www.fca.org.uk/markets/primary-markets> (last accessed 6 August 2020).

58 Official listing is an optional additional regulatory regime for securities markets, aimed at ensuring market integrity. Under the EU regulation, Directive 2001/34/EC provides minimum standards for official listing but individual members are granted the authority to add their own requirements. The UK has developed more extensive additional “super equivalent” requirements as an option and any company that chooses to comply is said to have a premium listing. See French, Mason and Ryan French, Mason and Ryan, above at note 28 at 212–15 for a more detailed discussion of official listing in the UK.

59 For obligations imposed on issuers, see UK LR, chap 9 (“Continuing obligations”), available at: <https://www.handbook.fca.org.uk/handbook/LR/9.pdf> (last accessed 6 August 2020).

60 UK LR, rule 9.8.6R(5).

61 Berle and Means The Modern Corporation, above at note 9 at 4–10; Bainbridge The New Corporate Governance, above at note 2 at 4.

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64 Ibid. Applicable legislation passed in the UK during the relevant period included the Companies Act 1929 and the Companies Act 1948.

65 CAMA, secs 63(3) and 244.

66 (2001) 15 NWLR (pt 737) 709.

67 Id at 737.

68 CAMA, sec 63(3).

69 Id, secs 224–32.

70 Id, secs 247–49.

71 Id, sec 262.

72 Protection for creditors also exists under CAMA by virtue of secs 310(1)(c) and 410(b).

73 Id, sec 331.

74 Id, sec 342(1)(a).

75 Id, sec 334(1).

76 Id, sec 331(2)(b).

77 Id, sec 355.

78 Id, sec 349.

79 Id, sec 335(2).

80 CGC 2018, part A, principle 1.

81 Id, part C at v.

82 Id, principles 1–20.

83 Id, principle 21.

84 Denis, DK and McConnell, JJ “International corporate governance” (2003) 38/1 Journal of Finance and Quantitative Analysis 1 at 21CrossRefGoogle Scholar; Giofré “Financial education”, above at note 8 at 137.

85 Chen, KCW, Chen, Z and Wei, KCJ “Legal protection of investors, corporate governance, and the cost of equity capital” (2009) 15 Journal of Corporate Finance 273 at 275CrossRefGoogle Scholar; Licht, Goldschmidt and Schwartz “Culture”, above at note 14 at 230.

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87 Armour, Hansmann and Kraakman, ibid; La Porta et al “Investor protection”, above at note 3 at 6.

88 La Porta et al, id at 3.

89 Villiers Corporate Reporting, above at note 27 at 19.

90 Armour, Hansmann and Kraakman “Agency problems”, above at note 86 at 39; Licht, Goldschmidt and Schwartz “Culture”, above at note 14 at 232.

91 J Armour and JN Gordon “The Berle-Means corporation in the 21st century” (working paper, 2008) at 3, cited in Bruner, CM “Power and purpose in the Anglo-American corporation” (2010) 50 Virginia Journal of International Law 579 at 617–18Google Scholar.

92 Ibid.

93 Armour, Hansmann and Kraakman “Agency problems”, above at note 86 at 31; Griffin et al “National culture”, above at note 14 at 741–44.

94 Armour and Gordon “The Berle-Means corporation”, above at note 91 at 3.

95 Armour, Hansmann and Kraakman “Agency problems”, above at note 86 at 39; Griffin et al “National culture”, above at note 14 at 740.

96 Tricker, B Corporate Governance: Principles, Policies, and Practices (3rd ed, 2015, Oxford University Press) at 10–17Google Scholar; Bebchuk and Weisbach “The state of corporate governance”, above at note 23 at 6.

97 Tricker, id at 15; Villiers Corporate Reporting, above at note 27 at 7; Bebchuk and Weisbach, ibid.

98 Companies Act 2006 (Commencement No 3, Consequential Amendments, Transitional Provisions and Savings) SI 2007/2194, art 6 and sched 1, para 16.

99 La Porta et al “Investor protection”, above at note 3 at 5; Bebchuk and Weisbach “The state of corporate governance”, above at note 23 at 8.

100 Keay The Enlightened Shareholder, above at note 1 at 176.

101 Ibid.

102 J Lowry “The duty of loyalty of company directors: Bridging the accountability gap through efficient disclosure” (2009) Cambridge Law Journal 607 at 621.

103 The Companies Act 2006 (Strategic Report and Directors’ Report) Regulation 2013, SI 2013/1970.

104 Keay The Enlightened Shareholder, above at note 1 at 177.

105 Birds et al Boyle & Birds, above at note 10 at 504–05.

106 Chen et al “Legal protection of investors”, above at note 85 at 286; Bebchuk and Weisbach “The state of corporate governance”, above at note 23 at 21.

107 CAMA, secs 331–56.

108 Villiers Corporate Reporting, above at note 27 at 4.

109 Id at 4, citing Corporate Governance: Greenbury Implementation (1996, Ernst & Young), paras 2.2 and 6.

110 Corporate Governance, id, paras 2.2 and 6–7.

111 Villiers Corporate Reporting, above at note 27 at 5.

112 UK CA, sec 414C.

113 See above at note 4.

114 La Porta et al “Investor protection”, above at note 3 at 18.

115 DA Badaiki Corporate Law Shareholders Control of Corporate Management in Nigeria (2015, Lambert Academic Publishing) at 175.

116 Ibid.

117 Keay The Enlightened Shareholder, above at note 1 at 77.

118 Since the introduction of the first Stewardship Code in 2010 (available at: <https://www.frc.org.uk/getattachment/e223e152-5515-4cdc-a951-da33e093eb28/UK-Stewardship-Code-July-2010.pdf>), the FRC revised the code in 2012 (available at: <https://www.frc.org.uk/getattachment/d67933f9-ca38-4233-b603-3d24b2f62c5f/UK-Stewardship-Code-(September-2012).pdf>) and 2020 (available at: <https://www.frc.org.uk/getattachment/5aae591d-d9d3-4cf4-814a-d14e156a1d87/Stewardship-Code_Dec-19-Final-Corrected.pdf>) (in each case, last accessed 6 August 2020).

119 Birds et al Boyle & Birds, above at note 10 at 369.

120 2012 Stewardship Code, principle 5.

121 Birds et al Boyle & Birds, above at note 10 at 182, citing FRC “Consultation on a Stewardship Code for institutional investors” (January 2010) at 10, available at: <https://www.frc.org.uk/getattachment/58c79137-d436-4882-9eda-f4e23fa939fe/-;.aspx> (last accessed 6 August 2020).

122 CGC 2018, sec 22.3.

123 Chen et al “Legal protection of investors”, above at note 85 at 275.

124 CGC 2018 at v.

125 Financial Reporting Council of Nigeria Act, 2011, principle 65.

126 CGC 2018 at iv.

127 NCCG 2016 at 4.

128 Id at 6.

129 See “Introduction” above.

130 NCCG 2016 at 5.

131 Ibid.

132 See for example id, principles 6.4.1, 8.14 and 14 on the appointment of the company secretary, establishment of an audit committee and the tenure and re-election of directors.

133 Id, principle 2.3.

134 Davies, PL Gower and Davies’ Principles of Company Law (7th ed, 2003, Sweet & Maxwell) at 481Google Scholar.

135 Bebchuk and Weisbach “The state of corporate governance”, above at note 23 at 18.

136 The World Bank “Doing business: Measuring business regulations: Nigeria”, available at: <http://www.doingbusiness.org/data/exploreeconomies/nigeria> (last accessed 15 July 2020).

137 Muchlinski Multinational Enterprises, above at note 23 at 216.

138 La Porta et al “Investor protection”, above at note 3 at 6; Chen et al “Legal protection of investors”, above at note 85 at 275.

139 La Porta et al, ibid.

140 Bebchuk and Weisbach “The state of corporate governance”, above at note 23 at 21.

141 See the detailed discussion on corporate fraud and the effect of delay in justice delivery in O Akanmidu “Collapsed bank CEO cases point to weaknesses in Nigeria's justice system” (5 July 2018) The Conversation, available at: <http://www.theconversation.com/collapsed-bank-ceos-cases-point-to-weaknesses-in-nigerias-justice-system-99236> (last accessed 15 July 2020).

142 I Nnochiri “Delay in justice delivery scaring away investors (CJN)” (31 May 2018) Vanguard Newspapers (Apapa, Lagos) at 8.

143 The board of directors and members in general meeting share the power of management in a Nigerian company by virtue of CAMA, sec 63. However, because members take decisions by majority by virtue of CAMA, sec 233, this power is in reality shared between the majority shareholders and the board of directors.

144 Bebchuk and Weisbach “The state of corporate governance”, above at note 23 at 8.

145 Ibid.

146 CGC 2018, principles 6 and 7.

147 CAMA, sec 247.