PAPER SERIES V – SUBSTANTIAL PROPERTY, MAJOR ASSET TRANSACTIONS AND MINORITY MEMBER PROTECTION
Sometimes, a company may be used as the alter ego of its shareholders, directors, and officers, especially when it is used merely for transactions of their business interest, the result is that a Court may impose liability on the individual by piercing the corporate veil. For this reason, directors owe and are expected to observe the utmost good faith in any transaction with it or on its behalf. A director is required to act at all times in what he believes to be the best interest of the company as a whole, to preserve its assets, further its business and promote the purposes for which it was formed.
Some brand-new and innovative provisions in the Companies and Allied Matters Act, 2020 ('the Act') with enormous implications for a company's corporate financing strategy are those on the substantial property or asset transactions involving directors, controlling members etc. The Act also provides the procedure for major asset transactions; and situations where the protection of the interest of minority members affected by such transactions will become paramount.
Paper Series V examines the provisions of the Act on major property transactions by directors and controlling members. Further, it discusses the procedure for major asset transactions and the protection of the interest of minority affected by these transactions or the way the affairs of the company is managed.
II. Director's Major Property Transactions
The Act provides that subject to the exception provided by section 311 of the Act, a company shall not enter into an arrangement whereby (a) a director or controlling member of a company or its holding company or a person connected with such a director or controlling member, acquires or is to acquire one or more non-cash assets of the requisite value from the company; or (b) the company acquires or is to acquire one or more non-cash assets of the requisite value from such a director or controlling member or a person so connected; unless the arrangement is first approved by a resolution of the company in general meeting after being informed of all material facts relating to the transaction and if the director, controlling member or connected person is a director of its holding company or a person connected with such a director or controlling member, by a resolution in general meeting of the holding company after being informed of all material facts relating to the transaction and if the director, controlling member or connected person is a director of its holding company or a person connected with such a director or controlling member by a resolution in general meeting of the holding company after being informed of all material facts relating to the transaction.
For Section 310 (1) of the Act, a non-cash asset is of the requisite value, if at the time the arrangement in question is entered, its value is not less than an amount the Commission may by regulation prescribe.
A person is a controlling member of a company if that person either alone or in an understanding with other persons has more than 50% of the voting power to elect or remove directors of the company. A Shadow director is also treated as a director for purposes of this section and sections 311 and 312 of the Act.
Section 311 of the Act creates exceptions from Section 310 for any body corporate that is not a company within the meaning of the Act or if it is a wholly-owned subsidiary of any body corporate. Importantly, there is an exemption of Section 309 of the Act to an arrangement for the acquisition of a non-cash asset if - (a) the asset is to be acquired by a holding company from any of its wholly-owned subsidiaries or a holding company by any of its wholly-owned subsidiary of a holding company from another wholly-owned subsidiary of that same holding company; or (b) the arrangement is entered into by a company which is being wound up unless the winding-up is a member's voluntary winding-up. Further, the Act stipulates that Section 310 (1) (a) does not apply to an arrangement whereby a person is to acquire an asset from a company of which he is a member, if the arrangement is made with that person in his character as a member.
Liabilities for Contravention of Section 310
A contravention of Section 310 of the Act by any arrangement entered into by a company or any transaction entered into in pursuance of the arrangement (whether by the company or any other person) is voidable at the instance of the company or voidable by a court on its decision on a claim by members, unless one or more of the conditions specified in subsection (2) of Section 310 of the Act is satisfied. The conditions are that - (a) restitution of any money or other asset which is the subject-matter of the arrangement or transaction is no longer possible or the company has been indemnified in pursuance of this section by any other person for the loss or damages suffered by it; (b) any right acquired bona fide for value and without actual notice of the contravention by any person who is a party to the arrangement or transaction would be affected by its avoidance; or (c) the arrangement is, within a reasonable period, ratified and affirmed in full accordance with the requirements for advance approval set out in Section 311 of the Act.
If an arrangement is entered into with a company by a director of the company or its holding company or a person connected with him in contravention of section 310 of this Act that director, controlling member and person so connected and any other director of the company who authorises the arrangement or any transaction entered into in pursuance of such an arrangement commits an offence and liable - (a) to account to the company for any gain which he has made and any loss or damage suffered by the company, directly or indirectly by the arrangement or transaction, (b) directly and derivatively to members of the company for any loss or damage suffered by them, (c) jointly and severally with any other person liable under this subsection to indemnify the company for any loss or damage resulting from the arrangement or transaction were found guilty and convicted of an offence guilty of the office, disqualified to serve as a director of the company.
In any action referred to in this section, the plaintiff has the right to obtain any relevant document from the defendant and the witnesses at trial and may request categories of documents from such person without identifying specific documents. This section is without prejudice to any liability imposed than by this section and is subject to subsections (6) - (7) and liability under subsection (3) arises, whether or not the arrangement or transaction entered into has been avoided under subsection (1) of this section.
If an arrangement is entered into by a company and a person connected with a director of the company or its holding company in contravention of section 310 of this Act, that director is not liable under subsection (3) if he shows that he took all reasonable steps to secure the company's compliance with that section. This section has effects with respect to references in Sections 310, 311 and 312 of this Act to a person being "connected" with a director of a company and to a director being "associated with" or controlling" a body corporate. A person is connected with another person if he is - (a) that other person's spouse, child or step-child including an illegitimate child; (b) a body corporate with which the person is associated; or (c) a person acting in his capacity as trustee of any trust, the beneficiaries of which include - (i) the director, his spouse, any children or step-children, or (ii) a body corporate with which he is associated, or of a trust whose term confer a power on the trustees that may be exercised for the benefit of the person, his spouse or any children or step-children of his or any such body corporate; or (d) a person acting in his capacity as a partner of that director or of any person who, by virtue of paragraph (a), (b) or (c) is connected with that director.
A director shall not accept a bribe, a gift, or commission either in cash or kind from any person or a share in the profit or commission either in cash or kind from any person or a share in the profit of that person in respect of any transaction involving his company in order to introduce his company to deal with such a person. If a director contravenes the provisions of subsection (1), he commits a breach of duty and the company shall recover from the director the actual gift and sue him and the other person for damages sustained without any deduction in respect of what the director has returned. Where the gift is made after the transaction has been completed in form of an unsolicited gift as a sign of gratitude, the director may be allowed to keep the gift provided he declares it before the board and that fact shall also appear in the minutes book of the director. In all cases concerning secret benefits, the plea that the company benefited or that the gift was accepted in good faith is not a defence.
The Act expressly provided for the personal liability of directors and officers where a company (a) receives money by way of loan for a specific purpose; (b) receives money or other property by way of advance payment for the execution of a contract or project; or (c) with intent to defraud, fails to apply the money or other property for the purpose for which it was received, every director or other officer of the company who is in default is personally liable to the party from whom the money or property was received for the purpose for which it was received and nothing in this section affects the liability of the company itself. In the case of a limited company, the liability of the directors, managers or managing director may if so provided by the memorandum be unlimited. There is however the requirement of notice to be given to the would-be director, manager or managing director. 
III. Major Asset Transaction
The provision on major asset transaction is new and one of the most innovative provisions of the Act. For purpose of Section 342 of the Act, "major asset transaction" means a transaction or related series of transactions which include the -
(a) purchase or other acquisition outside the usual course of the company's business; and
(b)the sale or other transfer outside the usual course of the company's business, of the company's property or other rights the value of which, on the date of the company's decision to complete the transaction, is 50% or more of the book value of the company's assets based on the company's most recently compiled balance sheet.
In undertaking a major asset transaction, the following procedure is to be complied with by the company -
- the board of directors of the company shall recommend the transaction and direct that it be submitted for approval to the annual or extraordinary general meeting of members;
- notice of the transaction, stating that a purpose of the meeting is to consider the transaction and including a summary of the transaction and of the recommendation of the board of directors on the transaction, shall be given to all members entitled to notice of or to attend the meeting or to vote on the transaction; and
- At the meeting, the members shall approve the transaction by a special resolution, unless the company's memorandum of association provides for its approval by an ordinary resolution, in which case it is approved by an ordinary resolution.
IV. Protection of Minority against Illegal and Oppressive Conduct.
The Act provides that subject to its provisions, where an irregularity is made in the course of a company's affairs or any wrong is done to the company, only the company can sue to remedy that wrong and only the company can ratify the irregular conduct.
Section 343 of the Act provides that without prejudice to the rights of members under sections 346-351 and sections 353-355 of this Act or any other provisions of the Act, the court on the application of any member, may by injunction or declaration restrain the company or its officer from -
- entering into any transaction which is illegal or ultra vires;
- purporting to do by ordinary resolution any act which by its articles or this Act required to be done by special resolution;
- Any act or omission affecting the applicant's individual rights as a member;
- Committing fraud on either the company or the minority shareholders where the directors fail to take appropriate action to redress the wrong done;
- Where a company meeting cannot be called in time to be of practical use in redressing a wrong done to the company or to minority shareholders;
- Where the directors are likely to derive a profit or benefit, or have profited or benefited from their negligence or from their breach of duty; and
- any other act or omission, where the interest of justice so demands.
Ways of Commencing Legal Proceedings for Minority Protection
Legal proceedings for the purposes of minority protection against the oppressive act of the majority members can be by way of (i) personal and representative action and (ii) derivative action.
i) Personal and Representative Action
Where a member institutes a personal action to enforce a right due to him personally, or a representative action on behalf of himself and other affected members to enforce any right due to them, he or they are subject to subsection (2) entitled to -
(a) Damages for any loss incurred on account of the breach of that right; or
(b) Declaration or injunction to restrain the company or the directors from doing a particular act.
In proceedings brought under Section 344 of the Act, the Court finds the directors or any of them liable for any wrongdoing, the erring director is personally liable in damages to the aggrieved member. Where any member institutes an action under this section, the Court may award costs to him personally whether or not his action succeeds. In any proceeding by a member under section 343 of this Act, the Court may, if it deems fit, order that the member shall give security for costs.
ii) Commencing a Derivative Action
For the purpose of commencing a derivative action, an applicant may apply to the Court for leave to bring an action in the name or on behalf of a company or a company's subsidiary or to intervene in the action to which the company or the company's subsidiary is a party, for the purpose of prosecuting, defending, or discontinuing the action on behalf of the company or the company's subsidiary.
No action may be brought, and no intervention may be made under Section 346 (1) of the Act unless the Court is satisfied that -
- a cause of action has arisen from an actual or proposed act or omission involving negligence, default, breach of duty or trust by a director or a former director of the company;
- the applicant has given reasonable notice to the directors of the company of his intention to apply to the court under subsection (1);
- the directors of the company do not bring, diligently prosecute, defend, or discontinue the action;
- the notice contains a factual basis for the claim and the actual or potential damages caused to the company;
- the applicant is acting in good faith; and
- it appears to be in the best interest of the company that the action be brought, prosecuted, defended or discontinued.
An action under this section may be against the director or any other person (or both). In any action referred to in this section, the plaintiff shall have the right to obtain any relevant documents from the defendant and the witnesses at trial and may in pursuance of that right, request categories of documents from such person without identifying specific documents.
An application made or an action brought or intervened in under Section 346 of the Act shall not be stayed or dismissed by reason only that it is shown that an alleged breach of a right or a duty owed to the company has been or may be approved by the shareholders of such company, but evidence of approval by the shareholders may be taken into account by the court in making an order under Section 347 of the Act.
An application made or an action brought or intervened in under section 346 shall not be stayed, discontinued, settled, or dismissed for want of prosecution without the approval of the Court given upon such terms as the Court deems fit and if the Court determines that the right of any applicant may be substantially affected by such stay, discontinuance, settlement or dismissal, the Court may order any party to the application or action to give notice to the applicant.  Section 350 of the Act requires that an applicant shall not be required to give security for costs in any application made or action brought or intervened in under section 346 of this Act. In an application made or an action brought or intervened in under Section 346 of the Act, the court may at any time order the company to pay to the applicant interim costs before the final disposition of the application or action.
Powers of the Court in a Derivative Action
In connection with an action brought or intervened under section 346 of this Act, the Court may, at any time, make any such order or order as it deems fit. Section 347 (2) of the Act empowers the Court to make an order -
- authorising the applicant or any other person to control the conduct of the action;
- giving directions for the conduct of the action;
- directing that any amount adjudged payable by a defendant in the action is paid, in whole or in part, directly to former and present security holders of the company instead of the company; and
- requiring the company to pay reasonable legal fees incurred by the applicant in connection with the proceedings.
Relief on the Grounds of Unfairly Prejudicial and Oppressive Conduct
The application to the Court has to be through a Petition for an order under section 354 in relation to a company may be made by -
- a member of the company;
- a director or officer, former director, or officer of the company;
- a creditor;
- the commission; or
- any other person who, in the discretion of the Court, is the proper person to make an application under section 354.
I. Grounds Upon which an Application may be made.
An application for relief on the ground that the affairs of a company are being or have been conducted illegally or oppressively may be made to the Court by petition.
An application to the Court by petition for an order under this section in relation to a company may be made by -
(a) A member of the company who alleges that -
(i) The affairs of the company are being or have been conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members, or in a manner that is or has been in disregard of the interest of a member or the member as a whole, or
(ii) an act or omission or a proposed act or omission, by or on behalf of the company or a resolution, or a proposed resolution of a class of members, was, is or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or was, is or would be in a manner which is in disregard of the interests of a member or the members as a whole;
(b)Any of the persons mentioned under section 353 (1) (b), (c) and (e) who alleges that -
(i) The affairs of the company have been or are being conducted in a manner oppressive or unfairly prejudicial to or discriminatory against or in a manner in disregard of the interest of that person or
(ii) An act or omission, or a proposed act or omission was, is or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against or was or is in disregard of the interest of that person, or
(c) the Commission in a case where it appears to it in the exercise of its powers under the provision of this Act or any other enactment that -
(i) the affairs of the company were or are being conducted in a manner that was or is oppressive or unfairly prejudicial to or unfairly discriminatory against a member or members, or was or is in disregard of the public interest, or
(ii) any actual or proposed act or omission of the company, including an act or omission on its behalf which was, is or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against a member or members in a manner which was or is in disregard of the public interest.
II. Powers of the Court to make orders in Petitions under Section 353 and 354 of the Act
If the Court is satisfied that a petition under section 353 and 354 is well-founded, it may make such order or orders as it deems fit for giving relief in respect of the matter complained of.
Without prejudice to the generality of subsection (1), the Court may make an order -
- that the company be wound up;
- for regulating the conducting of the affairs of the company in future;
- for the purchase of shares of any member by other members of the company;
- for the purchase of the shares of any member by other members of the company;
- directing the company to institute, prosecute, defend, or discontinue specific proceedings, or authorising a member or the company to institute, prosecute, defend, or discontinue specific proceedings in the name or o behalf of the company;
- varying or setting aside a transaction or contract to which the company is a party and compensating the company or any other party to the transaction or contract
- directing an investigation to be made by the commission;
- appointing a receiver or a receiver and manager of the property of the company;
- restraining a person from engaging in specific conduct or from doing a specific act or thing; or
- requiring a person to do a specific act or thing.
Section 355(3) of the Act states that where an order that a company be wound up is made under this section, the provision of this Act relating to winding-up of companies shall apply with such modifications so are necessary, as if the order has been made upon an application duly filed in the court by the company. Where an order under this section makes any alteration or addition to the memorandum or articles of a company, notwithstanding anything in any other provision of this Act, but subject to the provision of the order, the company does not have power, without the leave of the Court, to make any further alteration or addition to the memorandum and articles inconsistent with the provisions of the order but, subject to this subsection, the alteration or addition shall have effect as if it has been made by a resolution of the company.
A certified true copy of an order made under this section, altering or giving leave to alter a company's memorandum or articles shall within 14 days from the making of the order or such longer period as the court may allow be delivered by the company to the Commission registration and if the company defaults in so complying, the company and each officer of it are liable to a penalty as the Commission shall specify in its regulations. Any person who contravenes or fails to comply with an order made under section 355 that is applicable to him, commits an offence and is liable to a penalty as the Commission shall specify in its regulations.
Other Significant Provisions
In the addition to the foregoing provisions on minority protection against illegal and oppressive action of the majority members, or directors or officers, there are other noteworthy provisions of the Act. Section 357 - investigation of a company on its own application or that of its members, Section 358 - other investigations of the company; Section 359 and 360 dealing with the inspectors' power during the investigation and the production of documents and evidence to inspectors respectively. The Act also confers power on the inspector to call for directors' bank accounts in Section 361; while Section 362 declares as contempt of court any obstruction of inspectors.
Sections 364 and 366 of the Act confers the Commission with the power to bring civil proceedings on the company's behalf and also present a winding-up petition against a company. Further Section 365 confers the Attorney-General of the Federation with powers to institute criminal proceedings if, from any report made under Section 363 of the Act, it appears that any person has in relation to the company or any body corporate whose affairs have been investigated by virtue of section 359 been guilty of any offence for which he is criminally liable.
The provisions on substantial property transaction and major asset transaction are amongst the novel and most innovative provisions of the Act. In addition, there are also balancing provisions for the protection of minority members against the illegal and oppressive act of the majority members of a company.
A good corporate financing transaction or even strategy involving these provisions would require considering provisions in the Federal Competition and Consumer Protection Act ('FCCPA') for purposes of competition regulation and that of the Investment and Securities Act and any other economic sector-specific regulating legislation. The need to coordinate and obtain approval from the Corporate Affairs Commission and other regulators such as the Securities and Exchange Commission('SEC'), Federal Competition and Consumer Protection Commission and other sectors specific regulator(s) with regulatory powers over the company, is one of the most, if not the most important external consideration for the success of the transaction or financing strategy.
Author: Ikemefuna Stephen Nwoye, LL.B (ESUST) 2010, B.L (NLS, Lagos) 2011, LL.M in International Business Regulation, Litigation and Arbitration (NYU, New York) 2014. A Barrister and Solicitor of the Supreme Court of Nigeria with expertise in the areas of banking & finance, capital markets, mergers and acquisitions, and dispute resolution. This paper should not in any way serve as a substitute for legal advice or opinion. The views expressed are personal to the author and do not necessarily reflect the views of any organisation or person that the author is or might have been affiliated to.
 Fairline Pharmaceutical Industry Limited & Anor v. Trust Adjusters Nigeria Limited (2012) LPELR - 20860 (CA) Pp. 31-32 paras C - B.
 Artra Industries Nigeria Limited v. Nigerian Bank for Commerce & Industry (1998) 4 NWLR (Pt.546) 375; see also Section 309 of the Act which provides for the legal position of a director to the effect that (1) directors are trustees of the company's money, properties and their powers and such shall account for all the money over which they exercise control, refund any money improperly paid away and shall exercise their powers honestly in the interest of the company and all the shareholders and not in their own or sectional interests. (2) A director may when acting within his authority and the powers of the company are regarded as agents of the company under Part III of the Act.
 Section 310 (1) of the Act, 2020.
 Section 310 (2) of the Act, 2020.
 Section 310 (3) and (4) of the Act, 2020.
 Section 310 (3) of the Act, 2020.
 Section 312 of the Act.
 Section 312 (2) of the Act.
 Section 312 of the Act.
 Section 312 (4) and (5) of the Act.
 Section 312 (6) and (7) of the Act.
 Section 313 (1) of the Act.
 Section 313 (2) of the Act.
 Section 313 (3) and (4) of the Act.
 Section 316 of the Act.
 Section 314 of the Act. Intricately connected to this section are other sections dealing with miscellaneous matters relating to directors such as Section 317 of the Act - Director's contract of employment for more than five years; Section 318 of the Act - Register of Directors; Section 319 of the Act - Particulars of the Directors to be registered e.g., full name and any former name or names, service address; nationality; business occupation, date of birth; phone number and email address. In the case of a former name - the register shall contain particulars of the former name where the name (a) was changed or disused before the person attained the age of 18 years, or (b) has been changed or disused for 20 years or more. Section 320 of the Act - Register of Directors' residential address; Section 321 of the Act - Duty to notify the commission of changes.
 Section 341 of the Act. This is a statutory codification of the rule in Foss v. Harbottle (1843) 2 Hare 461.
 Section 345 of the Act defines a member as the personal representative of a deceased member, and (b) any person to whom shares have been transferred or transmitted by operation of law.
 Section 344 of the Act.
 See Afribank & Ors v. NDIC & Ors (2017) LPELR -43498 (CA) Pp. 22 -23 para. A. where the Court of Appeal described a derivative action as one similar suit brought by a shareholder on behalf of a company against a third party, often the third party being an insider of the company such as the directors or executive officers.
 For purposes of commencing a minority protection action, the Act defines an "applicant" to mean (a) a registered holder or a beneficial owner and a former registered holder or beneficial owner of a security of a company; (b) a director or an officer or a former director or officer of a company; (c) the Commission; or (d) any other person who in the discretion of the Court is a property person to make an application under section 346 of the Act.
 Section 346 (1) of the Act.
 Section 346 (2) of the Act. See also Agip (Nig.) Limited v. Agip Petroli Int'l (2010) 5 NWLR (Pt. 1187) pg. 349.
 Section 346 (3) and (4) of the Act.
 Section 348 of the Act.
 Section 349 of the Act.
 Section 351 of the Act.
 Section 347 (1) of the Act.
 Section 354 of the Act.
 For purposes of Section 354 and 355 of the Act, "member" includes - (a) the personal representative of a deceased member; and (b) any person to whom shares have been transferred or transmitted by operation of law.
 Section 355 (4) of the Act.
 Section 355 (5) of the Act.
 Section 356 of the Act.