By Chidiebere Obialor and Ayomide Ayileka
Introduction
The Annual General Meeting (“AGM”) of public companies is
statutorily compulsory and commercially important. It is the forum
created by law for shareholders, directors, and other stakeholders
in public companies to make decisions, share information and ideas
to advance the company. Traditionally, AGMs have been held in
physical locations. However, the Coronavirus Pandemic (“Covid-19”)
has made physical AGMs both unreasonable and unlawful in the light
of Covid-19 Regulations prescribing social distancing, lockdowns,
and travel restrictions. In response to the restrictions, the
Corporate Affairs Commission (“CAC”) and Securities and Exchange
Commission (“SEC”) have made publications to guide public companies
on how to convene their AGMs. While the circulars by SEC are
advisory, CAC’s “Guidelines on Holding of Annual General
Meetings (AGM) of Companies Using Proxies” (“CAC Guidelines”)
seems mandatory and its validity is questionable. In this article,
we shall examine the provisions of the CAC Guidelines vis-a-vis the
provisions of Companies and Allied Matters Act 1990 (“CAMA”) to
determine its validity. More importantly, we shall debate the
possibility of holding virtual AGMs for public companies and
incidental issues therein.
The CAC Guidelines
On the 26th of March, 2020, the CAC Guidelines was
released in response to Covid-19 restrictions especially the one
against large gatherings of people. It provides that:
- the consent of the CAC must be sought before any AGM;
- the CAC may send its representatives as observers to the
meeting, or require that the Company send the CAC a detailed report
of such meeting; - only ordinary business must be discussed at the meeting.
Special approval must be sought from the CAC to discuss special
business; - members can only attend the meeting by proxy, and a list of
proxies shall be made available for members to pick from; and - each duly completed proxy form shall be counted as one to
determine quorum.
Apart from the apparent non-consideration of virtual AGMs, the
CAC Guidelines can be challenged on a number of grounds – stemming
largely from its inconsistency with CAMA. First, CAMA does not
state that the approval of the CAC must be sought before AGMs can
be convened. Furthermore, Section 219 (1) which lists those who are
entitled to be notified of an AGM excluded the CAC, and Section 219
(2) also specifically states that:
“No person other than those mentioned in subsection (1) of this
section shall be entitled to receive notices of general
meetings.”
Second, by the provision of Section 214, a public company can
transact both ordinary and special businesses without extra
approval from the CAC.
Third, Section 81 spells out the rights of shareholders to
attend meetings, speak and vote on any resolution during the
meeting. While Section 230 (1) states that every member of a
company shall be entitled to appoint a proxy in their place to
attend a meeting, speak and vote on any resolution during that
meeting. Furthermore, the provisions of Section 230 (6) & (7) which
address the instruments appointing a proxy (e.g. a Power of
Attorney, a company seal, etc.) clearly make the appointment of
proxies personal and strict. Thus, the CAC cannot legally
disenfranchise shareholders by preventing them from exercising
their rights to attend meetings, speak and vote. Similarly, the CAC
cannot limit the power of shareholders to appoint their own
proxies. This move is contrary to the intentions of Section 230 of
CAMA.
Is the CAC authorized by CAMA to issue guidelines that bind
companies? Section 7 of CAMA, which lists the functions of the
CAC, by no means mentions that the CAC can make guidelines,
regulations or subsidiary legislations to compel companies to do or
not to do. The CAC is only authorized to give full effect to the
provisions of CAMA as it is, and to perform such other functions as
may be specified by any other law or enactment. If CAMA had
intended the CAC to make subsidiary legislations, it would have
expressly provided for such. Instead the Minister in charge of
trade is vested with this power under Section 16. Hence, the CAC
Guidelines is ultra vires. The revered Oputa, J.S.C. in Olaniyan v.
University of Lagos held that:
“…a Corporation or Company which is created by or under a
Statute cannot do anything at all, unless authorized expressly by
the Statute or instrument defining its powers. It simply has not
got the vires or the powers or authority to act outside the
Statute. If it so acts, the act will be held to be ultra vires and
declared null and void.”
Assuming that the CAC had the power to make the CAC Guidelines,
the provisions of the CAC Guidelines cannot be inconsistent with
the provisions of CAMA. A subsidiary legislation that is
inconsistent with its primary legislation is void. Therefore, the
CAC Guidelines is void. In the words of Nnaemeka-Agu, J.S.C in Din
v. Attorney General of the Federation:
“A subsidiary legislation derives its validity and authority
from a substantive law, constitutional or otherwise. It has not the
capacity to extend such jurisdiction or authority.”
The consequence of relying on the CAC Guidelines is best
explained in the words of Lord Denning in Macfoy v. United Africa
Company Limited:
“If an act is void, then it is in law a nullity. It is not only
bad but incurably bad. There is no need for an order of the Court
to set it aside. It is automatically null and void without more
ado, though it is sometimes convenient to have the Court declare it
to be so. And every proceeding which is founded on it is also bad
and incurably bad. You cannot put something on nothing and expect
it to stay there. It will collapse.”
Therefore, for companies that have convened their AGMs in
compliance with the CAC Guidelines, we believe that such AGMs are
invalid, and aggrieved shareholders will be able to obtain court
declaration to that effect (See also Section 300 (c) of
CAMA). For companies that have not had their AGMs, they can
either wait till Covid-19 blows over or get an extension of time
from the CAC. However, an AGM must be held within fifteen months
from the last AGM. This comes with a maximum extension of three
months. Failure to hold the AGM would then attract a penalty. Also,
waiting may not be a commercially viable option, particularly as
the pandemic worsens in Nigeria. Business must continue and AGMs
are very important for business continuity. The SEC, in one of its
circulars, gave a hint that AGMs will not be waived for public
companies despite Covid-19:
“Public companies are advised to take appropriate precautionary
measures as recommended by the Federal and State Governments as
well as the Nigerian Centre for Disease Control (NCDC) to ensure
the safety of shareholders and participants at Annual General
Meetings/Extra-Ordinary General Meetings and other meetings which
may be held during the prevalence of the pandemic.”[1]
Consequently, we advise that the option of having virtual AGMs
be considered.
Can Annual General Meetings for Public Companies Go
Virtual?
Virtual AGMs may be statutorily possible. For the purpose of
this discussion, a virtual AGM refers to one in which participants
are able to attend, speak and vote on any resolution during a
teleconference/video-conference meeting with the ability to use
video, text and audio features. It may include a physical location
i.e. a hybrid meeting where certain participants are together in a
location and others attend virtually. In every case, each
participant would have equal opportunity to speak and vote on any
resolution during the meeting.
Meetings are regulated by the provisions of CAMA and each
company’s Articles of Association. CAMA stipulates that all AGMs
must held in Nigeria. Section 218 (1) also states that the notice
for a meeting must specify the place of the meeting. While CAMA
expressly states that AGMs must be held in Nigeria, it does not
specify a mode – whether it must be physical or virtual. It is a
fundamental principle of law that what is not expressly forbidden
is permitted. Thus CAMA, by not expressly prohibiting any mode of
holding AGMs, may be interpreted to permit all modes of holding AGM
(physical, virtual, and hybrid) as long as all the requirements on
notices, quorum, voting, etc. are complied with, and the company
resolves that such meeting shall be its AGM (Section 213 (4)). A
similar argument was made in a 2020 mock proceedings: Ogunwumiju
SAN v Okutepa SAN, where the claimant argued in favour of the
constitutionality of virtual hearings before Affen, J of the High
Court of the Federal Capital Territory. The judge agreed and,
quoting Lord Denning in Parker v Parker, added that:
“…if we never do anything which has not been done before,
nothing will change; the entire world will move on whilst the law
remains the same and that will be bad for both the world and the
law.”
In this instance, not subscribing to the novel idea of virtual
AGMs would be bad for business. Virtual AGMs can be attended by all
members of a company where it is confirmed that the Internet
Protocol (IP) Address hosting the meeting is in Nigeria. It is an
interesting time for public companies as virtual AGMs will help to
increase shareholder participation, and save the time and logistics
issues associated with organizing physical AGMs. The VFD Group
already spearheaded the new movement by convening an Open Virtual
Meeting in May 2020 – which accorded every shareholder that
attended the opportunity to speak and vote on all resolution
presented. A 100% shareholder participation!
On the flipside, CAMA specifically provides that the notice of a
meeting shall specify the place, date and time of the meeting. And
the Supreme Court in Okotie-Eboh v Director of Public Prosecutions
(1962) has interpreted “place” to mean “any
part of an enclosure or structure whether separated from the rest
of the enclosure or structure by a partition fence or rope.”
It would thus appear that AGMs should be held in a physical place.
However, we must bring our minds to the fact that both the Supreme
Court’s interpretation (1962) and the CAMA (1990) came into force
at periods when the internet was not popular in Nigeria: hence,
both the court and the draftsman could not have envisaged that AGMs
would someday be held by virtual means without compromising the
provisions of CAMA.
Hence, directors and/or members of public companies may call a
virtual Extraordinary General Meeting in strict compliance with
Section 215 of CAMA to amend their Articles of Association to
provide for virtual AGMs. Due consideration must however be paid to
Section 48 – particularly that the Articles must not conflict with
the provisions of CAMA and the Memorandum of Association.
Alternatively, to encourage public companies to hold virtual AGMs
without fear, the Minister charged with the responsibility for
trade may invoke their power under Section 16 to make regulations
to that effect.
Additionally, the Nigerian Stock Exchange released a very
instructive publication: “Guidance on Companies’ Virtual Board,
Committee, and Management Meetings” (“NSE Guidance”) on how
public companies can effectively convene and conduct their virtual
meetings.[2] While the NSE Guidance is neither
mandatory nor specifically targeted at AGMs, public companies may
find it useful in convening their virtual AGMs.
Interestingly, a Bill to repeal CAMA and enact CAMA 2018, which
was passed by the National Assembly but vetoed by the President,
permits virtual AGMs for private companies but omits same for
public companies. While the omission might have been an oversight
(or even intentional) at the time of preparing the Bill, there is
now a desperate need for the National Assembly to revisit a new
CAMA Bill 2020 to ensure that its provisions support virtual AGMs
for public companies.
Conclusion
The AGM for public companies is so crucial that CAMA prescribes
a penalty for not convening it as and when due. More importantly,
delaying AGM is bad for business. It is the forum for directors,
shareholders and other stakeholders to review the performance of
the previous financial year and plan for the coming one. Therefore,
virtual AGM appears to be the best option in these Covid-19 times
when social distancing, lockdown, and travel restrictions have
become a norm. While public companies may need to ensure that their
cyber security is top-notch and may need to follow the NSE Guidance
to make sure that their virtual AGM go as planned, we see a silver
lining of increase in shareholder participation, reduced logistics
hassles and adjustment to the new normal.
[1] Securities and Exchange Commission, “Circular To
Capital Market Stakeholders On Covid-19” https://sec.gov.ng/circular-to-capital-market-stakeholders-on-covid-19/[1]
accessed on May 24, 2020
[2] Nigerian Stock Exchange, “NSE Publishes Guidance
to Facilitate Effective Virtual Meetings for Stakeholders amidst
COVID-19” http://www.nse.com.ng/dealing-members-site/Notices/NSE%20GUIDANCE%20ON%20COMPANIES%20VIRTUAL%20MEETINGS.pdf[2]
accessed on May 24, 2020
By Chidiebere Obialor and Ayomide Ayileka
Introduction
The Annual General Meeting (“AGM”) of public companies is
statutorily compulsory and commercially important. It is the forum
created by law for shareholders, directors, and other stakeholders
in public companies to make decisions, share information and ideas
to advance the company. Traditionally, AGMs have been held in
physical locations. However, the Coronavirus Pandemic (“Covid-19”)
has made physical AGMs both unreasonable and unlawful in the light
of Covid-19 Regulations prescribing social distancing, lockdowns,
and travel restrictions. In response to the restrictions, the
Corporate Affairs Commission (“CAC”) and Securities and Exchange
Commission (“SEC”) have made publications to guide public companies
on how to convene their AGMs. While the circulars by SEC are
advisory, CAC’s “Guidelines on Holding of Annual General
Meetings (AGM) of Companies Using Proxies” (“CAC Guidelines”)
seems mandatory and its validity is questionable. In this article,
we shall examine the provisions of the CAC Guidelines vis-a-vis the
provisions of Companies and Allied Matters Act 1990 (“CAMA”) to
determine its validity. More importantly, we shall debate the
possibility of holding virtual AGMs for public companies and
incidental issues therein.
The CAC Guidelines
On the 26th of March, 2020, the CAC Guidelines was
released in response to Covid-19 restrictions especially the one
against large gatherings of people. It provides that:
- the consent of the CAC must be sought before any AGM;
- the CAC may send its representatives as observers to the
meeting, or require that the Company send the CAC a detailed report
of such meeting; - only ordinary business must be discussed at the meeting.
Special approval must be sought from the CAC to discuss special
business; - members can only attend the meeting by proxy, and a list of
proxies shall be made available for members to pick from; and - each duly completed proxy form shall be counted as one to
determine quorum.
Apart from the apparent non-consideration of virtual AGMs, the
CAC Guidelines can be challenged on a number of grounds – stemming
largely from its inconsistency with CAMA. First, CAMA does not
state that the approval of the CAC must be sought before AGMs can
be convened. Furthermore, Section 219 (1) which lists those who are
entitled to be notified of an AGM excluded the CAC, and Section 219
(2) also specifically states that:
“No person other than those mentioned in subsection (1) of this
section shall be entitled to receive notices of general
meetings.”
Second, by the provision of Section 214, a public company can
transact both ordinary and special businesses without extra
approval from the CAC.
Third, Section 81 spells out the rights of shareholders to
attend meetings, speak and vote on any resolution during the
meeting. While Section 230 (1) states that every member of a
company shall be entitled to appoint a proxy in their place to
attend a meeting, speak and vote on any resolution during that
meeting. Furthermore, the provisions of Section 230 (6) & (7) which
address the instruments appointing a proxy (e.g. a Power of
Attorney, a company seal, etc.) clearly make the appointment of
proxies personal and strict. Thus, the CAC cannot legally
disenfranchise shareholders by preventing them from exercising
their rights to attend meetings, speak and vote. Similarly, the CAC
cannot limit the power of shareholders to appoint their own
proxies. This move is contrary to the intentions of Section 230 of
CAMA.
Is the CAC authorized by CAMA to issue guidelines that bind
companies? Section 7 of CAMA, which lists the functions of the
CAC, by no means mentions that the CAC can make guidelines,
regulations or subsidiary legislations to compel companies to do or
not to do. The CAC is only authorized to give full effect to the
provisions of CAMA as it is, and to perform such other functions as
may be specified by any other law or enactment. If CAMA had
intended the CAC to make subsidiary legislations, it would have
expressly provided for such. Instead the Minister in charge of
trade is vested with this power under Section 16. Hence, the CAC
Guidelines is ultra vires. The revered Oputa, J.S.C. in Olaniyan v.
University of Lagos held that:
“…a Corporation or Company which is created by or under a
Statute cannot do anything at all, unless authorized expressly by
the Statute or instrument defining its powers. It simply has not
got the vires or the powers or authority to act outside the
Statute. If it so acts, the act will be held to be ultra vires and
declared null and void.”
Assuming that the CAC had the power to make the CAC Guidelines,
the provisions of the CAC Guidelines cannot be inconsistent with
the provisions of CAMA. A subsidiary legislation that is
inconsistent with its primary legislation is void. Therefore, the
CAC Guidelines is void. In the words of Nnaemeka-Agu, J.S.C in Din
v. Attorney General of the Federation:
“A subsidiary legislation derives its validity and authority
from a substantive law, constitutional or otherwise. It has not the
capacity to extend such jurisdiction or authority.”
The consequence of relying on the CAC Guidelines is best
explained in the words of Lord Denning in Macfoy v. United Africa
Company Limited:
“If an act is void, then it is in law a nullity. It is not only
bad but incurably bad. There is no need for an order of the Court
to set it aside. It is automatically null and void without more
ado, though it is sometimes convenient to have the Court declare it
to be so. And every proceeding which is founded on it is also bad
and incurably bad. You cannot put something on nothing and expect
it to stay there. It will collapse.”
Therefore, for companies that have convened their AGMs in
compliance with the CAC Guidelines, we believe that such AGMs are
invalid, and aggrieved shareholders will be able to obtain court
declaration to that effect (See also Section 300 (c) of
CAMA). For companies that have not had their AGMs, they can
either wait till Covid-19 blows over or get an extension of time
from the CAC. However, an AGM must be held within fifteen months
from the last AGM. This comes with a maximum extension of three
months. Failure to hold the AGM would then attract a penalty. Also,
waiting may not be a commercially viable option, particularly as
the pandemic worsens in Nigeria. Business must continue and AGMs
are very important for business continuity. The SEC, in one of its
circulars, gave a hint that AGMs will not be waived for public
companies despite Covid-19:
“Public companies are advised to take appropriate precautionary
measures as recommended by the Federal and State Governments as
well as the Nigerian Centre for Disease Control (NCDC) to ensure
the safety of shareholders and participants at Annual General
Meetings/Extra-Ordinary General Meetings and other meetings which
may be held during the prevalence of the pandemic.”[1]
Consequently, we advise that the option of having virtual AGMs
be considered.
Can Annual General Meetings for Public Companies Go
Virtual?
Virtual AGMs may be statutorily possible. For the purpose of
this discussion, a virtual AGM refers to one in which participants
are able to attend, speak and vote on any resolution during a
teleconference/video-conference meeting with the ability to use
video, text and audio features. It may include a physical location
i.e. a hybrid meeting where certain participants are together in a
location and others attend virtually. In every case, each
participant would have equal opportunity to speak and vote on any
resolution during the meeting.
Meetings are regulated by the provisions of CAMA and each
company’s Articles of Association. CAMA stipulates that all AGMs
must held in Nigeria. Section 218 (1) also states that the notice
for a meeting must specify the place of the meeting. While CAMA
expressly states that AGMs must be held in Nigeria, it does not
specify a mode – whether it must be physical or virtual. It is a
fundamental principle of law that what is not expressly forbidden
is permitted. Thus CAMA, by not expressly prohibiting any mode of
holding AGMs, may be interpreted to permit all modes of holding AGM
(physical, virtual, and hybrid) as long as all the requirements on
notices, quorum, voting, etc. are complied with, and the company
resolves that such meeting shall be its AGM (Section 213 (4)). A
similar argument was made in a 2020 mock proceedings: Ogunwumiju
SAN v Okutepa SAN, where the claimant argued in favour of the
constitutionality of virtual hearings before Affen, J of the High
Court of the Federal Capital Territory. The judge agreed and,
quoting Lord Denning in Parker v Parker, added that:
“…if we never do anything which has not been done before,
nothing will change; the entire world will move on whilst the law
remains the same and that will be bad for both the world and the
law.”
In this instance, not subscribing to the novel idea of virtual
AGMs would be bad for business. Virtual AGMs can be attended by all
members of a company where it is confirmed that the Internet
Protocol (IP) Address hosting the meeting is in Nigeria. It is an
interesting time for public companies as virtual AGMs will help to
increase shareholder participation, and save the time and logistics
issues associated with organizing physical AGMs. The VFD Group
already spearheaded the new movement by convening an Open Virtual
Meeting in May 2020 – which accorded every shareholder that
attended the opportunity to speak and vote on all resolution
presented. A 100% shareholder participation!
On the flipside, CAMA specifically provides that the notice of a
meeting shall specify the place, date and time of the meeting. And
the Supreme Court in Okotie-Eboh v Director of Public Prosecutions
(1962) has interpreted “place” to mean “any
part of an enclosure or structure whether separated from the rest
of the enclosure or structure by a partition fence or rope.”
It would thus appear that AGMs should be held in a physical place.
However, we must bring our minds to the fact that both the Supreme
Court’s interpretation (1962) and the CAMA (1990) came into force
at periods when the internet was not popular in Nigeria: hence,
both the court and the draftsman could not have envisaged that AGMs
would someday be held by virtual means without compromising the
provisions of CAMA.
Hence, directors and/or members of public companies may call a
virtual Extraordinary General Meeting in strict compliance with
Section 215 of CAMA to amend their Articles of Association to
provide for virtual AGMs. Due consideration must however be paid to
Section 48 – particularly that the Articles must not conflict with
the provisions of CAMA and the Memorandum of Association.
Alternatively, to encourage public companies to hold virtual AGMs
without fear, the Minister charged with the responsibility for
trade may invoke their power under Section 16 to make regulations
to that effect.
Additionally, the Nigerian Stock Exchange released a very
instructive publication: “Guidance on Companies’ Virtual Board,
Committee, and Management Meetings” (“NSE Guidance”) on how
public companies can effectively convene and conduct their virtual
meetings.[2] While the NSE Guidance is
neither mandatory nor specifically targeted at AGMs, public
companies may find it useful in convening their virtual AGMs.
Interestingly, a Bill to repeal CAMA and enact CAMA 2018, which
was passed by the National Assembly but vetoed by the President,
permits virtual AGMs for private companies but omits same for
public companies. While the omission might have been an oversight
(or even intentional) at the time of preparing the Bill, there is
now a desperate need for the National Assembly to revisit a new
CAMA Bill 2020 to ensure that its provisions support virtual AGMs
for public companies.
Conclusion
The AGM for public companies is so crucial that CAMA prescribes
a penalty for not convening it as and when due. More importantly,
delaying AGM is bad for business. It is the forum for directors,
shareholders and other stakeholders to review the performance of
the previous financial year and plan for the coming one. Therefore,
virtual AGM appears to be the best option in these Covid-19 times
when social distancing, lockdown, and travel restrictions have
become a norm. While public companies may need to ensure that their
cyber security is top-notch and may need to follow the NSE Guidance
to make sure that their virtual AGM go as planned, we see a silver
lining of increase in shareholder participation, reduced logistics
hassles and adjustment to the new normal.
[1] Securities and Exchange Commission,
“Circular To Capital Market Stakeholders On Covid-19” https://sec.gov.ng/circular-to-capital-market-stakeholders-on-covid-19/[1]
accessed on May 24, 2020
[2] Nigerian Stock Exchange, “NSE Publishes
Guidance to Facilitate Effective Virtual Meetings for Stakeholders
amidst COVID-19” http://www.nse.com.ng/dealing-members-site/Notices/NSE%20GUIDANCE%20ON%20COMPANIES%20VIRTUAL%20MEETINGS.pdf[2]
accessed on May 24, 2020