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BACKGROUND

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.
It was modelled on the English Companies Act 1985. For thirty
years, there were no significant amendments to the CAMA 1990,
notwithstanding that England has, over the past three decades,
amended and replaced its own Companies Act. Nigerian companies had
to, essentially, rely on a 30-year old law to govern the way
businesses operate in our dynamic and exponentially 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 ground-breaking legislation.

COMPANY VOLUNTARY ARRANGEMENTS

The CAMA 2020 has introduced company voluntary arrangements
(”CVA”) into the body of Nigerian company law. A
CVA is an alternative arrangement available to companies facing
financial challenges, that can be used by companies to conveniently
structure the repayment of debts to their creditors. The provisions
of the CAMA 2020 on CVAs are modelled primarily after the UK
Insolvency Act 1986, including all subsequent related legislation
(”UK legislation”). Although the CAMA 2020 does
not define a CVA, in practice in the UK, CVAs are described as a
form of business rescue arrangement which allows a company in
financial difficulties to propose to its creditors to enter into an
agreement with them regarding the repayment of all, or a part, of
its debts over an agreed period of time. CVAs, in some respects,
are similar to a scheme of arrangement. A fundamental difference
between a CVA and a scheme of arrangement is that CVAs are
contractual in nature and require the approval of the creditors and
members of the company to take effect. A scheme of arrangement, on
the other hand, involves the courts, and requires orders of the
court to convene meetings and to sanction the resolutions passed at
such meetings. Furthermore, the CAMA 2020 introduced the concept of
a statutory 6-month moratorium under a scheme of arrangement under
s. 715, during which period, no winding up petition or enforcement
action by any creditor shall be entertained against the company.
This feature is not available under a CVA.

FEATURES OF CVAs

• CVAs represent a shift from the traditional mindset that the
  only option available to an insolvent company is to be wound up.
  The primary objective of a CVA is to restore a company to
  profitability so that it may be able to meet its financial
  obligations to its creditors under the CVA.

• Unlike other company rescue options (such as administration) a
  CVA allows directors to remain in control of the affairs of the
  company while the company continues to conduct its business.

• The approval by creditors of a company to a CVA only binds the
  Company and all unsecured creditors (including unsecured creditors
  that do not agree to the CVA). Secured creditors who do not consent
  to the CVA, on the other hand, are not bound by the CVA and can
  enforce their security notwithstanding of the CVA.

MORATORIUM

In order for a potential restructuring or reorganisation to have
the best odds for success, it is necessary for a moratorium to be
put in place. A moratorium prevents the company’s creditors
from instituting or continuing any insolvency proceedings or legal
processes against the company during the period of the CVA, thereby
giving the company – and its creditors – an opportunity
to agree on a plan to restructure the company and/or its debts
without having to deal with the constant threat of enforcement
action by certain creditors.

A statutory moratorium does not apply to CVAs under the CAMA
2020. In the absence of a statutory moratorium, and in the course
of negotiating the

terms of the CVA, creditors (including unsecured creditors) that
are not part of the CVA may still enforce their rights as they
choose without regard to the majority of the creditors who are in
support of the CVA. This is similar to the situation in the UK
where there is no statutory moratorium applicable to CVAs except in
relation to “small eligible companies” and companies in
administration; both of these categories of companies enjoy an
automatic moratorium once they embark on a CVA. It is interesting
to note that a statutory moratorium is also applicable in the CAMA
2020 where a company enters into administration. The experience in
the UK has shown that a CVA proposal works best when initiated
within the framework of administration unless there are compelling
reasons for avoiding administration.

PROCEDURE

The CAMA 2020 outlines the process for implementing a CVA:

• A CVA proposal is made to the creditors by the directors of the
  company, or by the administrator or liquidator, as applicable.

• The proposal is made through a person appointed by the
  directors, administration or liquidator of the company (as
  applicable) to act as a nominee for the purpose of supervising the
  implementation of the CVA. The nominee must be qualified to act as
  an insolvency practitioner.

• Within 28 days of receiving the notice of the proposal for a
  CVA, the nominee must submit a report to the Federal High Court
  stating whether, in his opinion, meetings of the company and of its
  creditors should be summoned to consider the proposal, and the
  date, time and place at which he proposed the meetings to be
  held.

• The above requirement for the nominee to submit a report to the
  Court only applies where the company is not in administration or
  winding up. Where the company is in administration or winding up,
  the nominee may proceed to summon the necessary meetings without
  recourse to the Court. The meetings of the members and creditors
  are to be held separately.

• The CVA proposal may be approved with or without modifications,
  provided that the proposal itself or any subsequent modification
  does not affect the right of a secured creditor to enforce its
  security or the priority and rights of preferential creditors
  except with the concurrence of the secured creditor or preferential
  creditors concerned.

• The CAMA 2020 does not provide for the voting threshold for the
  approval of a CVA at the creditors’ and members’ meetings
  and this is a significant lacuna in the CAMA 2020. It only provides
  that “…each of the meetings shall be conducted in
  accordance with the “ The CAMA 2020 defines the
  term “rules” to include “rules made by the Chief
  Judge of the Federal High Court for the purpose of section 616
  (i.e. Delegation to liquidator of certain powers of court ) or 683
  of the CAMA 2020 (i.e. Information as to pending liquidations and
  disposal of unclaimed assets) and all incidental forms together
  with rules made by the Corporate Affairs Commission.”
  There is, however, no specific indication of the rules being
  referred to in the CAMA 2020 so, perhaps, the provisions of the
  current Winding Up Rules, 2001, could be relied on. The Winding Up
  Rules provide for a simple majority approval of creditors and
  contributories (i.e. 50% + 1 vote) for a resolution to have been
  deemed to be passed. Under the UK Insolvency Rules, 1986, approval
  of a CVA requires the majority in excess of three-quarters (by debt
  value) of the creditors present in person or by proxy at the
  creditors’ meeting, and a simple majority approval of the
  members present in person or proxy at the members’ meeting. For
  clarity, it is recommended that the CAC, in its regulations, should
  confirm that the rules applicable to voting in relation to a CVA
  shall be the Winding Up Rules 2001. The CAC could also specify the
  voting threshold applicable to voting in relation to a CVA.

• Where the decision taken at the creditors’ meeting differs
  from that taken at the members’ meeting, the Court may, on
  application by a member, order that the decision of the
  members’ meeting shall prevail or make such other order as it
  thinks fit. This position applies in similar circumstances in the
  UK.

• The decision relating to the approval of a CVA has effect if it
  has been taken by both meetings summoned, or by the creditors’
  meeting alone, but in the latter case the decision is subject to an
  order of the court made on application as mentioned in the
  preceding paragraph above. The company shall be liable to pay the
  creditors the amounts approved under the CVA.

• The CVA can be challenged in Court on the grounds of unfair
  prejudice or material irregularity (or both) in relation to either
  of the meetings, and where such application is made, the Court may
  revoke or suspend any decision approving the CVA or direct the
  nominee to summon further meetings to consider a revised proposal
  with regard to the CVA.

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.