CREATION OF LEGAL MORTGAGES UNDER THE NIGERIAN LAW

The mode of creation of a legal mortgage depends on where the property is located, and Nigeria may be divided into three jurisdictions namely – the C. A States, P & C. L States, and land under Registration of Titles Law, Lagos.

1.      Conveyancing Act (C. A) States – There is no statutory provision governing the mode of creation of a legal mortgage in these States, therefore, the applicable law is still the common law subject to modifications introduced by the Land Use Act, 1978. Since no freehold interest in land can be acquired in Nigeria, the relevant law is that applicable to the creation of a legal mortgage of leasehold interest.(click on the pictures on left or right hand sides for more insights)

At common law, a legal mortgage of a leasehold interest may be created by the following ways:

(i)                 Assignment of the mortgagor’s interest in the land with a covenant for reassignment or re-conveyance of the mortgage. Assignment is the transfer of the unexpired residue of the term in the property to the mortgagee. The advantage of this mode is that there is no reversionary interest in the mortgagor, hence in the event of a default, the mortgagee can pass his entire interest to a purchaser without problem. Although there is no privity of contract between the Governor/Headlessor and the mortgagee, but there is privity of estate. This makes the mortgagee liable for all the covenants and conditions in the headlease. The mortgagee is bound to observe and perform the restrictive covenant that runs with land in equity; this is no doubt a hardship on the mortgagee being bound by onerous covenants he was not privy to – Tulk v. Moxhay 41 E. R 1143.

(ii)               Sub-demise at least one day shorter than the term of the original lease with a proviso for re-conveyance on redemption of the mortgage. The major advantages of this mode are that there is no privity of contract or estate between the mortgagee and the headlessor; and there is no uniformity because it is also an applicable mode under the PCL which makes it attractive to banks. The only disadvantage is that it preserves the mortgagor’s right to reversion. Title in the mortgaged property, is vested in the mortgagor. Which means that the mortgagee cannot give a perfect title to the purchaser in the event of default by the mortgagor. This interest can be avoided by drafting device – In the white Rose Cottage (1965) CH. D 940. Either a Power of Attorney Clause or a Trust of declaration or both may be inserted to vest the mortgagor’s reversionary title in the mortgagee. In Power of Attorney Clause, it operates to vest irrevocably authority over the mortgaged property on the mortgagee or his attorney irrevocably until the loan is repaid. The implication is that in case of a default, the mortgagee can sell – Labededi v. Odunlana & Anor. (1973) 4 CCHCJ; Chime v. Chime (2001) 3 NWLR (Pt. 527). In a trust declaration clause on the other hand, it makes the mortgagor a trustee of the mortgaged property in favour of the mortgagee. The mortgagee is also empowered to remove the mortgagor as trustee and appoint new trustees in the management of the mortgaged property – LCB Ltd. v. Goddard (1897) 1 CH. D. 642.

(iii)             Deed of statutory mortgage is also another form by which mortgage in the C. A States may be created. Section 26(1) of the Conveyancing Act states in part that “a mortgage of freehold or leasehold land may be made by a deed expressed to be made by way of statutory mortgage, being in the form given in Part I of the Third Schedule to this Act…” The form in the schedule may be modified as circumstances require. The major advantage of this method is that it is simpler to create and may be discharged by simple receipt; which turns out to be one of its disadvantage also since the receipt is not registrable and the mortgage may continue to be reflected in the register.

2.      Property and Conveyancing Law States – These are States in the Old Western Region of Nigeria namely – Oyo, Ogun, Osun, Ondo, Ekiti, Edo and Delta.

Section 108(1) of the PCL provides that a mortgage of an estate in fee simple shall only be capable of being effected at law either by a demise for a term of years absolute, subject to a provision for cesser on redemption, or by a charge by deed expressed to be by way of legal mortgage. Section 109 of the Law further provides that a mortgage for a term of years absolute shall only be capable of being effected at law either by a sub-lease for a term of years absolute less by one day at least the term vested in the mortgagor and subject to a provision for cesser on redemption, or by a charge by deed expressed to be by way of a legal mortgage. Legal mortgage under the PCL States can be created in the following ways:

(i)                 Demise is for a term of years absolute, subject to a provision of cesser upon redemption. Any purported conveyance of an estate in fee simple by way of mortgage shall operate as a demise of the land to the mortgagee for a term of years absolute, without impeachment for waste but subject to cesser on redemption – section 108(2) PCL. However, the creation of a legal mortgage even though sanctioned under the PCL is no longer possible because of the Land Use Act which provides that the greatest interest a person can have is a specified term of not more than ninety years (90 years). As a result of this, sub-demise is used for the creation of legal mortgage in the PCL States.

(ii)               Sub-demise or sub-lease must be at least one day shorter than the term of the lease which is being mortgaged otherwise it will operate as an assignment – section 109(1) PCL. The advantage of the sub-demise is that it allows for second and subsequent mortgages to be created on the lease. Further, where a mortgage is created by sub-demise under the PCL, the two remedial devices, that is, Power of Attorney and Declaration of Trust are not necessary because section 112 of the PCL grants the mortgagee the right to sell the property with the reversionary interest of the mortgagor where he defaults to pay the principal with interest.

(iii)             Legal Charge is another means by which a legal mortgage can be created in the PCL States – Section 108(1) of PCL. Section 110 of PCL provides that where a legal mortgage of land is created by a charge by deed expressed to be by way of legal mortgage, the mortgagee shall have the same protection, powers and remedies. The charge must be made by deed and not by writing; otherwise it shall have no legal effect. It must also be expressed to be by way of a legal mortgage. In law, the chargee has as much rights as the mortgagee. The charge gives the chargee similar rights as a mortgagee in the enforcement of payment of money loaned. The legal charge has the following advantages –

a.       The form of a legal charge is simple and short.

b.      It does not amount to a breach of covenant in a lease against the assignment and subletting, because the charge creates no actual sub-lease in favour of the mortgagee, but only gives him rights as if he had a sublease.

c.       It is discharged by a simple statutory receipt and not by a deed of release.

d.      It is a convenient way of mortgaging freeholds (where permitted) and leasehold together because the mortgage terms are not stated, but the properties are listed in the schedule with a statement that they are charged by way of a legal charge.

The disadvantage of the legal charge is that unlike the deed which creates it and is required to be registered, the receipt by which it is discharged is not registrable. The charge may then continue to appear against the property in the register as an encumbrance. Also, it does not carry any proviso for redemption since no interest is conveyed in the first place.

3.      Registration of Titles Law – Section 18 of the Registration of Titles Law (RTL) provides that the registered owner of land may in the prescribed manner charge the land or lease with the payment of money to the like extent as if the land was not registered land. The charge is completed by entry in the register of the particulars of the mortgagee and the registration of the charge in the Form 5 of the Land Registry.

Thus, the only way a legal mortgage can be created under this law is by a charge using Form 5.

The advantage is that it is simpler, speeder, and cheaper. The chargee has similar rights as a mortgagee under the C. A. States.

SEARCH REPORT

The search report depends on whether the borrower is a natural person or a company.

The search report should contain the following where the borrower is a natural person –

1.      Date of the search

2.      Name of the borrower

3.      Name of the person giving security, if different from borrowers

4.      Description of the property

5.      Name of the property

6.      Encumbrances (if any), Registrations and other adverse facts as may be observed from:

a)      Physical inspection of the land or building, that is, whether the property really exists and if it is vacant or occupied;

b)      The register at the land registry, that is, to obtain the details of the property in the lands registry of the State; and

c)      Government acquisition, that is, whether the property is within an area compulsorily acquired by government or proposed to be acquired.

The search report should contain the following where the borrower is a company and intends to use the property as security –

1.      Name of the company (borrower)

2.      Date of the search

3.      Date of incorporation

4.      Registration number

5.      Name and address of Shareholders of the company

6.      Particulars of company Directors

7.      Borrowing powers of the Company

8.      Any registered charge against the company’s assets

9.      Annual returns filed

10.  Encumbrances, if any.

CONSENT OF THE GOVERNOR FOR CREATING MORTGAGES

The consent of a Governor of a State where the land is situated must be sought and obtained – Section 22 of Land Use Act; Savannah Bank v. Ajilo (1989) 1 NWLR (Pt. 97) 305; Awojugbabe Light Industries Ltd. v. Chinukwe (1995) 4 SCNJ 162; (1995) 4 NWLR (Pt. 390) 379.

Where the land is subject to a customary right of occupancy, the consent of the appropriate local government is required so long as the transfer is not one subject to the Sheriff and Civil Process Law. Under this, section 21 states that “it shall not be lawful for any customary right of occupancy or any part thereof to be alienated by assignment, mortgage, transfer of possession, sublease or otherwise howsoever – (a) without the consent of the Governor in cases where the property is sold by or under the order of any court under the provisions of the applicable Sheriffs and Civil Process Law; or (b) in other cases without the disapproval of the appropriate Local Government.”

Failure to obtain the consent of the Governor before actual mortgage itself makes the transaction null and void – section 26 of Land Use Act.

The consent is only required where the legal interest is transferred and not for an agreement to transfer the interest.

The consent of the Governor is also not required for creation of debentures, since a deed of debenture is a charge on the floating assets of a company and not a charge on the land which requires the consent of the Governor – Nig. Ind. Dev. Bank Ltd. v. Olalomi Ind. Ltd. (2002) FWLR (Pt. 98) 995.

The consent of the Governor is required by law to be granted by him although he can delegate his authority for granting consent to a State Commissioner. In U. B. N Plc v. Ayodare & Sons Nig. Ltd. (2007) All FWLR (Pt. 383) 1 at 23, the Supreme Court, per Oguntade JSC, stated that “… section 22 of the Act postulates that the Governor, shall sign the letter granting consent …” In Union Bank Nig. Plc. Ishola (2002) FWLR (Pt. 100) 1253, the court held that where the Governor’s power to grant consent are properly delegated vide a legal notice to the State Commissioner for Housing and Environment who was in charge of land matter, the consent granted by the latter to the mortgage transaction was proper and valid.

It should be noted that where the approval for consent is to be granted to a mortgagee, the Governor should try and sign the letter. Where however the Governor grants the consent through his delegate (a State Commissioner), the Commissioner must convey the approval under his hand and not under the hand of another state official. In Federal Mortgage bank Plc. v. Babatunde (2000) FWLR (Pt. 3) 385, the court held that there is no evidence to show that the Governor delegated his powers under the Act to any body, let alone to the Permanent Secretary, Ministry of Works, Lands, Housing and Environment, Kwara State on whose behalf the letter of approval was written.

It is the duty of the mortgagor to apply for the grant of the consent of the Governor and not the mortgagee. A common problem in mortgagees is where the mortgagor has collected the money, deposited the title deeds and executed the mortgage documents with the expectation that he will apply for the consent of the Governor, but only to turn round and alleges that the consent was not obtained or even to frustrate the grant of the consent – Ugochukwu v. C. C. B (2000) 1 NLLC 361 at 383; Union Bank of Nig. Plc v. Orharhuge (2000) 2 NWLR (Pt 645) 795. The courts have held that such person would not be allowed to turn round and claim that because the consent was not obtained, the transaction was null and void. However in practice, it is the mortgagee that seeks for the consent since he is the one that stands to lose if the mortgage is set aside for lack of consent.

The most important documents required to procure the consent of the Governor are:

1.      Application for consent by way of written letter or a duly completed consent form.

2.      Duly executed deed conveying the agreement between the two parties.

3.      Tax clearance certificate of the parties.

4.      Receipts of payment of ground rent, consent fee, inspection fee, tenement rate and other charges imposed on the property.

SAMPLE OF A SEARCH REPORT

From: …………………………………………………. (name of the person making the report).

To: …..………………………………………………. (name of the person who needs the report).

Location of the property: ……………………………….……………. (address of the property).

Title No. of the property: ……………………………….... (Registered Title No. or C of O No.)

Date of the search: …………………………………………………. (date)

Place of the search: ………………………………………… (land registry, probate registry, etc)

Name of registered owner: …………………………………………. (name)

Nature of interest of registered owner: …………………………………. (nature of interest)

Existing encumbrance(s) on the property (if any): ……………………………………….

Observations and comments by the Solicitor: ……………………………………………

Any other comment: ………………………………………………………………………

____________________

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Barr, Ezekiel Victor has many years experience in providing legal representation and advising clients across an exceptionally broad range of contentious and non-contentious matters. His main goal is to help clients resolve any contentious or non-contentious legal problem they are having rapidly and cost effectively.

Email: victorezekielc@gmail.com

Tel: +2348034997413

CREATION OF EQUITABLE MORTGAGE UNDER THE NIGERIAN LAW

BARR, CHIGOZIE EZEKIEL

This is the same all over Nigeria. Thus, there is uniformity in creating equitable mortgage. It may be created orally, or in writing, or by conduct. However, there are several methods of creating equitable mortgage viz:
1.      Deposit of the deed – There must be an intention that the deposit must serve as security for the mortgage. Thus, once the delivery of title deed is accompanied with a clear intention that the title deed should be taken or retained as security; it shall amount to the creation of equitable mortgage. The practice is that the mortgagor executes a memorandum of deposit that contains the terms of the loan (that is, the amount, interest, date of repayment, nature of the security, etc). The memorandum of deposit under hand or as a deed, but as a deed is better because it has the advantage of conferring on the lender (the bank) the statutory power of sale of the mortgaged property notwithstanding that the bank is an equitable mortgagee provided that the memorandum contains any, or all of the power of attorney clause and the trust device.(click on the pictures on left or right hand sides for more insights)
2.      Agreement to create a legal mortgage – The owner of a legal estate may agree in writing in addition to deposit of title deeds, to create a legal mortgage in favour of a creditor. In such instances, once the lender advances the money whether the agreement is under seal or under hand, equitable mortgage is created. This is based on the principle that equity regards as done that which ought to be done – Walsh v. Lonsdale (1882) 21 Ch. D. 9. The equitable mortgagee can enforce the agreement by an action in equity for specific performance – Yaro v. Arewa Construction Ltd (2008) All FWLR (Pt. 400) 603; Carter v. Wake (1877) 4 CH. D. 605; Ogundiani v. Araba (1978) 1 LRN 280.
3.      Equitable charge of the mortgagor’s property – This is a mere charge or lien in the property. Mere equitable charge of the mortgagor’s property does not create an estate (proprietary right) which may rest in the mortgagee by way of specific performances, but merely gives a right to payment of the property. The security in this instance can only be realized through sale or appointment of a receiver under an order of court – Ogundiani v. Araba (supra).
4.      Equitable mortgage of registered land – Under the Registration of Titles Law, equitable mortgages can be created by the deposit of Certificate of Title and completing and filing Form 15 in the 1st Schedule under section 58 of the Registration of Titles Law.
Mortgage of equitable interest – Where the interest of a mortgagor over a property is only equitable, the only interest he can mortgage over such property is equitable and not legal. That is, a holder of an equitable interest can only create an equitable mortgage on the interest he holds. EQUITABLE MORTGAGE
This is a mortgage that confers equitable interest on the mortgagee. It is a mortgage created under the rules of equity.
ADVANTAGES OF EQUITABLE MORTGAGE
Small amount – Equitable mortgage is good for a loan of small amount, that is, where the loan is for a small amount, it is better to secure the loan by equitable mortgage which is cheaper than a legal mortgage in terms of perfection.
Short period of payment – Equitable mortgage is good for a short term loan, that is, where the period of repayment is for a short period, equitable mortgage is better because it is easier and quicker to achieve than the legal mortgage.

Barr, Ezekiel chigozie has many years experience in providing legal representation and advising clients across an exceptionally broad range of contentious and non-contentious matters. His main goal is to help clients resolve any contentious or non-contentious legal problem they are having rapidly and cost effectively.

Tel: +2348034997413

CORPORATE SOVEREIGNTY UNDER THE NIGERIAN LAW

        
Barr, Chigozie Ezekiel.
victorezekielc@gmail.com

 

The principle of corporate sovereignty is such that the courts will not interfere in the internal affairs of a company, because it should be within the competence of most of the shareholders to determine their company's course and direction.

This is also known as the majority rule which is in line with the rule in Foss v. Harbottle.

THE SCOPE OF THE RULE IN FOSS v. HARBOTLE (1843) 2 HARE 461

The facts of the case is that F. and T. were shareholders in a company which was formed to buy land for use as a pleasure park. The defendants were the other directors and shareholders of the company. F. and T. alleged that the defendants had defrauded the company in various ways, and in particular that certain of the defendants had sold land belonging to them to the company at an exorbitant price. F. and T. now asked the court to order that the defendants make good the losses to the company.

The Court held that since the company’s Board of Directors was still in existence, and since it was still possible to call a general meeting of the company, there was nothing to prevent the company from obtaining redress in its corporate character and that the action of F. and T. could not be sustained.

The Rule is that in an action to remedy any wrong done to the company or where irregularity has been committed in the course of a company’s affairs the proper plaintiff is prima facie the company itself – section 299 of Companies and Allied Matters Act (CAMA) Cap. C20 LFN, 2004. Also, where the alleged wrong is an irregularity which might be made binding on the company by a simple majority of members, no individual member can bring an action in respect of the irregularity – Edwards v. Halliwell (1950) 2 All ER 1064, Per Jenkins L. J. Also, in Abubakari v. Smith (1973) 6 SC 31, where the Supreme Court held that based on the rule in Foss v. Harbottle, the action must fail as the claimant sued in a personal capacity and did not join the association, as it was the association that should have been sued and not individuals; Yalaju - Amaye v. Associated Registered Engineering Contractors Ltd. [1990] 4 NWLR (Part 145) 422; Edokpolor and  Co. Ltd. v. Sem-Edo Wire Industries Ltd. (1984) 15 NSCC 553.

The rule is also concerned with the procedure for the enforcement of the right of a company. The rule is sequel to the corporate personality principle that the company is separate and distinct from the members. Thus, where a wrong is done to the company by the directors, members or even outsiders, the company is the proper party to bring an action to remedy the alleged wrong. A shareholder or minority shareholders that have brought an action on behalf of the company cannot sustain the action by operation of the rule except it falls within any of the exceptions.

The rule is otherwise known as the majority rule because in deciding whether or not sue for an alleged wrong done to the company, it is the majority that decides and not the minority and the decision of the majority represents that of the company.

However, powers of the majority rule extend to every facet of the company’s affairs.  The majority of members have power to:

1.      Alter the Memorandum and Articles of Association of the company.

2.      They appoint and dismiss the directors.

3.      If they so desire, they can put an end to the business.

The rule has been held to apply not only to incorporated bodies but also to unincorporated associations. It was accordingly applied to trade unions in Cotter v. National Union of Seamen (1929) 2 CH. 58; and Mbene v. Ofili (1968) 1 ALR COMM. 235 on the ground that it was a body possessing a Constitution or a set of rules and regulations entitling it to sue and be sued as a legal entity.

JUSTIFICATION OF THE RULE

Several justifications have been put forward for the rule, but the following may be noted –

1.      The reluctance of the court to interfere in the internal affairs of the company. The courts would leave any irregularity to be corrected by the majority of members of the company when such irregularity relates to the internal affairs of the company.

2.      The rule avoids multiplicity of suits. Any suit at the instance of the minority and no matter how meritorious is wasteful as long as the majority members do not support it. Thus, the court will not interfere with irregularities at meetings at the instance of a shareholder – MacDougall v. Gardiner (1875) 1 Ch. D. 13, where a minority action was rejected because if there was a wrong committed by the chairman, the proper plaintiff was the company.

3.      The court should allow the will of the majority within a company to prevail as against that of the minority. If the management of the company is subjected to the whims and caprices of the minority, the internal management of the company will be very difficult. Thus, the minority must always be guided by the actions of the majority. The practice makes for good democracy in the corporate management.

4.      Since the company is separate and distinct from the members, any wrong committed against the company should be remedied by the company acting through the majority.

5.      Finally, the rule is justified on the ground of judicial policy which emphasizes that the courts will normally not judge intra-corporate disputes, if the majority of the shareholders decide that the matter will not be made a subject of litigation.

The rule has been applied to a number of cases in Nigeria. For example, Nigeria Stores Workers Union v. Uzor (1971) 2 ALR (Comm) 412; Omisade v. Akande (1987) 2 NWLR (Pt. 55) 158; and most especially in Tikatore Press Ltd. v. Abina (1973) 1 All NLR 401, where the directors of a company allotted shares to themselves following the death of the majority shareholder to enable them gain control of the company by becoming the majority shareholders. The administrator of the deceased shareholder sought a declaration that the allotment was ultra vires and therefore of no effect. The court upheld the argument of the defendant’s counsel that though the allotment was ultra vires, but the action of the directors was an internal irregularity which the majority could either ratify or overlook.

EXCEPTIONS TO THE RULE IN FOSS v. HARBOTTLE

This is provided for under section 300 of CAMA, which deals with cases of minority protection. Thus under the exceptions, a single shareholder can challenge the action of the majority to redress a wrong committed on the company or which has negatively affected the rights of the minority shareholders.

The exceptions are as follows –

1.      Illegal or ultra vires transaction or act – A minority shareholder or an individual can sue or restrain an ultra vires transaction. He can also seek for a declaration that an act of the directors is more than a mere irregularity which the company can ratify through the majority – section 300(a) of CAMA. In Parke v. Daily News [1962] All ER 929; [1962] Ch 927; [1962] 3 WLR 566, Majority shareholders wanted to share an asset belonging to the company. After, the sale, they wanted to distribute the proceeds among employees being laid off. The minority shareholder went to court to seek a declaration that the gift to the employees who were to be redundant was an ultra vires gift, and the company was restrained.

2.      Doing an act required to be done by a special majority or a simple majority – If the constitution of the company or the Act requires an act to be carried out by a special majority, for example, through a special resolution; if the act is done by a simple majority through an ordinary resolution, the minority can bring an action to remedy the breach of the Articles or provisions of the Act – section 300(b) of CAMA. In Baillie v. Oriental Telephone Co. (1915) 1 Ch. 503, an action brought by a minority shareholder was allowed to restrain a company from acting on a special resolution of which an insufficient notice had been given.

3.      Where an act or omission affects the personal rights of a member – This is under section 300(c) of CAMA. The section is a restatement of the common law position whereby if the personal and individual rights of membership have been invaded, the rule has no application. Where the individual rights of members have been infringed by the company or the directors by an act or omission, of course, such a member(s) can bring an action seeking for redress – Pender v. Lushington (1877) 6 Ch. D 70, where an action was brought by a shareholder whose vote was rejected on behalf of himself and all others who had voted for him for an injunction to restrain the directors from acting on the footing of the votes being bad. The court held that the plaintiffs were entitled to an injunction to restrain the company from acting on the resolution.

It should, however, be noted that section 301 of CAMA provides that if the application is granted, such aggrieved member shall not be entitled to damages but to declaration or injunction restraining the company from doing a particular act.

4.      Fraud on the Minority or the Company – If fraud is committed on the company or the minority shareholders and the directors fail to take an appropriate action to redress the wrong, the minority can maintain an action against the directors or the company. The act complained of need not involve actual commission of fraud – section 300(d) of CAMA. In Cook v. Deeks (1916) 1 A. C 554, a minority shareholders action was allowed to compel the directors to account to the company for the profits made out of a construction contract, which they took in their own names. Also, in Daniels v. Daniels (1978) 2 All ER 89, the minority shareholders of a company were allowed to bring an action against the company and the directors where the directors had authorized the sale of a company land to one of them at a price alleged to be below the market value. Lastly, in Prudential Assurance Co. Ltd. v. Newman Industries Ltd (No. 2) (1982) Ch. 204, a minority shareholder’s action was allowed against a fraudulent conspiracy of two directors of the company in inducing the company to buy shares of another company at an over valued price.

5.      Where a company meeting cannot be called in time – A minority action is allowed where a company’s meeting cannot be called in time to be of practical effect to redress a wrong done to the company – section 300(e) of CAMA. This exception was given judicial imprimatur (approval) in the case of Hodgson v. National & Local Government Officers Association (1972) 1 WLR 130, where it was held that where a company meeting cannot be called in time to be of practical effect to redress a wrong done to the company or to a minority, action on behalf of the company or individual shareholder will lie.

6.      Where the directors are likely to derive a profit or a benefit (section 300(f) of CAMA) – A minority action is maintainable 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. It was held in Daniels v. Daniels (supra), that an action would lie against directors who have profited from their negligence, even if fraud is not proved. Also, in Alexander v. Automatic Telephone Co. (1900) 2 Ch. 56, a minority action was allowed where the directors benefited from a breach of their duty, even though fraud was negative or not proved.

Persons that can sue as members under sections 300 and 301 of CAMA include the personal representative of a deceased member and any person to whom shares have been transferred or transmitted by operation of law – section 302(a) & (b).

RELEVANT PETITIONS TO CAC, RESOLUTIONS AND COURT PROCESSES RELATING TO THE INSTITUTION OF MINORITY ACTIONS AT THE FEDERAL HIGH COURT

Derivative Action

Application may be made to court for leave to bring an action in the name or on behalf of the company or to intervene in an action to which the company is a party for the purpose of prosecuting, defending or discontinuing the action on behalf of the company – sections 303 – 309  of CAMA.

In connection with an action brought or intervened under section 303 of CAMA, the court may at any time make any such order or order, as it thinks fit – section 304 of CAMA.

Relief on Grounds of Unfairly Prejudicial and Oppressive Conduct

A member who alleges that the affairs of the company are being conducted in a manner oppressive or unfairly prejudicial to a member or members may apply to court for relief by petition – section 310, and section 311 of CAMA; Ijale Properties Ltd. v. Omololu-Mulele [2000] FWLR (Pt. 5) 709. In this case, the allegation was by minority shareholder, and the minority shareholders stated that since the company was incorporated, they had not held a single meeting, not filed returns, no auditors or company secretary. The court held that this was a clear case were section 311 of CAMA could be invoked as a basis of action.

It should be noted that the same powers under section 311 are conferred on personal representative and also, the CAC may petition the court on the grounds.

Under section 312, one can ask for a specific order or a general order (omnibus order) to control how the company will run in the future. The court may regulate the company's affairs for the future.

The court may restrain the doing of or the continuing of prejudicial acts. Or order the doing of a specific thing. The court may direct an investigation to be made by CAC that the company be wound up.

There are 3 capacities in which an action can be brought:

1.      Personal;

2.      Representative; and

3.      Derivative.

An aggrieved minority can bring one action or combine the three types of actions i.e. personal, derivative and representative actions.

FINANCIAL STATEMENTS

The financial statements of a company are its bills of health. The financial statements show the annual state of affairs of the company and they are vital and of crucial importance not only to members of the company but also to third parties dealing with it.

The financial statements enable a member to know if his investments are growing or depreciating and whether to sell off or retain his shares in the company; the statements also provide a potential investor with information which would either persuade him to invest or dissuade him from investing in a particular company.

DUTY TO PREPARE FINANCIAL STATEMENTS

The directors must, in respect of each financial year of a company, prepare financial statements for the year – section 334(1) of CAMA. This includes –

(a)    Statement of the accounting policies;

(b)   The balance sheet as the last day of the financial year;

(c)    A profit and loss account or, in the case of a company not trading for profit an income and expenditure account for the financial year;

(d)   Notes on the accounts;

(e)    The auditor’s report;

(f)    The director’s report;

(g)   A statement of the source and application of fund;

(h)   A value added statement for the financial year;

(i)     A five year financial summary; and

(j)     In the case of a holding company, the group financial statement – section 334(2) of CAMA.

FINANCIAL STATEMENTS OF A PRIVATE COMPANY

A financial statement of a private company need not include the following –

1.      Statement of the accounting policies;

2.      Statement of the source and application of fund;

3.      Value added statement for the financial year; and

4.      A five year financial summary – section 334(3) of CAMA.

PUBLICATION OF FINANCIAL STATEMENTS

A company publishes its financial statements when the financial statements laid before the company in general meeting are delivered to the Commission and section 354 indicates that a company publishes its full account when the complete statements laid before the company in general meeting are also those delivered to the Commission.

However, where a company is entitled to publish abridged financial statements, it needs to publish only the balance sheet or profit and loss account, otherwise than as part of full financial statements to which section 354 applies – section 355(1) of CAMA.

Where a company publishes full financial statements, it must publish the relevant auditor’s report with them – section 354(2) of CAMA, and where appropriate, its group financial statements – section 354(3) and (4) of CAMA.

DUTY TO LAY AND DELIVER FINANCIAL STATEMENTS

In respect of each year, the directors must at a date not later than eighteen (18) months after incorporation of the company and subsequently once at least in every year, lay before the company in general meeting copies of the financial statements of the company made up to a date not exceeding nine (9) months previous to the date of the meeting – section 345(1) of CAMA.

In respect of each year, the directors shall deliver with the annual return to the Commission a copy of the balance sheet, the profit and loss account and the notes on the statements which were laid before the general meeting – section 345(3) of CAMA.

A company’s balance sheet and every copy of it which is laid before the company in general meeting or delivered to the Commission shall be signed on behalf of the board by two of the directors of the company – section 343(1) of CAMA.

 

 

PERSONS ENTITLED TO RECEIVE FINANCIAL STATEMENT

A copy of the company’s financial statements for the financial year must, not less than twenty-one (21) days before the date of the meeting at which they are to be laid, be sent to each of the following persons –

1.      Every member of the company (whether or not so entitled);

2.      Every holder of the company’s debentures (whether or not so entitled); and

3.      All persons other than members and debenture holders, being persons so entitled – section 344(1)(a)(b) & (c) of CAMA.

In the case of a company not having a share capital, a copy of financial statement may not be sent to a member who is not entitled to receive notices of general meetings of the company, or to a holder of the company’s debentures who is not so entitled – section 344(2) of CAMA.

AUDITORS

The position of auditors is very important in a company. An auditor has enormous powers under the Act. His position and duties are meant to safeguard the interests of the company and investors by certifying compliance with the provisions of the law in relation to preparation of accounts and others.

Where the company operates in contravention of the laws and basic accounting principles or rules recognized by the Act, the auditor may qualify his statutory report or even refuse to certify the accounts.

However, the Act does not define an auditor.

APPOINTMENT OF AUDITORS

The Act requires every company to appoint an auditor or auditors at each general meeting to audit the financial statement of the company and to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting – section 357(1) of CAMA; Avop Plc. v. A. G Enugu State (2000) 7 NWLR (Pt. 644) 260 at 276.

He is appointed for the purpose of carrying out a private audit on the activities of the company and to make his comments thereon – R. v. Shacter (1960).

A retiring auditor may be re-appointed at an annual general meeting without passing any resolution to that effect unless he is not qualified for re-appointment or a resolution has been passed at that meeting appointing another person or that he shall not be appointed at all or if he has given a notice in writing to the company that he is unwilling to be appointed – section 357(2) of CAMA.

The directors of a company have the power to appoint a person as an auditor to fill a vacancy where no auditor is appointed or re-appointed – section 357(3) of CAMA.

The company at a general meeting may remove any auditor so appointed by directors and appoint in their place any other persons who have been nominated for appointment by any member of the company and of whose nomination notice has been given to the members of the company not less than fourteen (14) days before the date of the meeting – section 357(5) of CAMA.

The first auditors may also be appointed by the company in general meeting if the directors fail to exercise their power to appoint the first auditors – section 357(5)(b) of CAMA.

A person is only qualified to be appointed an auditor if he is a member of a body of accountants established under an Act of the National Assembly in Nigeria – section 358(1) of CAMA. However, an officer or servant of the company, a person or a firm who offers professional services to the company in respect of taxation, secretarial or financial management and a body corporate are disqualified from being appointed as auditors of the company – section 358(2) of CAMA.

Any person who knowingly acts as an auditor in contravention of the Act is guilty of an offence and liable to pay a fine of N500 and, for continued contravention, to a daily default fine of N50 – section 358(6) of CAMA.

DUTIES OF AUDITORS

This is provided for under section 360 of CAMA. The duties of the auditor generally depend on the provisions of the Act and the Articles of the company. The duties are as follows –

1.      He has a duty to write a report in form of an audit report on the accounts of the company as examined by him.

2.      He has a duty to carry out proper investigations to enable him form an opinion on the proper accounting records that have been kept by the company and whether the company’s balance sheet and profit and loss account are in agreement with the accounting records and returns.

3.      He has a duty to include in his report particulars of non-compliance with the provisions of the Act concerning preparation and presentation.

4.      He has a duty to consider the directors report and say whether or not the report is consistent with the accounts for the period to which the report relates.

5.      He has a duty to report to the members of the company and the audit committee, in case of a public company, on the accounts examined by him.

6.      He has a duty to ascertain and state the true financial position of the company by an examination of the books of the company – Re London & General Bank (No. 2) (1895) 2 Ch. 673, per Lindley L. J; Leeds Estate Co. v. Shepherd (1887) 36 Ch. D 787.

7.      He has a duty to act honestly and with reasonable care and skill. He must be honest and display a reasonable degree of skill and care in the performance of his duties – Re Kingston Cotton Mill Co. (No. 2) (1896) 2 Ch. 279 at 288.

LIABILITY OF AUDITORS

An auditor will be liable for his negligent acts which have resulted in a loss or damage of the company – section 368(2) of CAMA.

However, an auditor will not be liable for negligence when a fraud has been committed through a well-laid out scheme which did not arouse any suspicion on the part of the auditor to make further or better investigations – Re City Equitable Fire Insurance Co. Ltd (1925) Ch. 407. In Re Kingston Cotton Mill (supra) at 683, per Lopez L. J, it was stated that the auditors are not liable for not tracking out ingenious and carefully laid schemes of fraud where there is nothing to arouse their suspicion.

REMOVAL OF AUDITORS

An auditor may be removed by the company at any time before the expiration of his term by an ordinary resolution of the company. He can be removed in the foregoing manner not withstanding anything to the contrary in any agreement between him and the company – section 362(1) of CAMA.

When an auditor has been removed, the company has a duty to give notice of his removal to the Corporate Affairs Commission within fourteen (14) days of the passing of the resolution leading to the removal of the auditor. Failure to do so makes the company and its officer who is in default guilty of an offence and liable to a daily fine of N100 – section 362(2) of CAMA.

Any auditor so removed shall not be deprived of any compensation or damages that he may be entitled to by reason of the termination of his appointment as an auditor.

AUDIT COMMITTEE

Section 359(3) of CAMA provides that in addition to the report made to the members of the company on its accounts, the auditors shall in the case of a public company, also make reports to an Audit Committee which shall be established by the public company. Thus, it is only required in a public company.

It can be said that the institution of Audit Committees is part of the continuous effort to balance the interest of the shareholders and the public on the one hand against those of the board and management on the other hand.

However, it is advisable that the committee should not act as a barrier between the auditors and the executive directors of the board or encourage the board to abdicate its responsibility in reviewing and approving the financial statements.

It should also not be under the influence of any dominant personality on the board; neither should it get in the way of or obstruct executive management.

The main duty of Audit Committee is to examine the auditor’s report and make recommendations thereon to the annual general meeting as it may think fit – section 359(4) of CAMA.

COMPOSITION OF AUDIT COMMITTEE

The Audit Committee shall consist of an equal number of directors and representatives of shareholders of the company (subject to a maximum number of six (6) members) – section 359(4) of CAMA.

The Audit Committee should be composed of strong and independent persons with not more than one (1) executive.

A member should, inter alia, be able to read and understand basic financial statements and be capable of making valuable contributions to the committee.

A majority of the non-executives should be independent of the company, that is, independent of management and free from any business or other relationships which could materially interfere with the exercise of their independent judgment as members of the committee.

The chairman should be a non-executive director, to be nominated by members of the committee. The term should be fixed and definite but a member may be re-elected.

The company secretary shall be the secretary of the committee.

FUNCTIONS OF AUDIT COMMITTEE

This is provided for under section 359(6) of CAMA which provides thus:

“Subject to such other additional functions and powers that the company’s articles of association may stipulate, the objectives and functions of the audit committee shall be to –

a)      Ascertain whether the accounting and reporting policies of the company are in accordance with legal requirements and agreed ethical practices;

b)      Review the scope and planning of audit requirements;

c)      Review the findings on management matters in conjunction with the external and departmental responses thereon;

d)     Keep under review the effectiveness of the company’s system of accounting and internal control;

e)      Make recommendations to the Board in regard to the appointment, removal and remuneration of the external auditors of the company; and

f)       Authorize the internal auditor to carry out investigations into any activities of the company which may be of interest or concern to the committee.

ANNUAL RETURNS

Every company either limited by shares or guarantee, is required to make and deliver to the Commission annual returns in the prescribed form – section 370 of CAMA. However, a company may not make and deliver annual returns if it is the year of incorporation of the company or is not to hold an annual general meeting in the following year under section 213 of CAMA.

The annual returns must be accompanied by a certified copy of the balance sheet and profit and loss account of the company as laid before the general meeting, the report of the auditors on, and of the report of the directors – section 375 of CAMA.

Private companies are required to submit their annual returns together with a certificate signed by both the director and the secretary to the effect that since the last annual return or incorporation in case of a new company, the company had not issued any invitation to the public to subscribe to any of her shares or debentures – section 376(1) of CAMA.

Non-compliance with the provisions relating to the filing of annual returns makes the company, every director or officer of the company guilty of an offence and liable to pay a fine of N1,000 in the case of a public company, and N100 in the case of a private company – section 378 of CAMA.

Obama's inaugural speech: The full text

Vice President Biden, Mr. Chief Justice, Members of the United States Congress, distinguished guests, and fellow citizens:
Each time we gather to inaugurate a president, we bear witness to the enduring strength of our Constitution.  We affirm the promise of our democracy.  We recall that what binds this nation together is not the colors of our skin or the tenets of our faith or the origins of our names.  What makes us exceptional - what makes us American - is our allegiance to an idea, articulated in a declaration made more than two centuries ago:

President Barack Obama delivers his second inaugural speech, discussing how as a country we will move together, and that "America's possibilities are limitless."
"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are Life, Liberty, and the pursuit of Happiness."
Today we continue a never-ending journey, to bridge the meaning of those words with the realities of our time.  For history tells us that while these truths may be self-evident, they have never been self-executing; that while freedom is a gift from God, it must be secured by His people here on Earth.  The patriots of 1776 did not fight to replace the tyranny of a king with the privileges of a few or the rule of a mob.  They gave to us a Republic, a government of, and by, and for the people, entrusting each generation to keep safe our founding creed.
For more than two hundred years, we have.
Through blood drawn by lash and blood drawn by sword, we learned that no union founded on the principles of liberty and equality could survive half-slave and half-free.  We made ourselves anew, and vowed to move forward together.
Together, we determined that a modern economy requires railroads and highways to speed travel and commerce; schools and colleges to train our workers.
Together, we discovered that a free market only thrives when there are rules to ensure competition and fair play.
Together, we resolved that a great nation must care for the vulnerable, and protect its people from life's worst hazards and misfortune.
Through it all, we have never relinquished our skepticism of central authority, nor have we succumbed to the fiction that all society's ills can be cured through government alone.  Our celebration of initiative and enterprise; our insistence on hard work and personal responsibility, are constants in our character.
But we have always understood that when times change, so must we; that fidelity to our founding principles requires new responses to new challenges; that preserving our individual freedoms ultimately requires collective action.  For the American people can no more meet the demands of today's world by acting alone than American soldiers could have met the forces of fascism or communism with muskets and militias.  No single person can train all the math and science teachers we'll need to equip our children for the future, or build the roads and networks and research labs that will bring new jobs and businesses to our shores.  Now, more than ever, we must do these things together, as one nation, and one people.
This generation of Americans has been tested by crises that steeled our resolve and proved our resilience.  A decade of war is now ending.  An economic recovery has begun.  America's possibilities are limitless, for we possess all the qualities that this world without boundaries demands:  youth and drive; diversity and openness; an endless capacity for risk and a gift for reinvention.   My fellow Americans, we are made for this moment, and we will seize it - so long as we seize it together.
For we, the people, understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it.  We believe that America's prosperity must rest upon the broad shoulders of a rising middle class.  We know that America thrives when every person can find independence and pride in their work; when the wages of honest labor liberate families from the brink of hardship.  We are true to our creed when a little girl born into the bleakest poverty knows that she has the same chance to succeed as anybody else, because she is an American, she is free, and she is equal, not just in the eyes of God but also in our own.
We understand that outworn programs are inadequate to the needs of our time.  We must harness new ideas and technology to remake our government, revamp our tax code, reform our schools, and empower our citizens with the skills they need to work harder, learn more, and reach higher.  But while the means will change, our purpose endures:  a nation that rewards the effort and determination of every single American.  That is what this moment requires.  That is what will give real meaning to our creed. 
We, the people, still believe that every citizen deserves a basic measure of security and dignity.  We must make the hard choices to reduce the cost of health care and the size of our deficit.  But we reject the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future.  For we remember the lessons of our past, when twilight years were spent in poverty, and parents of a child with a disability had nowhere to turn.  We do not believe that in this country, freedom is reserved for the lucky, or happiness for the few.  We recognize that no matter how responsibly we live our lives, any one of us, at any time, may face a job loss, or a sudden illness, or a home swept away in a terrible storm. The commitments we make to each other - through Medicare, and Medicaid, and Social Security - these things do not sap our initiative; they strengthen us.  They do not make us a nation of takers; they free us to take the risks that make this country great.
We, the people, still believe that our obligations as Americans are not just to ourselves, but to all posterity.  We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations.  Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms.  The path towards sustainable energy sources will be long and sometimes difficult.  But America cannot resist this transition; we must lead it.  We cannot cede to other nations the technology that will power new jobs and new industries - we must claim its promise.  That is how we will maintain our economic vitality and our national treasure - our forests and waterways; our croplands and snowcapped peaks.  That is how we will preserve our planet, commanded to our care by God.  That's what will lend meaning to the creed our fathers once declared.
We, the people, still believe that enduring security and lasting peace do not require perpetual war.  Our brave men and women in uniform, tempered by the flames of battle, are unmatched in skill and courage.  Our citizens, seared by the memory of those we have lost, know too well the price that is paid for liberty.  The knowledge of their sacrifice will keep us forever vigilant against those who would do us harm.  But we are also heirs to those who won the peace and not just the war, who turned sworn enemies into the surest of friends, and we must carry those lessons into this time as well.
We will defend our people and uphold our values through strength of arms and rule of law.  We will show the courage to try and resolve our differences with other nations peacefully - not because we are naïve about the dangers we face, but because engagement can more durably lift suspicion and fear.  America will remain the anchor of strong alliances in every corner of the globe; and we will renew those institutions that extend our capacity to manage crisis abroad, for no one has a greater stake in a peaceful world than its most powerful nation.  We will support democracy from Asia to Africa; from the Americas to the Middle East, because our interests and our conscience compel us to act on behalf of those who long for freedom.  And we must be a source of hope to the poor, the sick, the marginalized, the victims of prejudice - not out of mere charity, but because peace in our time requires the constant advance of those principles that our common creed describes:  tolerance and opportunity; human dignity and justice.
We, the people, declare today that the most evident of truths - that all of us are created equal - is the star that guides us still; just as it guided our forebears through Seneca Falls, and Selma, and Stonewall; just as it guided all those men and women, sung and unsung, who left footprints along this great Mall, to hear a preacher say that we cannot walk alone; to hear a King proclaim that our individual freedom is inextricably bound to the freedom of every soul on Earth.

It is now our generation's task to carry on what those pioneers began.  For our journey is not complete until our wives, our mothers, and daughters can earn a living equal to their efforts.  Our journey is not complete until our gay brothers and sisters are treated like anyone else under the law - for if we are truly created equal, then surely the love we commit to one another must be equal as well.  Our journey is not complete until no citizen is forced to wait for hours to exercise the right to vote.  Our journey is not complete until we find a better way to welcome the striving, hopeful immigrants who still see America as a land of opportunity; until bright young students and engineers are enlisted in our workforce rather than expelled from our country.  Our journey is not complete until all our children, from the streets of Detroit to the hills of Appalachia to the quiet lanes of Newtown, know that they are cared for, and cherished, and always safe from harm.
That is our generation's task - to make these words, these rights, these values - of Life, and Liberty, and the Pursuit of Happiness - real for every American.  Being true to our founding documents does not require us to agree on every contour of life; it does not mean we will all define liberty in exactly the same way, or follow the same precise path to happiness.  Progress does not compel us to settle centuries-long debates about the role of government for all time - but it does require us to act in our time.
For now decisions are upon us, and we cannot afford delay.  We cannot mistake absolutism for principle, or substitute spectacle for politics, or treat name-calling as reasoned debate.  We must act, knowing that our work will be imperfect.  We must act, knowing that today's victories will be only partial, and that it will be up to those who stand here in four years, and forty years, and four hundred years hence to advance the timeless spirit once conferred to us in a spare Philadelphia hall.
My fellow Americans, the oath I have sworn before you today, like the one recited by others who serve in this Capitol, was an oath to God and country, not party or faction - and we must faithfully execute that pledge during the duration of our service.  But the words I spoke today are not so different from the oath that is taken each time a soldier signs up for duty, or an immigrant realizes her dream.  My oath is not so different from the pledge we all make to the flag that waves above and that fills our hearts with pride.
They are the words of citizens, and they represent our greatest hope.
You and I, as citizens, have the power to set this country's course.
You and I, as citizens, have the obligation to shape the debates of our time - not only with the votes we cast, but with the voices we lift in defense of our most ancient values and enduring ideals.
Let each of us now embrace, with solemn duty and awesome joy, what is our lasting birthright.  With common effort and common purpose, with passion and dedication, let us answer the call of history, and carry into an uncertain future that precious light of freedom.
Thank you, God Bless you, and may He forever bless these United States of America.

Shocker : Boko Haram denies killing Major General Shuwa

Boko Haram yesterday said it was not responsible for the killing of retired Gen Mamman Shuwa in Maiduguri last weekend. The group had insisted that it has no hand in the killing of the retired General.
In a telephone conference conducted yesterday in Maiduguri by Mohammed Ibn Abdulaziz, one of the sect commanders who has been speaking on behalf of the sect, maintained it was not responsible for the killing even as he warned those putting the killing at the doorstep of the sect to desist from doing so.
“We heard that people are saying that we had hand in the killing of Gen Shuwa. I want the people to know that we didn’t have any problem with the man. We don’t have anything against him. He is (was) a respected person and has not offended us in any way. We have no hand in his killing. We were even surprised when we heard about the incident. We want to warn those who are using our names to do this thing to stop and we also warn those who are also spreading the rumour that Jama’atu Ahlis Sunna Lidda’awati wal-Jihad killed Gen Shuwa to stop it because we are not the ones that did it,” Abdulaziz insisted.

source  Daily trust
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