Regulatory agencies

Internal restructuring: CAC- CAMA

External restructuring: SEC, ISA , FHC rules 

 

Restructuring options

Broadly:

Internal restructuring

• Involves one company alone
• Internal restructuring usually precede external restructuring

 

External Restructuring

• Involves another company

 

A company may go through some restructuring not only because they are going through financial difficulties.

 

Internal restructuring options 

Arrangement and/ or compromise with its:

• Members
• Creditors
• Arrangement on sale
• Share reconstruction
• Reduction in share capital
• Management buyout

 

Arrangement and/or compromise

Section 537,538,539,540 of CAMA

• Arrangement and compromise are said to be different although used interchangeably
• Compromise entail accommodation on both sides (company and members/creditors)
• Element of give and take
• Re NFU Development Trust Ltd

 

Re Savoy Hotel Ltd

Arrangement means any change in the rights or liabilities of members, debenture holders or creditors of a company or any class of them,….. s537 CAMA  

 

Arrangement or compromise with members

• Variation of the rights of its members, or nay class of members
• Identify rights available to members and make arrangement and compromise on those rights
• Compel the shareholders to contribute further capital (equity capital or shareholders loan)
• Arrangement with ordinary shareholders to surrender part of their holding….
• Arrangement with preference shares to cancel the dividends in arrears
• Conversion from a private to public company

 

Arrangement or compromise with creditors

E.g. banks or debenture holders

• Asking debentures holders of they will agree to relinquish their security, or to permit the creation of a prior of parri passu charge
• Undertake to pay them off prior to the reconstruction (voluntary repayment)

 

Convince them to take shares or part shares and part cash, in satisfaction of their debts

• Essentially conversion of debt to equity in the company.

 

Arrangement on sale under s.538 CAMA

The members of the company in general meeting pass a special resolution for the voluntary winding up of the company and to appoint a liquidator (Ss. 457(b) & 538)

• Resolution will authorize the liquidator to sell the whole or part of its undertaking ort asserts to another company (“transferee company”)
• Consideration may be cash, or fully paid shares, debentured in the transferee company
• Any distribution in pursuance of the special resolution will binding on the company and all members.

 

Members are allowed to express their dissent to the scheme of arrangement – sub –sec (2)(b) & (6)

• Any members by notice in writing left at the registered officer head office of the company within 30 days of the passing the special resolution can require the company (liquidator) to:
• Abstain from carrying the special resolution into effect or
• Purchase his shares

 

Procedure - Arrangement on sale under s.538

• Boardresolution proposing members voluntary winding and direct company secretary to issue notice of general meeting
• The directors make a declaration of solvency as the basis of the members voluntary winding up
• This declaration will express their belief in the solvency of the company (s.462) – ability to pay its debt within 12 months
• Members at general meeting passed special, resolution (3/4) for the members voluntary winding up and appointing the liquidator
• Once appointed, the liquidator convenes the meeting of the shareholders to approve scheme of arrangement and compromise
• Within 30 days after the passing of the resolution the dissenting member will write to the liquidator and leave the letter at the company’s registered office, restating his dissent; and
• The liquidator then has two options
• Either abstain from carrying the resolution into effect or
• Purchase his shares

 

At what price?

• Private company with no alien participation – price is mutually agreed upon
• Private company with alien participation – Securities and Exchange Commission determines the price
• Public company – SEC determines the price
• Sub sec (4)

 

• Estimate what the member would have received had the assets of the company been sold as a going concern for cash to a willing buyer less the cost of winding – up
• The company must pay him before the company is dissolved.
• Note that this does not authorize a company to purchase its won shares – sub-sec (7)

 

• The liquidator convenes a final dissolution meeting where the accounts of the entire winding up exercise and his report would be considered by the members (s.478)

 

Under this procedure, an application need not be made to court unless:

• A member obtains an order under s.310-312 of CAMAwithin one year of the special resolution or
• An order is obtained for a creditors voluntary winding up

 

Then apply for the order of the court (FHC) – arrangement will only be valid if sanctioned by the court.

 

Arrangement and compromise – s 539

• Arrangement not involving sale
• Could involve members or creditors or both or a class of them
• No sale of assets is involved
• It may or may not involve winding –up
• Unlike s.538, here an application is made to the court for an order sanctioning the scheme

 

Procedure

• Board of directors proposes the arrangement either between the company and its members or creditors or a class of them
• The liquidator will call the meeting where the company is being wound up.

 

• Application is made to court (FHC) by originating summons to direct the calling of company meeting or creditors meeting (s. 539(1))
• ¾ majority of shareholders vote in favour of the scheme at the court ordered meeting
• A report of the outcome of the meeting is then made to the court. ( s539(2))
• The court refers to the scheme to the SEC which appoints one or more inspectors to investigate the fairness of the scheme of arrangement or compromise and make a report to the court
• The court shall specify a timeframe for the receipt of the report from SEC
• If everything is in order the court will, make an order sanctioning the scheme
• The order is to be filed with CAC
• Attach a copy of order to every copy of the memorandum of the company issued after the order has been made

Read and understand the whole of s 538

 

Management buy-out Rule 449 of SEC Rules

• is the acquisition by a management team of a company , of
• Controlling shares of that company or its subsidiaries with or without third party financing. (Rule 449) 2013 SEC rules. The procedure can also be found in rule 449

 

Management buy-out

 An application for the approval of a management buy-out shall be filed by the:

• Management team making the acquisition, accompanied by prescribed document:
• Resolution of the shareholders of the company approving the management buy-out
• Resolution of the management team …… (see 449)

 

Two copies if the prospectus which shall contain the following among others:

• Profile of the company
• Profile of the management team buying over the company
• Objective of the management buy-out
• 5-years audited financial statement of the company ( or if less than 5 years, the statement of affairs)
• Claims and litigation

 

• Sale agreement between the company and the management team
• Trust deed (where applicable)
• Any other document that may be required by the SEC from time to time

 

Reduction of share capital

• S 105 – 111 of CAMA
• It is so authorized by the articles
• It passes a special resolution and
• It obtains confirmation form the Federal High Court – the court has defined is the federal high court

s 106(a),(b),(c) of CAMA

Reduction of share capital is not just the shareholders but also the creditors

 

Procedure for reduction of share capital

By s 106(2)(a)- (c), the company may:

• Extinguish or reduce the liability on any of its shares in respect of the share capital not paid up ; or
• Either with or without extinguishing or reducing liabilityon any of its shares, cancel any paid-up share capital which is lost or unrepresented by available assets; or
• Either with or without extinguishing or reducing liability on any of its shares, pay of any paid up share capital which is excess of the company’s wants ….

 

Relevant here:

 To cancel any paid-up share capital which is lost or unrepresented by availableassets; a company may have issued N1 million shares, (fully paid up) but its nets assets no represent a value of only N 750,000 the company could then reduce its capital to N750,000….

 

• Board resolution to propose the reduction exercise
• Board prepares proposed scheme of reduction and directs the company secretary to summon general meeting
• Members at general meeting amends the articles (if it does not authorize the reduction) and pas the special resolution reducing the share capital as et out in the scheme
• Apply to the court for order confirming the scheme. The court will make an order confirming the reduction on such terms and conditions as it thinks fit, if it is satisfied that:
• With respect to every creditor of the company who under s 107 is entitled to object to the reduction capital that:
• His consent to the reduction ahs been obtained; or
• His debt or claim has been discharged or has determined, or has been secured; and

 

Note That the share capital does not by the reduction fall below the authorized minimum share capital

Deliver to the CACA for registration the following documents:

• Special resolution approving the reduction scheme
• Copy of order of the court

 

Minutes of the meeting of the company approved by the court showing with respect to the company’s capital as altered buy the order:

• The amount of the share capital
• The number of shares into which it is to be divided, and the mount of each share ; and
• The amount (if any) at the date of the registration deemed to be paid up on each share

 

Obtain certificate of registration from the CAC and comply with the court directives.

 

Note:

The special resolutionreducing the share capital only takes effect on registration of the order and minutes and not before – s 109(2)

 

Liabilities of members on reduced shares – s 110(3)

 

Special resolution for reduction in share capital signed by a director and secretary or two directors stating the mode of reduction

• Duly completed Form CAC 2.4 (Notice of change of authorized share capital)
• Certified true copy of court order sanctioning the reduction of share capital
• Evidence if publication of notice of reduction of share capital if so directed by court
• Duly stamped memorandum and articles of association reflecting reduced share capital
• Updated annual returned (evidence of filing of recent annual returns)
• Payment of fees

 

Consolidation, conversion, subdivision of shares

 S 100

 A company at a general meeting may:

• Consolidate
• Convert into stock
• Subdivide – this is different from consolidation
• Cancel

 

S 100 (1) (a)

The company may consolidate and divide all or any part of its share capital into shares of larger amount than its existing shares

 

 

Subdivision - S 100 (1)(c)

The company may subdivide its shares or any of them, into shares of smaller amount than is fixed by the memorandum.

Denomination of the per unit of shares to lower value e.g. a share capital of:…..

 

Conversion  - S 100 (1) (b)

The company may convert all or any of its paid up shares into stock, and re-convert

 

Cancellation - S 100 (1) (d)

The company may cancel shares which, at the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount so cancelled

 Note: cancellation of shares made pursuant to s 100(1)(d) is not to be deemed as reduction of share capital. See s 100 (2)