The founding and operation of companies and non-profits in Nigeria are guided by the Companies and Allied Matters Act. It is the law that stipulates the requirements for registration, operation and liquidation of such entities in the country.
The latest version of this law was passed in 2020 to replace the former that dated to 1990. First introduced as an executive bill in December 2019 it made its way rapidly through the process. Passed by the House of Representatives on March 5, 2020, and the Senate on March 7, 2020, it wasn’t preceded by a public hearing. It then got President Muhammadu Buhari’s signature making it the operating law on August 7, 2020.
The new law was broadly touted as a victory for ease of doing business due to the many reforms that simplified the registration process for commercial entities. But for organizations operating as incorporated trustees, such as non-governmental organizations, civil society organizations, community and faith-based groups, more stringent conditions were introduced.
The law expands the powers of the Corporate Affairs Commission (CAC) to include conducting investigations into the affairs of non-profit organisations, obtaining court ordered suspension of trustees, appointment of interim managers and restriction on their financial transactions. The reception of the law by the for-profit community as a step in the right direction for companies and businesses was a stark contrast to its reception by the non-profit community. For instance, leaders in the christian community labeled it “satanic”, “ungodly” and an attempt by the government to sow where they did not reap. For the human rights community, this was another tactic in the toolbox of the administration to further close civic space.
This article highlights these provisions contained in Part F of the Act and their implications for the operations of the target organizations.
Investigation of NGOs
The Corporate Affairs Commission is empowered under section 8 (1) (c) and (d) of the new law to “arrange or conduct an investigation into the affairs of incorporated trustees” where the interest of members or the public so demands. The object could be ensuring compliance with the provisions of the Act and relevant regulations made by the Commission.
In its intent, this provision harks to the much-criticized Non-Governmental Organisation Regulatory Commission of Nigeria (Establishment) Bill, 2016 (the NGO Regulation Bill), where clause 26(2) sought monitoring powers for the Commission over NGOs.
Suspension of Trustees
There are provisions in Section 839 for the suspension of trustees by the Corporate Affairs Commission and the appointment of an interim manager following a court order. Grounds for such intervention include:
- Misconduct or mismanagement in the association’s administration, such as unlawful remuneration and reward of persons acting in the association’s affairs and misuse of funds related to the association’s property;
- To secure proper use of the association’s property towards achieving its objects and purpose;
- In the interest of the public; and
- Cases of fraudulent running of association’s affairs.
This process can be initiated by a petition to a relevant court by the Commission or one-fifth of the association’s members, backed by reasonable evidence. In the consideration of such petition, the Court may make a number of orders such as:
- Suspension of any person/ employee/ officer of the association for not longer than 12 months;
- Appointment of additional trustees for proper administration;
- Vesting of association’s property to an official custodian;
- Ordering persons holding property on behalf of the association to not part with it without approval of the court;
- Ordering any debtor not to make payments to the association, but to an interest yielding account administered by the Commission on behalf of the association;
- Restricting the association from engaging in transactions and making payments without court approval; and
- Appointment of an interim manager to act as Receiver and Manager.
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The law expects the court and the regulatory agency, CAC, to determine the extent of powers to be exercised by the interim manager and as well as remuneration. Actions and decisions taken under this section must be with the approval of the Minister Trade.
This provision is the most concerning because it provides an avenue for the government to interfere in the activities of associations, as well as, interference with the constitutional right of freedom of association. In addition, it appears that the intent of this provision is to bring in stricter regulation that could not be introduced with the NGO Regulation Bill.
It is equally worth noting that the terms ‘members’ and ‘reasonable evidence’ are not clearly defined. For members, it is not clear if the reference is to the trustees only or other persons. The new Act does not provide for any remedial steps to be taken first administratively before the intervention of the regulator and the court.
Notification on Dormant Accounts
Section 842(1) of the new CAMA, requires banks to notify CAC about the existence of dormant accounts belonging to an association. Dormancy, as defined under relevant banking regulations and includes cases where no transactions other than payments into the account or bank charges have been made within 5 years. Upon notification, CAC is obliged to follow up with a request for evidence of the activities of the association. A satisfactory explanation is expected within 15 days.
Failure to comply with a satisfactory response within 15 days, will open up the organization to other options. These may include dissolution of association for unsatisfactory response or the transfer of its funds to another organization. This order may be revoked when a satisfactory explanation is provided on the affairs of the association. A bank in which a dormant account is domiciled, cannot re-activate the affected account without notifying CAC.
The provisions on dormancy as it affects non-profits appears slightly different from the regular in that it includes accounts that receive payments where traditionally it only included accounts without transactions of any kind. This appears specifically targeted at accounts that be used for money laundering or terrorism financing, which would seem like a duplication of reporting provisions already contained in the Money Laundering Prohibition Act.
Filing annual returns
Under the amended Companies and Allied Matters Act, it is mandatory for registered non-profits to submit biannual statements on their affairs. Audited statements of account are required to accompany the annual report. Failure to make these reports on time attracts a daily penalty for each trustee.
Associations are required to keep enough accounting records to sufficiently show and explain their transactions. Such records should include day-to-day income and expenditure as well as assets and liabilities. Accounting records are required to be kept for six years and it will be the responsibility of the regulator to determine an association’s financial year.
Merger
Two or more associations with similar aims and objectives are allowed to merge under the new law, something that wasn’t contemplated in the previous one. Furthermore, the CAC is given powers to treat an association as being part of another or others if they share the same trustees even without any official merger. However, this provision doesn’t provide a guideline on how such a merger would be effected. It is expected that in due course the CAC will provide this guidance in its regulations.
Further Grounds for Dissolution
The law also gives the court and the CAC the power to withdraw, cancel or revoke a certificate of registration without providing details of how or why such a revocation would be warranted in the first place nor a procedure for administrative redress when such occurs. This is another provision reminiscent of the NGO Regulation Bill, whereby the regulator could suspend the registration of an association where renewal isn’t granted, without any recourse to other remedies. Members of the association will be required to identify an institution to which its properties and assets will be transferred upon dissolution or winding up. This measure could be subject to abuse of power by persons who do not want certain associations to continue operations and could become politicized.
The current law gets rid of the previous requirement to create or provide a common seal in the association’s constitution. This appears to be a non-contentious addition to the law and in line with the practice in countries with similar jurisprudence such as Kenya, the UK and Australia.
Where an association appoints unqualified trustees, (such as an undischarged bankrupt, a person convicted of fraud or dishonesty in the prior five years) the law leaves the CAC with the discretion to determine the appropriate penalty, which would be for every day the person acts in the unqualified capacity. The previous penalty was 50 naira for every day the rule was breached.
Civil society’s resistance to invasive supervisory oversight
The new provisions governing associations under CAMA contain stringent provisions that are subject to abuse and politicisation. It grants wide powers to the executive arm of government to constrain and limit non-governmental initiatives and charitable efforts in Nigeria under the pretext of protecting public interest.
A study of the contentious provisions show that they were inspired and copied from the UK Charities Act 2011, which provides that the Charities Commission has the function of “identifying and investigating apparent misconduct or mismanagement in the administration of charities and taking remedial or protective action in connection with misconduct or mismanagement in the administration of charities.” This is however more specific in its remit than the framing of the Nigerian law.
This provision for the suspension of trustees and appointment of interim managers is adapted from the UK Charities Act 2011. The orders that can be made by their courts are also similar to those contained in the new CAMA. The UK Charities Act also specifies that as it relates to misconduct and mismanagement, there are specific criteria that must be met. That is, that the Commission is satisfied that a particular person is responsible for the said act or that the person knew and failed to take reasonable steps to oppose the act or the person’s conduct contributed to or facilitated the act.
It is worth noting that the UK Charities Commission is an independent body solely dedicated to charities. The mode of appointment of its board/leadership is advertised and competitive, and the institution is solely accountable to the UK Parliament.
The CAC on the other hand is an executive body whose leadership is appointed by the President without legislative approval. It operates under a supervising Minister of Trade who appoints board members representing only for-profit or business interests. The CAC regulates and controls the affairs of non-profits but unlike provisions made for the business sector, there is no legal requirement for a non-profit expert on its board or leadership. These issues and questions over the capacity of the CAC to effectively regulate the large number of non-profits registered in Nigeria has led many to question the potential effectiveness of the new law.
Stringent registration/incorporation procedures, legal constraints and invasive supervisory oversight by government agencies are at odds with a free an open society and are tell-tale signs of an over regulated civic space. Even though the CAC has come out to say that the law does not target churches, it did not stop the Christian Association of Nigeria (CAN) from recently filing a lawsuit at the Federal High Court against the federal government (with the CAC and the minister of industry, trade and investment as respondents) over the implementation of the law.
CAN is contesting the suspension of trustees and appointment of interim managers, which they see as interference with the management of the affairs of churches. Civil society organisations such as the Socio-Economic Rights and Accountability Project (SERAP) also filed a lawsuit earlier in 2021 asking the Federal High Court, Abuja to stop implementation of unlawful provisions of the law.
The CAC’s defence that the law does not target churches is reminiscent of the 8th House of Representatives’ defence of the proposed 2016 NGO Regulation Bill when it said that Churches, Mosques, Esusu, Market Women Associations and Local Quasi Financial Institutions are not NGOs and not covered under the bill.
In addition to litigation measures, some NGOs are also engaging the National Assembly to review the contentious provisions. Further, there are ongoing conversations within the NGO community on how to confront the worrying trend of an increasingly restrictive environment, the option of self-regulation and proposing improved alternative operating framework to policy makers.
The role of the National Assembly in shaping civic space is particularly important in this regard because, as is seen with CAMA, governments often use legislation to close civic space and legitimize repression. Unfortunately, civil society’s relationship with the National Assembly remains one of mutual suspicion. It remains to be seen whether the contentious provisions of the CAMA will be revised by the National Assembly or nullified by the court.
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