FISAYO ESAN
Barrister Fisayo Esan




The Financial Reporting Council of Nigeria (“FRC”) recently issued its Code of Corporate Governance (“The Code”) for the Public Sector, the Private Sector and for Not-for Profit Organizations which became applicable from 17th October 2016.

The focus of this article will be on the FRC Corporate Governance Code issued for Private Sector covering – all public companies (whether listed or not); all private companies that are holding companies or subsidiaries of public companies; and Regulated private companies.

A simple review of the FRC Code shows that it seeks to regulate all aspects relating to the composition and management of the Board of Directors of applicable Companies – specific provisions are made with respect to minimum number of Director on respective Boards, tenure of Directors (Executive and Non-Executive Directors), appointment and tenure of External Auditors amongst other Company management related areas.

The challenge with these extensive Board and Director related provisions of the FRC Code, is that they are starkly in contrast with the provisions of the Companies and Allied Matters Act (“CAMA”). Unfortunately and fundamentally, the provisions of a Regulation cannot be interpreted and or applied in law to amend or vary the provisions of an extant Act of the National Assembly.

For due context and clarity, we shall have a cursory look at the Financial Reporting Council Act of Nigeria, 2011 which sets up the FRC – it provides for the establishment of a Directorate of Corporate Governance under Section 50 which shall –a) develop principles and practices of Corporate Governance; b)promote the highest standards of Corporate Governance; c) promote public awareness about corporate governance principles and practices; d) on behalf of the Council, act as the national coordinating body responsible for all matters pertaining to corporate governance.

Noteworthy at this juncture, is the fact that as far as the 1999 Constitution and other body of Nigerian legislation (both enacted and or adopted) are concerned, the FRC Act is the foremost Act of the National Assembly that incorporates ‘Corporate Governance’ into Nigerian Legislation. Worryingly, the FRC Act did not provide the purview nor parameter of what constitutes Corporate Governance therein. Unavailingly, references in the FRC Code to foreign Codes such as the Combined Corporate Governance Code of the United Kingdom or such other International Codes on Corporate Governance, cannot be legally applied nor enforced as Law in Nigeria unless specifically adopted by our National Assembly or through an express incorporation under the FRC Act. To this extent, the preconceived definition and ambit of Corporate Governance as imported from the UK and other jurisdictions are neither binding nor enforceable in Nigeria – they are merely persuasive sources at the very best. Apparently, the FRC in pursuance of its above powers under Section 50 of its Act to develop and enforce Corporate Governance Principles, has issued by regulation, a Code of Corporate Governance which has now become mandatory to all applicable Companies across Nigeria.

The immediate conflict & confusion that arises is that the FRC Corporate Governance Code directly contradicts or attempts to vary the provisions of CAMA in most material respect – we shall juxtapose the contradictions shortly. However, it must be submitted, as a preliminary point, that where is a conflict between an Act of the National Assembly and a regulation made by a body created pursuant to an Act of the National Assembly, the provisions of the Act shall prevail.

To this extent, FRC’s attempt to explore and develop Corporate Governance principles under Section 50 of it enabling statute, by regulation, cannot be interpreted and or enforced to contradict, amend or vary the more superior and extant provisions of the Companies and Allied Matters Act. And it begs the point that all provisions of the FRC Code which contradicts any provision of CAMA, shall to the extent of their inconsistency, be null and void.

For ease of reference, some of the areas of contradiction between CAMA and the FRC Code are highlighted as follows:

1. Classification of a Company – Under Section 24 of CAMA, “Any Company other than a private company shall be a public company and its memorandum, shall state that it is a public Company”. The purported legal re-classification of Private Companies under Section 2.1 of the FRC Code as all private companies that are holding companies or subsidiaries of public companies; and the regulated private companies, does not align with the provisions of Section 24 of CAMA. A Company is either public or private and the fact of being a holding Company or being a subsidiary of a public Company or being regulated does not make such private Companies to assume a different status under CAMA. Assuming the FRC had the powers to make the private Company classification, a more practical option to steer clear of CAMA, may be to require that the private companies it delineated be re-registered as public Companies.

2. Number of Directors – While Section 246(1) of CAMA provides that “Every Company registered on or after the commencement of this Act shall have at least two Directors….” Section 5.4 of the FRC Code provides that “Membership of the board shall not be less than eight (8)”. The provision of CAMA shall prevail and Section 5.4 of the FRC Code shall be null and void;

3. Tenure of Directors – Section 14.6 of the FRC limits the maximum term of Non-Executive Directors to three terms of 4 years (12 years) while Section 255 of CAMA provides that a person can be appointed Director for Life, Section 256 provides that a person can be appointed Director at any Age – 70 years or more (especially in a Public Company) – subject to the issuance of special notice of the resolution to approve such an appointment. CAMA once again shall prevail and the FRC Code stands null and void.

There are numerous examples where the FRC Code is inconsistent with the provisions of CAMA – Section 357 on Appointment of Auditors; Part X (from Section 299) on Minority Protection. In such instances, the provision of CAMA will stand applicable and the inconsistent portions of the FRC Code shall be null and void.

Having noted the above, the thought and reasoning behind the FRC Code is actually very proactive, progressive and fair. Such fair-minded Corporate Governance objectives must however be subject to the sanctity of our existing body of laws to be enforceable in Nigeria. Assuming the FRC maintains the view that it has the powers to regulate these areas over CAMA and the Corporate Affairs Commission it should seek an amendment of it enabling Statute to incorporate such Foreign Codes of Corporate Governance. So far, it is not known to Nigerian law to incorporate a foreign code or provision by the way of a regulation.

Some have even suggested that the CAC has given consent to the FRC to regulate on the matters covered by the FRC Code – it will be the respectful submission of this Writer, that even the CAC does not have the powers to consent to the FRC’s attempt, by regulation, to depart from the provisions of CAMA.

Perhaps this is the time to think of how the inter-relationship between Company administrative matters and Board Governance Matters viz-a-viz the possible roles to be played by FRC and CAMA, should be structure going forward. Indeed, the FRC’s application of its Corporate Governance Code to Private Companies in Nigeria is a very daring and unprecedented dimension in the enforcement of Corporate Governance Regulations worldwide – even the UK Code is only mandatory for Public Companies. The adopted approach to re-classify private companies (outside CAMA) with a view to selective application of the Code in the Private Sector, is futile and without legal justification.

In conclusion, the Companies and Allied Matters Act is indisputably the applicable legislation that governs all Company, Board and Director related Matters in Nigeria. It is also not in dispute that the FRC Code of Corporate Governance is not an Act of the National Assembly in which case it is subject to CAMA. In the absence of an amendment of the FRC Act, the undefined powers granted to the FRC Corporate Governance Directorate, under the Ejusdem generis rule of legal interpretation (where specific items of a general group, must be defined to follow the nature and order of the general group), must be limited to matters related to the FRC’s preponderant powers under its Act. Consequently, the development and enforcement of Corporate Governance principles, by the FRC, must be limited to Financial Regulation and Accounting related matters. Any attempt by the FRC to proceed to enforce its Code in areas where it is in conflict with CAMA shall be illegal and should be resisted by all legal means in the overall interest of the Nigerian Legal System.

Fisayo Esan, a Solicitor And Corporate Governance Consultant, Writes From Lagos.

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