Introduction  

• On 30 July 2024, the Federal High Court delivered a judgment on the interpretation of Section 18(2) of the Companies and Allied Matters Act (CAMA) 2020 in the case of Primetech Design and Engineering Nigeria Limited & Julius Berger Nigeria Plc v. Corporate Affairs Commission in Suit no: FHC/ABJ/CS/665/2023, (the “Primetech case”)
• The central issue for determination was whether Section 18(2) of CAMA 2020, which allows for single shareholding, applies to companies incorporated under the repealed Companies and Allied Matters Act 1990.
• Under CAMA 1990, every company was required to have at least two members at incorporation.  This requirement often led to the practice of using nominee shareholders to meet the minimum shareholder threshold. CAMA 2020, however, introduced a significant change by allowing the formation of single-member companies, thereby allowing the establishment of wholly owned entities, including those by foreign investors.
• The provision in CAMA 2020 was aimed at improving the ease of doing business and addressing the challenges faced by solo founders who previously needed to find a shareholder solely to comply with legal requirements. Specifically, the introduction of single shareholding simplifies corporate structures and facilitates business operations for single shareholders.
• Despite this, the Corporate Affairs Commission (CAC) interprets Section 18(2) as applicable only to companies incorporated under CAMA 2020, excluding those formed under the repealed CAMA 1990. This interpretation restricted companies incorporated prior to the CAMA 2020 from transitioning to a single shareholding structure.
• The CAC’s interpretation hinged on the fact that Section 18(2) of CAMA 2020 does not explicitly address the transition from multiple to single members. Additionally, Section 571(c) of CAMA 2020 stipulates that a reduction in the number of members below two constitutes grounds for winding up a company. The CAC used this combined reading of Section 18(2) and Section 571(c) to argue that the single-shareholder provision is limited to companies formed under CAMA 2020. This gap in the Act was a key issue in the court’s decision in the Primetech case. 

Facts of the Case and Judgment   

• In this case, Primetech Design and Engineering Nigeria Limited transferred all its shares to Julius Berger Nigeria Plc, a change approved by the board of directors. However, the CAC refused to update the shareholding records, arguing that Section 18(2) of CAMA 2020 did not apply to companies incorporated under the repealed CAMA 1990.
• The Court ruled that CAMA 2020, having repealed CAMA 1990, supersedes the previous Act, making its provisions applicable to all companies, including those incorporated under the old law. The Court further posited that the language of CAMA 2020 was clear and did not warrant confusion from the repealed law.  
• It was held by the Federal High Court that the single-shareholder provision of CAMA 2020 is applicable to all private companies, including those incorporated under CAMA 1990. Consequently, the CAC’s refusal to approve the share transfer was deemed unlawful. 
• Moreover, the Court clarified Section 571(c) of CAMA 2020 regarding the winding up of companies due to a reduction in shareholders applies only to companies that are required to have multiple shareholders, such as public companies. Therefore, using this provision to restrict companies incorporated prior to CAMA 2020 from adopting a single-shareholder structure undermines the intended ease of doing business. 

Implications of the Decision 

• This ruling is particularly beneficial for startups. Previously, startups incorporated under CAMA 1990 faced difficulties restructuring into wholly owned subsidiaries due to the CAC’s restrictive interpretation. The Court’s decision facilitates easier corporate restructuring for these entities.
• The Court’s declaration that Section 18(2) applies to all private companies, regardless of their incorporation date, and its order for the CAC to approve the share transfer to make Julius Berger the sole shareholder of Primetech, represents a significant development in Nigerian corporate law. This ruling ensures that all private companies, regardless of their incorporation date, can now benefit from the single-shareholder provision introduced by CAMA 2020. 

• For more information, contact us at partners@credence-law.com.