The dust raised by the Bill on Private Companies Conversion and Listing Bill 2013, which recently passed the second reading is yet to settle. The bill seeks to compel companies with shareholders’ funds and annual turnover exceeding N40 billion and N80 billion, respectively, to convert to public liability companies and get listed on the stock exchange. But the bill has not gone down well with members of the Organised Private Sector. They are kicking that the bill, when passed, would negatively affect their businesses, reports Assistant Editor OKWY IROEGBU-CHIKEZIE.
The Deputy Chairman, House Committee on Capital Market Institutions, Hon. Chris Emeka Azubogu, certainly had good intentions when he sponsored the ‘Private Companies Conversion and Listing Bill 2013.’ Azubogu and other members of the green chamber who threw their weight behind the bill, noted, for instance, that it would boost the economy by stabilising the macro-economic system. They also envisaged that the bill, which provides for companies whose shareholders’ funds exceed N40 billion or annual turnover exceed N80 billion or total assets exceed N80 billion to convert to public liability companies and get their shares listed on any stock exchange, would boost the contributions of the formal sector and the Nigerian capital market to the Gross Domestic Product (GDP).
However, what Azubogu probably never envisaged was that the private member bill, which seeks to enable private companies operating in the country to comply with regulatory requirements of the constitution by registering with the Securities and Exchange Commission (SEC), the apex regulatory body of the capital market, will become a subject of heated debate and controversy. Already, the bill is the butt of scathing criticisms by members of the Organised Private Sector (OPS). Some of them are kicking, insisting that the bill is not only strange to the constitution, but would also negatively affect the business environment.
Specifically, members of the OPS argue that the bill would create undesirable and unnecessarily cumbersome regulation and scrutiny on the companies under the Companies and Allied Matters Act (CAMA), SEC and Nigerian Stock Exchange (NSE) rules and regulations. While admitting that the 1999 Constitution vests the National Assembly (NASS) with power to make laws regulating the ownership and control of business enterprises operating in country, they however, pointed out that the bill, if passed, will be a reminiscent of the indigenisation decree era when many companies were forced to leave the country.
That is not all. The proposed bill, which has already passed the second reading, the OPS members insisted, makes nonsense of the several representations made by government and private sector operators to attract foreign investors into the country. As far they are concerned the bill is counter-productive to the drive for foreign investments because foreign investors prefer to operate under stable economic policies. Besides, it will negatively affect Nigeria’s reputation.
Nature of the Bill
The bill, when passed into law, will compel a private company that falls into the category to, within 12 months from the commencement of the bill, take all necessary steps to convert from a private limited liability company to a public company within the provisions of Companies and Allied Matters Act (CAMA).
Such a company shall, within 12 months from the date of conversion, take all necessary steps to list its shares on a stock market for brokerage. Azubogu said a private liability company, which the provision of the bill applies, shall maintain or cause to be maintained proper accounts and records to enable fair view to be formed of its assets, liabilities, income and expenditure.
He added that the SEC shall in addition to its powers under the Investment and Securities Act 2007, have powers to administer the provision of the bill among others. He listed the incentives that companies that fall into this category shall enjoy as follows: If a company lists 40 per cent of its issued share capital, it shall be eligible for a tax incentive at a rate of one-third of its applicable income tax, 30 per cent of its issued share capital. It shall enjoy up to one-fourth of its applicable income tax while the company that issue up to 20 per cent of its called up capital will get one-eighth of its applicable income tax.
Members of OPS disagree
Members of the OPS said after a careful and painstaking review of the private company’s conversion and listing bill 2013, they came up with a number of conclusions. For instance, speaking through its Deputy Chairman, Commercial Law and Taxation Committee, Mr. Bimbo Atilola, the Lagos Chamber of Commerce and Industry (LCCI) submitted that the proposed bill would negatively impact on local investment and the broader economy. Besides, the bill, LCCI said, would lead to considerable loss of revenue to the government.
Mr. Atilola also argued that the NSE may not have the depth and liquidity needed for the investment arising out of the mandatory listing of these companies. Furthermore, he said the procedure for going public is expensive and onerous and not every investor or would-be investor local or foreign has the temperament for such. Moreover, he said it would impact negatively on corporate governance, which is the engine room critical for the survival of any company.
He pointed out that listing on the floor of the stock exchange is not a ticket to a company becoming successful.
In other words, listing a company’s shares does not guarantee success of the relevant business. This is because some companies that have been listed were delisted, and those that converted to public entities were re-registered to private companies. “Going public and being listed on the floor of the stock market are critical business decisions that only the companies’ management can make,” he argued.
According to LCCI, the main benefits of buying publicly quoted shares are capital appreciation and the ease of disposal. These two concepts depend largely on the operational success of the relevant business. The Chamber therefore, said bringing so many companies into the picture without any sound and strong basis for doing so other than complying with some laws could create a situation whereby the All Share Index continues to nose dive to the absolute embarrassment of the country.
LCCI further said contrary to the supposed intention of the Bill to redistribute wealth, just a insignificant percentage of the populace, particularly the money bags would benefit, as it would give them opportunity to channel their wealth to purchasing shares in some target companies. It would also lead to a situation where investors in the stock market would sell their investments in some companies to acquire the shares of these target companies, thus grossly distorting the stock market.
LCCI further argued that the Bill is anti-entrepreneurship and discourages innovation. “A lot of people have worked assiduously hard to bring their companies to where they are today. The decision of whether to raise funds from the public through the stock market or to allow the public own shares in their companies should be absolutely theirs to make,” LCCI argued, adding that the Bill has no stipulation for the minimum percentage of the share capital to be offered to the public. This, it said, could lead to loss of absolute shareholder and Board control of the company.
LCCI also sought to puncture arguments by proponents of the Bill that it will provide employment. According to the Chamber, the Bill will not necessarily create employment opportunities as many foreign investors have expatriated in their employment. Some even run highly mechanised or automated businesses.
Besides, the Bill is said to be inconsistent with the Constitution and other laws regulating investments in the country. For instance, the LCCI pointed out that it contravenes the provisions of section 44 of the 1999 Constitution, which forbids compulsory acquisition of private property, and section 25 of the Nigerian Investment Promotion Commission Act which prohibits expropriation stating that “no person who owns, whether wholly or in part, the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other person”.
It is also against the spirit of the Bilateral Investment Treaties (BIT) between Nigeria and certain countries, and therefore poses a huge reputational risk for Nigeria. They added that the Bill is appropriative to the extent that it compels privately owned companies to offer their private equities for sale on the floor of the stock exchange.
LCCI, therefore, threatened to work against the bill, insisting that it is unconstitutional and ultra vires. It pointed out that section 44 of the constitution prohibits compulsory acquisition of property whether movable or immovable, tangible or intangible, in any part of the country, and where such compulsory acquisition is carried out, there must be prompt payment of compensation.
“To compel a person to give up his asset, other than under the exceptional circumstances created by the constitution would amount to expropriation, which is prohibited under the Nigerian law.” LCCI said, insisting that private limited companies, due to a combination of factors, are preferred investment vehicles in Nigeria.
They explained that the choice of foreign investment destination is informed by various considerations and the country’s enabling legal environment for doing business is an important consideration.
Other private sector operators react
The Chairman, African Capital Alliance, Mr. Dick Kramer, is one of those kicking. He said if the current bill is passed as proposed, many countries will distrust Nigeria and companies will decide to either stay or leave. He recalled the effect of the Indigenisation Decree of 1978 when companies were either forced to sell or lose their businesses. He therefore, expressed worries that the bill may force many companies to leave the country. This, he said, will affect foreign investment.
“This is not a time to drive away private investment in non-oil sector. Nigeria needs to build a strong industrial base, put an enabling environment in place and ensure that private companies improve on compliance and corporate governance requirement. The world is a global village. Any attempt to nationalise businesses will have ugly consequences. This particular bill as it is will bring a down – turn in the next two to three years,” Mr. Kramer told The Nation.
Head Corporate Services Division, NSE, Mr. Bola Adeeko gave a different perspective on the issue. He said the bill should not be thrown out in its entirety. According to him, listing a company brings many advantages to the company and the public such as enhanced corporate governance including offering the public the opportunity to partake in the wealth of the individual companies. He also said this will allow private companies out last their original promoters. He regretted that from records, private companies have the least tax compliance rate in Nigeria, which probably the promoters of the bill sought to address.
Adeeko however, picked holes in the portion of the bill that sought to make listing compulsory instead of allowing it to be an economic decision by the companies concerned. He insisted that such paradigm shift for every company should be left entirely to them as a business decision or strategy.
Although, the issue is expected to come up for further debate following the reconvening of the House last week after its recess, the battle line appears to have been drawn between the lawmakers and private sector operators. Members of OPS are said to be preparing for a showdown with the lawmakers it they go ahead and pass the bill into law. Some of them are said to be suspicious that the Bill may be targeted at giving Nigerians access to the stupendous profits by big organisations in the telecommunication industry such as MTN, Etisalat and others such as British American Tobacco (BAT) and large consulting firms.
