AN EXAMINATION OF INVESTORS’ PROTECTION UNDER NIGERIAN LAW

AN EXAMINATION OF INVESTORS’ PROTECTION UNDER NIGERIAN LAW

ABSTRACT
A company has over time proven to be a very viable form of business, the company has grown tremendously in size and number of shareholders base making it necessary that a few people be selected to manage the company on behalf of the investors since all of them Laws are put in place to put a check on these managers to prevent corporate abuse and ensure that the company is managed with due care and skill to the benefit of the investors. This research has shown that the government lacks the will and determination for the prompt implementation of its laws despite all the efforts made in providing the law, there are also some loopholes can through which fraudulent and dishonest persons can take advantage of for their own personal gains thereby defeating the very essence of the laws which are investors protection. An examination of some of the laws provided to protect investors in Nigeria shows their inadequacies and the fact that it has become a mere academic exercise, ink on paper and is quite different from what is obtainable in practice. Doctrinal method of research was used in this research referring to statutory laws, textbooks, journals, newspapers and internet materials. The findings were that; there is the lack of will by the regulatory bodies to implement the law, company meetings have been provided as an important tool for investors’ protection in Nigeria but that has been circumvented through late delivery of the notice of meetings or inefficiency of the postal system, the Companies and Allied Matters Act did not provide for qualifications for people to be appointed as members of the audit committee and the inspectors to investigate the affairs of a company and also in a bid for the provision of Section 63 of the Companies and Allied Matters Act to provide for division of powers among the board of directors and the shareholders it ended up bringing in terms as’ good faith’ and ‘due diligence’ which are subjective terms. It is therefore recommended that; The regulatory bodies should ensure prompt implementation of its laws and policies; it should be mandatory that companies should use the message alerts and emails in addition to the traditional form of notice to inform share holders of any company meeting; The Companies and Allied Matters Act should provide for people to be appointed as members of the audit committee should be people with knowledge in accounting, company law and vast experience and section 63(4)of the Companies and Allied Matters Act should be Expunged. In conclusion it can be said that investors’ protection does not lie on the Government alone but on all stakeholders, it lies on the investors sought to be protected to be vigilant, exercise all their rights provided by law and for the regulatory bodies to live up to their role and enforce the provisions of the law when there is any violation.

TABLE OF CONTENTS
Title page……………………………………………………………………..…………
Declaration……………………………………………………………………………
Certification…………………………………………………………………………….
Dedication……………………………………………………………………………….
Acknowledgement………………………………………………………………………
Abstract……………………………………………………………………………….

Table of content…………………………………………………………………………
Table of cases……………………………………………………………………………
Table of statute……………………………………………………………………………
CHAPTER ONE
GENERAL INTRODUCTION
1.1 Background to the study…………………………………………………………..…
1.2 Statement of the problem…………………………………………………………….
1.3 Aims and objectives of the study……………………………………………………
1.4 Justification……………………………………………………………………..……
1.5 Scope of the study……………………………………………………………..……..
1.6 Research methodology………………………………………………………………
1.7 Literature review………………………………………………………………..……
1.8 Organisational layout………………………..……………………………………….
CHAPTER TWO
THE EVOLUTION OF CORPORATE FORM OF INVESTMENT…………
2.1 Introduction…………………………………………………………………………
2.2 The Evolution of Company………………………………………………………..
2.2.1 The Joint Stock System……………………………………………………………
2.2.2 The Beginning of Public Dealings…………………………………………………
2. 2.3 The Companies Act of 1844……………………………………………………..…

2.2.4 The Introduction of Limited Liability……………………………………………..

2.2.5 The Consolidation of Company law…………………………………………….…
2.3 The Evolution of Company in Nigeria…………………………………………….
2.4 The Capital Market…………………………………………………………………
2.5 The Stock Exchange………………………………………………………………..
CHAPTER THREE
THE LEGAL FRAMEWORK FOR INVESTORS’ PROTECTION IN NIGERIA……………………………………………………….…………….……
3.1 Introduction…………………………………………………………………………
3.2 The Companies and Allied Matters Act 1990 (CAMA)……………………………
3.2.1 Division of corporate powers………………………………………………………
3.2.2 Investigation of companies affairs…………………………………………………………
3.2.3 Disclosure…………………………………………………………………………
3.2.4 Company accounts……………………………………………………….…………
3.2.5 Financial statement………………………………………………………………..
3.3 The Investment and Securities Act 2007…………………………………………..
3.3.1 Disclosure under the Investment and Securities Act 2007………………………..
3.3.2 Public issue and the disclosure system………………………………,……………
3.3.3 Investigation under the Investment and Securities Act……………,,………..……
3.3.4 Investors protection fund………………………………………,,…………………
3.4 Nigerian Investment Promotion Commission Act 1995…………………………..
3.4.1 Investment Protection Assurances…………………………………………….…..
3.5 The Trustees Investment Act 1990………………………………………………………..
CHAPTER FOUR
CHALLENGES TO INVESTORS’ PROTECTION IN NIGERIA…………………
4.1 Introduction………………..………………………………………………………
4.2 Lack of effective corporate governance…………………………………………..
4.3 Corporate powers…………………………………………….…………………….
4.4 The poor performance of auditors and the audit committees…………………….
4.5 The directors control of general meetings and shareholders apathy………………
4.6 Directors control of proxy instrument……………………………………………
4.7 High illiteracy rate in Nigeria………………………………………………………
4.8 The postal system in Nigeria…………………………………………………..….
4.9 Corruption in Nigeria……………………………………………………………..
CHAPTER FIVE
SUMMARY, CONCLUSION, FINDINGS AND RECCOMMENDATIONS………
5.1 Summary………………………………………………………………………….
5.2 Conclusion………………………………………………………………………………….
5.3 Findings……………………………………………………………………………
5.4 Recommendations………………………………………………………………..

CHAPTER ONE GENERAL INTRODUCTION 1.1 Background to the Study
An investor is a person who puts money into financial schemes, shares, or property with the expectation of making a profit.1An investor is someone who commits capital in order to gain financial returns or a person who commits money to investment products with the expectation of financial return. An investor is a person, company, or Organization who has money invested in a venture with a hope of returns especially one that holds stock in publicly owned corporation. Generally, the primary concern of an investor is to minimize risk while maximizing return. An investor can be a shareholder or a creditor. A person who buys shares or owns shares in a company becomes an investor in that company and a person, company or organization that lends money or supplies goods on credit to a company becomes a creditor of that company.
The company is a dominant feature in every facet of the Nigerian economy from banking to oil and gas, health to recreation, construction to agriculture just to mention a few. In every company there are investors. Gone are the days when sole proprietorship was the most preferable form of business wherein the capitalists invested and earned profits out of the business for themselves. Though sole proprietorships still exist, they are not the most common forms of business today. Taste of the consumers have changed, technology has advanced manifold and production at large scale. To meet these needs the company form of
1 (2001)Oxford Dictionary of Current English Oxford University press, Great Clarendon Street Oxford, third edition, p. 478 to 479

business came into existence to accommodate the shift from traditional goods to capital goods and technological products which require huge amount of labour and capital, supply which was not possible for a person or handful of persons to readily make available by the sole proprietorship2.
The company is a means whereby the wealth of innumerable individuals has been concentrated into huge aggregates and whereby control over this wealth has been surrendered to a unified direction. The power attendant upon such concentration has brought forth princes of industry whose position in the community is yet to be defined3. The surrender of control over their wealth by the investors has effectively broken the old property relationships and has raised the problem of defining these relationships anew. The direction of industry by persons other than those who have ventured their wealth has raised the question of the motive of such direction and the effective distribution of the returns from business enterprise.
The typical business unit of the 19th century owned by individuals or small groups; was managed by them or their appointees; and was, in the main, limited in size by the personal wealth of the individuals in control4. These units have been supplanted in ever greater measure by great aggregations in which tens and even hundreds of thousands of workers and property worth hundreds of millions of Naira, belonging to several
2 Singh R. K Origin and evolution of the modern company law, Retrieved from http/www.legalservice .com on 10/3/2013 at 1pm. 3Berle A.A Means G.C(1963) the modern corporation and private property, the Macmillan nineteenth printing company, New York p.2 4 Ibid

individuals, are combined through the corporate mechanism into a single producing organization under unified control and management5.
As the ownership of corporate wealth has become more widely dispersed, ownership of that wealth and control over it has come to lie less and less in the same hand. In theory, the company is owned and controlled by its shareholders. Directors and managers should therefore conduct its affairs in the sole interest of those shareholders. The profit motive should prevail, in the sense that decisions on the future of the company should ultimately be determined by the search of the possible long- term return on capital, even if that means the liquidation of a particular company and the reinvestment of the capital in it 6. The reality of course is very different, management has an obvious vested interest in the survival of the enterprise as a source of personal livelihood and may often regard the interest of shareholders as subordinate to those of the company itself as a continuing enterprise with duties to its customers, its suppliers, its employees and even to the public at large7.
The cumulative effect of these patterns in corporate concentration, financing and shareholding is that as the size of company increases, so the degree of managerial independence grows. The process has been aptly described as the managerial revolution, as there is a good deal to it than the loss of direct shareholder control over large public companies8.
5 Ibid 6Hadden .T. (1984) Company Law and Capitalism Weidenfied and Nicolson, London p.75 7 Ibid. p.76 8 Ibid
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Instead of seeking exclusively to increase the net return on capital invested, those in control of company decisions may also be concerned with the preservation of the company and its business and of their own control over it, with growth and „empire building‟ in order to increase the range and extent of their power and thus reduce the uncertainty of their operations9.
There is also the temptation for managers to regard the company as essentially their own property and for them to look primarily to their own profit in conducting its affairs. Managers are often in a position to fix their own salaries in term of the company‟s profitability, and to arrange for themselves highly attractive pensions and insurance schemes, or options for share-purchase. In the event of take over bids, managers are in a strong position to secure for themselves undeserved advantages as a condition for their co-operation with the bidding company. All such practices which go beyond the confines of reasonable inducement to efficiency are condemnable.10
As a means of securing their independence of action, there is the tendency for managements to seek to finance their company‟s expansion otherwise than through the stock market. The most important method is by ploughing back the profits of the company and where it is not sufficient, management may often prefer to raise a large contractual loan by way of debenture from one major financial institutions rather than submit themselves to the public scrutiny of the stock market and the financial press by embarking on a public share issue11. The practical effect of this scenario is that shareholders have been
9 Hadden .T. (1984) Company Law and Capitalism Op cit p.76 10 Ibid. 11 Ibid
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reduced to mere lenders of capital and not owners of the enterprise. The problem now is how to protect the interest of the investors from dishonest managers or business men out to defraud unsuspecting investors and as a result, the government had to step in by provision of laws and establishment of regulatory bodies to guide and monitor the affairs of companies in the interest of investors. It is against this background that this work seeks to appraise the legal framework for Investors‟ protection Under Nigerian Law.
1.2 Statement of Research Problem
This Thesis proceeds on the assumption that there is the lack of will to implement and enforce the provisions of the laws provided for investors‟ protection by both the government and the regulatory bodies in Nigeria. And the laws provided for investors‟ protection in Nigeria has some lacunas which can be used to circumvent the essence of investors‟ protection.
1.3 Aims and Objectives of the Study
The aim is to examine some of the laws on investors‟ protection in Nigeria, to point out the inadequacies in them capable of discouraging genuine investors and to proffer some solutions in line with the existing realities.
1.4 Justification
This research is justified by the problems raised by the statement of the problems contained in section 1.3 of this work. The work is also justified by its relevance to law students, all stake holders and the general public.
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1.5 Scope of the Study The scope of this study is on shareholders as investors in public companies. It dwells on investors‟ protection under the Companies and Allied Matters Act, Investment and Securities Act, Nigerian Investment Promotion Commission Act and the Trustees Investment Act which are some of the major laws regulating corporate investments in Nigeria and the regulatory institutions created there under. 1.6 Research Methodology This work is based on the doctrinal method of research conducted in libraries and the internet. The statement of the legal principles as well as their administration depends on this method of research, References are made to primary sources which are legislations and case laws and also to secondary sources which are books, journals articles, and other existing literature and where, necessary acknowledgements are made accordingly. Originality lies in identifying the defects in the law and practice and suggestions. 1.7 Literature Review
Some good literature on the subject is available though they deal with only one aspect or the other of this topic and not particularly centered on this research topic. Research had to be undertaken with recourse to various sources to bring about this work. Berle and Means,12 writing on the topic “The Modern Corporation and Private Property”,
12Berle A.A, Means G.C, (1963) The modern corporation and private property, the Macmillan Nineteenth printing company New York
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focused on the property of the company and the control of the company. Although an invaluable literature, it does not cover adequately the subject of investors protection
Tom Hadden,13 in “The development of Capitalism”, focused on the Development of the company from the 15th century company to the modern company. The coverage of investors‟ protection is also very limited.
Sealy‟s 14 work on the topic “Company Law and Commercial Reality” focused on company laws and compared them with what is obtainable in practice. All these literatures are by foreign Authors which focused on what is obtainable in their jurisdictions devoid of the aspects peculiar to Nigeria‟s jurisdiction though lots of our laws were borrowed from such jurisdictions and so there are similarities.
We also have some Nigerian writers like, Orojo‟15whose work on “Nigerian Company Law and Practice” deals with the history of the company, incorporation and winding up of a company, the stock market, it does not cover much on investors protection.
Soforowa‟s16 work on the topic “Modern Nigerian Company Law” dwells more on the incorporation, management and winding up of a company. His work did not cover investors protection.
Bhadmus17 work on the topic “Bhadmus on Corporate Law and Practice” covers a lot regarding Company Law, it also covers a little on investor‟s protection, but is stated the law as it is without comparism to what is obtainable in practice.
13 Hadden .T, (1972) The development of capitalism, Weidenfied and Nicolson, London. 14 Sealy .L.S, (1984) Company Law and Commercial Reality, sweet &maxwel ltd Great Britian 15 Orojo .O. (2006) Company law and Practice in Nigeria, LexisNexis, Butterworths 5th Edition. 16 Soforowa .M.O (2002) Modern Nigerian Company Law, Christiana type house ltd 13 moshalashi st.shomolu & 8 Awosenyi st. Shomolu, Lagos, Nigeria. 17 Bhadmus. Y.H (2009) Bhadmus on Corporate Law and Practice, Ghenglo ltd ,No.6,plot 1123 ECA, Moneke Crescent, corridor Layout, off Maryland, Enugu
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Agom18 on “The Place of Company Meetings in Corporate Governance” His contribution focused on the meetings of the company, distribution of powers in the company and the factors mitigating against members effective control of corporate governance. Investor‟s protection goes beyond these factors hence this work which is broader in perspective.
Recourse also was made to the writings of Ogiden19 on “The Regulatory Challenge in Nigeria‟s stock market.” This work dwells more on the Nigerian stock market and regulatory challenges. This literature is material to this research because a part of this research takes a glimpse at the Nigerian stock market as the market for companies‟ equities.
Gower 20 deals with the history, formation, management to winding up of a company. Being a foreign author, all his work focused on the English law and economy necessitating the Nigerian context which this study provides. The works of all these authors touch on one aspect or the other of this research. This thesis is aimed at providing a more comprehensive coverage of various aspects of company law in Nigeria, dwelling on the problems peculiar to the Nigerian environment.
18Agom .A.R,(2001) The Place of Company Meetings in Corporate Governance :Company Law and Practice, Modus international law and business quarterly. 19Ogidan .A. , (2009)The regulatory challenge in Nigeria‟s stock market. Retrieved Apr 20 2011 from www. Pontius .com 20Gower L.C.B, (1979) Gower‟s principles of modern company law, 4th edition, London: Stevens& sons,
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1.8 Organizational Layout The format of this research is organized into five (5) chapters. Chapter one dwells on the introduction of the topic of discussion which is “investors protection under the Nigerian Law.” the background of the study is the summary of the whole research topic, it also cover the statement of research problem, aims and objectives, justification, scope of research, research methodology, literature review and the organization layout. Chapter two discusses the evolution of the corporate form of investment, the modern day corporation, and the market as it relates to corporations in Nigeria
Chapter three dwells on investors‟ protection in Nigeria, The discussion is on some local legislations pertaining to investors protection such as the Companies and Allied Matters Act,21the Investment and Securities Act,22the Nigerian Investment Promotion Act,23 and the Trustees Investment Act.24 Chapter Four dwells on the challenges to investors protection in Nigeria, issues to be discussed are poor corporate governance, directors Control of Proxy instrument, the poor performance of auditors and audit committees, mechanics of meetings, low investor education, lack of effective mail delivery system, inefficiency of the regulatory bodies, high illiteracy rate in Nigeria, high rate of corruption in Nigeria and Shareholders apathy.
Chapter Five being the last chapter of this research draws the curtain on the entire work. It deals with the Conclusion, Summary of Findings and then finally the Recommendations.
21 Cap C20 LFN 2004 22 No 29, 2007 23 1995, Cap N117 LFN 2004 24 Cap T22 LFN 2004
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