Of reforms and revolutions

Corporate Affairs Commission

Corporate Affairs Commission

“In the sense that he tackled the stifling role of government in our economy, Bibi was not a reformer but a revolutionary. A reform happens when you change the policy of government; a revolution happens when you change the mindset of a country…”- Ron Dermer speaking about the financial-sector reforms implemented by Benjamin ‘Bibi’ Netahanyu in Israel in 2003.

The decision by the Corporate Affairs Commission (Commission) to “review and to bring the Companies and Allied Matters Act (CAMA) in conformity with global trends” is definitely commendable. The CAMA in view, the most critical piece of legislation in the discourse around increasing FDI flows in Nigeria because of its primary relevance to the ease of doing business and ease of investing in Nigeria.

It is refreshing to note that the Federal Government has also prioritised a possible review of the operations of the Commission as same forms part of the reasons for seeking emergency powers from Nigeria’s National Assembly. It certainly would not be an exaggeration to submit that the revival of our economy can depend, partly on the ongoing review of the CAMA. The approach adopted by the Commission in welcoming proposals from professional communities is also commendable and we hope that the collation of the proposals and the debate around the final amendments to the CAMA will be as robust and intellectually driven. Given the state of our economy and the need for economic revival, we affirm that ongoing reforms must go beyond merely scratching the surface.

A review of some of the changes that have already been proposed by the Commission, confirms clearly that the Commission is positioning itself to be a more efficient regulator. One of the proposals that we consider very strategic to the growth of entrepreneurial activity, is our proposal for a separate legal structure (typically referred to as the ‘One-Man Company’) that comes with the full complement of a lower tax rate relative to the prevailing income tax rate, lesser compliance requirements and the benefit of limited liability and separate legal personality. The One-Man Company essentially combines some of the benefit of a sole proprietorship and that of a limited liability company and has been adopted in varying forms in various jurisdictions, from UK, to U.S. and to India as a strategy for promoting the growth of small and medium scale enterprises and driving growth in the venture capital/private equity space.

Beyond the substantive legal issues that are subject of ongoing reforms, what is far more important is the administrative machinery/structure for the implementation of the CAMA, as reviewed. Legal and policy reforms can hardly achieve desired objectives where there is no corresponding innovation around the administrative machinery for implementing reforms. A number of proposals have been put forward by the Commission to its administrative structure. Currently, it is being proposed that there should be a board for the Commission and also that nomination to the board should be accepted from the Accounting profession and from the Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN). However, the question that should be asked is: should there not be a more elaborate debate around the administrative/implementation structure of the Commission? Here are some possible legal structures:

Trading Fund Status
A Trading Fund is essentially a financial and accounting framework established by law to enable a government ministry, agency or department (MDA), or part of an MDA, to adopt certain accounting and management practices that are adopted in the private sector. A number of attributes differentiate a TradingFund from a typical MDA.These include (a) A Trading Fund operates on a self-financing basis and does not thrive on subvention or funding from the legislature to finance its daily operations. Consequently,staff cost and other expenses are paid out of the revenues of the Trading Funds (b) A Trading Fund does not normally aim to make a ‘profit’ and the fees charged by a Trading Fund are usually for the full cost of services provided or on a cost recovery basis.

A Trading Fund will usually fix its fees and charges in accordance with own financial target, which is normally to earn an average rate of return on capital employed at a pre-agreed, often regulated percentage, the primary objective being the need to achieve a reasonable rate of return based on the fixed assets employed. (c) As opposed to the practice whereby operating surpluses are remitted to the government, surpluses are retained as reserves and can be re-invested to enhance existing services and explore new business opportunities (d) A Trading Fund has significant flexibility in human resources and staffing.

The trading fund model has been used with considerable success in a number of jurisdictions and across a number of traditional government agencies including immigrations, post offices, and corporate and public registries
Registry Operator Licensing

It is also possible to restructure the Commission in such a way as to decouple the‘registry’ function of the Commission from its core regulatory functions. This structure has the potential of making the Commission a more efficient regulator as it will enable the Commission to focus more on its core functions of administering the Act and also strengthening its capabilities to conduct investigations into the affairs of any company where the interests of the shareholders and the public so demand. Under this structure, the Commission will grant a Registry Operator’s License, (either on a regional basis or a unitized basis) to a private information technology/data company, seeing that the operation of a registry is increasingly a technology/digitization-based function.This is usually by way ofa long term contract with a negotiated service level functionality based on predefined/objective criteria.

Decentralisation of Companies’ Regulation
Why should companies’ regulation be a matter for the Exclusive Legislative List? Why should trademarks, copyrights/intellectual property regulation be a matter for the Exclusive Legislative List? The Federal Government may need to urgently, revisit the economics of legislative power, as part of legal and structural reforms in a time of economic revival. The Federal Government needs to travel light.It is now no longer a question of political power but that of economic sense. Whilst decentralisation of companies’ regulation will not by itself drive efficiency as a number of innovations will still have to be implanted by state registries, decentralisation will engender competition amongst state registries and can drive efficiency.

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