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Abstract
The protection of minority shareholders is an essential requirement for a viable and strong capital market. Enhanced protection of minority shareholders provides assurance to investors that their investments will not be expropriated by corporate insiders or lost through regulatory inefficiency. Despite diverse provisions that accord protection to minority shareholders, there are still legal, economic and institutional impediments that stultify effective enforcement. Consequently, it is contended that the public enforcement of minority shareholders’ rights should transcend the existing approach and literally ‘encroach’ on the traditional sphere of private enforcement to promote greater confidence and participation in the capital market.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 Nigeria is currently the third behind Egypt (second) and South Africa (first). See PWC, ‘2019 Africa Capital Markets Watch’ (2019) <https://www.pwc.com/ng/en/publications/africa-capital-markets-watch.html> accessed 28 June 2020. See also, Uchechukwu Nwoke, Comfort Obiageri Ukaoma & Onyedikachi Josiah Alozie, ‘Promoting a more efficient corporate governance in Nigeria through the law’ (2019) 45(4) Commonwealth Law Bulletin 697.
2 Nigeria is ranked 131 out of 190 in the World Bank Doing Business rating table thereby falling below many African countries. See World Bank, ‘Doing Business 2020’ (World Bank, 2020)4 <http://documents1.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies.pdf> accessed 28 June 2020. The World Bank doing business publication assesses countries’ areas of business regulation which include: starting a business; dealing with construction permits; getting electricity; registering property; getting credit; protecting minority investors; paying taxes; trading across borders; enforcing contracts; and resolving insolvency. See also Liliana Rojas-Suarez, ‘Towards Strong and Stable Capital Markets in Emerging Market Economies’ BIS Papers No 75, 1 and 20 <https://www.bis.org/publ/bppdf/bispap75c.pdf//> accessed 28 June 2020 (noting that the conditions required to achieve strong and stable capital markets in emerging market economies are four complementary pillars: ‘macroeconomic stability, sound banking systems, high institutional quality and an adequate regulatory and supervisory framework. Failure to strengthen any of these pillars will weaken the others’. However, even if all the pillars are in place, ‘in the presence of large uncertainties in international capital markets, investors (foreign and local) will attempt to flee to what they consider to be safe assets; namely, assets that maintain their liquidity in bad times’, for example, US Treasuries).
3 Liliana Rojas-Suarez, ‘Towards Strong and Stable Capital Markets in Emerging Market Economies’.
4 Luc Laeven, ‘The Development of Local Capital Markets: Rationale and Challenges’ (2014) 17–19, <https://www.imf.org/external/pubs/ft/wp/2014/wp14234.pdf> accessed 28 June 2020; Olufemi Amao and Kenneth Amaeshi, ‘Galvanising Shareholder Activism: A Prerequisite for Effective Corporate Governance and Accountability in Nigeria’ (2007) 82 Journal of Business Ethics 119 (emphasizing the importance of shareholder activism to achieve the protection of shareholders’ interests).
5 IOSCO, ‘Protection of Minority Shareholders in Listed Issuers’ (2009) Final Report in consultation with the OECD, 15–42 <https://www.iosco.org/library/pubdocs/pdf/IOSCOPD295.pdf> accessed 28 June 2020.
6 Bernard S Black, ‘The Legal and Institutional Preconditions for Strong Securities Markets’ (2001) 48 UCLA Law Review 781.
7 Rafael La Porta et al., ‘Investor Protection and Corporate Governance’ (2000) 58(1–2) Journal of Financial Economics 3–4.
8 Ibid.; Nojeem Amodu, ‘Stakeholder Protection and CSR from Comparative Company Law Perspective: Nigeria and South Africa’ [2020] Journal of African Law 1.
9 Boniface Ahunwan, ‘Corporate Governance Reforms in Developing Countries’ (2002) 37(3) Journal of Business Ethics 275 (noting that unsophisticated minority shareholders lack the capacity to protect themselves in Nigeria); Onyeka Christiana Aduma and Chineze Sophia Ibekwe, ‘Protection of Minority Shareholders under Nigerian Company Law’ (2017) 8(2) NAUJILJ 92.
10 Collins C Ajibo and Kenneth I Ajibo, ‘Mandatory versus Discretionary Rule Dichotomy in the Harmonization of Corporate Governance Codes: Lessons for Nigeria’ (2019) 63(3) Journal of African Law 393–394 (highlighting the influence of corporate governance on financial development); Ige Omotayo Bolodeoku, ‘Corporate Governance: The Law’s Response to Agency Costs in Nigeria’ (2006–2007) 32 BJIL 467 (pointing out the influence of agency problem in Nigerian context).
11 See Part X of Companies and Allied Matters Act (CAMA) 2004 (as amended). Protection is also accorded through the Investment and Securities Act (ISA) 2007 (as amended) and the Rules and Regulations made thereunder.
12 See Part XIV of ISA.
13 IOSCO (n 5) 6.
14 The Federal Competition and Consumer Protection Commission Act 2019 covers protection of shareholders in merger transactions. See Part XII of FCCPC Act 2019.
15 See Part X of CAMA which empowers CAC to initiate proceeding on the ground of public interest to protect minority shareholders. Under sections 314-329 CAMA, CAC is empowered to initiate the investigation of companies and their affairs. Similarly, SEC and NSE enforce investor protection through ISA provisions and rules made thereunder. See protection provisions such as Part IX–Part XIV of ISA.
16 Sam Oluwalana, ‘It takes 22 years to conclude case up to Supreme Court’ The Guardian (Nigeria, 11 May 2016) <https://guardian.ng/news/it-takes-22-years-to-conclude-case-up-to-supreme-court/> accessed 25 August 2020.
17 Andrei Shleifer and Daniel Wolfenzon, ‘Investor Protection and Equity Markets’ (2000) 66(1) Journal of Financial Economics 3.
18 Rafael La Porta et al, ‘Legal determinants of external Finance’ (1997) 52 Journal of Finance 1131.
19 Ibid.
20 Krishna B. Kumar, Raghuran Rajan and Luigi Zingales, ‘What determines firm size?’ (2001) <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=170349> accessed 28 June 2020.
21 World Bank, ‘Protecting Minority Investors’ (Doing Business, 2019) <https://www.doingbusiness.org/en/data/exploretopics/protecting-minority-investors/why-matters> accessed 05 June 2020>
22 Rafael La Porta et al (n 7).
23 Rafael La Porta et al, ‘Agency Problems and Dividend Policies Around the World’ (2000) 55(1) Journal of Finance 1–3.
24 Rafael La Porta et al, ‘Investor Protection and Corporate Valuation’ (2002) 57(3) Journal of Finance 1147.
25 Luigi Zingales, ‘The Value of the Voting Right: A Study of the Milan Stock Exchange’ (1994) 7 The Review of Financial Studies 125.
26 Jeffrey Wurgler, ‘Financial markets and the allocation of capital’ (2000) 58(1–2) Journal of Financial Economics 187.
27 John Armour, Henry Hansmann and Reinier Kraakman, ‘The Essential Elements of Corporate Law What is Corporate Law?’ (2009)1 <http://www.law.harvard.edu/programs/olin_center/papers/pdf/Kraakman_643.pdf> accessed 28 June 2020.
28 Frank H. Easterbrook and Daniel R. Fischel, ‘The Corporate Contract’ (1989) 89 CLR 1426.
29 Henry N. Butler, ‘The Contractual Theory of the Corporation’ (1989) 11(4) George Mason University Law Review 100.
30 Easterbrook and Fischel (n 28 ).
31 Ibid.
32 Butler (n 29 ).
33 See section 41(5) of ISA; section 86–87 of ISA; section 115 of ISA; and section 304 of ISA.
34 Apart from legal hurdle, economic difficulties include lack of money to undertake legal proceedings and monitor corporate governance. Institutional difficulties include red-tape, institutional corruption and inefficiency. See generally, Peter S Ubi, Lionel Effiom and Peter N Mba, ‘Corruption, Institutional Failure and Economic Development in Nigeria’ (2011) 2(2) Annals of Humanities and Development Studies 73; World Bank, ‘The World Bank In Nigeria’ (2019) <https://www.worldbank.org/en/country/nigeria/overview> accessed 25 August 2020.
35 See Foss v Harbottle [1842]3 Hare 461.
36 See Burland v Earle [1902] A. C. 83 at pp. 93–94. This case is an authority on, (a) the internal management principle: the court will not interfere in the internal management of companies; (b) the proper plaintiff/claimant principle: the company is the proper plaintiff to seek redress for a wrong done to it; and (c) the irregularity principle: a member cannot sue to correct an irregularity if the act is within the powers of the company and so can be ratified by the general meeting. See also Macbougall v Gardiner [1875] 1 Ch. D. 13.
37 See Mbene v. Ofili [1968] NCLR 293.
38 Section 311(2) CAMA.
39 Section 310(1) CAMA and section 311(2)(b) CAMA.
40 See Scottish Co-operative wholesale Society Ltd. v Meyer [1959] AC 324.
41 See Scottish Cooperative Wholesale Society Ltd v Meyer [1958] 3 All ER 66; [1959] AC 324.
42 See Re Saul D. Harrison & Sons Plc [1995] 1 BCLC 17.
43 World Bank, ‘Protecting Minority Investors: Achieving Sound Corporate Governance’ (Doing Business, 2017) 2017, 66–67.
44 Section 62(3) of CAMA. Note that both SEC and NSE have subsidiary regulations on related party transactions.
45 World Bank (n 43).
46 See section 46 CAMA and section 47 CAMA.
47 Section 142 CAMA.
48 Section 215(2) CAMA.
49 Section 224(1) CAMA.
50 Section 235(2)(a) & (b) CAMA.
51 Section 160(2)(d) of CAMA.
52 Section 314–330 CAMA.
53 Section 507(1) of CAMA.
54 Section 301(1) CAMA.
55 Section 301(2) CAMA.
56 See sections 301, 303 and 307–309 of CAMA;Anthony O Nwafor, ‘Shareholder Derivative Action-Nigerian Statutory Innovation - Not Yet a Victory for the Minority Shareholder’ (2010) 7 MJBL 214 (pointing out the challenges that underpin derivative action in Nigeria); Wiseman Ubochioma, ‘A Comparative Analysis of Shareholders’ Derivative Action under the United Kingdom and Nigerian Companies Act’ (2016) 37 BLR 136.
57 Harvey L. Pitt and Karen L. Shapiro, ‘Securities Regulation by Enforcement: A Look Ahead at the Next Decade’ (1990) 7 YJR 156–157.
58 Ibid.
59 Paul G. Mahoney, ‘Securities Regulation By Enforcement: An International Perspective’ (1990) 7 YJR 305
60 Centre for Democracy and Development, ‘Justice on Trial: Courts and Commissions in West Africa’ (2019) 6(4) West African Insight 10; Howell E. Jackson and Mark J. Roe, ‘Public Enforcement and Private Enforcement of Securities Laws: Resource-Based Evidence’ (2009) 93 Journal of Financial Economics 5.
61 Ibid.
62 Ibid.
63 John Coffee, ‘Reforming the securities class action: An essay on deterrence and its implementation’ (2006) 106 Columbia Law Review 1534.
64 Jackson and Roe (n 60 ).
65 Ibid.
66 Bernard Black, Brian Cheffins and Michael Klausner, ‘Outside Director Liability’ (2006) 58 Stanford Law Review 1055–1059.
67 Cindy R Alexander, ‘On the Nature of the Reputational Penalty for Corporate Crime: Evidence’ (1999) 42 Journal of Law and Economics 489.
68 Ibid.
Additional information
Notes on contributors
Edith O. Nwosu
Edith O. Nwosu, PhD Nigeria, Professor of Law (Deputy Vice Chancellor, University of Nigeria) Department of Property Law, Faculty of Law, University of Nigeria, Enugu Campus, Enugu State, Nigeria; and Solicitor and Advocate of the Supreme Court of Nigeria.
Collins C. Ajibo
Collins C. Ajibo, PhD Manchester, Senior Lecturer, Department of Property Law, Faculty of Law, University of Nigeria, Enugu Campus, Enugu State, Nigeria; and Solicitor and Advocate of the Supreme Court of Nigeria.
Uchechukwu Nwoke
Uchechukwu Nwoke, PhD Kent, Senior Lecturer, Department of Commercial and Corporate Law, Faculty of Law, University of Nigeria, Enugu Campus, Enugu State, Nigeria; and Solicitor and Advocate of the Supreme Court of Nigeria.
Ikenna Okoli
Ikenna Okoli, LLM Nigeria, Assistant Lecturer, Department of Private Law, Faculty of Law, University of Nigeria, Enugu Campus, Enugu State, Nigeria; and Solicitor and Advocate of the Supreme Court of Nigeria.
Fochi Nwodo
Fochi Nwodo, LLM Westminster, Lecturer 2, Department of Property Law, Faculty of Law, University of Nigeria, Enugu Campus, Enugu State, Nigeria; and Solicitor and Advocate of the Supreme Court of Nigeria.