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Every deal structure has different legal ramifications, such as tax consequences, transferring liability, shareholder approval, and third-party contractual consent requirements. Mergers and acquisitions (M&A) are strategic business activities that have far-reaching legal implications, and Nigeria, with its dynamic business environment, is no exception. The legal framework governing M&A activities in Nigeria is primarily outlined in the Federal Competition and Consumer Protection Act (FCCPA). Companies and Allied Matters Act (CAMA), Investment and Securities Act (ISA) along with other regulations and statutes.
This article explores the key legal implications of mergers and acquisitions in Nigeria, covering aspects such as regulatory approvals, antitrust considerations, tax implications, employee rights, and the role of the judiciary.
Regulatory Framework:
The regulatory authority for mergers and acquisitions in Nigeria is vested in the Federal Competition and Consumer Protection Commission (referred to as the “Commission” or“FCCPC”) through the enactment of the Federal Competition and Consumer Protection Act of 2018 (“FCCPA” or the “Act”). The act provides a comprehensive framework for mergers and acquisitions.
The Companies and Allied Matters Act (CAMA) is another vital legislation that impacts M&A deals. In addition to its traditional function of regulation of companies, CAMA also includes provisions on share acquisitions and other forms of business disposals. CAMA provisions cover schemes of a merger, share buybacks by companies, pre-emptive rights of shareholders, and financial assistance by companies to shareholders. Section 894 of CAMA outlines the procedures for mergers, including obtaining regulatory approvals from relevant authorities.
The Securities and Exchange Commission (SEC) also plays a crucial role in overseeing M&A activities, particularly for companies listed on the Nigerian Stock Exchange (NSE). Although the provision of the FCCPA supersedes certain sections of the ISA that previously conferred regulatory oversight of mergers to the SEC, compliance with SEC rules and regulations, including disclosure requirements and obtaining shareholder approvals, is paramount for a successful M&A transaction.
Antitrust Considerations:
In recent years, there has been an increased focus on antitrust regulations in Nigeria, with the Federal Competition and Consumer Protection Commission (FCCPC) taking a leading role. Mergers that may substantially lessen competition or create a dominant market player may require approval from the FCCPC. Companies involved in M&A transactions must conduct thorough competition assessments to ensure compliance with antitrust laws and avoid potential legal challenges.
Tax Implications:
The tax landscape is a crucial aspect of M&A transactions, and navigating the complex tax implications is essential for a successful deal. Nigerian tax laws, including the Companies Income Tax Act and the Value Added Tax Act, impact the structuring of M&A deals. Companies engaging in M&A activities often seek professional advice to optimize tax efficiency, considering issues such as capital gains tax, stamp duties, and potential tax incentives.
Employee Rights and Regulations:
Mergers and acquisitions often impact the workforce, and adherence to Nigerian employment laws is crucial. Employers must follow proper procedures, including providing notice and consulting with employee representatives. The rights of employees, including issues related to redundancy and benefits, must be addressed transparently and under applicable labor laws.
Environmental and Sector-Specific Regulations:
Certain industries in Nigeria, such as telecommunications and energy, are subject to specific sector regulations. M&A transactions in these sectors require approvals from relevant regulatory bodies, such as the Nigerian Communications Commission (NCC) or the Department of Petroleum Resources (DPR). Companies must navigate these additional regulatory requirements to ensure a smooth and legally compliant M&A scheme.
Role of the Judiciary:
The Federal High Court (“FHC”) acts as a relevant judicial authority in merger control. Section 251 of the 1999 Constitution (as amended) of the Federal Republic of Nigeria gives the FHC the power to handle matters for companies’ operation, management, and regulation. The judiciary ensures that the interests of various stakeholders, including shareholders and creditors, are adequately protected. Court-sanctioned schemes of arrangement are common in ensuring a fair and transparent process.
Conclusion:
In conclusion, the legal implications of mergers and acquisitions in Nigeria are multifaceted, requiring a thorough understanding of the regulatory landscape and compliance with relevant laws. Companies engaging in M&A activities must conduct comprehensive due diligence, seek professional legal advice, and navigate the legal processes to ensure a successful and regulatory-compliant transaction. As Nigeria’s business environment continues to evolve, staying abreast of legal developments is crucial for businesses involved in M&A activities.
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REFERENCE
Federal Competition and Consumer Protection Act, Cap C25, Laws of the Federation of Nigeria, 2004
Companies and Allied Matters Act, Cap C20, Laws of the Federation of Nigeria, 2004
Investment and Securities Act, Cap 124, LFN, 2004
An overview of Recent changes to the Regulatory Framework for Mergers and Acquisitions in Nigeria https://www.clrnn.net/2022/03/17/an-overview-of-recent-changes-to-the-regulatory-framework-for-mergers-and-acquisitions-in-nigeria-part-1/
Introduction to Company Law & Practice, Chris C. Wigwe SAN
Written by Chiamaka Ogbonnaya for The Trusted Advisors
Email us: info@cms.trustedadvisorslaw.com