The Importance of Minority Shareholders Protection in Private Companies: a Comparative Analysis of the Derivative Claim in England and Wales and the Derivative action in Nigeria and Unfair Prejudicial Petition under both Jurisdiction

Abstract

The protection of minority shareholders within the realm of corporate governance constitutes an ongoing challenge facing modern company law. This thesis critically analyses the statutes in the protection of minority shareholders in England and Wales and Nigeria, the reason been both jurisdictions operate the common law system, and Nigeria been a former colony of the British empire despite the similarities in the different statutes in the protection of minority shareholders, the question which arises is it effective in the protection of minority shareholders, this is worthy of discuss. It is important to note that at the start of the research, the Companies and Allied Matters Act 2004 (CAMA) was in operation in Nigeria upon completion it was repealed and replaced by the CAMA 2020 which came into force on the 7th of August 2020, the relevant sections under focus are s.303 -308 under the CAMA 2004 now s.346-352 of the CAMA 2020 which highlights the procedure for commencing a derivative action and s.310-312 of the CAMA 2004 now s.353-357 of the CAMA 2020 which provides relief on the grounds of unfairly prejudicial and oppressive conduct. The CAMA 2020 has brought about key changes for instance, an improvement under s.346 of the CAMA 2020 enables an applicant to apply for leave to the courts to bring an action on behalf of a company or a subsidiary, this development is absent under the s.303 of the 2004 which allowed leave to bring an action on behalf of a company excluding its subsidiaries. This is a breakthrough in holding majority shareholders accountable for their actions. Considering this development, the relevance of the 2020 Act will come into focus in a comparative analysis of the CAMA 2004 and 2020 and the Companies Act 2006 in England and Wales in chapter 6 and 7. Alternatively, the remedy of derivative claim and unfair prejudice petition have been codified under s.260 and s.994 of the Companies Act 2006 in England and Wales (CA 2006). In analyzing both jurisdictions, the Nigerian jurisdiction differs from England and Wales in several ways. For instance, while corporate ownership in the United Kingdom consists mainly of diffused ownership between widely dispersed public shareholders in public limited companies, and privately owned shares in private limited companies, in contrast ownership in Nigeria is concentrated predominantly in individuals, families and the government. Despite the differences, both countries share similarities in the substance of their codes (the Nigeria Securities and Exchange Commission (SEC) Code 2011 and the United Kingdom 2016 Financial Reporting Code (FRC), and most importantly their reliance on efficient market-based governance mechanisms to enforce corporate governance by applying a system of disclosure of roles of non-executives to attain greater transparency between the company and its members. The core question to be addressed in this thesis is: to what extent are minority shareholders’ rights effectively protected against breach by majority shareholders? This comparative study focuses on the remedy of derivate claim/action and unfair prejudice petition in both jurisdictions in order to address this question; to demonstrate the current state of minority shareholder protection in England and Wales, and Nigeria, respectively; and to make suggestions as to the realistic achievement of greater protection, based on the findings of the comparative analysis. Adopting a doctrinal comparative analysis of these claims/actions in the respective jurisdictions, this thesis argues that the statutory provisions in England and Wales are more progressive in the protection of minority shareholders than the Nigerian legal provisions. The key reason is the relative ease of instituting both remedies in a suit, in addition with the option of an exit strategy which is usually present in a shareholders’ agreements. There is a greater chance of success for a minority shareholder to get justice which usually entails the majority purchasing his or her shares at a fair value. Whereas, in Nigeria, evidence reveals minority shareholders in most circumstances are at the mercy of the majority shareholders they are left with little or no remedy due to the literal interpretation of the majority rule in Foss v Harbottle by the courts, which set the precedent in any action in which a wrong is alleged to have been done to a company, the proper claimant is the company itself. This poor situation is further compounded by slow judicial processes and legal enforcement. The thesis recognizes that despite the Nigerian jurisdiction has specific provisions for the protection of minority shareholders under CAMA 2004 now 2020, unfortunately it is not effective in its application. As a result, it is suggested legal reform is required by amending relevant sections under the CAMA Act 2004 now 2020. Alternatively, this may entail the adoption of a partial legal transplant of key provisions under the Companies Act 2006 in England and Wales to supplement existing statutes in Nigeria to bridge the gap in the protection and enforcement of minority shareholders rights when necessary.However, it is recognized that the adoption of a partial legal transplant would not necessarily be without significant challenges as a result the advantages and disadvantages of this approach will be critically analyzed to ascertain if it is an appropriate mechanism for reforming and modernizing Nigerian corporate law, over 60 years after it attained independence. In view of the foregoing observations, the thesis nevertheless concludes with a series of recommendations for change which acts as a blueprint for future revision of corporate law statutes in Nigeria by the Houses of Assembly in order to improve minority shareholder protection in Nigeria. As such this thesis is relevant to policy holders and legislators in this field, and could contribute to amending policy, legislation and practice in the future

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