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CORPORATE RESTRUCTURING; MERGER AND ACQUISITION

Please note that restructuring is a corporate management action where a corporate entity seeks to
improve its deteriorating financial fundamentals, poor earnings performance, bankruptcy, or excessive
debt by making significant concessions to its capital structure or ownership to achieve its short-term
and long-term goals. A company undertakes restructuring to modify the financial or operational
aspect of its business, usually when faced with a financial crisis to achieve its current needs. As a
result, depending on agreement by shareholders and creditors, a company may sell its assets,
restructure its financial arrangements, and issue equity to reduce debt or file for bankruptcy as the
business maintains operations.

The speed of business dynamics demands that business organizations not only revamp their internal
business strategies like effective market expansion, increased customer base, product diversification,
and innovation, etc., but also expect them to devise inorganic business strategies like Mergers,
Acquisitions, Takeovers, etc., that results in a faster pace of growth, effective utilization of resources,
and fulfilment of increasing expectations of stakeholders. These restructuring strategies work
positively for the business both during times of business prosperity as well as recession.
This article will explain the process of reorganizing a company’s management, finances, and
operations to improve the efficiency and effectiveness of the company.

CORPORATE RESTRUCTURING
Corporate restructuring as a business strategy is the process of substantially changing a company’s
financial structure to address challenges and financial crises or to improve the business. The
restructuring process may thus involve the company’s sale or a merger with another company.
Companies use restructuring as a strategy to ensure their long-term viability and efficiency. Similarly,
a firm or an entity must reorganize and concentrate on its competitive edge to expand or survive in a
competitive climate. When the liabilities of a company are more than its assets, particularly its short-
term financial obligations (liquidity shares), then there is a need to restructure or re-organize and this
is known as Corporate Restructuring.

Also, a company can restructure its operations or structure by cutting costs. This process also helps
the company to raise cash and reduce costs while also increasing efficiency and profitability.
Corporate restructuring reorganizes a company’s operations and can either be Internal; involving the
company alone, or External; involving another company.

Regulatory Bodies
1. Corporate Affairs Commission.
2. Federal Competition and Consumer Protection Commission.
3. Securities and Exchange Commission.
4. Federal High Court.

Regulatory Framework For Restructuring

1. Companies and Allied Matters Act, 2020[1].
2. Federal High Court Act.
3. Investment and Securities Act.
4. Federal Competition and Consumer Protection Act.

Reasons For Corporate Restructuring

1. Apart from increasing profits, another reason behind a company going for restructuring is to
make the company more competitive as compared to other peers in the industry.
2. If a company is operating at below capacity, the company may go for restructuring to utilize
the excess capacities.
3. Another reason for corporate restructuring is when the company is into too many businesses
or over-diversified; it may want to concentrate only on one business and corporate
restructuring is the best way to solve that problem.
TYPES OF CORPORATE RESTRUCTURING
 Internal restructuring.
 External restructuring.

INTERNAL RESTRUCTURING
Internal restructuring occurs when consequential changes are made to a Company’s capital structure
without liquidating the existing company. Specifically, it occurs when a Company has a large debt
profile and the Company desires to retain its corporate identity without the involvement of any third
party. It aims to free the company from losses and debts by negotiating with creditors and minimizing
the volume owed to them to ensure a desirable position.
The methods of internal restructuring available to a Company include:
 Arrangement and compromise.
 Arrangement on sale.
 Corporate buy-out.
 Alteration of share capital.

1. Arrangement And Compromise

An Arrangement is defined as any change in the rights or liabilities of members, debenture holders, or
creditors of a company or any class of them[2]. On the other hand, Compromise may be defined as an
arrangement that terminates a dispute. The scheme of Arrangement and Compromise must be fair and
reasonable and must be sanctioned by the Federal High Court to become binding[3]. However, the
sanction will not take effect until the corporation submits a Certified True Copy of the arrangement,
or compromise to the Corporate Affairs Commission and annexes it to the company’s memorandum
created after the Court has sanctioned the arrangement or compromise[4].

2. Arrangement On Sale
This involves the members of the company in general meeting resolving by way of special resolution
that the company be wound up and a liquidator be appointed and authorized to sell the whole or part
of the company’s undertaking or assets to another corporate body in consideration for cash, fully paid
shares or debentures in the transferee company which would be distributed in species amongst the
members of the company per their rights in liquidation[5].
However, if a member pursues an action against a company’s winding up based on unfairly
discriminatory and oppressive conduct, the arrangement on sale and distribution will not be
enforceable unless the same is sanctioned by the Federal High Court.

EXTERNAL RESTRUCTURING
External restructuring is a procedure in which a company’s financial affairs are wound up, and a new
company is formed to take over the former company’s assets and liabilities after the financial position
has been reorganized. It requires a lot of deliberations and approval, and is subject to authorization by
the Federal High Court.[6]

External restructuring typically involves multiple companies redesigning the company’s critical
components, such as ownership, management, liabilities, and assets. External reconstruction of a
company involves forming a new company to take over the operations of a liquidated firm. The newly
established company receives fresh share capital without any diminution in the share capital.
The methods of external restructuring available to a company include:

 Take over.
1. MERGER
A Merger means any amalgamation of the undertakings or any part of the undertakings or interests of
two or more companies[7]. It occurs when one or more undertakings directly or indirectly acquire or
establish direct or indirect control over the whole or part of the business of another undertaking[8]. It
includes any amalgamation of the undertakings or interests of two (2) or more companies[9].
A Solicitor plays a very important role in Merger. At an early stage, he takes part in the formulation of
the business bargain to make sure it complies with all laws and regulations. He coordinates all
necessary investigations and prepares all relevant documents. In particular:

1. He draws up the Memorandum Of Understanding.

2. He conducts the legal Due Diligence.
3. He participates in the negotiation process.

By S.8 CAMA, 2020, the Corporate Affairs Commission is vested with the power of regulation and
supervision of the formulation, incorporation, registration, management, and winding up of
companies. Subsequently, the Federal Competition and Consumer Protection Commission
(FCCPC) has the power to approve mergers. The essence of the power vested in FCCPC is to ensure
that Mergers do not result in adverse effects on competition.

REASONS FOR MERGER

1. Corporate Leverage to increase its debt-equity ratio.
2. Expertise in management.
 Desire for growth and increased market value.
2005. To survive regulatory requirements for consolidation as was the case in the CBN 25
billion bank consolidation in 2005.

TYPES OF MERGERS
1. Horizontal Merger: A Merger involving direct competitors in the same line of business. This
type of merger gives rise to a monopoly as it eliminates competition[10].
2. Vertical Merger: A combination of two or more companies that are engaged in
complementary business activities.
3. Conglomerate Merger: Fusion of two or more companies that engage in completely
unrelated aspects of a business.

A notable Corporate restructuring can be traced to 2011 and effectively in 2012 when Access Bank
took over the defunct Intercontinental Bank Plc. Although the integration was alleged to be riddled
with controversies, as reports said over a thousand staff of Intercontinental Bank were laid off during
the process, the Bank emerged stronger and bigger after the acquisition.
Tracing further, a more recent restructuring occurred on April 1, 2019, when Access Bank and
Diamond Bank merged after signing a Memorandum of Agreement. This proposed Merger involved
Access Bank acquiring the entire issued share capital of Diamond Bank, in exchange for a
combination of cash and shares in Access Bank via a Scheme of mergers.

1. ACQUISITION
An Acquisition is the take-over by one company of sufficient shares in another company to give the
acquiring company control over the other company[11]. The SEC is empowered to regulate
acquisitions in both private companies and unquoted public companies through the filing and approval
of the requirements for acquisitions by any corporate body or individual[12].
The acquiring company is expected to file a “LETTER OF INTENT”, and it is worthy of note that
the filing shall be done by a Registered Capital Market Operator.

2. TAKE OVER
Take-over is an external restructuring process that involves the acquisition of a minimum of 30% and
a maximum of 50% of the shares or voting rights of the target company, either by a core investor or
the acquiring company to take over the target company[13]. However, before a company can be taken
over, the acquiring company or core investor must obtain the authority to proceed with the take-over
bid from SEC[14].

CONCLUSION
Following a restructuring, a company should be left with smoother, more economically sound
business operations since corporate restructuring as a business strategy aims to increase efficiency,
improve the market edge, and help maintain and enhance the positive value of a company. It is also
pertinent to note that the essence of restructuring is to achieve a company’s financial performance,
liquidity, and solvency goals, as a corporate entity that has been efficiently reformed is likely to be
more efficient, organized, and focused on its primary business.

SNIPPET:
“The speed of business dynamics demands the business organizations not only to revamp their
internal business strategies like effective market expansion, increased customer base, product
diversification, and innovation, etc., but also expect them to devise inorganic business strategies like
mergers, acquisitions, takeovers, etc., that results in a faster pace of growth, effective utilization of
resources, and fulfilment of increasing expectations of Stakeholders.”

2. Clarity on appropriate forum for investment dispute resolution in Nigeria

Please note that one of the greatest achievements of the Nigerian financial system in the last quarter of
the 20th century was the enactment of the Investments and Securities Act, 1999 (ISA). Determined to
make the Nigerian capital market (NCM) globally competitive, the ISA established the SEC, sought
to protect investors, maintain a fair, efficient, and transparent market and reduce systemic risks.

The Investments and Securities Tribunal (IST) was one of the novel features to drive the attainment of
the objectives of the Act re-enacted in 2007. Created as a fast-track civil court of coordinate
jurisdiction with the Federal High Court (FHC) it is to determine investment disputes before it within
3 months.

The Tribunal has jurisdiction to the exclusion of any other court in Nigeria to determine disputes
between investors and capital market operators, capital market operators inter se, capital market
operators and regulators. The Tribunal is manned by legal practitioners and persons with cognate
experience in capital market matters.

Dispute settlement at the IST is robust and very few cases escalate from the Tribunal to the Court of
Appeal and Supreme Court. In its years of existence, it resolved complex capital market disputes,
inspired confidence, gave directions to the NCM and won several global recognitions.

The status and exclusive jurisdiction of the Tribunal has, however, been subject to controversy by
scholars and judges. It has been argued that since it is not listed in the Constitution of the Federal
Republic of Nigeria 1999 as amended (CFRN) as a superior court of record, it is not one and could
not limit the jurisdiction of the FHC whose jurisdiction on corporate matters is prescribed by the
CFRN. In SEC v Prof Kasunmu SAN, the FHC and the Court of Appeal held that IST did not have
exclusive jurisdiction on the question whether a legal practitioner must register with the SEC to
practise in the capital market.

In Nospecto v Olorunnibe the exclusive jurisdiction of the IST was successfully challenged at the
FHC and upheld by the Court of Appeal in a matter touching on collective investments scheme. In
Mufutau Ajayi v SEC, the FHC and Court of Appeal held that in a matter arising from concealment
in a corporate account, the IST had exclusive jurisdiction to determine the matter and not the FHC. In
Wealth Zone v SEC, the attempt by the Court of Appeal to reconcile the conflicting judgments on the
jurisdiction of the IST did not go far. It was therefore clear that a pronouncement by the Supreme
Court was needed to provide clarity on the matter.
The opportunity finally came on 13/1/2023 when the Supreme Court considered the appeal against the
judgment of the Court of Appeal in the case of Mufutau Ajayi v SEC. The apex court affirmed the
judgment of the Court of Appeal delivered in 2007 which upheld the decision of the FHC delivered in
2005 that the IST had exclusive jurisdiction in the matter of concealment in the corporate account of
African Petroleum PLC in 2000.

This Supreme Court decision has some implications for administration of justice in the Nigerian
financial system. Specifically, it ended the season of conflicting judgments on the subject of
jurisdiction over capital market matters, lightens the crowded dockets of the FHC to focus on other
matters before it, buoys investors’ confidence that grievances in the capital market can now, without
doubt, be resolved at the appropriate forum within three months of commencement of hearing the
case; and for the IST, this decision overthrows a yoke it has had to grapple with since its creation in
1999.

While this Supreme Court judgment is celebrated, the period it took (23 years after the matter arose)
for final resolution is a sad commentary on our justice administration system. The matter was in the
Supreme Court for 16 years. For capital market transactions that are time sensitive, this is regrettable
and underscores the essence of the IST where investment disputes are resolved within three months.
On the long haul however, the need to amend the CFRN and include the IST as a superior court of
record provides a more enduring solution to the challenge of timeous investment dispute resolution in
the Nigerian capital market.

As it now stands, any of these common grounds of disputes in the capital market will find resolution
at the IST without much ado about jurisdiction: non-receipt of share certificates or dividends by
shareholders, breach of an underwriting agreement, failure to return surplus monies, failure or delay
by stockbroker to execute client’s mandate or unauthorized sale of clients’ securities by stock brokers,
misappropriation of clients’ funds or securities by a capital market intermediary, misrepresentation of
the true position of the client’s account in the register of a public company, failure by an issuing house
to remit the process of a public offer to the issuer, failure of a receiving agent to submit investors
application forms within time in respect of an offer, misappropriation of proceeds of an offer, late or
non-submission of allotment proposal to the regulator for approval, non-payment of fees to parties to
an offer.

It is hoped that this clarity will boost investors’ confidence to attract domestic and foreign
investments into the NCM.

3. Competent And Compellable Witness Under The Nigerian Evidence Act

Please note that for a case to be concluded in a Court to the point of delivery of judgement, the parties
to the case must prove their case. One way of proving their case is by calling Witnesses whose
testimonies will be admitted into evidence and form the basis of the judgement of the Court.
According to the Longman Dictionary of Contemporary English, “a Witness is someone who sees a
crime or an accident or can describe what happened”. The Black Law Dictionary gives two definitions
of a Witness “a person who signs a document or a person called to Court to testify or give Witness”.

The general rule as stated in Section 175 (1) of the Evidence Act (EA) is that all persons are
competent Witnesses. However, this rule is not without exceptions. Therefore, there are circumstances
where a person is deemed not to be a competent witness and other circumstances where a competent
witness cannot be compelled to give evidence in Court. It should be noted that all compellable
witnesses are competent Witnesses. Section 175 (1) has listed the non-competent Witness to include:
Children, extremely old age persons, persons with a disease of the body or mind, and any other cause
similar to the above. These exceptions will be discussed below and likewise the non-compellable
Witnesses.
Exceptions to the General Rule

1. Children:
A child has been defined by Section 209 of the (EA) to mean, a person below the age of 14 years. It
further stated that when a child below the age of 14 years is tendered as a Witness, such child will not
be sworn and will give evidence otherwise than on oath affirmation, if it is in the opinion of the court
that the child possessed sufficient intelligence to justify his evidence and understands the duty of
speaking the truth. Therefore, the Court in determining the level of understanding of the obligation to
say the truth by the child, will ask preliminary questions to the child based on the ability to perceive
and remember the facts of the case. If the Court can determine the level of understanding of the child,
such a child will be deemed to be a competent Witness and the child’s testimony will be unsworn.
However, a conviction cannot be based solely on unsworn evidence of a child, such evidence must be
corroborated.[1]

2. Persons of Weak Intellect

Section 175 (2) EA clearly states that a person of unsound mind is not an incompetent witness except
if he is prevented by the infirmity from understanding the questions put to him and giving rational
answers to them. Therefore, to determine if such a person has sufficient understanding to give rational
evidence and understands the obligation to say the truth, the Court will ask preliminary questions just
as in the case of a child. If the Court is satisfied with the response, then he will be deemed to be a
competent witness. This practice also applies to persons of extreme old age, and persons with a
disease of the body or mind.

3. Dumb Persons
According to Section 176 of the (EA), a dumb person is both a competent and compellable witness.
The evidence of a dumb person is taken either by sign language or a written statement. Such evidence
is treated as oral evidence.

4. Parties in Civil and Criminal Proceeding and their Spouses

According to Section 178 of the (EA), in all civil proceedings, the parties to the Suit and the husband
or wife of any party to the Suit shall be competent witnesses. Also in criminal proceedings, the
Defendant’s his wife or her husband as the case may be, or any person jointly charged with such
defendant and tried at the same time, and the wife or husband of the person so jointly charged, is
competent to testify.
In a criminal case, the spouse of an accused is a competent witness for the defendant and can be a
competent and compellable witness to the prosecution in the following instances below:

1. Where the consent of the accused is not required: according to Section 182 (1), where the
defendant is charged with an offence listed in this section (offences against the husband or
wife and sex-related offence), the spouse of the Defendant is a competent and compellable
witness for the prosecution, the consent of the accused is not required.
2. Where the consent of the accused is required: according to Section 182 (2), where the spouse
is charged with an offence not listed in Section 182 (1), the husband or wife is a competent
and compellable witness only with the consent of the spouse charged.

Privilege Communication: Section 182 (3&4) provides for communication between husband and
wife. Therefore, communication made by a man to his wife or a woman to her husband during their
marriage is deemed privileged communication. They are competent witnesses but not compellable
witnesses.

5. The Defendant
Section 36 (11) of the 1999 Constitution (as amended) provides for the Defendant’s right to silence.
No person who is tried for a criminal offence shall be compelled to give evidence. But under Section
180 (a) of the EA, the Defendant on his or her own application is a competent witness in his or her
defence or in the defence of a co-accused. In this circumstance, the Defendant will give evidence from
the witness box, not the dock.

Subsection 180 (b) of the Act provides that if the Defendant testifies on his or her own application,
he or she may be asked any question in cross-examination even if the answer would tend to
incriminate him or her as to the offence charged. Hence, the effect of the defendant testifying
abrogates the right against self-incrimination which the Defendant would otherwise enjoy under
Section 36 (11) of the 1999 Constitution (as amended).

6. Co-defendant
A Co-defendant is competent and compellable in the following instances;
1. If the co-defendants are charged separately, the defendant is a competent and compellable
witness for the prosecution and the defence.
2. But if the accused persons are charged jointly, the co-defendant is neither a competent nor
compellable witness for the prosecution or the defence unless:
3. The co-defendant is tried separately;
4. The co-defendant has been acquitted of the offence;
 The charge against the co-defendant has been withdrawn; a nolle prosequi is entered for the
co-defendant;

1. The co-defendant pleads guilty to the offence and is convicted.

Nevertheless, if the Defendants are tried jointly, evidence given by one of them is admissible against
the Co-defendant notwithstanding that the evidence is incriminating.

7. Accomplice
According to Section 198 (1) of the (EA), an accomplice is a competent witness for the prosecution
against the Defendant. The evidence of an accomplice, on the other hand, should be corroborated.

A conviction based solely on the uncorroborated evidence of an accomplice is not illegal. Provided,
that if the only evidence against a defendant charged with a criminal offence is the evidence of an
accomplice, which is uncorroborated in any material particular implicating the defendant, the court
shall direct itself that it is unsafe to convict anyone on such evidence.

8. Legal Practitioners
Section 192 of the EA provides:
 No legal practitioner shall at any time be permitted unless with his client’s express consent, to
disclose any communication made to him in the course and for the purpose of his employment
as such legal practitioner by or on behalf of his client, or to state the contents or condition of
any document with which he has become acquainted in the course and for the purpose of his
professional employment or to disclose any advice given by him to his client in the course
and for the purpose of such employment:

Provided that nothing in this section shall protect from disclosure:

 any such communication made in furtherance of any illegal purpose; or
 any fact observed by any legal practitioner in the course of his employment as such, showing
that any crime or fraud has been committed since the commencement of his employment.
 It is immaterial whether the attention of such legal practitioner was or was not directed to
such fact by or on behalf of his client.
 The obligation stated in this section continues after the employment has ceased.

Though a Counsel is a competent witness, it is not proper for them to give evidence in a Matter in
which he or she appears as Counsel, according to the Rules of Professional Conduct for Legal
Practitioners.[2] Subject to the exception in Subsection 192 (1) (a) (b) of the Act, no Counsel shall at
any time be permitted to disclose any communication made to him in the course of his employment as
Counsel, unless with his client’s express consent.
 9. Non-compellability by virtue of office
Under Section 308 of the 1999 Constitution (as amended),
1. The President, Governors and their Deputies have immunity against prosecution while in
office. Therefore, they are competent but not compellable witnesses.
2. Section 1 (1) of the Diplomatic Immunities and Privileges Act confers on Diplomats,
Members of their families and Staff immunity against prosecution. Therefore, they are
competent but not compellable witnesses.
3. Based on policy, a Judge or Magistrate is neither a competent nor compellable witness in
respect of a case pending before him or her as a Judge or Magistrate.

CONCLUSION
For the testimony of a Witness to be admitted into evidence, such witness must be a competent
witness. However, not all competent witnesses can be compelled to give evidence.

SNIPPET
The general rule as stated in Section 175 (1) of the Evidence Act (EA) is that all persons are
competent witnesses. However, this rule is not without exceptions. Therefore, there are circumstances
where a person is deemed not to be a competent witness, and other circumstances where a competent
witness cannot be compelled to give evidence in Court.