•WHAT DOES CORPORATE RESTRUCTURING EVEN MEAN?

•WHY DO COMPANIES (CORPORATES) NEED TO RESTRUCTURE

•Understand that Business is about Profit, Survival and Negotiations

•The need for profit and the urge for survival could make businesses go overboard in
negotiating an outcome. Recall that there are several stakeholders in a company –
shareholders, creditors, employees, customers, society.

•Also recall that the law exists to create balance and ensure orderliness.

•Corporate law cares about corporate restructuring because of the need to ensure balance and
fairness in restructuring a company’s affairs.

INTERNAL REORGANIZATION (WITH MEMBERS & MANAGEMENT)

•Increase in Share Capital – S. 127 CAMA
•Reduction of Share Capital– S. 130-136 CAMA
•Share Reconstruction – (Consolidation, Split, Redemption, Share Buyback)S125-S136; 182-
190 CAMA
•Variation of Rights of Members (Class Rights) S.166-169 CAMA
•Management Buy-Out (MBO) (Contrast with Management Buy-In which is external)
•Shareholders Buy-Out
•Employee Buy-Out
•Downsizing

ARRANGEMENTS AND COMPROMISE – S. 196-207; 201-202; 434; 710 – 717

CAMA
•Conversion of Debentures to Shares – See also S. 149(4) CAMA
•Variation of rights of Debenture Holder by creating prior or pari pasu interests
•Voluntary Arrangements
•Compromise with Creditors or Members
•Arrangement on Sale

INCREASE IN SHARE CAPITAL

•Section 127 as amended - A company having a share capital may increase its issued share
capital by the allotment of new shares of such amount, as it considers expedient — (a) in a
general meeting; or (b) by a resolution of the Board of Directors, subject to the condition or
direction that may be imposed in the Articles or by the company in general meeting.

•Why is increase a form of restructuring? Because the initial structure of the company is e.g.,
a company having share capital of 1m Naira divided into 1m ordinary shares of 1 Naira per
share. But with an increase, it has been restructured to become a company having share
capital of 10m Naira divided into 10 m ordinary shares of 1 Naira per share. The reason for
this may be to issue new shares and raise more money for the business from existing or new
members. The reason may also be due to regulatory requirements. For instance, in 2019 the
National Insurance Commission (NAICOM) increased the minimum share capital
requirement of life insurance companies from N2B to N8B. This means that any life
insurance company would undergo a regulator driven restructuring to continue in business.

•Note the need to file a return of allotment. Also, not that for companies in regulated
industries, there may be need to obtain consent for, or make notification on increase and/or
on allotment of shares to new shareholder

REDUCTION OF SHARES
•Reason for reduction of share capital – To enhance the value of outstanding shares; to return
excess cash to shareholders rather than make hasty and non-value adding investments.
Imagine that Dangote Plc shares is currently trading at 100 Naira per share on the floor of the
Nigerian exchange. And there are currently 100 Million shares in circulation meaning that the
total value of shares in Dangote is N10b. If Dangote reduces its shares by cancelling 10
million shares, and returning cash to shareholders, this may create some scarcity of its shares
and lead to increased demand which will boost the value of each share above 100 Naira. Thus
Dangote has by reduction of shares enhanced the value of its shares.

•Procedure for Reduction – See S. 130-136 CAMA. Special Resolution, Confirmation by

Court, Notification to Creditors, Registration of Order of Court and Minutes with
CAC, Memart need not be altered (is deemed altered on registration of minutes of meeting on
reduction); liability of members for call or contribution is deemed reduced according to the
reduced share capital; Members will however be liable to contribute to pay any creditor who
is omitted at the court confirmation stage.

•Why is the confirmation of court and notification to creditors important for reduction of
share capital? Recall the need for balance and carrying stakeholders along in restructuring

CONSOLIDATION - S. 125 & 126 CAMA

Consolidation is the process of merging the existing shares in a company to achieve fewer
and more valuable shares. For instance, If Macdon Plc has 1000 shares of 1 Naira per share, it
may do 1 for 10 consolidation such that every 10 share of 1 Naira becomes 1 share of 10
Naira. The final output will be 100 shares of 10 naira per share. Consolidation is usually used
by public companies.

Why Consolidate a company's shares?

 To boost the value of shares and attract investors
 To increase the trading price of shares on the exchange so that shares will not appear
worthless and not capable of listing status. Remember that shares are a form of security.
If security becomes so low, it will become worthless or junk security. For example, Rule
 21.1 of Nigerian Exchange Rule Book empowers the Exchange to cancel the listing of
shares if it considers that they are no longer suitable for listing.
 As a defense for a take-over bid since the shares become more valuable and attractive.

 In 2002 AT&T spun off its cable TV business. However, suspecting that such spin off
will make investors dump its shares thus reducing the price, it consolidated its shares to
boost share price and remain attractive for investors even after a spin-off.

Procedure - Through General Meeting. Special or Ordinary Resolution? Not explicitly stated
in S. 125 &126 CAMA. But S. 125 refers to Consolidation and split as an alteration of
conditions of Memorandum.

Refer to S. 50 of CAMA on Alteration of Memorandum. S. 50(5) provides that any other

provision of the Memorandum may be altered in accordance with section 51. S. 51 provides
for Special Resolution. Note the ability of 15% of shareholders and/or 15% of Debentures to
object.

SPLIT (SUBDIVISION under CAMA) – S. 125 & 126 CAMA

•While Consolidation is the process of merging existing shares, Split is the opposite. That is
to say, in a share split, existing shares are subdivided into shares of smaller amounts to
produce more nominal shares with lower price/value per share. For instance, If Macdon Plc
has 100 shares of 10 Naira per share, it may do 10 for 1 split such that every 1 share of 10
Naira becomes 10 shares of 1 Naira. The final output will be 1000 shares of 1 naira per share.
Share Splits are usually in smaller ratios such as 2 for 1 or 3 for 1.

Why Split a company’s shares?

•Sometimes the price of a company’s shares may be too expensive that it is beyond the
purchasing power of the public. To address this and make the shares affordable to enable the
company raise more money in the public, it will split the shares so as to reduce the per unit
price without affecting the valuation of the share capital.
•Reducing the price of shares through stock split makes the shares of a public company more
tradable and the higher the trade, the more money the company can raise from the stock
market.

•In August 2020, while Tesla’s shares were trading at $2,250 per share, it declared a 5 for 1
share split to make its shares $450 per share so that it can be more accessible to employees
and investors. And in 2022, the price rose to $900 per share and it underwent another
restructuring by a 3 for 1 split so that its shares became $300 per share.

•Procedure – Same as for Consolidation.

REDEMPTION – S. 147, 182 CAMA

A Company may issue preference shares under S.147 CAMA. Recall the fundamental
difference between preference shares and ordinary shares. The business of a company is run
by 2 sources of funding i.e., equity and debt. Preference shares is quasi equity and quasi debt.
A company seeking to reduce its leverage (that is debt to equity ratio) may elect to redeem
some or all of its preference shares. By so doing, it will reduce the amount of debt on its
books. This is a form of restructuring. Note that S. 147 and S.182(8) CAMA all preference
shares are redeemable.

Why will a company be interested in reducing leverage? Because it may be a condition to

attract equity investment. For instance, tech companies who issued preference shares may
decide to redeem them as a condition for a new round of funding. It may also be a regulatory
requirement. Regulators tend to monitor debt to equity ratio in some industries to ensure that
the companies in the industries do not take on too much debt. For instance, banking and
insurance.

Procedure for Redemption of Shares – S. 182 CAMA

 Shares redeemed must be fully paid and redemption shall be only out of profits of
company that would have been available for dividend, or out of the proceeds realized
from the issue of shares made solely for the purpose of the redemption.
 If a premium will be paid for such preference shares, such premium can only be paid
from the profit of the company or from the share premium account. Not from the
proceeds of the issuance of new shares.
 Where shares are redeemed from profit of company which would have been available for
dividend, the said funds shal

SHARE BUY-BACK – S. 184-190 CAMA

 Share buyback is the process by which a company buys its shares back from shareholders.
Shares so bought are held as the Company’s Treasury Shares. Buyback may be of
ordinary or redeemable shares
Reasons why a company will buyback its shares:
 To reduce excess cash in the company (excess cash could be a corporate problem.
Returning it to shareholders solves the problem and boosts the company’s valuation)
 To buy shares and keep in the treasury for the benefit of offering them to key employees
in the future under an employee share option or other employee compensation scheme.
Where existing management is underperforming, new and high-performing management
may be brought in and offered the option to own shares in the company as motivation for
high performance. Share buyback may be a means of making such shares available. This
is a form of internal corporate restructuring.
 To enhance the value of shares of public companies especially where too many company
shares are in supply. Buyback will mop up the excess shares and make the remaining
shares more valuable.

Procedure for Share Buyback – S. 184 - 190 CAMA

Only possible if provided for in the Articles (hence confirm from the articles if not amend
articles first)
What type of resolution? Special
1. Only fully paid-up shares may be purchased by the company
2. Within 7 days from special resolution, Publication in 2 national newspapers of notice for
proposed buyback
3. Within 15 days from publication, directors to file declaration of solvency with
Commission
4. Within 6 weeks after publication, creditors and dissenting shareholders may apply to the
court to cancel special resolution for buyback. Where this happens, the court may make
an order to approve or cancel buyback.
5. The effect of purchase must be that there remains issued ordinary shares in the company
apart from treasury shares and redeemable shares. Recall the importance of ordinary
shares.
6. Any shares acquired from buyback and held as treasury shares shall be registered in the
name of the company in the company’s register of members.
7. Payment for buyback shall be made from distributable profits

Whose shares can be bought back? S. 186

•From existing shareholders and security holders (that is, holders of redeemable shares)
•From existing shareholders under a court sanctioned scheme of arrangement
•From the open market
•From employees to whom shares/securities have been issued pursuant to a share option or
similar scheme

Can a company buyback its entire shares? NO. S. 187

•Shares purchased from a buyback are held as treasury shares. A company shall not hold
more than 15% of shares as treasury shares. Hence, a company shall not acquire more than
15% of its shares.
•Acquiring more than 15% is a contravention but not of major consequence. Provided that
within 12 months from when the 15% threshold is exceeded, the reissues the shares,
cancels the shares or does a combination of reissue and cancellation to enable it achieve
the threshold.

Considerations for Treasury shares

•Treasury shares shall not confer right to attend meeting and vote. Essentially it does not
make the company a shareholder.
•Treasury shares shall not attract dividend or other distributions even during members
winding up.
•If treasury shares are listed as assets on balance sheet of public company, an amount equal to
value of treasury shares shall be transferred from the distributable profits of the company
to a reserve fund and shall not be available for

Variation Of Class Rights – S. 166-169

•S. 143 CAMA provides that a company may issue shares of different classes. Hence, there
may be multiple classes of shares in one company. The easiest example is the existence of
preference shares and ordinary shares. Preference shareholders usually receive preference
in payment of dividends (preference dividends which are usually fixed and cumulative).
Recall that preference shares is quasi debt.
Variation of the rights of any class of shares is therefore a form of internal
restructuring.
Example – Imagine that Macdon Plc has 100 ordinary shareholders who have invested 1m
each. The company therefore has 100m Naira as its capital. But it wants to invest in
machinery that costs 500m Naira. It requires financing to purchase and install this machinery.
It approaches investor Jazzy who agrees to invest by buying convertible preference shares of
500m Naira, the cost of the machinery. The investment is on the condition that the the
preference shares will rank first and the company will pay 20m every year for 5 years as
preference dividend, and in the 6th year, will redeem the 500m or convert it to ordinary
shares if investor Jazzy so desires. Now, Macdon Plc has purchased the machinery, but needs
to invest in hiring experts to run the machinery and to invest in software that will enable the
machinery function optimally. Both investments will cost 400m. They have approached
Investor Sabinus to invest 400m in the company. Investor Sabinus also wants to acquire
preference shares in the company on the condition that his shares will rank first and receive
payments before Investor Jazzy’s preference shares.

How Can Class Rights Be Varied? S. 166 Cama

•In accordance with the provisions set out in the Articles of the Company
•If Articles does not provide, then with consent in writing by holders of ¾ of the shares of
that class, or by special resolution passed at a general meeting of the holders of the shares of
that class. General meeting of that class shall be like general meeting in CAMA except with
respect to quorum.
•Any attempt to amend the Company Articles by inserting a clause that seeks to vary class
rights will be deemed to be a variation of class rights. - S 166(4) CAMA

When Can Variation Be Done?

•Anytime, Including During Winding Up. S. 166 CAMA
Can Variation Be Challenged? S. 167 Cama
Yes, by application to court made by holder of at least 15% of the issued shares of that class
who did not consent to or vote in favour of the resolution. Not of the shares of the entire
company, but of the class that is sought to be varied.
Application must be made within 21 days from date of resolution or consent.
NOTE: Variation of class rights is also contemplated under S.201 CAMA for debenture
holders.
WHAT IS A MANAGEMENT BUYOUT (MBO) ?
•Recall the difference between shareholders and directors. The Board of Directors and other
officers form the management.
•Recall that shareholders appoint directors to run or manage the affairs of the company
•In PLC, the Management oversees the affairs of the company for thousands of shareholders
who do not participate in day to day company activities.

•Management buyout is the process whereby the Management buys the shares of the
shareholders out from them such that the management team now becomes the new
shareholders and at the same time the managers. Essentially, a buyout is a form of acquisition
of company by internal players who know the ins and outs of the company. Typically,
management will pay for these shares using a mixture of their own funds and debt financing
often referred to as Acquisition Financing. Buyout may be for controlling or entire shares.
WHY IS AN MBO DONE?
Recall that the Management is charged with setting the strategic direction of the company.
However, shareholders need to approve certain actions of management, for instance bringing
in new investment to take preference shares thereby automatically varying the class rights of
ordinary shareholders. Without shareholder approval, preference shares will not be issued and
investment not brought in which may lead to the death of the company. Management is
interested in preserving the business of the company for so many reasons including hubris,
ownership of some shares, management benefits and payments, strategic position of company
in society.

WHY REGULATE AN MBO ?

Whenever an MBO occurs, different stakeholders are affected, thus regulations seek to
protect their interest. In a public company related MBO, the shareholders are large and some
of them are not intelligible to understand the effect of the MBO. Recall that directors have a
fiduciary duty towards the company and invariably the shareholders who make up the
company. So, the law will seek to ensure that the interest of the shareholder being the weaker
party is not ignored, or fiduciary position of director abused.
Also, employees, creditors and other stakeholders of the company will be affected by an
MBO. Hence why there is need to regulate it.

DOES CAMA REGULATE MBO?

No. CAMA does not make mention of buyout. However, given that an MBO is a form of
acquisition of company, any provision of CAMA relating to acquisition of company will
apply.

WHERE DO WE LOOK TO FOR MBO REGULATION? – SEC RULES – RULE 449

Will SEC Rules apply to all MBOs? No. This is because SEC Rules is made pursuant to the
Investment and Securities Act. The introductory part of SEC Rules states that the Rules
provide participants in the capital market with a guide as to what is expected of them. Section
315 ISA defines market participant as any person (individual or corporate) involved in any
aspect of capital market transactions or operations.
This implies that it doesn’t matter whether the company is private or public, once the
company is a market participant, an MBO in that company must comply with SEC Rules.

PROCEDURE FOR MBO UNDER RULE 449

Management team making acquisition will file an application with SEC. The application shall
be accompanied with:
Resolution of the shareholders of the company approving the MBO
Resolution of the management team to undertake the MBO
Copy of certificate of incorporation of the company
A copy of the MemArt of the company
2 copies of the prospectus for the MBO which shall contain the profile of the company, the
profile of the management team, the objectives of the MBO, 5 years audited financial
statement/statement of affairs of the company, and the statement of the claims and litigation
of the company.
Sale agreement between the company and the management team. This agreement shall
contain the terms and conditions of sale; indemnity against the contingent liabilities of the
shareholder to 3rd parties and tax payments not disclosed; agreement to continue pension
scheme arrangement; sale and purchase of assets; contracts and creditors; transfer of
employees; assignment or retention of debt owed to Seller by 3rd parties; indication as to
whether the name of the company will be changed following buyout; any other information.

SHAREHOLDERS BUYOUT
The concept of shareholders buyout is a loose one. It is used loosely in the sense that minority
shareholders in a company may acquire the shares of the majority shareholders in a bid to
take control of the company. Hence, it is said that there has been a shareholder buyout. The
reason for this may include that the minority shareholders are able to bring in investment to
drive the company’s business. Therefore, the majority shareholders may agree to restructure
the company by transferring majority shares to the minority shareholders in consideration for
the minority shareholders bringing the required investment that will enhance the company’s
value.

EMPLOYEE BUYOUT
This is another loose term, but it envisages a situation where the employees of the company
agree to buyout the company from the shareholders usually to preserve the company and save
it from going under. The procedure will be that of a usual acquisition of company. However,
the warranties and representations will reflect the employee’s knowledge of the company.

DOWNSIZING
Downsizing is a form of internal restructuring where Management, with or without the
concurrence of employees, decide to downsize the operations and/or workforce of the
company in order to reduce the economic challenges hampering the progress of the
company.
Downsizing may be a spin off of some divisions of the company’s business that are not core
to the company’s survival or new strategic direction. For instance, in 2019, Dangote Group
spun off it Flour business by selling it to Crown Flour Mills Limited. This downsizing of
operations was perhaps to exit a non-core business and move in the direction of refining
crude oil.
Downsizing may also include laying off some members of staff who are not core to the
company’s survival or who are not important for the new direction that the company has
elected to move in. For instance, recall that during the covid19 pandemic, Airbnb laid off
several workers in order to deal with the loss of business occasioned by the global
lockdowns. That restructuring was important for the survival of the business. Else, its costs
would have exceeded its revenues thereby leading to possible default in payment of debt and
consequently, insolvency.
WHAT ARE ARRANGEMENTS AND COMPROMISES
Chapter 27 CAMA deals with Arrangements and Compromise. By S 710 CAMA, the word
Arrangement means a change in the rights or liabilities or members, debenture holders or
creditors of a company or any class of them , or in the regulation of a company, other than a
change effected under any other provisions of CAMA or by unanimous agreement of all the
parties affected.

Essentially, arrangements and compromise are the different ways by which a company
negotiates/renegotiates the debts and affairs of the company with its members, creditors,
debenture holders and other stakeholders.

•Example – A company may propose to its debenture holders to relinquish their security, or
to permit the creation of a prior or pari passu charge; or undertake to pay the debt off earlier
than agreed and prior to any restructuring

Two-way compromise
A scheme of arrangement or compromise must be a genuine and effective arrangement or
compromise. This means that the members and creditors of the company that participate in
the scheme must obtain some advantage that compensates them for the scheme's alteration of
their rights.
A scheme that simply expropriates the rights of members or creditors is not a compromise or
arrangement with the company (Re NFU Development Trust Ltd [1973] 1 All ER 135).
In deciding whether a scheme represents a genuine compromise or arrangement, the court can
take into account the wider context of the restructuring (for example, by reviewing the
position of the company's group). In Re Bluebrook Ltd [2009] EWHC 2114 (Ch), the High
Court considered three schemes of arrangement to release creditors' claims against three
group companies. The schemes were part of a wider restructuring arrangement under which
the released claims were to be substituted by new claims against the restructured group. The
court therefore found the schemes constituted a valid compromise.
An issue that arose in Re AGPS Bondco plc [2024] EWCA Civ 24 was whether the court had
the power to sanction a plan involving cram-down where dissenting plan creditors bore a risk
of non-payment, whereas the shareholders of the plan company's parent (who would rank
below the creditors in a formal insolvency) retained their shareholdings albeit diluted.
Although, on appeal, the court declined to sanction the plan on other grounds, Snowden LJ
said the court had no power under Part 26A to sanction a plan that involved the compulsory
cancellation or transfer of the shares in a debtor company for no consideration. He disagreed
with the finding in Re Prezzo InvestcoLtd [2023] EWHC 1679 (Ch), that the concept of an
“arrangement” could not require some form of consideration to be provided to out-of-the-
money creditors. Snowden LJ's view was that it did not follow from the introduction of the
cross-class cram-down power and the terms of Condition A that Parliament also intended to
introduce a power to extinguish claims or confiscate shares for no consideration.
In Re CB&I UK Ltd [2024] EWHC 389 (Ch), the judge noted, following the Court of
Appeal's obiter comments in AGPS, that a proposed payment to the dissenting creditor of
$800,000 was, while very small compared to the debt of $1.3 billion, sufficient to pass the
apparently low jurisdictional threshold for it to be a “compromise or arrangement”.

Examples of when schemes of arrangement are used include:

•Restructuring insolvent companies.
•Group reorganisations.
•Acquisitions.
•Demergers.
•Removing minority shareholders.
•Settling a solvent insurance company's uncertain long-term liabilities.
•Return of capital to shareholders.
•Conversion of Debentures to Shares
•CVA
•Variation of Rights
•Compromise with Creditor

Examples of when schemes of arrangement are used include:

1. Restructuring insolvent companies: Schemes have frequently been used to implement a
wide range of debt restructuring mechanisms.
2. Group reorganisations: A large proportion of schemes are carried out to implement
solvent group reorganisations. For example, a scheme can be used to insert a new holding
company above an existing company in a group's corporate structure. This might be done
to change the group's domicile, among other reasons. Subject to the required formalities
and approvals, schemes can be used to bind all members of the relevant class(es) of
creditors and/or members to almost any type of reorganisation.
3. Acquisitions: In certain circumstances a scheme can be an appropriate alternative to a
straightforward takeover offer for a target company.
It is worth noting that schemes have often been the structure of choice to effect
recommended deals, for example, because of the lower threshold to acquire control over
100% of the target. On a scheme under S 711 and 715, this is 75% by value of those
voting whereas, on a takeover offer under S 712, the bidder has to secure 90% of the
shares to which the offer relates to be able to acquire the minority's shares compulsorily.
4. Removing minority shareholders: Schemes may be used to remove minority
shareholders. In many respects this is similar to using a scheme for an acquisition,
although the majority shareholder would normally consent to be bound by the scheme in
its capacity as purchaser rather than as shareholder. It would ensure that any dissenting
shareholder would be bound by the scheme.
5. Settling a solvent insurance company's uncertain long-term liabilities: In insurance
and reinsurance businesses, especially long-tail insurers, companies can be burdened with
uncertain liabilities that may not be fully known or quantified for years (e.g., asbestos,
environmental, or latent injury claims). Even if the company is solvent, these open-ended
liabilities can prevent it from closing its books or distributing capital to shareholders.To
manage this, companies often use Schemes of Arrangement. A scheme allows the
company, with court approval and stakeholder consent, to estimate and settle such
 liabilities, effectively enabling an orderly run-off or closure-even for complex future
liabilities.In Re Hawk Insurance Company Limited [2001] EWCA Civ 241Hawk
Insurance was a solvent insurance company but had long-term uncertain liabilities,
mainly from reinsurance contracts.The company wanted to enter into a Scheme of
Arrangement to estimate and pay out all outstanding and future liabilities, so it could
wind down its affairs in an orderly manner.The proposed scheme allowed claims to be
valued and paid based on actuarial estimation methods— even if they would only arise in
the future-thus enabling a final settlement and discharge of liabilities.Some creditors
(policyholders and reinsurers) objected, arguing that such a scheme was inappropriate,
especially where claims had not yet crystallized. They questioned whether the court had
jurisdiction to approve such a scheme. The Court of Appeal upheld the scheme and ruled
that the company could indeed use a Scheme of Arrangement to value and compromise
future or contingent claims. The court accepted that:A solvent insurance company could
use the scheme process to estimate and pay off uncertain future liabilities.The court had
jurisdiction to approve such schemes, even if claims were unliquidated or contingent.
6. Demerger: A single company and members of its group may undertake several different
business activities. Sometimes it can be beneficial to segregate these activities by
transferring distinct businesses into separate companies or groups of companies, for
example groups of companies may want to hive off non-core businesses as they mature.
The term demerger describes the segregation of business activities which are then,
initially, held under common or related ownership. After the demerger, it is usual for the
shares in the company being demerged (the demerging company) to be held by the same
holders, in the same proportions, as shares held in the demerging company before the
demerger.
7. Bringing certainty to uncertain future claims: Another use of Schemes may be to
provide certainty where a company (otherwise solvent) faces uncertain future claims.
In Re People's Energy (Supply) Ltd (in administration) [2023] EWHC 2610 (Ch) the
court convened a meeting of creditors to vote on a scheme that would impose a "hard bar"
date for claims arising out of a data breach and a streamlined adjudication process for
creditors wishing to challenge decisions of office holders to reject claims or as to
quantum. The court sanctioned the scheme after making a minor variation to extend the
period for bringing data breach claims from three to six months (Re People's Energy
(Supply) Ltd (in administration) [2024] 5 WLUK 146).
8. Return of capital to shareholders: A company can structure a return of capital to
shareholders by using a scheme of arrangement, among other ways. The scheme route
involves a reconstruction, with a new holding company being inserted between a
company and its shareholders.
9. Conversion Of Debentures To Shares: In the event that a company finds itself in
financial difficulty, it may approach a debenture holder for an arrangement to forego
redemption or repayment of the debenture to shares in the company. By so doing, the
debenture holder will exit a debt position and take up an equity position in the company.
The debenture holder may also opt to retain some debt while converting some debt to
equity thereby maintaining a hybrid role in the company.
10. Variation Of Rights Of Class Members By Creating Prior Or Pari Passu Interest:
This has been discussed under variation of class rights. The point to note is that it is type
of arrangements and compromise.

VOLUNTARY ARRANGEMENTS S. 434 – 442 CAMA

CAMA defines a Voluntary Arrangement as a proposal made by the directors of a company
creditors for a composition in satisfaction of its debts or a scheme of arrangement of its
affairs. The Proposal will state that a nominee who is qualified to act as an insolvency
practitioner in relation to the company will act as a trustee for the purpose of supervising the
implementation of the proposal

A Voluntary Arrangement is made in 2 situations – the first is where an administration order

is in force in relation to the company, that is when the company is in administration. And
secondly, when the company is being wound up by the liquidator.

The nominee may be the liquidator of the company or the administrator. Where the nominee
is not the liquidator or administrator, the provision of S. 435 CAMA will apply. Here there is
need for the nominee to submit a report to Court within 28 days after he is given notice for
the voluntary arrangement.

The report to Court shall state whether in his opinion meetings of the company and the
creditors should be summoned to consider the proposal. If yes, he should propose a time and
place for such meetings.

It is the responsibility of the directors making the proposal to give the nominee the following
documents to enable him prepare his report.
1. It is the responsibility of the directors making the proposal to give the nominee the
following documents to enable him prepare his report:
2. A document setting out the terms of the proposed voluntary arrangement
3. A statement of the company’s affairs containing particulars of its creditors, its debts and
other liabilities as well as its assets; and any other information.
4. Where the Nominee fails to submit the report, the directors may apply to court to replace
the nominee.
5. Where the nominee is the liquidator or administrator, there is no need to apply to court
before a meeting is summoned.
6. The persons to be summoned to a creditors’ meeting are every creditor of the company
of whose claim and address the nominee is aware. Note that separate meetings of
Creditors and of the Members will be held.
Provisions are made in CAMA for challenge of decisions made in a creditors meeting,
approval of an arrangement, implementation of the arrangement and the appointment of
Supervisor.

COMPROMISE WITH CREDITORS AND/OR MEMBERS S. 715 CAMA –

•In the life of a company, certain situations may arise that will make either the members or
the creditors or both of them, to make compromises or enter into arrangements that will
adjust their rights and obligations, in the interest of the Company and other stakeholders.
•Where a compromise or arrangement is proposed between a company and its creditors or
any class of the creditors, the Court may order a meeting of the creditors, or class of creditors,
or members or class of members.
•The court’s order above shall be based on a summary application made by either the
company, or any of its creditors, or the members, or if the company is being wound up, the
liquidator.
•If ¾ of the members or of the value of shares of members, or class of members, or creditors
or class of creditors who are present and voting, should reach a compromise or arrangement,
the court may refer the compromise or arrangement to SEC which shall appoint one or more
inspectors to investigate the fairness of the compromise and make a report to the court on
same.
•If court is satisfied with the fairness of the arrangement or compromise, it will sanction same
and it becomes binding on the company and/or the members of the class of
members/creditors or the liquidator in the case of a company in liquidation.
•Order of Court shall not have effect until CTC of same is delivered by the Company to CAC
for registration and a copy of every order shall be annexed to every copy of the memorandum
of the company issued after the order has been made.

By S. 716 CAMA, when a meeting is summoned, the notice of such meeting if sent to
members/creditors, shall be accompanied by a statement explaining the effects of the
compromise or arrangement and the interests of any directors. If such notice is advertised, the
advert will state that the members/creditors are entitled to request a copy of the statements
(this is because the statement cannot be advertised). Where any such request is made by a
member/creditor, the company shall send the statement free of charge. Failure to send
statement is an offence.

The commencement of an arrangement and compromise places a 6-month moratorium on a

creditors voluntary winding up. S. 717 CAMA.

Procedure for Arrangement or Compromise

1.BOD prepares the Scheme
2.Application to court for meetings – Who can apply? S715 (1)
3. Summon the meeting-NB every notice summoning the meeting may be included a
statement explaining the effect of the arrangement or compromise.
4.Special resolution would be passed approving the scheme
5.The scheme would be referred to court for approval
6.The court may refer the scheme to SEC
7.SEC shall appoint inspectors to investigate the fairness of the scheme
8.Report to court by the inspectors
9.If the court is satisfied by the report of the inspectors that scheme is fair, it shall sanction it
10.The scheme would then be implemented

ARRANGEMENT ON SALE S. 711&714 CAMA

In simple terms, this is an arrangement that will result in the sale or transfer of the company’s
shares or assets to another company, in consideration for shares or debenture in that other
company.

CAMA makes a distinction between ‘Arrangement or compromise between two or more

companies’ and ‘Arrangement on sale of company’s property during members’
voluntary winding up’. The point to note is that both procedures will result in the shares or
property of this company moving to a new company. However, while one process is
conducted without a winding up and may end in a dissolution of the company (not winding
up), the other process is done as part of a members voluntary winding up.

Arrangement between two or more companies for transfer of shares/assets –

here, Macdon Plc and Venture Plc for instance may enter into a scheme of arrangement for
the whole or any part of the undertaking of Macdonto be transferred to Venture in
consideration for Macdon shareholders to get shares in Venture. In this case, a summary
application shall be made to court by either party, for the court to order separate meetings
of Macdonand Venture to be summoned in such manner as the court may direct.

Arrangement between two or more companies for transfer of shares/assets Cont’d– if ¾

of the share of members present and voting in each of the separate meetings of Macdon and
Venture agree to the scheme, an application shall be made to the court by either of the
companies or both of them, to sanction the scheme.

The Court may in addition make an order transferring the undertaking, property and/or
liabilities of the transferor company, and for allotting/appropriating shares/debentures/other
interests in the transferee company to the transferor company. The court may also make an
order for any legal proceedings by or against the transferor company to be continued by or
against the transferee company.

Further, an order may be made for the dissolution or winding up of the transferor company,
and for provisions to be made for persons who dissent from the arrangement.

Where an order is made sanctioning the scheme, the companies in relation to which the order
is made shall cause an office copy of the order to be delivered to CAC for registration within
7 days after the making of the order. A notice of the order shall be published in the federal
government gazette and in at least one national newspaper. Failure will lead to fine by CAC.

Arrangement on Sale (members voluntary winding up) – Here, a company with a view to
effecting an arrangement may by special resolution resolve that the company be put into
members voluntary winding up, and that the liquidator be authorised to sell the whole or part
of its undertaking to another company in consideration of fully paid shares in that other
company and for the shares to be distributed to the shareholders of the transferor
company according to their rights in liquidation.

The liquidator shall be appointed by the company at the meeting in which special resolution
is passed for the arrangement on sale.

Once appointed, the liquidator will convene a meeting of the shareholders and/or creditors to
approve the scheme of arrangement.

The Directors of the company shall make a declaration of solvency as the basis of the
members voluntary winding up. Thus, they will express their belief that the company is
solvent and the company can be put in members voluntary winding up. Recall that if the
company is not solvent, creditors will have priority and will appoint liquidator

Any sale or distribution under this provision is binding except if

•within 1 year from the date of passing the resolution, an order is made by the court under S.
353-355 CAMA on grounds of unfairly prejudicial and oppressive conduct. Or an order is
made by the court for a creditors’ voluntary winding up.
•Or within 30 days from the passing of the special resolution, a member writes the liquidator
dissenting in respect of his shares being sold. In this case, the liquidator shall either abstain
from effecting the special resolution or shall purchase such shares.
•The purchase price shall be determined by the agreement of the parties in the case of a
private company without foreign participation. However, where there is foreign participation,
or the company is a public company, SEC shall determine the price. The company must pay
the dissenting shareholder before the company is dissolved.
•The liquidator as in a members voluntary winding up, shall convene a final dissolution
meeting where the accounts of the winding up exercise and the liquidator’s report would be
considered by the members.
Note that the major difference between the arrangement and compromise between 2 or
more companies under S. 711 CAMA, and the arrangement on sale during members
voluntary winding up under S. 714 CAMA is that while under the S. 711 procedure,
application to court is a prerequisite.
However, under the S. 714 procedure, there is no need to apply to court unless a dissenting
member makes an unfairly judicial conduct application, or the creditors not being satisfied
with the Directors’ declaration of solvency, apply to court to show that the company is not
solvent and that the members voluntary winding up be converted to a creditors’ voluntary
winding up. If the court finds that the company is solvent, it will refuse the application.
Also, where the liquidator abstains from carrying the special resolution into effect, the
members may apply to court to compel the liquidator to act.