company securities: shares, debentures and enforcement of securities.

A share represents a unit of the bundle of rights and liabilities which a shareholder has in a company as provided in the terms of issue and the articles. A share is a chose in action and is property transferrable as provided in the articles. Okoya v. Santili (1994) 4 NWLR (Pt. 338) 256, Section 139 CAMA, 2020.

The various types of shares are:

• a. Ordinary shares.
• b. Preferential shares. Section 144 CAMA, 2020.
• c. Founder or deferred shares.

The methods by which shares may be acquired are as follows:

• a. By subscribing to the Memorandum and Articles of Association of a company at the time of incorporation.
• b. By allotment.
• c. By transfer.
• d. By transmission or operation of the law.

The procedure for the allotment of shares where the issue f shares is not made public is as follows:

• a. The proposed shareholder submits a written application to the company signed by him and indicating the number of shares required.
• b. The company records the applications in Application and Allotment Sheets.
• c. The company secretary must ensure that the authorized but unissued shares can accommodate the proposed allotment, if not, the company must first increase its share capital. Okoya v. Santili.
• d. Allotment is made and approved by special resolution of the general meeting or if delegated, by the resolution of the Board of Directors.
• e. The allottee is notified within 42 days after the allotment, of the allotment and the number of shares allotted to him. Dangote Industries v. Bank PHB Plc.
• f. Letters of Renunciation are sent out, where necessary.
• g. Return of Allotments (Form CAC 2A) is filed at Corporate Affairs Commission within one month after allotment together with the following documents:
• 1. Special resolution signed by two directors of the company
• 2. Updated annual return filing.
• 3. Evidence of payment of FRC annual dues and other prescribed fees.

• 4. Other than cash necessary requirements
     

• h. Entry of the allottee’s name in the Register of Members within 28 days of allotment. Ezeonwu v. Onyechi.
• i. The Share Certificates are prepared and delivered to the allottee within two (2) months of the allotment. Section 171 (1) CAMA, 2020.

The procedure for public issue of shares is as follows:

• a. Prospectus is issued upon securities being offered.
• b. Application is made in pursuance of the prospectus and Subscription list is left open.
• c. Recording of applications in Application and Allotment Sheets.
• d. The company secretary must ensure that the authorized but unissued shares can accommodate the proposed allotment, if not, the company must first increase its share capital. Okoya v Santili.
• e. No allotment shall be made of any securities of a company offered to the public for subscription unless the subscription level exceeds the minimum percentage prescribed by Securities and Exchange Commission.
• f. Allotment is made and approved by special resolution of the allotment committee.
• g. The Secretary will issue letters of Allotment and letters of regret in case of oversubscription. Unsuccessful applicants will be issued letters of regret with a cheque enclosed for the payment made on the unallotted shares.
• h. Deal with Letters of Renunciation if any.
• i. Return of Allotments Form CAC 2A will be filed at CAC within one month after allotment together with the following documents:
• 1. Special resolution signed by two directors of the company.
• 2. Updated annual return filing
• 3. Evidence of payment of FRC annual dues and other -prescribed fees
• 4. Other than cash necessary requirements
• j. Alter the register of members: Enter allottee’s name in the Register of Members within 28 days of allotment. Ezeonwu v. Onyechi
• k. The Share Certificates are prepared and delivered to the allottee within two months of allotment.

The transfer of shares may be effected by delivery of a proper instrument of transfer to the company and the subsequent registration of the transferee in the register of members. The transferor is deemed to remain a holder of the share until the name of the transferee is entered in the register of members in respect of the shares. Ferris George & Sons Ltd. v. Khoury (1965) 1 All NLR 91, Starcola (Nig.) Ltd. v. Adeniyi (1972) 1 All NLR (Pt. 1) 49, Section 175 (1) (2) CAMA, 2020.

Where vendor sells all the shares in his certificate, the procedure is thus:

• a. The vendor delivers to the purchaser an instrument of transfer duly executed together with the share certificate.
• b. The instrument of transfer is presented at the Federal Inland Revenue Service office for stamping.
• c. The vendor gives both the original share certificate and the duly stamped instrument to the purchaser.
• d. The transferee will lodge the instrument of transfer and share certificate with the company for registration.
• e. Upon registration, a new share certificate is issued to the transferee, and the name of the transferee is entered into the Register of Members and the old share certificate is cancelled. Until such registration, the transferor still remains the holder of the share.
• f. The new share certificate must be issued within 3 months from the date of entering the transferee’s name into the register of members.
• g. Within 14 days of the transfer, a notice of the transfer must be sent to the Corporate Affairs Commission. The following documents should accompany the notice:
• 1. Duly stamped instrument of transfer.
• 2. Evidence of payment of FRC annual dues and other prescribed fees.

Where the shareholder wants to transfer some of his shares to a single transferee or all of his shares to more than one person, the procedure is as follows:

• a. The vendor and purchaser execute an instrument of transfer.
• b. The instrument of transfer is presented for stamping.
• c. The transferor takes the stamped instrument of transfer and his original share certificate to the company with a request to recognize and register the instrument. Section 181(1) CAMA, 2020
• d. The company endorses on the instrument of transfer the word ‘Certificate Lodged’. Section 181(2) CAMA, 2020.
• e. The company will issue a new share certificate to the transferor to reflect his remaining shares and another certificate to the transferee(s) within 3 months reflecting the shares transferred while cancelling the old share certificate.
• f. The names of the transferor and transferee are entered in the Register of Members together with their new shareholdings within 28 days of the transfer
• g. Within 14 days of the transfer, a notice of the transfer must be sent to the Corporate Affairs Commission. The following documents must accompany the notice:
• 1. Duly stamped instrument of transfer.
• 2. Evidence of payment of FRC annual dues and other prescribed fees.

This is the vesting of shares in the personal representatives on the death of the shareholder. On the death of a member, the survivors, where the deceased was a joint holder or the personal representative of the deceased where he was a sole holder, shall be the only persons recognized by the company as having any title to his interest in the shares. Transmission signifies a change in ownership by operation of law otherwise than by ordinary transfer, which is either by death, unsoundness of mind or bankruptcy. Section 179(1) CAMA, 2020. Tika Tore Press Ltd. v. Abina (1973) 1 All NLR (Pt. II) 244.

When shares are issued, a specified sum may be paid on allotment and the balance paid subsequently. The demand to pay any sum outstanding on shares allotted is referred to as call on shares. The call on shares is made by the directors in accordance with the articles where shares are not payable in full on allotment. Section 158 CAMA, 2020.

A person who acquires shares in a company is liable to pay the price of the shares or the amount remaining unpaid on the shares. Payment for shares may be made in cash or, by valuable consideration other than cash where the articles of association of the country permits. Payment in cash may be by the actual handing over of cash in the form of legal tender or cheque or similar instrument. Section 160 and Section 161 CAMA, 2020. A company may however agree to accept consideration other than cash in part or full as payment for shares. Where a public company agrees to accept payment for its shares by a consideration other wholly in cash, it shall appoint an independent valuer who will determine the true value of the consideration. Section 162 (1) CAMA, 2020.

The procedure where there is payment for shares in consideration otherwise than in cash:

• a. The Articles of Association of the company must give the company the power to accept consideration other than cash. Section 160 CAMA, 2020.
• b. The company appoints an independent valuer to prepare a report on the value of the consideration.
• c. Within 3 days after receiving the valuer’s report, the company sends a copy of it to the proposed purchaser of the shares, indicating to him whether or not the company will accept the consideration as payment or part-payment for its shares.
• d. Before the company can accept the consideration other than cash, the value must equate with the nominal value of shares given to the proposed shareholder. That is, the true value of the consideration must not be less than the value of the shares being exchanged.
• e. The shares are allotted to the proposed purchaser.
• f. Where the consideration involves transfer of technology, an application is made to the National Office for Technology Acquisition and Promotion and the following are submitted for filing of notice of transfer of shares:
• 1. Duly stamped instrument of transfer.
• 2. Evidence of payment of FRC annual dues and prescribed fees.
• g. A notice of transfer of shares is be filed with the Commission within 14 days of the transfer.
• h. An agreement or contract transferring the title of the allottee in the property used as consideration to the company or a Memorandum of Understanding for services rendered is prepared. Where the property is land or interest in land, then deed of transfer is prepared.
• i. Within a month after the allotment, CAC Form 2A, accompanied by the following documents listed under Section 154 CAMA, 2020 is prepared and filed.
• j. Where consideration involves capital investment of N20, 000 or more, application is made under the Industrial Inspectorate Act.

Lien on shares is an equitable charge on shares which are not fully paid for, which a company has and it entitles the company to sell the shares. The company has a first and paramount lien on shares for all monies outstanding unpaid on any such shares. Section 164 (1) CAMA, 2020. A company’s lien on a share extends to dividends payable on that share and also to any bonus shares issued in relation to such share. Section 164 (2) CAMA, 2020.

Forfeiture of shares occurs if a member fails to pay any call or installment of a call on the day appointed for payment. The directors may at any time, serve on a member, a notice requiring him to pay up together with any interest that has accrued on unpaid shares. Section 165 (1) CAMA, 2020.

A person whose shares have been forfeited ceases to be a member in respect of the forfeited shares but shall be liable to pay for shares not forfeited. Forfeited shares can be sold or disposed of in any manner the directors deem fit. Section 165 (4) (5) CAMA, 2020.

Every company must within 2 months after the allotment of any share and within 3 months after the lodging of share transfer, complete and have ready for delivery the certificate of all the shares allotted or transferred. Section 171 (1) CAMA, 2020.

A dividend warrant is an instrument used for paying dividend due on profits to members. It is now regarded as a negotiable instrument. However, dividend warrant is no longer in use as E-dividend is what is currently in use.

Yes, Mr. Bolu Akande can proceed to attach Mr. Harris Spiff’s shares at Billit Imperial Ltd. t settle the judgment debt owed to him. This is because shares held by a debtor in a public company or corporation may be attached and sold by a judgment creditor. This is made possible by Order V Rule 1 of the Judgment Enforcement Rules under the Sheriffs and Civil Process Act.

Debentures are instruments issued to lenders to acknowledge indebtedness by a company. The instrument is often, but not necessarily, by deed. Union Bank of Nigeria Ltd. v. Tropic Foods Ltd. (1992) 3 NWLR (Pt. 228) 321.

The various types of debentures are:

• a. Perpetual Debentures: These are debentures that are made redeemable or irredeemable only on the happening of a contingency however remote, or on the expiration of a period however long. Knight Bridge Estate Trust v. Byrne, Section 196 CAMA, 2020.
• b. Convertible Debentures: These are debentures which are issued upon the terms that in lieu of redemption or repayment, they may at the option of the holders or the company, be converted into shares in the company upon the terms as stated in the debentures. The conversion of the convertible debentures amounts to allotment and all the formalities for allotment must be complied with. Section 197 CAMA, 2020.
• c. Secured and ad Naked Debentures: A secured debenture is that which is secured by a charge over the company’s property and it may be so secured by a fixed charge or by a floating charge while a naked debenture is one which is not secured by a charge. Section 198 CAMA, 2020.
• d. Redeemable Debentures: These are debentures which are liable to be redeemed or which are liable to be redeemed at the option of the company at any time even before the time fixed. Section 199 and Section 200 CAMA, 2020.
• e. Registered debenture: A registered debenture is a debenture which is only repayable to the registered holder of the instrument, that is, the person whose name appears on the instrument and whose name is in the Register of debenture holders. A registered debenture is not a negotiable instrument and is only transferable in the manner prescribed by the debenture instrument or by the debenture trust deed. They are restricted to the registered debenture holder and operates only between the registered debenture holder and the borrower company.
• f. Bearer Debenture: Unlike a registered debenture which is only repayable to the person whose name appears on the instrument, a bearer debenture is repayable to the holder or bearer of the debenture instrument. This is because it is transferable negotiable instrument and payable to the holder in due course.
• g. Syndicated loan debenture: This type of debenture is also known as pari-passu mortgage debenture or series of debentures. This is a where a group or consortium of lenders agree to loan money and have their debentures secured by a fixed or floating charge or both on one asset as security, the value of which outweighs the total loan advance. It is pari-passu because the lenders agree that they would not observe priority of interest but that their interest shall be equal in rank.

The essential features of the creation of a syndicated loan debenture are:

• a. There must be at least two debentures created in series and secured by a single asset of the borrower company.
• b. The interests of the individual lenders are to rank pari passu or equally in priority notwithstanding their individual contributions.
• c. It is created through a debenture trust deed so that the legal personalities of the individual lenders can be subsumed in the trustee.

For a loan from one person or a few persons, a simple debenture deed is used. A simple debenture is usually in the common form with conditions endorsed at the back. A loan from a large number of persons is done by issue of debenture stock under a trust deed entered into between the company and trustee of the debenture holders.

According to Section 193 of the Companies and Allied Matters Act, every debenture shall include a statement of the following matters:

a. The principal amount borrowed; b. The maximum discount which may be allowed on the issue or re-issue of the debentures, and the maximum premium at which the debentures may be made redeemable. c. The rate of and the dates on which interest on the debentures issued shall be paid and the manner in which payment shall be made. d. The date on which the principal amount shall be repaid or the manner in which redemption shall be effected, whether by the payment of instalments of principal or otherwise. e. In the case of convertible debentures, the date and terms on which the debentures may be converted into shares and the amounts which may be credited as paid up on those shares, and the dates and terms on which the holders may exercise any right to subscribe for shares in respect of the debentures held by them. f. The charges securing the debenture and the conditions subject to which the debenture shall take effect.

Debentures may be secured by fixed or floating charges. A fixed charge is a mortgage of a specified property of the company while a floating charge is an equitable charge over the whole or specified part of the undertaking or assets of the company including cash and uncalled capital both present and future.

The procedure for the creation of charges are set out as follows:

• a. Convene board meeting to pass a resolution authorizing the loan.
• b. Preparation, execution and stamping of the loan documents which include:

• 1. Deed of mortgage (charged by way of legal mortgage or debenture).
     

• 2. Power of Attorney (if any)
• 3. Debenture Trust Deed (if necessary)
• c. Obtain Governor’s consent for the legal mortgage if necessary (where landed property is involved).
• d. File documents at Land Registry (if landed property is involved)
• e. Within 90 days of the creation of the debenture, file documents for registration at the Corporate Affairs Commission:
• 1. Duly stamped and sealed deed of mortgage with counterpart copy
• 2. Duly completed form for notice of charge as in Form CAC 8 which is the Particulars of charge.

• 3. Court order where applicable (court order extending time within which to register)
     

• 4. Photocopy of previous registered deed in the case of upstamping
     

• 5. Evidence of payment of fees
• 6. Evidence of application of governor’s consent duly submitted to the appropriate authority, if applicable
• f. Obtain certificate of charge from the CAC and have a copy endorsed on every debenture or certificate of debenture stock.
• g. Leave copies of documents for inspection at the Registered Office of the company.
• h. Enter the particulars of charges in the Register of Charges and also in the Register of Debenture Holders (within 30 days of creation).
• i. On the satisfaction of the charge, file statement of satisfaction in whole or in part of a charge – Form CAC 10 along with deed of release or other instrument.
• j. Notify the Corporate Affairs Commission of the appointment of a receiver or manger upon the enforcement of the security.

The procedure for the discharge of a charge is as follows:

• a. Execute a deed of satisfaction or release of debenture between the parties.
• b. Within fourteen (14) days after the release or satisfaction, file notice of release or satisfaction of the charge as in Form CAC 9 with the following documents:
• 1. Duly stamped deed of release.
• 2. Evidence of payment of fees.
• c. Collect a certificate of satisfaction.

Failure to register a charge as require will render it void against the liquidator and any creditor of the company. The obligation to pay the debt is however, not hereby discharged. Capital Finance Co. Ltd. v. Stokes (1969) 1 Ch. 261, Section 222(1) CAMA, 2020.

When a company issues a debenture, certain records are kept namely;

• a. Register of charges. Section 216 CAMA, 2020.
• b. Record of instruments. Section 215 CAMA, 2020.
• c. Register of debenture holders. Section 218 CAMA, 2020.

The remedies available to debenture holders are the following:

• a. Recovery of Principal and Interest: Where there is a default in the payment of the principal and interest, whether the debenture is secured or an unsecured one, the debenture holder can proceed with an action in court against the company to recover the principal and interest.
• b. Petition for winding up: The debenture holder can bring a petition for winding up of the company as a creditor of the company if the company is unable to pay the principal and or interest. Section 571(d) CAMA, 2020.
• c. Debenture holders’ action: This is a representative action brought by one or more of the debenture holders to recover the principal sum and interest when the debenture is one of a series. Section 233(2) (a) CAMA, 2020. A secured debenture holder also has the following recourse:
• 1. He may institute a debenture holder’s action by which he may sue on behalf of himself and all other debenture holders to obtain payment and enforce his security by sale.
• 2. He may exercise the power to appoint a receiver or managers under an enabling power in the debenture or he may apply to court for the appointment.
• 3. He may apply to court for foreclosure of the company’s right to redeem the debentures.
• 4. He may proceed to sell the charged property if such a power is conferred by the debenture instrument.
• 5. If a company is insolvent and his security is insufficient, he may value his security and prove for the balance. In the alternative, he may surrender his security and prove for the amount of the debt.
• d. Sale: The power of sale may be exercised in the following circumstance:
• 1. If there is power in the debenture or trust deed. Where there is a single debenture, it will normally contain power of sale to be exercised by the receiver. Even where there is no express power, the implied power of sale by a mortgage may be exercised. Where there is a trust deed, there will normally be an express power of sale and a sale of the company’s business operates to determine the contract of service of the employers.
• 2. On the order of court following a debenture holder’s action. When an order is made, the sale is generally carried out under the direction of the court and the purchased money paid into the court. The court may in special circumstances authorize sale out of court.
• e. Foreclosure: Foreclosure may be claimed and granted in a debenture holder’s action. The effect of the order of foreclosure is the same as for any mortgage, and the foreclosure may extend to the uncalled capital of the company. An order will not be made unless all the debenture holders of every class are parties to the action, but the court may order sale instead of foreclosure f it considers it just so to do.
• f. Valuation of security and providing for balance on winding up : Where the debenture is secured, the debenture holder is in the same position as any secured creditor of the company and therefore, on winding up, he may value his security and if it is insufficient, he may prove for the balance like any unsecured creditor.

According to Section 279(1)(c) of the Securities and Exchange Commission Rules, securities can be offered by the following ways:

• a. Direct Public Offer/Offer for subscription: The Company offers its shares to the public through an issuing house which is usually a bank or other financial institution by means of a prospectus.
• b. Offer for Sale: The Company sells the whole issue of shares or debentures to an issuing house which then invites the police to buy from it usually at a higher price.
• c. Private Placement: The Company sells its shares to an issuing house which offers or places the shares not to the public at large but to clients.
• d. Rights Issue
• e. Bonus Issue

Registrable securities are:

• a. All securities of public companies.
• b. Securities of collective investment schemes.
• c. Securities of investment trust companies.
• d. Securities of government and its agencies.
• e. Securities of supranational bodies. Rule 279 (1) (a) & (b), SEC Rules, 2013.

The conditions for the approval of private placement by public companies are as follows:

• a. The company shall show evidence of dire need of fresh funds or technical expertise.
• b. The securities shall not be offered to more than 50 subscribers.
• c. The Special Resolution of the company authorizing the placement shall state the number of shares to be offered and the price.
• d. The price of the securities of the company, if quoted, shall be on technical suspension during the period of placement.
• e. Satisfy the Securities and Exchange Commission that private placement remains the only viable option to achieving the company’s objective.
• f. The offer shall be for a period as proposed by the issuer and approved by the Securities and Exchange Commission but not exceeding ten (10) working days, provided that the Securities and Exchange Commission may extend the period under special circumstances.
• g. The aggregate number of shares to be offered through private placement by a public quoted company shall be 30% of its existing issued and paid-up capital prior to the offer, provided that where the company is ailing, it may offer a higher number of shares, subject to the approval of the Securities and Exchange Commission.
• h. The notice of the general meeting authorizing the placement shall be published in two national daily newspapers and evidence of the publications shall be filed with the Securities and Exchange Commission.
• i. All subsequent capital-raising shall be approved only upon satisfactory account of utilization of previous issue proceeds.

The forms of a prospectus are:

• a. Full prospectus: This document contains a detailed description of the prospectus.
• b. Abridged Prospectus: This is a summarized version of the prospectus containing the key requirements of a prospectus. This is usually in use because a full prospectus contains many documents, and is bulky.
• c. Deemed Prospectus: This is any document, though not titled a prospectus, for all intents and purposes contains, the basic requirements of a prospectus, used in offer for sale to the public of companies securities.
• d. Statement in lieu of prospectus: This is a statement delivered to the commission in place of a prospectus where a public company that intends to allot shares to the public has not issued a prospectus and in the case where the company has issued a prospectus but has not allotted the shares.