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The Role of Target Management in a Tender Offer: The Position in Nigerian Law

Published online by Cambridge University Press:  28 July 2009


A hostile tender offer is the most dramatic occurrence in corporate life. It pits incumbent management against the insurgent who claims to be getting rid of dead wood. The target shareholders usually incur large losses when management succeeds in defeating the offer and the target remains independent. An array of defensive measures have been used as embattled managers have fought to keep their seats. The validity and effectiveness of these measures depend largely on the regulatory scheme for tender offers in the particular jurisdiction and the legal duties of the directors.

Copyright © School of Oriental and African Studies 1996

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1 See Johnston, D., Canadian Securities Regulation, Toronto, 1977, 318Google Scholar. This is because it is an effective way of taking control of a company from its managers, even when the bidder is unwelcome. Essentially, its mechanics involve the bidder making a public declaration to all the relevant security holders of the target company that if they tendered their securities to a designated depository within a limited period they will receive a premium. Target security holders may find the premium irresistible, as it is the added value in excess of the prevailing market price of the securities. If the bidder obtains enough securities to give it control, the bidder will use the securities to vote out the existing board and install its own.

2 Empirical evidence shows that target firms experience statistically significant positive stock price responses following the commencement of a tender offer. See Jensen, M. and Ruback, R., “The market for corporate control: the scientific evidence”, (1985) 11 J. Fin. Econ. 3.CrossRefGoogle Scholar

3 Such as shark repellents, pac-man, poison pills, lock-ups, crown jewels disposals, share dilution and litigation.

4 For a study of the U.S. federal regulatory scheme and the regulatory scheme in the U.K., see Hurst, T., “Self regulation versus legal regulation”, (1984) 5 Co. Law 161,Google ScholarDeMott, D., “Current issues in tender offer regulation: lessons from the British”, (1983) 58 N.Y.U. Law Rev. 945Google Scholar, and Ogowewo, T.I., “The underlying themes of tender offer regulation in the UK and the US”, Journal of Business Law (forthcoming, 1996).Google Scholar

5 Uncoal Corp. v. Mesa Petroleum Co.. 493 A. 2d946, 954 (1985).Google Scholar

6 Cap. 59, Laws of the Federation of Nigeria. The Act is now designated as a “Decree”: see Revised Edition (Laws of the Federation of Nigeria) (Supplementary Provisions) Decree, 1992. Since Nigerian company law is a progeny of English company law, and English decisions are of persuasive authority in Nigeria, English case law is referred to in construing the CAMA. See Umoh, P.U., Precedent in Nigerian Courts, Enugu, 1984, ch. 13Google Scholar. Although the regulatory scheme for tender offers is contained in Chapter IV of Part XVII of the CAMA (ss. 594–613), other provisions within Part XVII but outside Chapter IV, and provisions outside Part XVII will affect the tender offer process. Furthermore, provisions in the Securities and Exchange Commission Act, 1988, Cap. 406 Laws of the Federation of Nigeria, 1990 (SEC Act) may also come into play, in addition to the extra-legal rules of the Nigerian Stock Exchange (see ch. 5 of the Rules Governing Listing on The Nigerian Stock Exchange). The SEC Act is now designated as a “Decree”: see Revised Edition (Laws of the Federation of Nigeria) (Supplementary Provisions) Decree, 1992. The provisions in Chapter IV, which are tailored specifically for tender offers, are based on “The working party report on take-overs and mergers” (Caribbean Community and Common Market Report 1980)—a project for the harmonization Company Law in the Caribbean Community—which itself draws heavily on the Eggleston Committee’s Second Interim Report on the Australian Uniform Companies Act, 1961. There are also a number of provisions that replicate the take-over bid provisions in the Canadian Business Corporation Act, 1985, C-44. The impacting provisions outside Chapter IV are based on Gower’s Draft Code on Company Law in Ghana: Final Report of the Commission of Enquiry into the Working and Administration of the Present Company Law of Ghana (1961).

7 See Ekineh, D., “Stimulating corporate growth and development through business combinations”, (1992) 9 SEC Quarterly (No. 3) 1.Google Scholar

8 For a critique of the scheme of arrangements provisions, see Ogowewo, T. I., “The dual statutory procedure for effecting a scheme of arrangement in Nigeria: law reform or retrogression”, (1994) 6 R.A.D.I.C. 594.Google Scholar

9 Apart from a tender offer and a scheme of arrangement, a take-over or merger can be effected by means of a stock market purchase or a reconstruction through a voluntary liquidation. For a comparative analysis of the British and Nigerian procedures for effecting a reconstruction through a voluntary liquidation, see Ogowewo, T. I., “Reconstructions by a voluntary liquidation in Nigeria: a step ahead of the British”, (1995) 16 Company Lawyer 317Google Scholar. Of course, where control is concentrated in a few hands, then a transfer of control may be effected by means of a private treaty.

10 The share ownership pattern in Nigeria as at 31 December, 1993, was as follows:

See statement of the Director-General of the Securities and Exchange Commission at a Conference of Zonal Shareholders Associations, held in Abuja. Reported in the Business Times, 12 December, 1994, 22.

11 In a company with many shareholders entitled to vote, since no shareholder expects his votes to decide a contest, no shareholder has the appropriate incentive to study the firm’s affairs and therefore vote intelligently.

12 I.e. where a shareholder acts and thus incurs costs in changing policy or management, the shareholders who do not contribute to this investment will share in the benefits that have been brought about by the change.

13 Two reasons explain the character of this atomistic investment community. First, banks—the financial institutions with the financial muscle to acquire large shareholdings—have traditionally been restricted from investing in companies: see s. 14(l)(f) of the Banking Act, Cap. 28, Laws of the Federation of Nigeria, 1990. (There is now a new Banking statute, the Banking and Other Financial Institutions Decree (No. 25) 1991 which relaxes the restrictions in the Banking Act: see s. 21(1).) A consequence of this is that powerful potential players were excluded from the investor community. In the U.S., the Glass-Steagall Act had a similar effect on the make-up of the investor community: see 12 U.S.C.A. s. 227. Secondly, until recently, the law discouraged institutional investors from investing in corporate securities; emphasis was placed instead on gilts, which traditionally always had lower yields: see Trustee Investment Act of 1962. This restriction partly explains why institutional shareholders are a recent phenomenon in Nigeria. (The Trustee Investment Act of 1962 now appears as Cap. 449, Laws of the Federation of Nigeria 1990. As Cap. 449, s. 2(2)(d) relaxes the restrictions on investments in corporate securities. Since the Trustee Investment Act was not formally amended one questions the legality of the relaxation in s. 2(2)(d), which was done by the Law Revision Committee. Although wide, the powers of the Law Revision Committee did not, and could not, extend that far: see s. 4 of The Revised Edition (Laws of the Federation of Nigeria) Decree, 1990.)

14 Non-executive directors and auditors do not seem to be particularly good monitors. One interesting recent phenomenon, however, has been the role that the Nigerian Shareholders Solidarity Association has played in monitoring management. This association (inspired by notions of corporate governance) founded and led by Akintunde Asalu has played a leading role in monitoring management, such that its presence during annual general meetings and extraordinary general meetings acts as a restraining influence on directors: interview with MrAsalu, A., 9 January, 1993. See “Shareholders give firms’ directors ultimatum on AGM”, Business Times, 14 August, 1995, 30.Google Scholar

15 Traditionally, take-overs in Nigeria have always been friendly and were informed by a desire to realize synergies and not to replace incumbents. This has now began to change. Of late, there have been successful attempts to gain control of blue-chip companies by means of stock market purchases—a key indicator that the acquisition was not motivated by considerations of synergy. Incidentally, in one of the cases (Alaye Investments and Owena Bank), management resisted crassly by refusing to register the shares in favour of the purchaser: see New Nigerian Newspaper, 15 December, 1994, 13. The recent text in this area emphasizes the displacement potential of the tender offer. See Gbede, G., A Guide to Mergers and Acquisitions in Nigeria, Lagos, 1992, 12Google Scholar. It ispossible to argue that since Nigerian shareholders have a “buy and hold” attitude, tender offers are unlikely. This does not necessarily follow. First, stock prices on the Nigerian Stock Exchange (which were once a study in rigidity) are now more responsive. See “Stock price revolution”, Business Times, 30 August, 1995, 6. See also “Brokers say No Way to complacent managements”, The Vanguard, 6 November, 1995, 12. Secondly, to argue that shareholders will refuse a premium bid because of a “buy and hold” attitude is tantamount to saying that shareholders are not rational maximizers, a clearly untenable proposition, since rational choice is the economist’s model of behaviour. It is contended that the so-called “buy and hold” attitude will give way in the face of a premium bid. True, shareholders have traditionally held on to their shares; but only for the simple reason that no one offered a good price! Another possible argument, aligned to that above and which has some force, is that there is not sufficient market liquidity, thus affecting the feasibility of the tender offer. But liquidity only affects the feasibility of the tender offer if exit from the market—a defining factor of liquidity—is difficult. In recent years, exit from the Nigerian capital market has not posed a problem.

16 With the repeal of the Exchange Control Act, 1962, Cap. 113, Laws of the Federation of Nigeria, 1990 and the Nigerian Enterprises Promotion Act, Cap. 303, Laws of the Federation of Nigeria, 1990, the Nigerian investment market is now more accessible to foreign investors. See Nigerian Investment Promotion Commission Decree (No. 16), 1995 and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree (No. 17), 1995. For a critique of the former foreign investment policy and a rationalization of the recent change, see Ogowewo, T.I., “The shift to the classical theory of foreign investment: opening up the Nigerian market”, (1995) 44 I.C.L.Q. 915.CrossRefGoogle Scholar

17 A foreign investor, or indeed any bidder, that successfully acquires control and wishes to squeeze-out a dissentient minority may utilize the compulsory acquisition procedure in s. 608 of the CAMA. For a critique of this procedure and other squeeze-out procedures in Nigerian company law, see Ogowewo, T. I., “Compulsory expropriation of a dissentient minority: reform or retrogression in Nigerian company law”, (1996) 7 International Company and Commercial Law Review No. 2, 55.Google Scholar

18 S. 63(3) of the CAMA. Although this provision codifies the decision in Atewologun v. Metro Motors Ltd [1978] LRN 46 at 49, it goes further by providing a statutory base for management power. This is similar to the position in most U.S. jurisdictions: see e.g. s. 141(a) of the Delaware General Corporation Law.

19 [1990] 4 N.W.L.R. 422 at 463.Google Scholar

20 S. 283(1) provides that: “Directors are trustees of the company’s moneys, properties and their powers … and shall exercise their powers honestly in the interest of the company and all the shareholders, and not in their own or sectional interests.” Subsection 2 provides that directors are presumed to be agents of the company when acting within their authority and on behalf of the company.

21 S. 279(1) provides: “A director of a company stands in a fiduciary relationship towards the company and shall observe the utmost good faith towards the company in any transaction with it or on its behalf.” See also Okeowo v. Miglore (1979) 11 S.C. 138, 245–255.Google Scholar

22 SEC v. Chenery Corp. 318 U.S. 80, 85–86 (1943).Google Scholar

23 S. 279(1).

24 S. 279(4). See also s. 279(9) which makes it clear that the duties in s. 279 are enforceable against the director by the company. This may cause problems when one considers that the other provisions on directors’ duties do not contain such a provision: expressio unius est exclusio alterius. For example, will it then mean that the duty to exercise care, diligence and skill in s. 282 can now be enforceable against the director by any person other man the company? However, the rule in Foss v. Harbottle (1843) 2 Hare 461Google Scholar (codified in s. 299) suggests a negative answer. For the codified rule in Foss v. Harbottle, see below, n. 84.

25 Ss. 279(1) and 282(1).

26 S.279(3).

27 S.282.

28 S.279(5) provides: “A director shall exercise his powers for the purpose for which he is [sic] specified and shall not do so for a collateral purpose, and the power, if exercised for the right purpose does not constitute a breach of duty, if it, incidentally, affects a member adversely.”

29 S.280(1) provides that: “The personal interest of a director shall not conflict with any of his duties as a director under this Act.”

30 S.280(2). This is a consequence of the fiduciary position of the director: Nasr v. Berini-Beirut Riyad (Nig) Bank Ltd [1969] 2 A.L.R.Google Scholar Comm. 7. S. 280(2) provides that: “A director shall not—(a) in the course of management of affairs [sic] of the company; or (b) in the utilisation of the company’s property, make any secret profit or achieve other unnecessary benefits.” S. 280(3) then provides that: “A director shall be accountable to the company for any secret profit made by him or any unnecessary benefit derived by him contrary to the provisions of subsection (2) of this section.” Quaere: since an “unnecessary benefit” presupposes the existence of a necessary benefit, when then is a benefit necessary? A possible answer (one mat managers would certainly prefer) is that a benefit that accrues to a director in circumstances similar to that which occurred in Regal Hastings v. Gulliver [1942] 1 All E.R. 378Google Scholar, would be a necessary benefit. In Regal Hastings, the directors, who acted bona fide, made a profit out of a scheme that was wholly in the company’s interest, and there was, in fact, no other way of effecting the scheme without their making a profit. The directors were nevertheless ordered by the court to account since the profit they made was one made in the course of their position as fiduciaries. Under s.280(3) it is arguable that directors would be able to keep such benefits.

31 This fulfils the prophecy of Olawoyin who had warned against codification as far back as 1977: see Status and Duties of Company Directors, Ile-Ife, 1977, 32.Google Scholar After the codification in 1990, a commentator remarked that, “the decision to codify in spite of [objections] may have been courageous but the many defects present in this part of the [Act] … bear testimony to the enormity of the task of codification. These defects are compounded by irritating drafting and printing errors, carelessness or plain ignorance that very sadly run through much of the Act. Many sections of it are potential sources of confusion, needless litigation and unnecessary controversy. This is especially true of those sections where the [Act] aimed at some originality.” See Osunbor, O. A., “The company director: his appointment, powers and duties” in O., Akanki (ed.), Essays on Company Law, Lagos, 1992, 130Google Scholar. One area where the Act aimed at some originality should be a cause for some concern: s.287(3) allows a director to receive “gift[s] as a sign of gratitude” from those who have dealings with the company, even though the shareholders will not be in a position to approve or disapprove. It seems that the law-makers did not realize diat there is hardly any difference in this context between a gift ex post and a gift ex ante, as they are both bribes aimed at influencing conduct. Although a gift ex ante is an obvious bribe, a gift ex post from a supplier sends a signal to the receiving manager that the award of future contracts to the supplier will result in the receipt of a gift. In the same vein, a failure by a particular supplier to give a gift ex post “as a sign of gratitude” sends a signal to the manager to view with disfavour, in future transactions, the “stingy” supplier.

32 [1891] A.C. 107, 144145.Google Scholar

33 See text accompanying n. 23 above.

34 [1902] 2 Ch. 421.

35 See, for example, Mills v. Sarjem Corporation 133 F.Supp. 753 (1955)Google Scholar. A contract uberrimae fidei is an obvious exception. Regulatory codes may also mandate disclosure. See, for example, the U.S. Securities Exchange Commission’s anti-fraud provision, rule 10b-5, 17 C.F.R. 240.Google Scholar 10b-5 and the Nigerian equivalent, regulation 7(1), S.I. 11 of 1989. For a study of the Nigerian anti-fraud provision, see Ogowewo, T. I., “Transposition of securities legislation to an emerging market: the case of the U.S. Federal Securities Law and Nigeria”, J.I.B.L. (forthcoming, 1996).Google Scholar

36 See A Report on the Reform of Nigerian Company Law, 1988, 201–202. The intention was therefore to introduce a sort of “special facts” exception of the type formulated in Strong v. Repide 213 U.S. 419, 431 (1909)Google Scholar. The U.S. Supreme Court in this case articulated this doctrine for the purpose of imposing liability on insiders for non-disclosure.

37 See s.279(1)(9).

38 The problems created as a result of the attempt to reverse Percival v. Wright could have been avoided altogether if the legislature was aware of the Securities and Exchange Commission’s anti-fraud provision, regulation 7(1). This regulation was promulgated by the SEC pursuant to s.23 of the SEC Act a year before the enactment of the CAMA. Regulation 7(1) which draws heavily on the U.S. SEC’s rule 10b-5 would certainly have taken care of the situation in Percival v. Wright. The Nigerian SEC is a federal regulatory agency; it is the apex regulatory body in the capital market, although it also has a degree of anti-trust regulatory functions. See below, n. 44.

39 (1914) 30 T.L.R. 444.Google Scholar

40 S. 160(1) prohibits such purchases; it is however possible in certain restricted cases for a company to purchase its own shares. See ss. 160(2) and 161.

41 See Levenburg v. Merrill, Lynch, Pierce, Fenner & Beane 54 N.W. 2d626 (1952)Google Scholar. See also Davies, P., The Regulation of Take-Oners and Mergers, London, 1976, 23.Google Scholar

42 Re Smith, Knight and Co. (1868) 4 Ch. App. 20. Section 115 of the CAMA provides: “The shares or other interests of a member in a company shall be property transferable in the manner provided in the articles of the company.” A public company does not restrict the transfer of its shares: see ss. 24 & 22(2) of the CAMA.

43 Gething v. Kilner [1972] 1 W.L.R. 337.Google Scholar

44 The SEC has as one of its functions the duty of reviewing, approving and regulating mergers, acquisitions and all forms of business combinations: see ss. 6(g) and 8 of the SEC Act, 1988. The SEC also exercises regulatory power in regard to tender offers under Chapter IV of the CAMA.

45 S. 602(5). Where a director dissents from any view expressed in the circular, such a director is entitled to indicate his opinion or disagreement in the circular, provided that the reasons for such a disagreement or opinion are set out: s. 602(4).

46 S. 602(2).

47 S. 602(1).

48 Above, n. 43.

49 Hedley Byrne & Co. Ltd v. Heller & Partners Ltd [1964] A.C. 465.Google Scholar

50 A consequence of the fact that those responsible for the legislation had a less than good understanding of the rationale for tender offer regulation, is that rather than stipulate a minimum offer period for tender offers—so as to eliminate coercion—the CAMA, in fact, stipulates a maximum offer period. A reason for the regulation of the terms of the offer is to reduce the contractual freedom of the bidder to stipulate a short offer period. It would therefore be surprising to an informed observer to discover that s. 606(c) provides that, in a full offer, the offer period should be less than 21 days after the date of the take-over bid. If it were not for the fact that s. 606(a) gives target shareholders withdrawal rights of ten days, the result would have been that the offer period would have even been shorter than 11 days!

51 S. 594(2).

52 S. 273(1).

53 S. 273(2).

54 S. 273(3).

55 S. 274(l)(a) and (b).

56 S. 274(2).

57 See Re Savoy Hotel Ltd [1981] Ch. 351.

58 [1942] Ch. 304 at 306.

59 Punt v. Symons & Co. Ltd [1903] 2 Ch. 506, 515.Google Scholar

60 Milk v. Mills [19371938] 60 C.L.R. 150 at 185.Google Scholar

61 (1973) 4 S.C. 63.Google Scholar See also F.A.T.B. v. Ezegbu [1994] 9 N.W.L.R. 149.Google Scholar

62 [1967] Ch.254.

63 [1974] A.C. 821 (PC).Google Scholar

64 Unreported (12 August, 1982, Lexis Transcript).

65 (1968) 121 C.L.R. 483, 493.Google Scholar

66 Ibid., at 493–494.

67 (1938) 60 C.L.R. 150.Google Scholar

68 Ibid., at 165.

69 (1972) 33 D.L.R. (3d) 288.Google Scholar

70 Ibid., at 315.

71 S. 279(3).

72 S. 283(1).

73 Above, n. 28.

74 Above, n. 61.

75 Cf. Greenhalgh v. Ardeme Cinema Ltd [1951] Ch. 286. For a view which supports this position, albeit in respect of the position under English case law, see Instone, R., “The duty of directors”, (1979) J.B.L. 221, 224228.Google Scholar

76 “The board of directors genuinely considered that it would be injurious to the interests of the companies to discontinue th e hotel business.” Report of Mr. E. Milner Holland, The Savoy Hotel Limited and The Berkeley Hotel Company Limited, H.M.S.O., 1954, 26.Google Scholar

77 A.2d 548 at 554 (1964).

78 [1983] 8 A.C.L.R. 199.Google Scholar

79 Under s. 7(l)(b)(c) of the SEC Act, 1988. The SEC Act is expected to be repealed soon and a new law is to be enacted. For highlights of the draft law, see Bulletin of Legal Developments, May, 1995, 83. When the draft law is enacted, s.7(l)(b)(c) will remain unaffected: see s. 7(1)(b) of the draft law.

80 Letter from the SEC to the author dated 3 February, 1993. This view is also shared by Olawoyin in his discussion of the powers of the then Capital Issues Commission. Status and Duties of Company Directors, 105–106.

81 This provision can be undermined by exploiting a loophole created by s.143. This section allows preference shares to have weighted voting rights during a period when the preferential dividend or any part of it is in arrears and unpaid, such period starting from a date not more than 12 months after the due date of the dividend; where the articles provide for a lesser period, it will suffice for the purposes of the section. See Onwaeze, O. V., “Some recent changes in Nigerian company law”, (1993) J.B.L. 409, at 412Google Scholar. It is therefore conceivable that directors of the target can place preference shares in the hands of friendly parties and leave a part of the dividend unpaid, for a period of time of up to 12 months, and then utilize the weighted voting rights to defeat any bidder.

82 See Bamford v. Bamford [1970] Ch. 212, where it was held that a defensive improper share issue can be ratified. This statement of law was followed by the Nigerian Supreme Court in Tika-Tore Press v. Abina, above, n. 61 and by the Court of Appeal in F.A.T.B. v. Ezegbu, above, n. 61. If ratification is permissible, a derivative action under the codified “fraud on the minority” exception may not be allowed. The way to circumvent this will be to characterize the wrong as a breach of personal rights. See Re a Company [1987] B.C.L.C. 82Google Scholar. A shareholder will then be able to sue under the personal rights exception codified in s. 300(c). See Re Sherbome Park Residents Co. Ltd (1986) 2 B.C.C. 99,528.Google Scholar However, all this may be academic since the shareholder may opt for a statutory derivative action under s. 303. For the conceptual problems created by adopting a statutory derivative remedy while keeping the rule in Foss v. Harbottle and its exceptions, see text accompanying nn. 88–91 below.

83 Section 300(d) codifies this common law exception: see Burland v. Earle [1902] A.C. 83Google Scholar and the Nigerian case of S.E. Ltd v. Ponmile [1986] 2 N.W.L.R. 516, 526.Google Scholar In Ponmile, the Court of Appeal pointed out that it is not every case of fraud on a company that comes within the exception; that ot come under the exception there must be wrongdoer control. It would seem, however, that s. 300(d), by not mentioning wrongdoer control, dispenses with the need to prove such control. The s. 300(d) exception is worded thus: “committing fraud on either the company or the minority shareholders where the directors fail to take appropriate action to redress the wrong done”.

84 S. 299. This section provides diat where an irregularity has been committed in the course of a company’s affairs or any wrong has been done to the company, only the company has the right to sue. See Gombe v. P.W. (Nig) Ltd [1995] 6 N.W.L.R. 402Google Scholar. This general rule is subject to the well known exceptions to Foss v. Harbottle codified in s. 300(a)(b)(c)(d) in addition to two further exceptions in s.300(e) and (f) that do not read well with the earlier part of s. 300. (I thank Dapo Akande for drawing my attention to this drafting error, which appeared to have escaped the notice of Uwaifo, J.C.A., in Tanimola v. S & Mapping Geodata Ltd [1995] 6 N.W.L.R. 617, 627–628.Google Scholar) The two further exceptions are as follows: a shareholder can sue where a company meeting cannot be called in time to be of practical use in redressing a wrong done to the company or to minority shareholders: s. 300(e) (codifying the decision in Hodgson v. National & Local Government Officers Association [1972] 1 W.L.R. 130Google Scholar); a shareholder can also sue where the directors are likely to derive a profit or benefit, or have done so already, from their negligence or breach of duty: s. 300(f). This last exception actually falls under the “fraud on the minority” exception codified in s. 300(d): see Daniels v. Daniels [1978] Ch.406.

85 S. 300(f). See, above, n. 84. In Daniels v. Daniels, ibid., it was held, at 414D-E, that “a minority shareholder who has no other remedy may sue where directors use their powers, intentionally or unintentionally, fraudulently or negligendy, in a manner which benefits them at the expense of the company”.

86 S. 304(1). It is rather surprising that Nigerian lawyers have failed to take advantage of the statutory derivative action mechanis m in s. 303. This failure means that they still fall prey to the rule in Foss v. Harbottle.

87 S. 303(2). The court will have to be satisfied that there is wrongdoer control, that the target shareholder is acting in good faith, and that it is in the best interest of the target that the action be brought.

88 I.e., the Canadian Business Corporation Act, 1985, C-44.

89 This should come as no surprise considering the numerous problems identified in the CAMA. Incidentally, it was only when Gower wrot e the preface to the second edition of his classic text, Modern Company Law, that he could say “… an attempt has been made to elucidate the mysteries of the rule in Foss v. Harbottle. I believe that I now understand this rule, but have little confidence that readers will share this belief.”

90 [1976] 3 W.W.R. 44.Google Scholar

91 Ibid., at 52.

92 Established under s. 1 of the CAMA.

93 Ss. 310–312.

94 S. 459 of the Companies Act, 1985.

95 See, for example, Re a Company [1986] B.C.L.C. 382, where it was held that a failure by directors to advise shareholders impartially in regard to two competing bidders (in one of which the directors had an interest) is capable of constituting unfairly prejudicial conduct.

96 S. 321(1).

97 While it is the case that s. 26 of the SEC Act penalizes a breach of any of the provisions of the Act, thereby giving rise to the possible suggestion that a breach of any of the SEC’s regulations (such as reg. 7(1))—which are made pursuant to s. 23 of the Act—assumes the status of a breach of the parent statute, it is submitted that this view cannot be correct. The resolution of this issue of statutory interpretation calls for an enquiry as to whether there is such a legislative intent. The SEC Act indicates in no uncertain terms that penalties for a breach of the SEC’s regulations are to be stipulated in the regulations themselves. (S. 23(2) provides that any rule or regulation made under s. 23(1) may, where appropriate, prescribe penalties for a violation.) Since those regulations fail to prescribe any penalties, it then follows that the general penalty in s. 26 will be of no relevance to a violation of the regulations. Moreover, it stands to reason that an administrative agency should be able to determine the nature and severity of the penalties for breaches of the rules it promulgates. While the legislature may in the enabling statute indicate a limit to the sanctions, it is not prudent for the legislature to stipulate the precise penalties without an eye to the actual regulations that the administrative body may promulgate. Indeed, the necessity for remedial flexibility dictates otherwise. (The U.S. Supreme Court in Ernst & Ernst v. Hochfelder 425 U.S. 185, 195, (1976)Google Scholar observed that it was the importance of remedial flexibility that led to the establishment of the U.S. SEC: “Although the [Securities] Acts contain numerous carefully drawn express civil remedies and criminal penalties, Congress recognized that efficient regulation of securities trading could not be accomplished under a rigid statutory program. As part of the 1934 Act Congress created the Commission, which is provided with an arsenal of flexible enforcement powers.”) Another point that fortifies this position is that the parent statute does not fail to make reference to the regulations when it so intends, and therefore it could have, if it was so intended, worded s. 26 in a manner to penalize breaches of the regulations. Hence, it will be observed that s. 27, which gives the Federal High Court jurisdiction for the trial of “violations arising under [the SEC] Act”, also goes further to mention violations of “the rules and regulations made thereunder”. This omission in s. 26 does suggest that the legislature did not intend that the general penalty in s. 26 should also apply to a violation of the SEC’s rules.

98 Ashby v. White (1703) 2 Ld Raym 938.Google Scholar

99 [1986] 5 N.W.L.R. 828.Google Scholar In Doe d. Bishop of Rochester v. Bridges (1831) 1 B. Ad. 847, 859Google Scholar, where Lord Tenterden observed that “if an obligation is created, but no mode of enforcing its performance is ordained, the common law may, in general, find a mode suited to the particular nature of the case”.

100 Ibid., at 890.

101 Lonrho v. Shell Petroleum Co. Ltd (No. 2), [1982] A.C. 173.

102 [1992] 6 N.W.L.R. 93, 115Google Scholar, Justice Tobi observed that: “Where a plaintiff sues for breach of statutory duty, he must prove that he comes within the provisions of the enabling statute. He must prove that the provisions anticipate him.”

103 S. 27 provides as follows: “The Federal High Court shall have jurisdiction for the trial of offences and violations arising under this Act and under the rules and regulations made thereunder and of all suits brought to enforce any liability or duty created by the provisions of this Act.”

104 S.27 15 U.S.C.A. s. 78aa.Google Scholar

105 377 U.S. 426 (1964).Google Scholar

106 Cf. Touche Ross & Co. v. Redington 442 U.S. 560, 577 (1979)Google Scholar, where the Supreme Court opined that s. 27 is simply a provision that confers jurisdiction on the District Courts to hear actions on the statute.

107 According to a leading authority on statutory interpretation, “if there is clearly no criminal sanction, the inference is stronger that a civil sanction is intended”. Bennion, F., Statutory Interpretation: a Code, London, 1992, 45.Google Scholar

108 Reg. 7(l)(a).

109 See Oputa v. Ishida [1993] 3 N.W.L.R. 34, 69.Google Scholar

110 However, see Government’s Stock and other Securities Investment Trust v. Christopher [1956] 1 W.L.R. 237Google Scholar, where it was held that there could be no offer for the purchase of shares where the shares in question are unissued.

111 S. 29 of the SEC Act replicates the definition of the term in U.S. federal securities laws, and therefore uses the investment contract concept. See s. 2(1) of the Securities Act, 1933, 15 U.S.C.A. s. 77b(l).Google Scholar The effect of this is that the “investment contract” jurisprudence in U.S. securities laws now forms a part of Nigerian securities laws. The Nigerian SEC, in fact, recently relied on the U.S. Supreme Court’s decision in SEC v. W.J. Howey Co. 328 U.S. 293 (1946)Google Scholar for this purpose in Re Proposed Dunis Investment Bond: Approval/Clearance [1992] 1 S.L.R. 95, 97–98.Google Scholar

112 164 N.E. 545, 546 (1928).Google Scholar

113 It is not uncommon for interest groups to secure regulatory benefits by lobbying law-makers. See Stigler, G., “The theory of economic regulation” (1971) 2 Bell F. Econ. 3CrossRefGoogle Scholar. In a military government this is more easily done since the legislature is essentially a coterie of individuals. An unabashed instance of one such group (the Bar) initially succeeding in conferring on its members regulatory benefits can be seen in the former s. 359(2) of the CAMA. This provision required legal practitioners to countersign an auditor’s report, even though they are not trained to certify that such a report gives “a true and fair view” of a company’s finances. Matters were made worse by the fact that even though s. 368 imposes civil liability on negligent auditors, such statutory liability did not extend to countersigning legal practitioners. However, s. 359(2) has now been amended by s. 4(2) of the Companies and Allied Matters (Amendment) Decree, 1991, which does away with the requirement that legal practitioners must countersign auditors’ reports.

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