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A Critical Analysis of the Legal and Regulatory Principles for the Declaration and Payment of Company Dividends in Nigeria

Published online by Cambridge University Press:  04 March 2020

Simon Viashima Akaayar
Simon Viashima Akaayar*
Affiliation:
University of Lagos
*
vakaayar@unilag.edu.ng; viashimas@gmail.com
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Abstract

In Nigeria, corporate law and practice are still evolving. Consequently, there is scant literature on some major aspects of corporate law. The focus of this study is on one such area covering dividends and other forms of corporate distribution. In addition to the lack of constructive legal literature on company dividends and other forms of corporate distribution in Nigeria, most of Nigeria's corporate participants and policymakers are still largely uninformed of the fundamental rules and principles on company dividends. Motivated by the foregoing, this research critically examines the theoretical rationale and extant legal principles on company dividends. Its main objectives are to close the gap in the literature and to provoke scholarly discourse that may further enrich policy reform measures in the area of company dividends in Nigeria.

Keywords

Companydividendslegaldeclaration and paymentNigeria
Type
Research Article
Information
Journal of African Law , Volume 64 , Issue 2 , June 2020 , pp. 245 - 266
Copyright
Copyright © SOAS, University of London, 2020

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Footnotes

*

Senior lecturer, Department of Commercial and Industrial Law, Faculty of Law, University of Lagos, Lagos, Nigeria. Solicitor and advocate of the Supreme Court of the Federal Republic of Nigeria.

References

1 Many legal and non-legal scholars have contributed to the general literature on company dividends, but see Davis, PL and Worthington, SGower: Principles of Modern Company Law (10th ed, 2016, Sweet and Maxwell) chap 12Google Scholar; Abugu, JPrinciples of Corporate Law in Nigeria (2014, MIJ Professional Publishers Ltd) at 735–738Google Scholar; Wild, C and Weinstein, SSmith and Keenan's Company Law (15th ed, 2011, Pearson Education Ltd) at 195Google Scholar; Edwards, RS “A note on the law relating to company dividends” (1939) 6/22Economica 170CrossRefGoogle Scholar.

2 For further details, see Lintner, J “Distribution of incomes of corporations among dividends, retained earnings and taxes” (1956) 46/2The American Economic Review 97Google Scholar; Mitton, T “Corporate governance and dividend policy in emerging markets” (2004) 5 Emerging Market Review 409CrossRefGoogle Scholar.

3 Ross, SA “The determination of financial structure: the incentive-signalling approach” (1997) 8/1The Bell Journal of Economics 23 at 40Google Scholar.

4 For instance, see the Companies and Allied Matters Act (CAMA) 1990, now in cap C20, Laws of the Federation of Nigeria (LFN) 2004, sec 381 (hereafter “CAMA”).

5 Garner, BA (ed.) Black's Law Dictionary (8th ed, 2004, Thomson West Publishers) at 512Google Scholar.

6 Id at 508.

7 CAMA, sec 567.

8 Id, sec 380.

9 Blessings, PH “Domestic and treaty anti-abuse rules as applied to dividends” in Maisto, G (ed) Taxation of Intercompany Dividends under Tax Treaties and European Law (2012, EC and International Tax Law Series) 109Google Scholar; Wild and Weinstein Smith and Keenan's Company Law above at note 1.

10 Blessings “Domestic and treaty anti-abuse rules”, above at note 9.

11 F Black “The dividend puzzle” (1976) 2 Journal of Portfolio Management 634.

12 Miller, MH and Modigliani, F “Dividend policy, growth and the valuation of shares” (1961) 34 Journal of Business 411CrossRefGoogle Scholar.

13 Ibid.

14 Ibid.

15 For further comments on MM Irrelevance Theory, see Easterbrook, FH “Two agency-cost explanations of dividends” (1984) 74/4The American Economic Review 650Google Scholar.

16 Lintner “Distribution of incomes of corporations”, above at note 2.

17 Ibid.

18 For instance, see Ross “The determination of financial structure”, above at note 3; Edwards “A note on the law”, above at note 1.

19 Feldstein, M and Green, J “Why do companies pay dividends?” (1983) 73 The American Economic Review 17Google Scholar. Also see Ross “The determination of financial structure”, above at note 3.

20 [1849] 2 HL Ca 497.

21 Feldstein and Green “Why do companies pay”, above at note 19.

22 Jensen, MC “Agency-cost of free cash flow, corporate finance, and takeovers” (1986) 76 The American Economic Review 323Google Scholar. Also see Easterbrook “Two agency-cost explanations”, above at note 15.

23 The detail on the limitations of each of the theories on why companies pay dividends is beyond the scope of the present work. For further readings, see Easterbrook “Two agency-cost explanations”, above at note 15; Black “The dividend puzzle”, above at note 11.

24 CAMA, sec 379 to 386.

25 See the official website of the SEC at <https//www.sec.gov.ng> (last accessed on 2 February 2018).

26 For further reading, see John, DC “Corporate taxation laws in Nigeria: a review” (2011) 2 International Journal of Advanced Legal Studies and Governance 236Google Scholar.

27 Particularly in Part 6. For further reading regarding taxation of insurance companies, see Agomo, CK and Akaayar, VS “Insurance law – Nigeria” in Cousy, H (ed) International Encyclopedia of Laws: Insurance Law (2018, Kluwer Law International) Suppl 62 at 117Google Scholar.

28 CAMA, sec 41.

29 Now in Cap B3, LFN 2004.

30 See Central Bank of Nigeria letter Ref: BSD/DIR/GEN/LAB/07/033, dated 8th October 2014.

31 Id at art 4.0.

32 A detailed examination of the area of e-dividends is carried out in Part 6 below.

33 CAMA, sec 114(b).

34 Id, sec 118(1).

35 Id, sec 119.

36 Id, sec 144.

37 [1901] 85 LT 22.

38 [1903] 20 TLR 16.

39 CAMA, sec 382(4).

40 Id, sec 382(1).

41 Id, sec 382(2).

42 Available on the official website of the Securities and Exchange Commission (SEC) at <https//www.sec.gov.ng> (last accessed on 2 February 2018).

43 Ibid.

44 For further readings, see Shefrin, HM and Statman, M “Explaining investor preference for cash dividends” (1984)13 Journal of Financial Economics 253CrossRefGoogle Scholar.

45 Orojo, JOCompany Law and Practice in Nigeria (5th ed, 2008, LexisNexis, London) at 327Google Scholar.

46 CAMA, sec 385.

47 [1887]12 App Cas 409. Emphasis added.

48 Ibid.

49 Barnes, KD “Company capital and securities” in Akanki, EO (ed) Essays on Company Law (1992, University of Lagos Press) 220Google Scholar.

50 CAMA, sec 379 (5).

51 Davies and Worthington Gower: Principles of Modern Company Law, above at note 1.

52 Burnes v Pennell, above at note 20.

53 For further reading, see Edwards “A note”, above at note 1.

54 Burnes v Pennell, above at note 20.

55 Emphasis added.

56 For categories of companies in Nigeria, see CAMA, sec 21.

57 Id, sec 379(3).

58 Emphasis added.

59 [1911] 1 Ch 92.

60 Note that “gain” in this context is economic or monetary gain and not moral or personal development.

61 CAMA, sec 380.

62 [1986] Ch 447.

63 [1882] 8 App Cas 65.

64 Akaayar, VS “Reconstructing the interests of ‘other corporate constituents’ in Nigeria: perspective from the stakeholder theory of the firm” (2016) 2 The Commercial and Industrial Law Review 98 at 115Google Scholar.

65 Bolodeoku, IO “Contractarianism and corporate law: alternative explanations to the law's mandatory and enabling/default contents” (2005) 13/2Cardozo Journal of International and Comparative Law 433 at 461Google Scholar.

66 Akaayar “Reconstructing the interests”, above at note 64.

67 [1925] Ch 407.

68 266 A 2d 878 [Del 1970].

69 Note that some scholars argue that the BJR is limited only to directors and not officers of the firm. See Johnson, LPQ “Corporate officers and the business judgment rule” (2005) 60 The Business Lawyer 439Google Scholar.

70 CAMA, sec 379.

71 Feldstein and Green “Why do companies pay”, above at note 19.

72 See above at note 64.

73 Precision Dippings Ltd, above at note 62.

74 CAMA, sec 379 (1).

75 [1882] 21 Ch D 519.

76 [2001] BCC 81.

77 [2001] 2 BCLC 531.

78 [1900] 1 QB 88.

79 [2006] BCLC 634.

80 [1969] 1 All ER 161.

81 CAMA, sec 384.

82 [1988] 4 BCLC 506. Also see Wild and Weinstein Smith and Keenan's Company Law, above at note 1 at 204–05.

83 [1990] Ch 682.

84 Schmitthoff, C M (ed) Palmer's Company Law (22nd ed, 1979, Stevens and Sons Ltd) 780Google Scholar.

85 [1930]2 Ch 196.

86 CAMA, sec 311.

87 Schmitthoff Palmer's Company Law, above at note 84.

88 Dignam, A and Lowry, JCompany Law (5th ed, 2009, Oxford University Press) 117 at 118Google Scholar.

89 Id at 27.