External Restructuring under the Securities and Exchange Commission’s Rules: A Critique

Description

ABSTRACT

External Restructuring under the Securities and Exchange Commission’s Rules: A Critique

Fidelis Adewole*

Restructuring is a good mechanism for both ailing and healthy companies to turn around their fortunes. External restructuring is one of the ways by which companies can be restructured especially under the rules and regulations of the Securities and Exchange Commission (the “SEC Rules”). This paper scrutinizes the provisions of the SEC Rules on “external restructuring”. The paper argues that the definition of “external restructuring” under the SEC Rule is unclear, confusing and its “practical” meaning is what the SEC says it is. The paper further argues that the provisions of the SEC Rules on “external restructuring” is deficient in some respects to effectively implement an “external restructuring” transaction and that such a transaction can only be successfully implemented by having recourse to relevant provisions of the Companies and Allied Matters Act and/or Investments and Securities Act. Similarly, it is argued in the paper that existing laws on corporate restructuring as contained in sections 537 and 539 of Companies and Allied Matters Act and Part XII of the Investments and Securities Act are sufficient to effectively carry out an “external restructuring” transaction without any need for the provisions on “external restructuring” as contained in the SEC Rules. Conclusively, the paper argues that the SEC lacks the vires to make the “external restructuring” provisions in the SEC Rules as the SEC is only empowered to make rules for the purpose of giving effect to the provisions of the Investments and Securities Act. The paper recommends that the Investment and Securities Act should be amended if there is any need to make law on “external restructuring” or expand the existing laws on corporate restructuring.

INTRODUCTION
The Regulation on the Scope of Banking Activities and Ancillary Matters by the Central Bank of Nigeria was issued in October 2010.₁ After that, the Securities and Exchange Commission₂ (the “SEC”) was inundated with applications and requests from commercial banks to adopt holding company structures under Section 539 of the Companies and Allied Matters Act, 1990 (“CAMA”), which does not explicitly require reference to and approval of the SEC.₃ The SEC revised its then rules and regulations₄ which culminated in the SEC Rules and Regulation, 2013 (the “SEC Rules”). Notable additions to the SEC Rules are provisions on external restructuring.₅ (For the purpose of this paper, the new provisions on external restructuring are referred to as the “ER Provisions”).₆ For ease of reference and understanding, the full text of these provisions are set out hereunder:

* Partner, G. Elias & Co.

1. It required all commercial banks to either divest themselves from their non-core banking business or adopt holding company structure
2. The SEC was established by section 1 of the Investments and Securities Act (2007) to, among other functions, review, approve and regulate mergers, acquisitions, takeovers and all forms of business combinations and affected transactions of all companies as defined in the Act. See section 13 on the functions and power of the SEC
3. Anthony Idigbe and Okorie Kalu, ‘Restructuring the Banking Sector in the Wake of the Financial Crisis’
4. The extant rules and regulations then were issued in 2007 and revised in 2010
5. There are other additional changes made to the rules and regulation but they are not subject of discussion in this paper
6. These ER Provisions on “external restructuring” are contained in Rules 422(4), 423(1) and (2), 440-444 of the SEC Rules