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CAMA ALLOWS COMPANIES TO RATIFY PRE-INCORPORATION CONTRACT

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The intention of the legislature in enacting sections 72(i), 624(i), and 626 of CAMA is quite clear. It is relevant to re-emphasis that the rule of construction of statute is to adhere to the ordinary meaning of the words used according to the intent of the legislature. The provisions of sections 624(1) and 626 make it abundantly clear that existing companies who wish to ratify pre-incorporation contract agreements could do so because the Act (CAMA) applied to them. In section 650(i), the interpretation of words used in part A of CAMA, “Company or existing company means: a company formed and registered under this Act or, as the case may be, formed and registered in Nigeria before and in existence on the commencement of this Act”.

— U. Mohammed, JSC. Societe Favouriser v. Societe Generale (1997) – SC.126/1994

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THERE MUST BE EVIDENCE OF RATIFICATION OF PRE-INCORPORATION CONTRACT

Before the above provisions could apply, there must be evidence of ratification by the new company of contracts made before its formation. In the case on hand, there was no such evidence. Nor was it shown who, if any body had ratified the contract between the plaintiff/appellant and the 1st defendant.

— Oguntade, JSC. Garuba v. Kwara Investment (2005) – SC.260/2000

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SOME FOREIGN CASES ON LIFTING COMPANY VEIL

In Littlewoods Stores Ltd v. I.B.C. (1969)1 W.L.R. 1241 Lord Denning M.R. said: “The doctrine laid down in Salomon’s case has to be watched very carefully. It has been supposed to cast a veil over the personality of a limited liability company through which the Court cannot see. But that is not true. The Court can and often do draw aside the veil. They can and often do pull the mask. They look to see what really lies behind. The legislature has shown the way in group accounts and the rest. And the Court would follow suit.”
The English case of Jones v. Lipman (1962)1 WLR 832 exemplifies the situations in which the corporate veil will be lifted when a company is used as a mere facade concealing the true facts, which essentially means it is formed to avoid pre-existing legal obligations.

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NON-REGISTRATION OF COMPANY CHARGES VOIDS IT

The effect of non-compliance with the provisions of section 94 is quite grave. Non-registration at the Companies Registry of charges created by the company, as opposed to existing charges acquired by the company, destroys the validity of the charge. Unless the prescribed particulars are delivered to the Registrar within 30 days of the creation of the charge, it will, so far as any security on the company’s assets is conferred thereby, “be void against the liquidator and any creditor of the company”. But this is “without prejudice to any contract or obligation for repayment of the money thereby secured, and when a charge becomes void under this section the money secured thereby shall immediately become payable”.

– Augie JSC. Bank v. TEE (2003)

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APPELLANT CASE WAS BASED ON THE POST-INCORPORATION CONTRACT

The facts averred in the statement of claim which are deemed to be true for the purpose of the objection taken in limine show that the appellant and the 1st respondent company entered into a new contract in the terms of the preincorporation contract after the 1st respondent company had been incorporated. In the circumstance, the rule of company law that a company is not bound by a preincorporation agreement entered into by its promoters and that the company cannot ratify such agreement after its incorporation is inapplicable to the facts of the case as pleaded in the statement of claim. As the appellant alleged that his claim was founded on the post-incorporation agreement whereas the respondents said the claim was based on the preincorporation contract, the dispute cannot be resolved in limine. The issue can only be determined upon the hearing of the case on the merits.

— Bello, JSC. Edokpolo v. Sem-Edo & Ors. (1984) – SC.89/1983

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ILLEGAL TO BUY CHATTEL/COMMODITY SIMPLY TO PUT THE OTHER JUST IN FUNDS ONLY

This reasoning assumes, as I understand it, that if the transaction under consideration is genuinely regarded by the parties as a sound commercial transaction negotiated at arm’s length and capable of justification on purely commercial grounds, it cannot offend against s.54 [Companies Act 1948]. This is, I think, a broader proposition than the proposition which the judge treated as having been accepted by counsel for Belmont. If A Ltd buys from B a chattel or a commodity, like a ship or merchandise, which A Ltd genuinely wants to acquire for its own purposes, and does so having no other purpose in view, the fact that B thereafter employs the proceeds of the sale in buying shares in A Ltd should not, I would suppose, be held to offend against the section; but the position may be different if A Ltd makes the purchase in order to put B in funds to buy shares in A Ltd. If A Ltd buys something from B without regard to its own commercial interests, the sole purpose of the transaction being to put B in funds to acquire shares in A Ltd, this would, in my opinion, clearly contravene the section, even if the price paid was a fair price for what is bought, and a fortiori that would be so if the sale to A Ltd was at an inflated price. The sole purpose would be to enable (ie to assist) B to pay for the shares. If A Ltd buys something from B at a fair price, which A Ltd could readily realise on a resale if it wished to do so, but the purpose, or one of the purposes, of the transaction is to put B in funds to acquire shares of A Ltd, the fact that the price was fair might not, I think, prevent the transaction from contravening the section, if it would otherwise do so, though A Ltd could very probably recover no damages in civil proceedings, for it would have suffered no damage. If the transaction is of a kind which A Ltd could in its own commercial interests legitimately enter into, and the transaction is genuinely entered into by A Ltd in its own commercial interests and not merely as a means of assisting B financially to buy shares of A Ltd, the circumstance that A Ltd enters into the transaction with B, partly with the object of putting B in funds to acquire its own shares or with the knowledge of B’s intended use of the proceeds of sale, might, I think, involve no contravention of the section, but I do not wish to express a concluded opinion on that point.

— Buckley LJ. Belmont v Williams [1980] 1 ALL ER 393

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CAMA MAKES IT POSSIBLE FOR PRE-INCORPORATION CONTRACT TO BE RATIFIED

All that has now changed in this country for section 72(1) of CAMA makes it possible for a pre-incorporation contract to be ratified by a company after its incorporation and thereby becoming bound by it and entitled to the benefit thereof. There seems to be no dispute in this appeal about this conclusion.

— Ogundare, JSC. Societe Favouriser v. Societe Generale (1997) – SC.126/1994

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