Funmilayo Odude, Legal Practitioner, Damod Law Practice

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The regulation of NGOs under Nigeria’s new company law 10 Sep 2020

On the 7th of August, 2020, President Muhammadu Buhari signed the Companies and Allied Matters Bill 2020 into law. As at the time of writing this article, the law was yet to be gazetted. The law has been widely discussed, analysed and criticised. A major point of discussion and criticism is the provision of the new Act that gives the Corporate Affairs Commission (CAC) powers to regulate non-governmental organisations (NGOs).
    
The Act is very similar in its provisions to the United Kingdom’s Companies Act 2006. It undoubtedly makes great innovations in our corporate law, including the introduction of new corporate structures and additional insolvency and business rescue regimes. However, there are certain aspects that seem to have raised some eyebrows, especially the powers of the CAC and/or the courts to suspend the trustees of registered NGOs and appoint interim managers to run the affairs of the organsations under certain circumstances.
    
As registered entities, it is not in contention that NGOs, including religious bodies, would be subject to some level of regulation. I would further argue that by virtue of their composition, they should be subject to stricter regulations than private companies, especially those organisations that accept donations and aids from the public.
    
NGOs are created/registered as a form of ‘trust’; hence the Act refers to them as ‘Incorporated Trustees.’ The legal concept of trust creates a fiduciary relationship whereby trustees are vested with the legal title over properties or assets for the benefit of others. By virtue of their fiduciary role, trustees are held to high standards in a trust relationship. NGOs incorporated under Nigerian law are no different.

According to CAMA 2020, NGOs are trustees appointed by a “community of persons bound together by custom, religion, kinship or nationality or by anybody or association of persons established for any religious, educational, literary, scientific, social, development, cultural, sporting or charitable purpose.” The trustees, therefore, ‘own’ the properties and assets of the ‘community of persons’ on behalf of their target beneficiaries.

Companies who invite the public to invest in their shares have strict regulatory regimes. Similarly, it is my belief that NGOs and charitable organisations that invite the public to donate to their causes should also be subject to a strict regulatory regime – even more so for the protection of both the donors’ contributions and the beneficiaries. This is why under the legal regime in the UK, the Charities Act 2011 differentiates between at least four different types of charitable entities with varying regulatory obligations, depending on various criteria, among which is the source of their financing.

The UK also has a regulatory agency, the Charity Commission, whose objectives, among others, is to promote compliance by charity trustees with their legal obligations in exercising control and management of their charities. Other objectives of the Commission include promoting the effective use of charitable resources and ensuring the accountability of charities to donors, beneficiaries and the general public. While not expressly stated in the Act, it is in furtherance of the same or similar objectives that the powers in Section 839 of CAMA 2020 were enacted.

The backlash over Section 839, which some commentators have described as an attempt to smuggle the NGO Regulation Bill into the CAMA, would have been mostly avoided with a more comprehensive and better legislative drafting. Indeed, some people have correctly noted that Nigerian religious bodies have no problem submitting themselves to regulatory oversight in the UK, for instance, which regulates NGOs and charities.

It is, however, important to note that the regulatory regime in the UK (where we seemed to have gotten most of the amendments to CAMA) is much more comprehensive and encompassing. As stated earlier, there are different types of entities charities are allowed to register as. Thus, depending on the nature and objectives of the charitable association, the regulatory obligations are varied. While some charities would report only to the Companies House (the Nigerian equivalent is the CAC), others would report to both the Companies House and the Charity Commission. The powers to suspend trustees and appoint an interim manager are vested in the Charity Commission under the Charities Act 2011. However, we seemed to have copied a foreign legislation without examining the background.

Furthermore, Section 839 of CAMA is drafted in such a nebulous manner that until clarity is provided or the enforcement of the section is actually tested, there will be differing views and opinions as to whether the CAC can exercise these powers without the courts. When the entire section is read conjunctively, as it should be, it would seem that the section provides for two different scenarios: first, the suspension of all the trustees of an association and the appointment of an interim manager to manage the affairs of the association; and second, the removal and replacement of a particular trustee.

These provisions would seem to suggest that the CAC can only exercise the powers of suspending the trustees and appointing an interim manager after obtaining a court order. Analysts who have interpreted the Act as empowering CAC to carry out this function without a court order are reading subsection (1) of Section 839 to the exclusion of subsection (2). All subsections are to be read and interpreted conjunctively to get the intendment of the drafters.

By the express provisions of subsection 2 and the use of the word ‘shall’ in the said subsection as opposed to the use of the word ‘may’ in subsection 1, it would seem that the involvement of the court is mandatory in obtaining the order to suspend the trustees of an NGO and appoint an interim manager. My interpretation is that subsection (1) provides the grounds upon which the CAC may petition the court to obtain such order. This position is strengthened by subsequent provisions, especially subsection (3), which provides that it is the court, assisted by the CAC, that would make provisions with respect to the functions to be performed by the interim managers and regarding the property of the NGO. It is, thus, the court that would determine the extents and limits of the powers of the interim manager.

However, subsection (7) makes similar provisions on the powers of the CAC to suspend or remove a trustee without reference to a court order. Reference to the court made in subsection (8) in relation to subsection (7) empowers the court to replace the removed trustee. Hence, these provisions relate to the removal and replacement of a trustee and not the suspension of the trustees and appointment of an interim manager. The CAC can, however, remove and replace a trustee on the same grounds as specified in subsection (1): where there has been misconduct and mismanagement in the affairs of the association; to protect the property of the association; for public interest purposes; and where the affairs of the association are being run fraudulently.

Again, it is poor and shoddy legislative drafting that has given occasion to multiple interpretations. By the provisions of subsection (11) of Section 839, the CAC may only exercise these powers in respect of an association with the approval of the Minister for Trade. This suggests there is a system of checks to avoid abuse of power by the Commission. It is noteworthy that the Charity Commission under Section 76 of the UK Charities Act 2011 can exercise all these powers without recourse to the courts or any public officer. The Nigerian Act seems to have considered the mistrust in public institutions and the propensity for abuse of power in our clime by providing the additional protections of the courts and the Minister of Trade.

Notwithstanding, the fear that the trustees of an association could be arbitrarily removed or suspended not because of any wrongdoing but because of some political reason or to satisfy certain persons’ personal aggrandizement is not baseless. The possibility of this occurrence is what we must work against as a nation and not attack the regulation.

The repealed Act certainly created a certain level of regulation on NGOs. It, however, had inadequate penalty provisions. Regulations without adequate sanctions are ineffective. Associations registered under this section of Nigerian company law do not carry out business, neither do they make profit. They mostly rely on the altruism of the public who are attracted to their causes. Hence, they should be and must be held to the highest levels of transparency.

There are, however, groups of associations who do not call for public donations. They are essentially sustained by membership contributions. Some of these associations advocate government transparency and accountability. They also criticise abuse of power by government officials and expose human rights violations. By making government uncomfortable, such organisations might become targets of whimsical authoritarianism.  

A comprehensive regulatory regime ought to be created for such organisations to ensure transparency of their activities and finances, while enabling their freedom from oppression.