Reciever/Manager and the interest of Shareholders

business chart showing success

The Black’s Law Dictionary[1] defines a Receiver as “a person appointed by court for the purpose of preserving the property of a debtor pending the action against him or applying the property in satisfaction of a creditor’s claim, whenever there is a danger that, in absence of such appointment, the property will be lost, removed or injured”.

The Companies and Allied Matters Act[2] (hereinafter simply called CAMA), on the other hand, does not offer a good deal of help in interpreting the term “Receiver” but only states in section 650 that a “Receiver includes Manager”. Even though the CAMA did not sufficiently define who a Receiver/Manager is, it is clear from its provision that a Receiver/Manager may be appointed by the court[3] or out of court[4] for the purpose of protecting the assets of the company or to further its business and promote the purposes for which it is formed. Consequently, the Receiver/Manager, upon appointment, may choose to carry on the business of a company with the objective of a rescue in the long term or of a beneficial sale as a going concern in the short term (that is, close the business and sell up)[5]

Although the CAMA vests broad powers in the Receiver/Manager whilst performing his duty, this paper will attempt a discourse, with the aid of legal authorities, centered on examining the implication, extent and limit of such powers (if any) vis-a-vis the interest of shareholders in the ownership of the company and the authority of directors as the metaphorical brain of the company.

LEGAL IMPLICATIONS OF APPOINTING A RECIEVER/MANAGER; THE ROLE OF DIRECTORS AND SHAREHOLDERS OF A COMPANY

The power vested in the Receiver/Manager by law[6] is so wide to be covered under the purview of a short piece as the current one. However, through the aid of decided cases, the writer will attempt to elucidate on the legal implications of the appointment of a Receiver/Manager in relation to the properties of the company and functions of the Directors.

The powers of a Receiver/Manager and the implication thereof on the management of the company’s assets, was extensively dealt with by Karibi-Whyte JSC in the sister cases ofIntercontractors Nigeria Ltd v. N.P.F.M.B[7] and Intercontractors Nigeria Ltd. v. U.A.C.[8] where he opined that…

by the appointment of a Receiver/Manager under his powers in the debenture deed, the assets formerly available to the company ceases to be so, and now becomes fixed and is crystallized and remains under the general control of the receiver manager…the company ceases to have any right to deal with the assets. Its right thereto is suspended….

Intercontractors Nigeria Ltd. v. U.A.C. his Lordship pronounced the law as:

…the effect of the appointment of a receiver/manager is to paralyse the powers of the owner of goods from dealing with it. A company does not lose its legal personality neither are the goods vested in the Receiver/Manager on the appointment…..he is however entitled to possession of the goods, subject to all specific charges validly created in priority to the floating charge….this enables him to institute and defend actions in the name of the debenture holder or the company entitled to the goods under the debenture…

The Court in Unibiz (Nig) Ltd. v. CBCL Nig. Ltd[9]. while expounding on the  powers of Directors over Company properties, applied the principle of law in Intercontractors v. N.D.F.B.M. (supra) and held that,

With the appointment of a Receiver, the powers of Directors over the properties comprised in the security of the company automatically become paralysed; the floating charge also becomes crystalised with the appointment of a receiver by a debenture holder. It is not in dispute, indeed the factual setting of this case shows that the respondent, who is the creditor, appointed Babington Ashaye as the Reciever/Manager. The law is that where a creditor enforces his security by appointing a Receiver/Manager, the assets belonging to the debtor/company now come under the general control of Receiver/Manager see Intercontractors Nig Ltd. v. National Providern fund Management Board (1988) 2 NWLR (Pt. 76) 280.

The salient question from the foregoing, however, borders on whether the appointment of the Receiver/manager precludes the board of directors from performing their function in relation to the operation of a company? The Court of Appeal inUnibiz (Nig) Ltd. v. CBCL Nig. Ltd. supra gives further insight on the function of Directors during the appointment of a Receiver/Manager thus,

I wish to observe that the position of the law relating to a receiver is that on the appointment of a Receiver the powers of the management of the company’s business automatically become vested in the receiver. But where some matters pertaining to the company do not quite relate to the management of the affairs of the company, its directors can still act. While receivership and management often exclusively dominate the company’s affairs and dealings with the outside world, it does not affect the internal domestic structure of the company. It can therefore be said that although the management of the company is wrestled from the directors with the appointment of a Receiver/Manager the directors are never absolutely functus officio…

It is clear from the above that the court is inclined to adopt the “management rule” in deciding what role falls within the director’s power during receivership. The “management rule” is to the effect that matters relating to the management of the affairs of the company shall be controlled by the Receiver/Manager but other matters not bordering on management of the company may be handled by the Directors without the threat of usurping the power of the Receiver/Manager.

RECEIVER/MANAGER AND THE INTEREST OF SHAREHOLDERS OF A COMPANY

One important aspect where the law does not offer much guidance on the duties of the Receiver/Manager is the area of the protection of Shareholder’s interest particularly as it relates to calling of Annual General Meeting (AGM). Ordinarily, the notice of AGM is given by the Company Secretary on the instruction of the Board of Directors. Thus, it is germane to ask, “Can the ‘management rule’, as enunciated above, serve as a panacea for determining who has the power to call the AGM during receivership?” The answer to this question, in the opinion of the writer and in the light of Unibiz Nig Ltd case, is in the affirmative. The holding of the AGM falls under the management and control of the company’s business. The fiduciary duty of the Receiver/Manager hinges on protecting the interest of his principal (the company) through efficient management and the AGM is at the center of the management strategy of the company. It is therefore safe to conclude that the Receiver/Manager has the exclusive right to control and regulate the holding of an AGM during receivership.

CONCLUSION

From the above cited cases and statutory provisions on the powers and duties of the Receiver/Manager, it is evident that the Receiver/Manager is expected to, at all material times, perform his fiduciary duty to the Company with the utmost interest of members in mind. The Receiver/Manager, as agent of the company, is expected to take necessary steps to protect the interest of the principal.

Although, there is a dearth of judicial authorities that deals with the issue of who may call for an AGM during the performance of the Statutory duties of a Receiver/Manager, in the opinion of the writer of this paper, the AGM, by reason of “the management rule” inUnibiz (Nig) Ltd. v. CBCL Nig. Ltd, may be called at the instance of the Receiver/Manager as the exclusive manager during receivership. What is more, the provisions of CAMA cloak the Receiver/Manager with very wide powers that covers the calling of AGM in the performance of his duty. These provisions broadly empower the Receiver/Manager to manage the company in good faith[10] and/or seek direction from court in relation to any particular matter arising in connection with the performance of his duty[11].

Image Credit:  Flickr/SalFalkoko

[1] 6th Edition.

[2] Cap C20, Laws of the Federation of Nigeria, 2004.

[3] Sec 388 CAMA

[4] Sec 390 CAMA

[5] Gavin Lightman and Gabriel Moss, the Law of Receivers of Companies. (Sweet and Maxwell, London) p.11

[6] See Sec 393(1)(2)(3) CAMA

[7] (1998) 3 NWLR (pt. 76) p. 280.

[8] (1998) 2 NWLR (pt. 26) p. 303.

[9] (2001) 7 NWLR (Part 713) 534.

[10] Section 390 (2)(a) and (b), and Section 392(1)(2)

[11] Section 391 CAMA

 

INSPIRING: Michelle Obama’s DNC Speech

Michelle Obama

Michelle Obama gave the powerful speech below at the Democratic National Conference.

According to TechCrunch  ”Although it’s just the first night at the Democratic National Convention in Charlotte, people have already posted more than 3 million Tweets, including #DNC2012 and related terms. In comparison, there were 4 million Tweets sent throughout the three days of last week’s Republican National Convention (#RNC2012). Among tonight’s keynotes, First Lady Michelle Obama’s (@MichelleObama) primetime speech peaked at 28,003 Tweets per minute (TPM) at its conclusion — nearly double Republican candidate Mitt Romney’s (@MittRomney) 14,289 peak. One line in her speech this evening — “we’ve got so much more to do” — saw 22,004 TPM.”

Image Credit: Flickr/Barack Obama

Abatement of Nuisance Summarised

No Nuisance

“Nigerian Law of Torts”, a public nuisance is committed where a person carries on some harmful activity which affects the general public or a section of the public, whereas the law of private nuisance is designed to protect the individual owner or occupier of land from substantial and unreasonable interference with is enjoyment thereof. The remedies available to one who complains of a nuisance are: damages, an injunction to restrain further nuisance and abatement.

CATEGORIES OF PRIVATE NUISANCE

Private nuisance falls into three categories:

a)Physical injury to the Plaintiff’s property

b)   Substantial interference with plaintiff’s use and enjoyment of land

c)Interference with easements and profits

In determining whether nuisance has occurred under any of the three categories above, the law endeavours to strike a balance between the right of the defendant to use his land as he wishes and the right of the plaintiff to be protected from interference with his enjoyment of land. In striking the balance, the law considers whether

  1. The injury or interference complained of will not be actionable unless it is (a)sensible (in the case of material damage to land) or (b) substantial (in the case of interference with enjoyment of land)[1]
  2. The defendant will not be held liable unless his conduct was unreasonable in the circumstance.

Nuisance is not actionable per se and damage must normally be proved by the plaintiff. For abatement of nuisance, the plaintiff must show sensible material injury to his property or substantial interference with his enjoyment of his land. However, the Plaintiff need not prove damage where on the facts, damage can readily be presumed or where the defendant interferes with an easement or right of access of the plaintiff.

ABATEMENT OF PRIVATE NUISANCE

Abatement is a remedy of self-help which entitles a person who is affected by a nuisance to remove it, e.g. the occupier of land may cut off the branches of a tree which overhang from adjacent land. This remedy is not favoured by the courts and is virtually obsolete, except where the nuisance is trivial.

Anybody may abate a public nuisance. The injured party may abate a private nuisance, which is created by an act of commission without notice to the person who committed it. When the security of lives or property may require so speedy a remedy as not to allow time to call on the person on whose property the mischief has arisen to remedy it, an individual would be justified in abating a nuisance from omission without notice.

In conclusion, it is noteworthy that the abator of a private nuisance cannot remove the “materials” further than is necessary, nor convert them to his own use. And so much only of the thing as causes the nuisance should be removed; for example, if a house be built too high, only as is too high should be pulled down.

Image Credit: Flickr/ David, Bergin, Emmett and Elliott

Facebook says “like” is a protected speech symbol

speech

Facebook is stepping in to support a deputy sheriff who was fired for “Liking” his boss’s rival. The case, which will determine whether a “Like” is like a bumper sticker, is helping to define free speech in the age of social media. Find below the court process filed by Facebook Inc. in the United States Court of Appeal.

Facebook 1st Amendment by jeff_roberts881

Image Credit: Flickr/ yoshiffles

Impact of Intellectual Property on the Economy: The U.S. Example

USA

The White House released the first-ever report on the unbelievable impact that intellectual property and IP-related industries have on the economy and U.S. jobs on the 11 day of April, 2012.

Some of the principal findings were:

1. The entire U. S. economy relies on some form of IP, because virtually every industry either produces or uses it. By focusing on relevant data and various statistical measures, this report identified 75 industries (from among 313 total) as IP-intensive.

2. These IP-intensive industries directly accounted for 27.1 million American jobs, or 18.8 percent for all employment in the economy in 2010.

3. A substantial share of IP-intensive employment in the United States was in the 60 trademark-intensive industries, with 22.6 million jobs in 2010. The 26 patent-intensive industries accounted for 3.9 million jobs in 2010, while the 13 copyright-intensive industries provided 5.1 million jobs.

4. IP-intensive industries accounted for about $5.06 trillion in value added, or 34.8 percent of U.S. gross domestic product (GDP), in 2010.

After reading the report, one will begin to wonder when the Nigerian Government will come to the realisation that IP-related industries are latent gold mines to the nations decrepit economy and GDP. I recommend that this report  be read by the Minister of Communications Technology, Mrs Omobola Johnson and other relevant authorities to further chart our ICT course as a nation and harness our potential as a creative economy, shift our dependence from oil and create an enabling legal environment for creativity.

“When Americans know that their ideas will be protected, they have greater incentive to pursue advances and technologies that help keep us competitive, and our businesses have the confidence they need to hire more workers”

Commerce Secretary, John Bryson.

You can check the PDF version of the complete report here and/or watch the report as released by white house on April 11, 2012 in the video below:

Image Credit: Flickr/ Werner Kunz

The Basics of Virtual Law Practice

the law

I have always had it in mind to provide legal solutions to the myriad problems facing businesses in various industries. The thought of creating these solutions virtually has also been one that I have nurtured in my mind time and again, I’ve always thought of creating legal solutions through a Virtual Law Firm. Recently, I stumbled upon the Presentation below from slideshare which aptly put this aspiration into perspective which I didn’t hesitate to pin it on my virtual board on Pinterest. A virtual Law Office is an online platform that allows Clients to access some Legal services in addition to the offline services already provided by a particular traditional Law Firm. It is a way of building on an already existing offline Lawyer-Client relationship. A virtual Law firm is characterised by access by the firms’s clients to a password protected and secure web space where both the attorney and client may interact and legal services are further consumed by the client. More specifically, it can be defined as having a secure client portal that is accessible from the law firm’s web site.

Like every area of human endeavour, a virtual Law Firm has its pros and cons, despite the fact that it enables clients to: 1. assemble legal documents over the web;

2. get legal advice online by telephone or email;

3. store their legal documents online;

4. collaborate with their lawyers online through threaded discussions which are archived and

5.  access legal information, web advisors and intelligent calculators

It is not all aspects of legal services that can be done virtually, most service will still require face-to-face interaction with the Lawyer coupled with the fact that confidentiality of document on the web cannot be completely ascertained.

Although, the Rules of Professional Conduct (RPC) for Nigerian Lawyers require that a Client briefs his Lawyer in the Office unless there are exceptional circumstances such as old age or illness of the Client that requires the Lawyer to bend the Rules by visiting the Client instead. The RPC is silent on any provision relating to a Virtual Law Firm possibly because online interaction was not envisage as at the time the Rules were made. There is no gainsaying the fact that the need to connect with the web 2.0 savvy businesses and  capture new clients who are part of “the latent market for legal services” who don’t use Lawyers  may demand a further and better approach in creating effective legal solutions for combating the challenges in this digital age.

See the full version of the Presentation from slideshare below:

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When you can use a Copyrighted Work without permission

copyright

The internet revolution, new media interaction and online journalism has made it next to impossible to create relevant content without using other people’s Copyrighted works. If done in the proper way, one can use Copyrighted contents (through framing, embedding, hyperlinking, in-linking) without necessarily asking for permission from the owner of the work. However, the safest Intellectual Property path to work is to seek prior consent of the creator of a Copyrighted work before using such work or read the Terms of Service of the creator (where applicable) to be acquainted with the Copyright policy.

Ordinarily, the use of a Copyrighted Works without the prior consent of the owner of such work is an infringement but there are exceptions to this general principle of Law and this exception is referred to as fair use or fair dealing. According to Lien Verbauwhede, Consultant, SMEs Division of the World Intellectual Property Organisation (WIPO),“Fair use” or “fair dealing” is a concept that is applied in common law countries, such as the UK, USA, Canada, Australia, India and Nigeria. It recognizes that certain types of use of other people’s copyright-protected works do not require the copyright owner’s authorization. It is presumed that the use is sufficiently minimal that it will not unreasonably interfere with the copyright owner’s exclusive rights to reproduce and otherwise use the work.

An example of where the Law permits a work to be used under the Copyright Act without the permission of the creator is when such use is for the purposes of research, private use, criticism or review or the reporting of current events, subject to the condition that, if the use is public, it shall be accompanied by an acknowledgement of the title of the work and its authorship except where the work is incidentally included in a broadcast. It is noteworthy that Law frowns at substantiality of the use in appropriate cases but this is not the only factor that sums up to infringement of Copyright.

In the Nigerian context, exception to Copyright (the doctrine of fair dealing) is provided for under the second schedule to the Copyright Act Cap 28, Laws of the Federation of Nigeria 1990, but this Law will only apply if Nigerian courts has jurisdiction on any particular Copyright case. The issue of fair use (or fair dealing as it is known under the Nigerian Law) is one that is decided on a case-by-case basis not on a rigid set of rules. The position of the Law on fair use is similar in most common law jurisdictions. The US Copyright Law makes provisions that will help the court and help you decide whether the use of a work falls under fair use. So before you decide to use that Copyrighted work, you can know to a degree whether such use is fair use or not if you can answer these questions:

1. What is the purpose and character of the use?

2. Is the use is of a commercial nature or is for nonprofit educational purposes?

3. What is the nature of the copyrighted work?

4. What is the amount and substantiality of the portion used in relation to the copyrighted

work as a whole?

5. What is the effect of the use upon the potential market for or value of the copyrighted

work?

The good thing about all these is that when you are not sure about the state of a work, you can always talk to your Lawyer. If you have other fair use situations, kindly share your thoughts

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