CORPORATE BUSINESS ORGANIZATIONS IN NIGERIA: THE 
CHALLENGES OF MONITORING CRIME-FREE OPERATIONS 
By 
J.O. Fabunmi 
Professor of Business Law 
& 
O. O. Oladele 
Department of Business Law 
Obafemi Awolowo University 
Ile-Ife 
Introduction 
The regulation of corporate businesses focuses both the 
corporation and its managers. The law has since recognizes the business 
corporation as a legal but an artificial person, who functions through her 
natural persons acting as agents or organs. The company may exercise all 
the powers of a natural person. Thereby, it may be criminally liable for its 
acts just as its officers and other natural persons acting on its behalf. 
Crime- free operation of corporate businesses is of interest to 
investors, creditors as well as the public at large. For instance, while the 
investors and creditors would not want corporate managers to dissipate 
their investment and credit respectively, public interest is keenly 
concerned with the protection of lives, property rights and the interest of 
the revenue among other things. Therefore, since the inception of the 
realistic treatment of the principle of corporate personality through the 
veil-lifting device, there has been a great and sustained statutory 
advancement not only to ensure efficient corporate management but also 
to curtail the abuse of the corporate form for criminal purposes. 
The Companies and Allied Matters Act contains diverse 
provisions against corporate overreaching. Most of these provisions 
appear to deal with matters of efficient management to the extent that they 
touch incorporation, floatation, management, reconstruction, mergers, 

take-over and winding up of companies. However, they also are means 
through which company law directly or indirectly seeks to limit corporate 
criminal overreaching. 
Businesses such as banking, insurance and securities dealings 
where crime is most likely to occur are further regulated by special 
statutes. These statutes include the Banks and Other Financial Institutions 
Decree (BOFID), the Failed Banks (Recovery of Debts) and Financial 
Malpractice in Banks Decree (Failed Banks Decree), the Nigeria Deposit 
Insurance Decree, the Insurance Decree and the Investment and Securities 
Act. 
Statutory control of corporate crimes is topical because corporate 
businesses proliferate at a remarkable rate in harsh and highly competitive 
economic environment thereby engendering lots of unethical as well as 
totally unlawful business practices as corporate operators race viciously to 
the bottom. The general motivator could be the perception by the role- 
actors that business crimes have no visible victims. But they do. 
Otherwise, it was unprofitable for the law to regulate business operations 
at all. It is against this background that this article examines the regulatory 
framework as well some important regulatory bodies that monitor 
corporate businesses in Nigeria. 
Because of the potential vastness of an enquiry that we embark 
here as well as our limited scope, our attempt could only be selective and 
not exhaustive of the whole ground. 
Monitoring Companies 
The Companies and Allied Matters Act' (hereinafter referred to as 
the CAMA) tries to ensure from the process of incorporation that the 
company is formed and operated in compliance with all the relevant laws. 
Particularly, it requires that the businesses or objects for which the 
company is formed are not illega1.2 The CAMA set up the Corporate 
Affairs Commission (CAC) for that and other important purposes. 
The functions of the CAC are as follows: 
I Cap. 59, Laws of the Federation of Nigeria, 1990. 
2 S.36 (i), id. 
2 

(1) The administration of the Act, including the regulation and 
supervision of the formation, incorporation, registration, 
management and winding up of companies; 
(2) Performance of such other functions as may be specified by the 
Act or any other enactment; 
(3) Establishment and maintenance of companies registries and offices 
in all the states of the Federation suitably and adequately equipped 
to discharge the functions with which it is charged by the law; 
(4) Arrangement and conduct of investigation into the affairs of any 
company where the interests of the shareholders and the public so 
demand; 
(5) Undertaking such other activities as are necessary or expedient for 
giving full effect to the provisions of the Act.' 
The Securities and Exchange Commission monitor company 
matters that relate to dealings in securities, unit trusts, reconstructions, 
mergers and take-over as well as other similar matters regulated by the 
Investment and Securities Act of 1999 (ISA). Before the latter came into 
effect, part XII of the CAMA regulated such matters, and provided that 
that the SEC administered that part. The need for a more effective and 
adequate monitoring of corporate activities in these important areas called 
for the ISA. 
A. Monitoring Incorporation Process 
The CAC begins to monitor every company from conception. The 
company must file its proposed name on form CAC l-so that the CAC 
may verify the name, allow its use and reserve it for sixty days after it has 
approved it. Once the name is approved and the company is registered in 
that name, it must carryon its business and conduct its corporate affairs in 
that name. A failure to do so often attracts liability under the law. For 
example, any officer of the company or any person on its behalf who 
issues or authorizes to be issued a bill, parcel, invoice, receipt or letter of 
credit on which the name of the company was not properly indorsed would 
be guilty of an offence and on conviction be liable to a fine of five 
hundred naira. In addition, he " ... shall be personally liable to the holder of 
3 S.7, id 
3 

such bill of exchange, promissory note endorsement, cheque, or order for 
money or goods, or the amount thereof, unless it is duly paid by the 
cornpany.?" 
The CAMA prohibits a company from the use of certain names. 
No company shall be registered by any name that is " identical with that 
by which a company in existence is registered, or so nearly resembles that 
name as to be calculated to deceive, except where the company in 
existence is in the course of being dissolved and signifies its consent in the 
manner as the Commission requires.t" Likewise, no company shall use 
any name that is in the opinion of the Commission "capable of misleading 
as to the nature or extent of its activities or is undesirable, offensive or 
otherwise contrary to public policy." The Act also prohibits the use of any 
name that in the opinion of the Commission violates an existing trademark 
or business name registered in Niferia without the consent of the owner of 
the trademark or business name. Nor could any company use any name 
that contains "Federal", "National", "Regional", "State", "Government" 
thereby suggesting that it enjoys the patronage of government or any of its 
departments or ministry.f 
Name verification is an important means for the Commission to 
monitor the proposed company but the absence of organized postal or 
online verification constitutes an impediment. The legal practitioner 
retained to incorporate the company has to travel to the area office of the 
Commission or the Abuja headquarters office at (1 considerable expense 
for this simple process. It is not even certain that the Commission would 
clear the name the same day as experience has shown. 
In order to form a company, the promoters must deliver the 
documents of incorporation to the Commission.9 The documents include 
the memorandum and articles of association; the notice of the situation of 
the registered office of the company; the list and particulars of the 
directors together with their consent to serve; and a statement of the 
4S.631 (4) (c),id 
5 S.30 (1) (a), id See also Niger Chemists Ltd. v. Nigeria Chemists (196 I) All N.L. R. 171 
6 S. 30 (1) (c) 
7S.30(I)(d) 
8 S. 30 (2) (a). 
9 S. 35. (2) 
4 

authorized capital of the company that must not be less than ten thousand 
naira for a private company, and five hundred thousand naira for a public 
company. 10 In addition, the CAMA requires that the legal practitioner that 
the promoters engage in the formation of the company make in a 
prescribed form, a statutory declaration that the application has complied 
with the requirements of the Act relating to registration. 11 The 
Commission reserves the right to admit the declaration as a sufficient 
evidence of compliance, and must inform the declarant of its rejection 
within thirty days if it rejected the declaration.V In: order to curb a 
deliberate stamp duty underpayment as well as other frauds that could 
result from false declaration, we submit that the CAMA should contain 
special provisions outside the general law to penalize false declarants. 
The CAMA enjoins the Commission to register the memorandum 
and articles of the proposed company unless in its opinion: 
(a) they do not comply with the provisions of the Act; or 
(b) any of the subscribers to the memorandum IS 
incompetent or disqualified under the Act; 13 
(c) the proposed company has not complied with the 
requirements of any other law regulating the 
registration and incorporation; 14 
(d) the name proposed for the company conflicts with or is 
likely to conflict with an existing trade mark or 
business name registered in Nigeria; or 
(e) the proposed businesses or objects .of the company or 
any of them are illegal. 15 
10 S.27 (2). 
II S. 35 (3) 
12 id. 
13 See S.20 that disqualifies from company membership any person who is under the age 
of 18; or is of unsound mind; or an undischarged bankrupt; or has been convicted by a 
competent court of any offence in connection with the promotion, formation or 
management of a company. 
14 See, as examples, Section 3 of Decree No. 25 of 1991 on the conditions for the grant of 
a banking licence; and Section 3 of Decree No. 58 of 1991 for the conditions for the 
carrying on insurance business in Nigeria. 
15 S. 36 (1). However, where the court found that the businesses of the proposed company 
were lawful, and the company complied with the Companies Act as well as other laws 
5 

Where the registrar of companies registered a company in error 
whose businesses are illegal or contrary to public policy, the court often 
would quash the incorporation. This is because the Act provides that "the 
certificate of incorporation shall be prima facie evidence that all the 
requirements of this Act in respect of registration and of matters precedent 
and incidental to it have been complied with and that the association is a 
company authorized to be registered and duly registered under this ACt.I6 
Thus, in the highly persuasive English case of R. v. Registrar of 
Companies, ex. Parte H.M Attorney General, 17 someone incorporated a 
company by the name "Lindi St. Claire (Personal Services) Limited." Its 
stated business was "to carryon the business of prostitution." The 
Attorney General applied for an order of certiorari to quash the 
incorporation of the company on the ground that in certifying the 
incorporation of the company, and in registering it, the Registrar of 
Companies acted ultra vires or misdirected himself, or otherwise erred in 
law since the company was formed for an unlawful purpose. The court 
held that the business of the company was against public policy and 
quashed its registration. 
Professor Pennington puts the grave effect of certiorari on the 
company succinctly as follows: 
Certiorari would annul the certificate of incorporation as though it had 
never been issued; and the company would be deemed never to have 
owned any property or incurred any debts or obligations, so that none of 
the property in its apparent ownership would be available to satisfy the 
liabilities incurred in its name. IS Therefore, because of the enormous 
problem that such a termination of the life of the company has on the 
relevant to its incorporation, it would compel the Commission to register the Company- 
Lasisi v. Registrar a/Companies (1976) 7 S.C. 73 (Supreme Court); Kehinde v. Registrar 
a/Companies (1979) 5 F.R.C.R. 101 (Federal High Court). 
16 S.36 (6). Before 1990, the certificate of incorporation was deemed a conclusive 
evidence of incorporation and compliance with the Act - Section 17 (1) of the repealed 
Companies Act, 1968. See Barnes, K. "Terminating the Incorporation of Offensive 
Companies", (1988) 1 G.R.B.P.L. 79. 
17 (1991) BCLC 476 
18 Pennington, Company Law, 5th Edition, (London: Butterworths, 1995), p.43. 
6 

shareholders and creditors, it is important that the CAC and corporators 
act diligently in the process of incorporation. 
It is important to keep in mind that a company that has as one of 
its businesses something that cannot be done lawfully unless an official 
permission is obtained may be formed and registered without first 
obtaining the permission. 19 In the case of Lasisi v. Registrar of 
Companiesi'' the applicant sought to register a company by the name 
"Page Communications (Nigeria) Limited" under the repealed 1968 
Companies Act. The company had among its objects broadcasting, 
satellite and other forms of communication activities. The Registrar of 
Companies refused to register the proposed company on the ground that 
that applicant failed to furnish a licence issued by the Director of Posts 
and Telegraphs under the Wireless and Telegraphs Act, Cap 223, Laws of 
Nigeria, 1948. The court found that the provisions of the Telegraph Act 
stipulated that the proposed company could not operate without the 
appropriate licence, and not that the company could not be formed. 
Therefore, it held that the Registrar was bound to register the company. 
Belgore J. (as he then was) pointed out as follows: 
The tradition in drawing up the memorandum of a company 
is to make it as comprehensive as possible; some of the 
clauses may be dormant, some may not be taken up 
immediately ... while others may be undertaken 
immediately, and if a clause should require further 
compliance with any regulation, that permission will be 
necessary when the clause is to be operative. Registration 
does not mean that the permit has been obtained, or that a 
further permit should not be obtained where necessary." 
In cases to which the decision above applies, the CAC or other regulatory 
authority must ensure that the company complies before operating in the 
area that requires the special permission. 
Another area that the CAC needs to monitor is the address of the 
registered office of the company and the head office if different from the 
19 See however S.3 (i) of Decree 25 of 1991 that suggests that a banking licence must be 
obtained before a bank is incorporated. 
20 (1974) 3 A.L.R. Comm. 85. 
21 Jd. p.88. 
7 

registered office. The C~C accepts physical addresses and not postal box 
or private mailbag addresses.f However, from personal experience and 
observation, some of the physical addresses are not traceable therefore 
creating problem of communication between the CAC and the affected 
companies as well as that of monitoring. Some companies exist only in the 
brief cases of the majority shareholder and managing director and thereby 
lend themselves to fraud and other sharp practices. It is important that the 
CAC ensure that the addresses supplied by companies are not only 
physical, but also those at which the companies could receive mails. 
Perhaps, one way to ensure that is to strike out from its register the names 
of companies that do not respond to post incorporation correspondences, 
for example notice of due annual returns. 
Once a company is incorporated, one important monitoring device 
is that of "lifting the veil of incorporation" which " ... is grounded on 
equitable principles which permit the court in clear and appropriate cases 
to look behind the legal persona and make a member or director of the 
company personally liable or accountable to a third party.',23 The law uses 
this device inter alia to prevent the corporators from hiding behind the 
corporate facade to Berpetrate fraud and other sharp practices. In the case 
of Jones v. Lipman, 4 the first defendant had agreed to sell freehold land to 
the plaintiffs. However, in order to avoid his legal obligation under the 
contract, he transferred the land to a company that he subsequently 
acquired. He and a clerk of his solicitors were the shareholders and 
directors of the newly acquired company. The court held that the company 
was a cloak for the first defendant to avoid his legal obligation and 
decreed specific performance of the contract against the defendants. 
22 S. 35 (2) (b), CAMA. 
23 Dunlop Nigerian Industries Ltd. v. Forward Nigeria Enterprises Ltd. 1976) 1 A.L.R. 
Comm. 243, per Ajose-Adeogun 1. (as he then was). 
24 (1962) 1 W.L.R. 832. 
8 

Litigants have also sought the remedy of "lifting the veil" to 
prevent tax evasion by companies and to ensure that companies do not 
enjoy some privileges without performing corresponding duties?5 Most 
l}enal provisions of company statutes that impose personal liability on 
agents and officers of the company for some wrongful acts and omissions 
of the company are similar in their utility to the veil lifting remedy." 
B. Monitoring the Management of Companies 
The CAC has an enormous monitoring and supervisory role in 
matters relating to the management of companies. Its responsibilities in 
this regard are so wide that only the very important aspects could be 
examined in some details within our limited scope. Therefore we limit our 
inquiry to the monitoring of company officers and their activities.v' 
limiting the company to its authorized businesses and powers.i" ensuring 
that corporate managers do not dissipate company's capital, protecting the 
minority against the illegal and oppressive conduct of the majority of 
members of the company, receiving and registering certain documents, 
returns, statements and orders with the purpose of protecting investors and 
creditors.i" registering certain charges created by the company and 
keeping the register of such charges, calling and directing the calling of 
meetings of the company as well as that of the board of directors and other 
important statutory means of monitoring the operations of the company. 
C. Monitoring the l)irectorate 
The directors manage the affairs of the company. They are 
"commercial men, managing a trading concern for the benefit of 
themselves and all other shareholders in it.,,3o Because of this all- 
important role and the fact that company ownership is divorced from 
control, the law closely monitors the activities of the directors. The 
CAMA states their legal position as follows: 
25 See Marina Nominees Ltd. v. Federal Board of Inland Revenue (1982) 2 N. W.L.R. (Pt. 
20) 40 S.C.); Reis & Co. (Nigeria) Ltd. v. Federal Board of Inland Revenue (1979) 3 
F.R.C.R. 251; Gresham Life Assurance V. Registrar of Companies (1973) 1 All N.L.R. 
(Pt. 1) 617 (S.C.); and Re F.G. (Films) Ltd. (1953) 1 All E.R. 615. 
26 See infra for further discussions. 
27 See CAMA, Ss. 244 -298 
28 See Ss. 38-40 id. 
,29 See for examples, ss. 331, 333 & 334. 
30 Per Jessel M.R. in Re Forest of Dean Coal Mining Co. (1878) 10 Ch 450, 452. 
9 

Directors are trustees of the company's moneys, properties 
and their powers and as such must account for all the 
moneys over which they exercise control and must refund 
any money improperly paid away, and they must exercise 
their powers honestly in the interest of the company and all 
the shareholders, and not in their own sectional interest'! 
The directors are agents of the company as long as they act within 
the authority and powers conferred on them by statute and the company. 
They stand in fiduciary position to the company. As such, they must act in 
the best interest of the company.f exercise their powers for proper and not 
collateral purposes.t' they must neither fetter their discretion to vote in a 
particular way nor allow their interests to conflict with their duties." They 
must act honestly and in good faith as well as exercise that degree of care, 
diligence and skill thae5 a reasonably prudent director would exercise in 
comparable circumstances. Where they have a good cause to delegate their 
powers they must not abdicate their duty. 36 
The diligence and integrity that the directors show in the 
performance of their duties determine the survival or failure of the 
company. Therefore the CAMA requires that competent persons be duly 
appointed directors, and that they be men of high integrity. A person is 
disqualified from being a director if he is insolventr'" he has been 
fraudulent in the promotion, formation or mana~ement of any company or 
has breached any of his duties to any company; 8 he is a lunatic or person 
of unsound mind or an infant.'" or he has made an arrangement or 
composition with his creditors." In order to give efficacy to these 
requirements, the CAC must maintain an effective record and information 
system on the appointment and disqualification of directors, especially on 
31 S.283 (1) 
32 S.279 (3) 
33 S.279 (5) 
34 S.280 (1) 
35 S.282 (1) 
36 S.279 (7) 
37 S.253 
38 S.254 
39 S.257 (1) (a) 
40 S.258 (1) (b) 
10 

the directors of public companies whose ownership is divorced from 
control. Information on disqualified directors ought to be published in the 
official gazette. In addition, those proposed as directors may be required to 
make a declaration of fitness on a prescribed form at the pain of a stiff 
penalty for a false declaration. While it is desirable to penalize companies 
who knowingly or inadvertently breach the law here, it also is essential 
that shareholders or other persons with relevant information be given the 
opportunity to give the CAC the information as the position is in the 
appointment of trustees prior to the incorporation of such trustees. 
The provisions of the CAMA on the enforcement of directors' 
duties and the remedying of wrongs done by corporate managers to the 
company are potent means of monitoring the operations of companies to 
rid them of crimes. Where any irregularity is committed in the course of 
the company's affairs or any wrong is done to the company, only the 
company could ratify the irregular act or sue to remedy the wrong." 
However, for the protection of his personal right, and albeit indirect 
protection of the rights of the company, a shareholder may by an 
injunction or declaration restrain the company from the following.V 
	(i) 	An ultra vires or illegal transaction; 
	(ii) 	Passing a resolution irregularly;43 
	(iii) 	An act or omission that may affect his individual rights as a 
member; 
	(iv) 	Committing fraud on either the company or the minority 
shareholders where the directors fail to take appropriate action 
		to redress the wrong done;44 	. 
	(v) 	Where the directors have profited or benefited or are likely to 
benefit or profit from their negligence or breach of duty; or 
	(vi) 	Where a meeting of the company cannot be called in time to be 
of practical importance in redressing a wrong done to the 
company or to minority shareholders. 
The CAC may bring a derivative action in the name or on behalf of 
the company, or intervene in an action to which the company is a party for 
41 S.299, that codified the rule in Foss v. Harbottle (1843) 2 Hare 461. 
42 S.300 
43 See Abubakri & ors. v. Smith & ors. (1973) 1 All N.L.R. CPt. 1) 730 
44 See Omisade v. Akande (1987) 2 N.W.L.R. CPt. 55) 158 (S.C.) 
11 

•	
the purpose of prosecuting, defending or discontinuing the action." This 
potent power of the CAC ought to be used to curb all cases of 
irregularities and wrongs not only against the company but also the 
minorities. The best situations to invoke the power are cases of ultra vires 
and illegal acts involving the directors who are in control and would 
ordinarily be unwilling to enforce the rights of the company." 
In addition to the foregoing, the CAMA provides some safeguards against 
oppressive and unfairly prejudicial acts of corporate directors and 
managers." Although the Act does not define such acts, the case of 
Ogunade v. Mobile Films (WA.) Limited'", a case of an "oppressive or 
fraudulent act" under section 201 of the repealed Companies Act of 1968 
offers an insight. In that case, Karibi- Whyte J. (as he then was) said inter 
alia: 
The oppression or fraudulent conduct of the majority must 
be harsh, burdensome and wrongful and must represent a 
consistent pattern of conduct intentionally directed at the 
oppressed minority over a period of time. Thus negligence 
in conducting the affairs of a company or lack of business 
ability or inefficiency will not be sufficient. ... 
In situations of oppression and fraud a shareholder ordinarily could 
petition the court that it is just and equitable to wind up the company." 
However, since this drastic step may in some cases be counter-productive, 
the CAMA provides also that a member, director or former director of the 
affected company, the CAC, or any other person found proper in the 
discretion of the court may bring by a petition before it "an application for 
relief on the ground that the affairs of [the] company are being conducted 
in an illegal or oppressive manner.r" The CAC, in the exercise of its 
powers under the Act or any other law, may bring an application that the 
court intervene in the affairs of the company if " the affairs of the 
45 CAMA., S.303 (1) 
46 See S.303 (2) (a) and the case of Omisade V. Akande, supra. 
47 Ss. 310 and 311. 
48 (1976) 2 E.R.C.R. 10; see also Re R .. A. Noble and Sons (Clothing) Limited (1983) 
B.C.L.e. 273 and Re A Company (1986) B.C.L.C. 376 
49 See Ss. 408 and 410 of the CAMA. 
50 Ss. 3 1 1 (1) and 310 (1) 
12 

company are being conducted in a manner that is oppressive or unfairly 
prejudicial to, or unfairly discriminatory against a member or members in 
a manner which is in disregard of the public interest; or any actual or 
Pfoposed act or omission of the company (including an act or omission on 
its behalf) which was or would be oppressive or unfairly prejudicial to, or 
unfairly discriminatory against a member or members in a manner which 
is in disregard of public interests.t'" The court may, if the application is 
successful, make such an order or orders as it thinks fit, which may 
include inter alia an order for regulating the conduct of the affairs of the 
company in future or directing an investigation by the Commission of the 
affairs. In serious cases, the court may order that the company be wound 
Up.52 While the latter is most useful as deterrence to other companies, it is 
ironical that the CAMA does not seem to contain adequate penal 
provisions to deal with erring officers who were either the role actors or 
conspirators. Section 506, which appears to touch the issue, does not 
adequately address it. That section provides that if it is found in the course 
of winding up of a company "that any of its businesses has been carried on 
in a reckless manner or with intent to defraud creditors of the company or 
creditors of any other person for any fraudulent purpose," the court may 
impose an unlimited liability for the debts or other liabilities of the 
company on the persons who knowingly conducted the business in that 
manner. In addition, the persons shall be guilty of an offence and liable on 
conviction to a fine of two thousand five hundred naira or to an 
imprisonment for a term of two years or both. An example is where the 
directors of an insolvent company borrowed money and ordered goods 
ostensibly for the company when they knew that the company would not 
be able to pay.S3 
I submit that the penalty in section 506 is of a limited utility. It is too mild 
and limited only to winding up situations. 
51 S.311(2)(c ) 
52 S.312 
"53 Re William Leitch Brothers Ltd. (1932) Ch. 71 
13 

D. Investigation of Company Affairs 
The CAC may inves igate the affairs of the company and its 
ownership by virtue of wide ranging provisions of the CAMA54 so as to 
ensure probity and prudent management. Lord Denning M.R. offered an 
incisive background to the investigation in the English case of Norwest 
Holst Limited v. Secretary for Trade55 as follows: 
It sometimes happens that public companies are conducted 
in a way, which is beyond the control of the ordinary 
shareholders. The majori ty of the shares are in the hands of 
two or three individuals. These have control of the 
company's affairs. The other shareholders know little and 
are told little. They receive their glossy annual reports. 
Most of them throw them in the waste paper baskets. There 
is an annual general meeting but a few of the shareholders 
attend. The whole management and control is in the hands 
of the directors. They are a self-perpetuating oligarchy and 
are accountable. Seeing that the directors are the guardians 
of the company, the question is asked: quis custodiet ipsos 
custodes? Who will guard the guards themselves? 
The CAC has the power to "guard the guards" through its investigative 
powers. It may, of its own motion, or on the application of the company or 
any of its members or pursuant to a court order, appoint inspectors to 
investigate the affairs of any company as well as its membership and 
report to it as it may direct. 56 The members who desire to make an 
application of this nature must hold not less than one quarter of the class 
of shares issued by the company, or one quarter of the members of a 
company that has no share capital,s7 However, it appears that the number 
required here is too high and the requirement could discourage the 
members from invoking the process of investigation. A learned writer 
therefore suggests one tenth or the C0I11I1:1IlY mcmbcrship.j" 
54 Ss.314-330 
55 (1978) 3 W.L.R. 73,223. 
56 CAMA, S.3 14 (I). 
57Id. S. 314 (2) 
58 E.O. Akanki, (ed.) Essays on Company La\V (Lagos: University of Lagos Press, 1991), 
pp.22-23. 
14 

It is axiomatic that the CAC would be more interested in 
investigating the affairs of a company than its directors and members who 
might be benefiting from its criminal overreaching. Therefore, the CAMA 
empowers the CAC to investigate the company of its own motion if it 
appears that: 
	(a) 	the company's affairs are being or have been 
conducted with intent to defraud its creditors or the 
creditors of any other erson or in manner which is 
unfairly prejudicial to some part of its members; 
or 
	(b) 	any actual or proposed act or omission of the 
company (including an act or omission on its behalf) 
is or would be so prejudicial, or that the company was 
formed for any fraudulent or unlawful purpose; 
or 
	(c) 	persons concerned with the company's 
formation or the management of its affairs have, in 
connection with it, been guilty of fraud, misfeasance 
or other misconduct towards it or towards its 
members; or 
	(d) 		the company's members have not been given all 
		the 	information with respect to its affairs which 
		they might 	reasonably expect. 59 
An inspector appointed to investigate a company may also 
investigate a related company where necessary. 60 He may examine all 
documents in the possession of the directors.: including bankbooks and 
accounts61 to ensure \ that there is no financial impropriety or any other 
irregularity. He equallr is empowered to examine officers and agents of 
the company on oath," and if they failed to cooperate with him or answer 
any questions he put to them, the inspector could complain to the court 
59 S.315. See GIang v. Mogal Nigeria Ltd. (1978) F.R.C.R. 80. 
60 S.316 
•	61 Ss.317 (2) and 318 
62 S317 (3) 
15 

that could punish them for contempt. 63 The findings of the inspector may 
be grounds for civil proceedings to recover any property of the company 
that has been misapplied or wrongfully recovered and to recover damages 
due to fraud, misfeasance or any other misconduct." In addition, the CAC 
or any other person enabled in that behalf may bring criminal proceedings 
against any person who is likely to be guilty of any criminal offence by 
virtue of the inspector's report. 65 If the report indicates that it is expedient 
in public interest and on a just and equitable ground that the affected 
company is wound up, the CAC may present to court a petition that the 
company be wound up. The cost of all the investigations is defrayed from 
the Consolidated Revenue Fund.66 Professor Gower sums up the 
importance of investigation as follows: 
It is now widely recognized in all countries that the only 
effective way of preventing impropriety in the management 
of the corporate enterprise is to ensure effective supervision 
by some government agency .... Even if shareholders have 
the determination and financial means, they will often lack 
the inside knowledge of the facts which is needed. 
Accordingly, the tendency in all countries is to provide 
wide powers of investigation and inspection/" 
Although the CAC has enormous investigation powers under the CAMA, 
there is nothing to show that it effectively uses the powers, yet the powers 
are very effective means of monitoring the operations of companies. 
E. Records and Returns 
The CAMA contains many provisions on company records and returns. 
However, the most important point here is the ability of the CAC to ensure 
that the company and its officials comply with the provisions. The 
diversity of the provisions limits us to a selective discussion of the salient 
ones. 
63 S. 319 (3) 
64 S.321 
65 S.322 
(,(, S.324 
67 Final Report of the Commission of Enquiry into the Working and Administration of the 
Company Law of Ghana (19~, p163. 
16 

Every company must make to the CAC annual returns on its 
activities in the form prescribed by the Act. 68 The returns ought to inform 
the CAC and the desiring public of the state of the company. The recent 
effort by the CAC to enforce the penal provision for failure to file the 
returns as at when due is commendable and ought to be sustained. The 
Commission must ensure that no company is in the habit of persistently 
writing state of affair letter in lieu of audited accounts. Otherwise the 
returns become a mere fulfillment of the law and not a means of keeping 
the public adequately informed about the company. Every company must 
be made to diligently keep accounting records and the directors must 
prepare financial statements for each year to include auditor's report and 
statement of the source and application of funds.f" The auditors must 
ensure that the company keeps proper accounting records, and that the 
company's balance sheet and profit and loss accounts agree with the 
accounting records and returns." It is only then that investors and 
creditors of the company could have some measure of adequate protection. 
The CAMA makes it an offence for an officer of a company to 
knowingly or recklessly make a false, misleading or deceptive statement 
to the auditors of the company. However, in the light of the present 
economic and crime realities, the penal sanction of one-year imprisonment 
or a fine of five hundred naira is too mild to deter officer with propensity 
for fraud. In addition, it may be desirable to compel companies to include 
in their annual reports the penalties paid or payable in the current year.71 
Banks and Other Financial Institutions 
Due to the propensity of crimes in the financial sector of the 
economy, in addition to the CAMA, Banks and Other Financial 
Institutions Decree (BOFID),n Central Bank of Nigeria Decree (CBN 
Decree)/3 and the Nigeria Deposit Insurance Corporation Act (NDIC Act) 
68 Ss.370-375 
69 S.334 
70 S.360 
71 There is such a provision for banks and other financial institutions in Decree 25 of 
1991, S.27(1) . 
•	72 No. 25 of 1991 
73 No 24 of 1991 
17 

also regulate banks and other financial institutions.i" There has been an 
upsurge of activities in the financial sector in the last decade and a half 
due to financial deregulation, devaluation of the naira, hyperinflation, 
unstable political situation all of which have created inter-related problems 
in the financial sector. These problems include growing non-performing 
assets, loans and advances, large-scale fraud and forgeries as well as abuse 
of insider price sensitive information in the process of financial 
intermediation. Added to these is conflict of the interests and duties of 
directors. In the process, banks abandoned their traditional role of 
financial intermediation for speculation. Consequently, quite a number of 
banks failed. It is against this background that this article examines the 
legal framework for monitoring financial institutions. 
A. Licensing of Financial Institutions 
No person may carryon any banking or other finance business (other than 
insurance and stock broking) in Nigeria except it is a body corporate that 
holds a valid banking licence issued by the Central Bank of Nigeria. 
Otherwise the person is guilty of an offence and liable on conviction to a 
term of imprisonment for up to ten years or a fine not exceeding five 
hundred thousand naira (N500, 000) or to both.75 The application for 
licence must be accompanied by inter alia a draft copy of the 
memorandum and articles of association of the proposed bank or 
institution, such other information, documents and reports as the Central 
Bank may from time to time require, and in the case of banks, a list of the 
shareholders, directors and principal officers of the proposed bank as well 
as their particulars." It is submitted that this process helps to ensure that 
only competent persons and persons of integrity own and manage banks 
and financial institutions. 
B. Monitoring Bank Management 
The BOFID stipulates that only men of integrity manage and direct 
the affairs of banks. Every bank shall, before appointing its directors, seek 
and obtain a written approval of the officers from the Central Bank.77 No 
person shall be an officer of a bank if he is of unsound mind, a bankrupt, 
74 Cap. 301, Laws of the Federation of Nigeria, 1990. 
75 BOFID Ss. 2, 56 & 57. 
76 Ss. 3 & 57 
77 S.44 (1) 
18 

or has been convicted of an offence involving dishonesty or fraud, or has 
been found guilty of serious misconduct in relation to his duties, or if he 
possessed a professional qualification, he has been disqualified or 
suspended from practicing his profession in Nigeria by an order of a 
competent authority made against him personally." Equally disqualified 
from bank employment are persons whose appointment with a bank has 
been terminated or who have been dismissed for reasons of fraud, 
dishonesty or conviction for an offence involving dishonesty or fraud.79 
Where the court wound up a bank, the Central Bank must declare its 
former directors fit to be directors of another bank lest they be 
permanently disqualified from such offices." The penal sanction for an 
infringement of these provisions ranges from fifty thousand to one 
hundred thousand naira fine.81 It is trite that an effective use of the 
monitoring devises above requires that the Central Bank keep up to date 
records and publicize them as the need arises. Bank inspectors also must 
be painstaking in verifying the information banks supply. 
C. Duties of Bank Officers 
In addition to the duties of directors under the CAMA, the BOFID 
imposes other duties on managers and other officers of banks. These 
duties though aimed primarily to, among other things, ensure probity, curb 
conflict in the directors' interests and duties as well as preserve 
depositors' funds and the assets of the bank also seek to ensure the health 
	of the financial system. 	. 
Under the BOFID, no manager or any other officer of a bank shall 
grant to any person any advance, loan or credit facility except in 
accordance with the provisions of the decree as well as the rules and 
regulations of the bank. The manager or officer must not directly or 
indirectly have a personal interest in such a transaction without disclosing 
the nature of his interest to the bank in accordance with the provisions of 
the decree.82 Any person who contravenes any of these provisions is liable 
to a fine of one hundred thousand naira or to an imprisonment for a term 
78 S.44 (2) 
79 S.44 (4) 
80 S.44 (3) 
81 S.44 (4) (5) 
82S.18(1) 
19 

of three years. In addition, he shall forfeit all the gains and benefits that he 
derived from the transaction.f In Federal Republic of Nigeria v. 
Christopher 1. Anyaegbunam[' the Failed Banks Tribunal convicted the 
accused and fined him one hundred thousand naira in lieu of a three-year 
jail term because he stood at both ends of the loan transaction but repaid 
the loan. The charges against him were: 
[T]hat [the accused] ... ,being a Director of Group Merchant 
Bank Limited, failed to disclose [his] interest in two million 
naira (N2,000,000.00) credit facility granted to Corbik 
Supplies and Trading Company Limited in which [he has] 
substantial share holding interest contrary to Section 11 (7) 
of the [Banks and Other Financial Institutions Decree, 
1991]. 
That [the accused] ... ,being a Director of Group Merchant 
Bank Limited, Lagos failed to disclose [his] interest in a 
nine million, three hundred thousand, four hundred and 
forty-seven naira, ten kobo (N9,313,447.10) credit facility 
granted by a company, Group Merchant Bank Limited to 
Corbik Supplies and Trading Company Limited, in which 
[he had] substantial share holding interest contrary to 
Section 18(3) of the Banks and Other financial Institutions 
Decree No. 25 of 1991 and punishable under Section 18(9) 
of the same decree. 
Had the borrower and accused been unable to repay the loans, the Tribunal 
could confiscate his personal assets and those of the company in which he 
saw substantially interested and auction them to satisfy the indebtedness. 
If the value realized from the assets was inadequate to satisfy the loan, the 
only option the Tribunal would have was to jail the borrower without 
being able to help the financial position of the lender. 
There are situations where bank officials conspire with loan seekers to 
overvalue the collateral securities the latter offered for the loans they 
secured from some banks thereby misleading the latter to give loans to 
unqualified borrowers. In such situations, the default repayment of the 
83 S 18 (2) 
84 (1997) 1 F.B.T.L.R. 1 (Failed Banks Tribunal of Nigeria). 
20 

loans was tied to the overvalued collateral and the borrower was able to 
default in repayment knowing that the bank could not recover from her 
personally without a separate memorandum of agreement to the effect. 85 
pn the face of the transactions, the parties "complied" with the statutory 
requirement of securitization, but beneath the facade of "compliance" lay 
a harmful fraud that suggests that the erring bank officials have economic 
self interest the loan.86 I submit that the fine prescribed by the decree is 
too low in the light of the current rate of the naira. The penalty ought to 
suit the wrongdoing and the lending bank be compelled to employ 
independent valuers to value collateral securities. In the same vein, bank 
officers and employees shall not ask for or receive bribes and gratification 
in the course of their duties. Otherwise, they shall forfeit the bribes or 
gratification to the Federal Government, pay a fine of ten thousand naira 
or be imprisoned for a term of three years or be liable to both the fine and 
imprisonment. 87 This article submits that they be liable to both a higher 
fine and imprisonment. Such a penalty should go a long way in limiting 
fraud and forgeries, abuse of insider information and conflict of duty and 
interest of bank managers, directors and employees 
D. Records and Returns 
Every bank shall keep proper books of account on all its transactions." A 
director or manager of the bank who fails to ensure that it does so or has 
willfully caused the bank to default is potentially liable to a fine of up to 
fifty thousand naira or to imprisonment for a term of up to ten years or to 
both the fine and imprisonment. 89 The bank must ensure that its accounts 
are audited periodically in accordance with the provisions of the decree so 
that they give "a true and fair view of the state of affairs of the bank as at 
the end of the report period. ,,90 The accounts together with the balance 
85 Chief Edu v. National Bank of Nigeria and West African Travel Agency Limited (1986) 
3 N.W.L.R. 183 (S. Ct. of Nigeria). 
86 Joe Goldface-Irokalibe, "Eradication of bank malpractices in Nigeria: Will law alone 
succeed?" 33 CENTRAL BANK OF NIGERIA ECONOMIC AND FINANCIAL 
REVIEW, No.1, (March 1995),66. 
87 S.43 
88 S.24 (1 )-(4) 
89 S.24(5) . 
•	90 Ss. 28-30 
21 

sheet must be published and forwarded to the Central Bank.9J Additional 
statutory safeguard requires that every bank submit to the Central Bank a 
periodic statement stating among other things the assets and liabilities of 
the bank and an analysis of its advances and other assets. A defaulting 
bank is guilty of an offence and liable on conviction to a fine of five 
thousand naira for each day during which the offence continues.Y 
Another very useful monitoring provision of the BOFID requires a 
bank to " disclose in detail penalties paid as a result of contravention of 
the provisions of this decree and provisions of any policy guidelines in 
force during the year in question.t''" The decree requires the auditor's 
report to also give such information." The defaulting bank is liable to a 
penal fine of one hundred thousand naira." and the shareholders have 
sufficient information to remove the erring directors and managers who 
are duty bound to ensure that the bank complies with the BOFID by virtue 
of section 46. 
E. The Role of Central Bank Nigeria 
The Central Bank of Nigeria (CBN) has the object of promoting 
"monetary stability" and a sound financial system in Nigeria." Therefore 
it may, among other things, pursue such policies that it considers to be, of 
national interest. 97 It has enormous powers to supervise banks as well as 
make policies on banking and finance operations in Nigeria through 
periodic monetary circulars. " It may order a special examination of the 
books and activities of any bank, especially where it is satisfied that it is in 
public interest to do so, or the bank has been carrying on its business in a 
manner detrimental to the interest of its depositors and creditors, or the 
bank has "insufficient assets to cover its liability to the public or has been 
contravening the provisions ofthe BOFID, or a director or shareholder has 
91 S.27. 
92 S.25. 
93 S.27(2). 
94 S.29. 
95 S.27(5). 
96 Central Bank of Nigeria Decree, No. 24 of 1991 (hereinafter referred to as the CBN 
decree) S. 1 (2)(c). 
97 Jd. S.39. 
98 Ss.30 &31. 
22 

requested for such an inspection." It goes without saying that the CBN 
has effective means of monitoring the operations of banks in Nigeria and it 
is effective in that regard to the extent of its autonomy and integrity. In the 
performance of its duties, it must notify bank shareholders and depositors 
of the illegal acts of the management in order to curb sharp practices as 
well as ensure that the recommendations of bank examiners are 
implemented. It must improve the accuracy, information contents and 
comparability of external auditors' reports as well as engage non-staff of 
CBN in supervision of banks as at when necessary. 100 
The CBN decree empowers the Governor of the bank to revoke the 
operation licence of any bank that does not comply with the provisions of 
the decree. 101 If he invoked this provision promptly and efficiently, it 
certainly would go a long way to reduce the involvement of banks and 
their officials in fraudulent operations. But the down side of this is the 
adverse effect that would have on the investors and creditors of the 
affected banks, especially that a depositor would not be able to recover 
more than fifty thousand naira from the affected bank no matter the 
quantum of her deposit by virtue of the Nigeria Deposit Insurance Act. 
The Operations of Insurance Business 
The Insurance Decree of 1997 regulates insurance business in 
Nigeria.102 The decree aims generally and expectedly at ensuring that 
insurance business is properly established and managed by competent 
persons with the highest regard for probity. The decree provides that the 
business must be registered, just as its registration may be cancelled for 
non-compliance with the provisions of the decree. However, because of 
the diverse provisions of the decree and the limited scope available for the 
discussion of issues relating insurance in this article, the latter admits 
discussions of only three issues namely, investment of insurance funds, the 
need to ensue prompt payment of premium by an agent to the insurer and 
to curb the menace of fake claims. 
99 S.32. 
100 Ayodele Jimoh, "The Changing Regulatory Environment of the Nigerian Financial 
System: The Place of Decrees 24&25 of 1991" 1992 NIGERIAN FINANCIAL 
REVIEW 46, 49 
101 S.12 
102 No.2 of 1997 
23 

A. Investment of Insurance Funds 
Concerning the investment of insurance funds, this article submits that the 
investments that the decree permits may be too narrow against the value of 
the naira and may tempt insurers to take excessive risk in the bid to make 
appreciable profit. It provides that an insurer shall " ... invest and hold 
invested in Nigeria, assets equivalent to not less than the amount of the 
funds in such insurance business as shown in the balance sheet and the 
revenue account of the insurer." However, the insurer shall invest only in- 
(a) securities specified under the Trustees Investment Act; 
(b) shares in other securities of a co-operative society registered under 
a law relating to co-operative societies; 
(c) loans to building societies approved by the [National Insurance] 
commission; 
(d) loans on real property, machinery and plant in Nigeria; 
(e) loans on life policies within the surrender values; 
(f) cash deposit in or bills of exchange accepted by licensed banks; 
and such investment as may be prescribed (presumably by the 
National Insurance Commission). 
Investments permitted under the Trustee Investment Act seem to be 
outdated considering that that Act has not been reviewed since it came into 
effect in 1961 though the economic situation today differs radically from 
that of that year. It also is important to keep in mind that only a meager 
two per centum interest is payable on housing fund loan while the 
potential risk of an insurer and inflation rate are grossly disproportionate. 
There ought to he a review of the list of permissible investments to aid 
insurers in complying with the decree. The risk portfolio of insurance 
companies makes the cost of their funds to outweigh the returns they 
expect from the permissible investments. 
B. Ensuring Prompt Payment of Premium by an Agent to the 
Insurer 
Where the insurer carries on business through an agent, the latter shall 
immediately pay to the insurer any premium he collected from the insured, 
otherwise he is guilty of an offence and liahle on conviction for the first of 
such an offence to a fine of ten thousand naira, for the second offence, to a 
fine of fifty thousand naira, and for a third offence, to a fine of one 
24 

hundred thousand naira or to a jail term of three years or to both such fine 
and jail term as well as the cancellation of his agency iil:enl:e.1ol 
C. Curbing Fake III.\'IIr(",('~ ('/(1;/11.\' 
The Insurance lJt:t;rt:t: of I YY7 appt:ars not to have adequatclv deall 
with the phenomenon or lake claims and the penalty suitable III likl'ly' 
parties, that is, the 1~t1st: claimant and tilt: insurer. CaSl:S of Iulse iusuruucv 
claims IllUY be difficult to discover, especially WltCIC the insurer is 1'1 i '0' l~' 
the claim. Therefore the law in this regard ought to be reviewed so as to 
put ill plncc lite nppropriutc muclrincry 1'01' d(.'lcclioll nud tldclJlItllc I'cllolly 
o( the parties involved. The enforcement network must or 11l'('('ssily 
involve the diligent participation of in-house investigators and claim 
verification agency of the insurer whose real and pecuniary independence 
the insurance company must ensure. The general meeting of the company 
is best placed to retain the claim verification agency so that the company 
may avoid the likely conflict of interest and duties of fraudulent officers 
and agent of the insurer company. 
Monitoring the Securities Market 
A. Public (Jjfers ofSecurttie« 
The Investment and Securities Act (1SA)I<H established the 
Securities and Exchange Commission (SEC)I05 to "regulate investments 
and securities business in Nigeria" according to the ISA.106 Therefore, the 
SEC is the sole authority that registers securities to be offered to the public 
for subscription or sale.107 The SEC also "registers and regulates 
Securities Exchanges, Capital Trade Points, Futures, Options and 
Derivatives Exchanges, Commodity Exchanges and any other recognized 
Investment Exchanges.t'l'" 
In addition to these important functions, it also registers corporate 
and individual capital market operators as well as the "workings of 
103 S.35 (2) & (3). This seems to be an improvement in the fines of between one hundred 
and five hundred naira that the repealed 1991 Insurance Act provided for. But how 
willing are insurance companies to provide the Commission the relevant information 
instead of simply terminating the agency of the culprit? 
104 No.45 of 1999. 
105Id. S.l(1) 
106 S. 8(a) 
107 S.8 ( c ) 
108 S. 8 (b). 
25 

venture capital funds and collective investments schemes including mutual 
funds".109 As the highest regulatory organization for the Nigerian capital 
market, it has the duty to protect investors, maintain fair and orderly 
markets as well as "prevent fraudulent and unfair trade practices relating 
to the securities industry. 110 In performing these and the other important 
functions under Section 8 of the ISA, the SEe has enormous powers of 
investigation, demand for information, penalizing erring companies as 
well as disqualifying unfit persons from employment in the securities 
industry. Pursuant to its powers under section 262 of the ISA to make 
rules, the SEe has made a comprehensive body of diverse rules to regulate 
security dealings in Nigeria. III 
By virtue of the ISA, only a public company may invite the public 
to acquire its securities or " ... deposit money with any body corporate for a 
fixed period or payable at call, whether bearing or not bearing interest 
unless the body corporate concerned is a body corporate licensed under 
the Banks and Other Financial Institutions Decree 1991 to carryon 
banking business. ,,112 All persons, company officers and body corporate 
making any invitation in contravention of this provision shall be guilty of 
an offence and liable to a fine of not less than one hundred thousand naira, 
and in the case of the natural persons, an imprisonment of at least two 
years or the fine or both the fine and imprisonment. Anybody who is 
adversely affected by the invitation made illegally may rescind the 
subscription and recover a compensation for the loss sustained by him. I 13 
Securities must be registered by the SEe before they are offered 
for sale to or for subscription by the public or privately with the intention 
that the securities will be held ultimately by persons other than those to 
whom the offers are made. Otherwise, the issuers of the securities have 
committed an offence and are liable on conviction to a fine of fifty 
thousand naira and to a further fine of five thousand naira for every day 
109 S. 8 (c ) (d). 
110 S.8 (h) U) (u). 
III Securities and Exchange Commission, Rules and Regulations Pursuant to Investment 
and Securities Act of 1999 (2000) 
112 S.44 (I) 
113 S.44 (3) (4). 
26 

during which the offence continues.!" The ISA seeks to ensure that 
investors receive material information on all publicly offered securities. 
Therefore, it makes provisions for registration and antifraud liability. It is 
unlawful to issue an application form for securities in a public company 
unless a prospectus or a statement in lieu thereof that must comply with 
the requirements of the Act accompanies it. A violation of this provision is 
on conviction punishable by a fine of one hundred thousand naira. II.~ 111 
order to ensure that those who prospect for investment do not deceive 
investors, any company officer who authorized the issue of a prospectus 
with an untrue statement or any person who authorized the delivery of a 
statement in lieu of prospectus with an untrue statement could be liable on 
conviction to a fine of one hundred thousand naira or to a term of 
imprisonment for up to three years or to both the fine and the 
imprisonment. I-Ie could avoid liahility only if "he proves that the untrue 
statement was iuunutcriul or that he had reasonable ground to Iwlil'Vl' ;111<1 
did up to the time of the issue of the prospectus [delivery for registration 
of the statement in lieu of prospectus] believe that the statement was 
true."!" In securities transactions in the United States, the Supreme Court 
offered a useful definition of materiality in the case of Busic, Inc. v. 
Levinson. J 17 A statement is deemed to be material if there is a substantial 
likelihood that a reasonable investor would consider it as altering the 
"total mix" of information in deciding whether to buy or sell the securities 
in question. Therefore, if the information would affect the price of the 
securities, the information is material. This definition should guide the 
determination of materiality of statements in Nigeria. 
It is an offence for a person to " ... create, or cause to be created, or 
do anything which may create a false or misleading appearance of active 
trading in any securities on a Securities Exchange or Capital Trade Point 
or a false or misleading appearance with respect to the market for or price 
of any such securities.,,11 This and some other manipulations of trade or 
market in securities in order to raise or lower the price thereof so as to 
114 S.32 
115 S. 48 (1) (3). 
116 Ss. 63 & 64. 
117485 U.S. 224 (1988) 
118 ISA, S.81(1) 
27 

influence the public to buy or not to buy them are punishable by a fine of 
not less than five hundred thousand naira or an imprisonment for a term 
not exceeding three years or both.'!" The ISA has these and other wide- 
ranging provisions that should deter criminal operations and practices in 
. the securities market. 
Since the SEC has the duty to administer the ISA, and more particularly 
"to prevent fraudulent and unfair trade practices relating to the securities 
industry,,,120 we presume that its in-house lawyers who are knowledgeable 
in securities regulation would exclusively prosecute the offenders and not 
State Counsels in the Federal Ministry of Justice who already have many 
cases of general nature to prosecute. 
C. Unit Trusts 
A unit "trust scheme" or "mutual fund" is " any arrangement made 
for the purpose, or having the effect, of providing facilities for the 
participation of the public as beneficiaries under a trust in profits or 
income arising from acquisition, holding, management or disposal of 
securities or any other property whatsoever."!" The unit trust is designed 
to enable investors with smallholdings to pool their resources in order to 
make significant and substantial investment in the capital market. The 
SEC must authorize and register every operating unit trust, and it must be 
satisfied that the competence and probity of the manager and trustee of the 
scheme are such as to make them suitable for those offices. 122 
It is unlawful to operate a unit trust scheme that is not registered by 
SEC, and once the deed expressing the trusts as well as the name of the 
trusts are approved any manager or trustee who alters them" ... commits an 
offence and is liable on conviction to a fine ofN50, 000 and in addition to 
a penalty of N5, 000 per day for the period during which the default 
subsists.,,123 A manager of a unit trust scheme mar, invest only in 
securities specified under the Trustee Investment Act' 4 and such other 
119 Jd. S.87. 
120 S.8 
121 S.124 
122 S.125 
123 S.127. 
124 Cap. 449 Laws of the Federation of Nigeria, 1990. 
28 

investments as the SEe may, from time to lime. npprovc.!" The nH\Iln~cr 
may not trade for his own account or make personal profit from the nsscts 
of the scheme. He must not harrow money on behalf of the scheme II) 
acquire securities or other properties lor it. lie equally must IIllt lend 
anyone the money of the scheme to enable him buy units of the scheme. 
He must not mortgage, charge or encumber the securities or other 
properties of the scheme or engage in any transaction that is not in the 
interest of the scheme and unit holders lest he be liable to a fine of twenty 
thousand naira. 126 
In order to effectively monitor the activities of unit trust schemes. 
the ISA vests in the SEC diverse powers to call for the audited accounts of 
such schemes and require the same to be published in national 
newspapers, investigate and report on the administration of any unit trust 
scheme liS well as require 111:11 sclWI1W rnnnngcrs produce rclc-vnnt 
documents for scrutiny. The SI~:C~ also may revoke its authorization or :Illy 
scheme for contravening the ISA or any regulation made under it.127 As 
the unit trust is used more and more as a vehicle of investment, the 
challenges of monitoring is bound to be higher since unit ownership is 
divorced from its management. 
D. Monitoring Reconstructions, Mergers, Take-Overs and Acquisitions 
of Companies 
There might be the need for a company to make a structural or 
organizational change for a more effective operation and maximization of 
profits. The need arises more when the economy is in recession and 
companies find it difficulty to stay afloat. The organizational changes that 
we envisage here could take the form of reconstruction, merger, take-over 
or acquisition by one company of the other. While it is impossible to do an 
in-depth examination of these corporate formations within the scope of 
this article, we endeavour some salient factors in the process that are 
relevant to our enquiry. 
The ISA empowers the SEC to "review, approve and regulate 
mergers, acquisitions and all forms of business combinations.t''r" In the 
125 ISA S.136 
126 S132. 
127 See Ss. 128,134,137,141,142 and 145 
128 S.8 (0) 
29 

exercise of its powers, the SEe shall approve every merger, acquisition or 
business combination that "is not likely to cause a substantial restraint of 
competition or tend to create a monopoly in any line of business 
enterprise" or whose vote or proxies shall not cause the same. 129 The ISA 
also requires that the SEe consider before its approval of a take-over bid 
the likely effect of the bid on the economy of Nigeria and any policy of 
the Federal Government with respect to manpower development. The SEe 
may require the parties to any business combination to provide more 
information to enable it reach the right decision. A take-over bid that the 
parties make without SEe authorization or registration is an offence 
punishable on conviction by a fine of not less than one hundred thousand 
naira or an imprisonment for a term not exceeding twelve months or by 
both the fine and term of imprisonment. 130 
The effect of the above provisions and other monitoring devices of 
the law as well as the need for their diligent enforcement are best 
appreciated by keeping in mind the abuses that could occur in the process 
of merger acquisition and other business combinations. Although the 
directors involved in these processes appear all the time to be acting in the 
best interest of the company, there also is the possibility that they act in 
their own interest or for some other ulterior motive. The abuses they could 
subject the process to include: 
(a) manipulation of price of shares and insider trading; 
(b) receipt by the directors of the target company of 'golden 
handshake', that is, financial inducement from the take-over 
bidders for loss of office that attends the bid; 
(c) failure of the directors of the target company to give adequate 
information to the shareholders in the circulars or notices the 
directors send to them about the bid so that the shareholders are 
unable to form an enlightened opinion of the bid; 
(d) defensive tactics by the directors of the target company to frustrate 
the bid although it would be favorable to the shareholders. This 
they could do by issuing more shares or shares with weighted votes 
129 S.99 (3) 
130S.122 
30 

or by initiating other schemes that will make it financially suicidal 
for the bidder to continue with the bid; or 
(e) allowing the bid so as to create a monopoly or oligopoly by 
absorbing other trade competitors. 131 
E. Insider Trading 
The ISA empowers the SEe to "protect the integrity of the securities 
market against abuses arising from the practice of insider trading.,,132 In 
addition, the Act prohibits an individual who is an insider of a company 
from buying or selling or otherwise dealing "in the securities of the 
company which are offered to the public for sale or subscription if he has 
information which he knows is unpublished price sensitive information in 
relation to those securities.,,133 Similarly, no public officer or former 
public officer may trade with the information he obtained by virtue of his 
office as a public officer.l " The contravention of these provisions is an 
offence punishable on conviction by a fine of one million naira or an 
imprisonment for a term of two years or both the fine and 
imprisonment. 135 However no transaction shall be void or voidable only 
because it violated the provisions of sections 88 or 89 of the ISA but the 
guilty insider shall compensate all persons who suffered direct loss "as a 
result of the transaction, unless the information was known or with the 
exercise of reasonable diligence could have been known to that person at 
the time of the transaction." In addition, the guilty person shall account to 
the company for the direct benefit or advantage received or receivable by 
	him from the transaction.v=" 	. 
131 O.A. Osunbor, The Nigerian Law a/Take-overs and Mergers (1989) 2 G.R.B.P.L. 
(No.5) 40, 41-42 
J32 S. 8 (m) 
133 S. 8 (1). The defmes corporate insiders to include persons who "at any time in the 
preceding six months have been knowingly connected with the company" as directors, 
other officers and employees of the company or a related company or persons who have 
business or professional relationship with the company in such a way that they have in 
relation to its securities "unpublished price sensitive information ... which it would be 
reasonable to expect a person in [that] position not to disclose except for the proper 
performance of [their] functions". 
134 S.89 
135 S.94 
136 S.93 
31 

The menace of insider trading is one of law's oldest problems but 
there is no record t at anyone has ever been prosecuted for it in Nigeria. 
This raises a serious question about the securities market and regulator's 
determination to protect the market against this scourge. Regulators must 
address this problem urgently. 
Conclusion 
This general traverse of the challenges of, and the legal as well as policy 
framework for, crime-free operation of corporate entities in Nigeria has 
attempted much but has only done little in highlighting the problem of 
crime in the operation of companies and some salient provisions of the 
laws that address the problem. We admit that the field of inquiry is wide 
and that our scope is limited. Therefore, in the limited scope, this article 
has discussed some likely crimes in the course of the operation of 
corporate businesses as well as some salient provisions in a number of 
statutes that seek to curb the identified crimes. For most of our enquiry, 
the article observed that there is enough on the statute books to fight 
crimes in corporate business operations. In other areas, we have suggested 
that the law be reviewed either to make the prescribed penalty more 
stringent or to make the law more efficacious. As an important part of the 
efficacy, the supervisory and enforcement regime must be alert and 
efficient. Happily, the CAC, SEC, CBN, National Insurance Commission 
and other relevant regulatory bodies are set up to be autonomous. They 
must remain autonomous and free from unnecessary intervention by the 
Federal Government and its agents. The government must abandon policy 
inconsistency for determined law enforcement. Since economic instability 
and recession as well as hyperinflation have the tendency to propel 
companies and businessmen towards excessive risk taking and even 
criminal operation in the race for the bottom, law enforcement has to be 
alert to meet the challenges that are bound to arise daily. 
To facilitate law enforcement, the CAC must further decentralize 
its operations. Presently, it has a few zonal offices that perform limited 
functions that do not involve investigation of companies but register 
business names, clear business and company names and receive annual 
returns. The zonal offices seem to concentrate on meeting revenue target 
at the expense of sanitizing the operations of corporate bodies. It is high 
time the CAC had branch offices in all the state capitals headed by officers 
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of the status of Deputy Registrar-General. Every branch office should 
exercise all the powers of the CAC, including the power of investigation 
and law enforcement, over all the corporate bodies in that state. Effective 
electronic network is required for an effective monitoring and linkage of 
the branches to the head office in Abuja. The present situation of using 
computers for name verification only is not only cumbersome and counter- 
productive, but it also makes the zonal offices revenue collection centers 
only. To the extent that the most of the operations of the CAC are 
concentrated in Abuja, much room is given to inefficiency and corruption 
as companies jostle to have the CAC officials attend to their business. A 
Commission that is under an intense pressure to cope with fillings hardly 
would have time for investigation and law enforcement. 
The SEC has enough statutory powers to monitor corporate 
operations but must use electronic information storage and monitoring 
devices to the effect. With offices in Lagos and Abuja, it is well positioned 
but must provide electronic linkage. If its autonomy is preserved, it should 
function effectively to protect the integrity of the capital market from 
criminal operations. 
All regulatory bodies must give premium to training both at home 
and overseas of their officials so that they could cope with high-tech 
criminal operations. They also must cooperate with regulators of advanced 
economies. These and other positive measures will enhance the efficiency 
of the regulatory bodies. 
33