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Nigerian Bar Final Corporate Law Practice study materials
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Nigerian Bar Final Corporate Law Practice practice questions

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Question 1Corporate Law Practice

Under the Companies and Allied Matters Act 2020, which body is responsible for the registration of companies in Nigeria?

  1. The Securities and Exchange Commission
  2. The Nigerian Exchange Limited
  3. The Central Bank of Nigeria
  4. The Corporate Affairs Commission Correct answer.

Explanation

The Corporate Affairs Commission is the statutory body established under CAMA to incorporate companies and keep the register of companies. The Securities and Exchange Commission regulates the capital market, while the Exchange operates the trading platform and the Central Bank regulates banking. Incorporation is therefore exclusively a Commission function.

Question 2Corporate Law Practice

A promoter enters a contract on behalf of a company that has not yet been incorporated. What is the default position under CAMA 2020 on the promoter's personal liability?

  1. The promoter's liability automatically transfers to the subscribers on incorporation
  2. The promoter is never personally liable because the company is the intended principal
  3. The promoter is personally liable unless the company adopts the contract after incorporation Correct answer.
  4. The promoter is liable only if the company is never incorporated

Explanation

A company cannot be bound by a pre-incorporation contract because it lacks legal capacity before registration. The promoter who purports to contract for the unborn company is personally bound unless the newly incorporated company adopts the contract. Adoption shifts liability to the company, which is why the default rule protects third parties who dealt with the promoter.

Question 3Corporate Law Practice

Which of the following is an essential characteristic of a private company limited by shares under Nigerian law?

  1. It must have at least two directors at all times
  2. It restricts the transfer of its shares Correct answer.
  3. It must hold a minimum of seven members
  4. Its shares may be offered to the public through a prospectus

Explanation

A private company is defined by restrictions in its articles, including limits on share transfer and a prohibition on public offers of its securities. These restrictions preserve the closely held nature of the company. Public offers and large membership are features associated with public companies, not private ones.

Question 4Corporate Law Practice

A company's articles contain a clause giving the board power to refuse registration of any share transfer. A shareholder challenges the refusal. How will a Nigerian court most likely approach the clause?

  1. Enforce it absolutely regardless of the directors' motives
  2. Ignore it because the articles bind only the company and not members
  3. Strike it down because share transfer restrictions are void in private companies
  4. Enforce it only if the directors exercised the power in good faith and for the company's benefit Correct answer.

Explanation

Articles operate as a contract between the company and its members, and transfer restrictions are lawful in private companies. However, directors' powers must be exercised bona fide in the interests of the company and not capriciously. Courts therefore review the refusal for good faith rather than treating the clause as void or absolute.

Question 5Corporate Law Practice

What is the legal effect of the certificate of incorporation issued by the Corporate Affairs Commission?

  1. It merely records the application pending final approval
  2. It is conclusive evidence that the company is duly incorporated Correct answer.
  3. It lapses after twelve months unless renewed
  4. It is rebuttable evidence of incorporation subject to later challenge

Explanation

CAMA provides that the certificate of incorporation is conclusive evidence that the company has been duly registered and that all requirements relating to incorporation have been complied with. This protects persons dealing with the company from later allegations of procedural defect. The certificate does not expire and is not merely a provisional record.

Question 6Corporate Law Practice

A company wishes to alter its memorandum to change its name. Which step is legally required before the alteration takes effect?

  1. Consent of the company's bankers and auditors
  2. Approval by the Nigerian Exchange Limited
  3. Special resolution of the members and approval of the Corporate Affairs Commission Correct answer.
  4. Ordinary resolution of the board of directors alone

Explanation

A change of name requires a special resolution of the members followed by the approval of the Corporate Affairs Commission, which then issues a fresh certificate of incorporation. The Commission's approval is what perfects the change. Board resolutions, bankers and auditors play no statutory role in effecting the alteration.

Question 7Corporate Law Practice

Which document governs the internal management of a company and regulates the relationship between the company and its members?

  1. The memorandum of association
  2. The certificate of incorporation
  3. The articles of association Correct answer.
  4. The annual return

Explanation

The articles of association contain the rules for internal management and constitute a statutory contract between the company and its members. The memorandum states the company's external constitution such as name, objects and share capital. The certificate evidences incorporation and the annual return is a filing obligation.

Question 8Corporate Law Practice

A director of a Nigerian company uses confidential company information to buy land that the company was negotiating to acquire. What fiduciary duty has the director most directly breached?

  1. The duty to file annual returns with the Commission
  2. The duty to maintain the company's registered office
  3. The duty to avoid conflicts of interest and not to exploit corporate opportunities Correct answer.
  4. The duty to act within the scope of the company's objects

Explanation

Directors owe a fiduciary duty not to place themselves in a position where personal interest conflicts with the company's interest, and not to divert corporate opportunities. Acquiring the land the company was pursuing is a classic misappropriation of a corporate opportunity. Filing and office requirements are administrative obligations, not fiduciary duties.

Question 9Corporate Law Practice

Which of the following best describes the rule in Foss v Harbottle as applied in Nigeria?

  1. Directors are personally liable to creditors for company debts
  2. Where a wrong is done to a company, the proper plaintiff is the company itself Correct answer.
  3. A minority shareholder may sue whenever the company suffers loss
  4. The majority shareholders may ratify any breach of duty by directors

Explanation

The rule in Foss v Harbottle establishes that where a wrong is done to a company, the proper claimant is the company, since the company is a separate legal person. The exceptions include fraud on the minority and acts requiring a special majority. The rule does not allow the majority to ratify everything or make directors liable for company debts.

Question 10Corporate Law Practice

A shareholder wishes to bring a derivative action on behalf of the company. What is the essential precondition for the court to grant leave?

  1. The company must first be wound up
  2. The shareholder must hold at least ten per cent of the issued shares
  3. The directors must consent to the action
  4. The action must be in respect of a wrong done to the company and the shareholder must be acting in good faith Correct answer.

Explanation

CAMA allows a member to apply for leave to bring a derivative action where the company has suffered a wrong and the member is acting in good faith, with the action appearing prima facie in the company's interest. The remedy is not tied to a fixed shareholding threshold. Winding up or director consent is not a precondition.

Question 11Corporate Law Practice

What is the minimum number of members required to incorporate a company limited by shares in Nigeria?

  1. Seven members
  2. Fifty members
  3. Two members
  4. One member Correct answer.

Explanation

CAMA 2020 permits a company to be incorporated by one or more persons, so a single member can validly form a company limited by shares. The old requirement of two or more subscribers has been removed. Seven and fifty reflect outdated or public-company notions.

Question 12Corporate Law Practice

A company's objects clause authorises the manufacture of furniture. The company enters a contract to trade in petroleum products. What is the modern position on the validity of that contract?

  1. The contract is void because it is ultra vires the company
  2. The contract is valid but the directors may be liable for exceeding their powers Correct answer.
  3. The contract is voidable at the option of the other party
  4. The contract is enforceable only if approved by the Commission

Explanation

Under CAMA the validity of an act is not affected merely because the company lacked capacity or the directors exceeded their powers. The contract therefore binds the company, although the directors may be answerable internally for acting outside the objects. This reflects the modern abolition of the strict ultra vires doctrine in favour of protecting third parties.

Question 13Corporate Law Practice

Which of the following statements correctly describes the doctrine of separate legal personality as established in Salomon v Salomon?

  1. A one-person company is not recognised in law
  2. A company is an agent of its shareholders in all its dealings
  3. A company is a legal person distinct from its members and directors Correct answer.
  4. Directors are personally liable for contracts made by the company

Explanation

Salomon established that on incorporation a company becomes a legal person separate from its shareholders and directors, with its own rights and liabilities. Members enjoy limited liability and are not agents of the company merely by virtue of membership. The doctrine applies equally to a one-person company.

Question 14Corporate Law Practice

A court is asked to lift the corporate veil of a company used by its sole director to perpetrate fraud on creditors. Which principle is most relevant to the court's decision?

  1. The court may lift the veil only where the company is insolvent
  2. The court has no power to lift the veil under Nigerian law
  3. The court must always lift the veil whenever a company has a single shareholder
  4. The court may lift the veil where the company is a mere facade or sham used to evade legal obligations Correct answer.

Explanation

Nigerian courts recognise that the corporate veil may be lifted where the company is a mere facade, sham or agent used to conceal fraud or evade existing legal obligations. The jurisdiction is exceptional and requires evidence of abuse, not merely sole ownership or insolvency. The veil is therefore not inviolable but is not lightly disregarded.

Question 15Corporate Law Practice

What is the statutory minimum share capital required for a private company limited by shares under CAMA 2020?

  1. Ten thousand naira
  2. One million naira
  3. Five hundred thousand naira
  4. One hundred thousand naira Correct answer.

Explanation

CAMA 2020 sets the minimum issued share capital for a private company at one hundred thousand naira. Public companies have a higher threshold. The other figures do not reflect the statutory minimum for a private company.

Question 16Corporate Law Practice

A company proposes to issue shares to the public. Which regulatory step is required in addition to registration with the Corporate Affairs Commission?

  1. Registration with the Central Bank of Nigeria
  2. Approval by the Nigerian Bar Association
  3. Consent of the company's auditors only
  4. Approval of the prospectus by the Securities and Exchange Commission Correct answer.

Explanation

A public offer of securities requires a prospectus approved by the Securities and Exchange Commission, which regulates the capital market. The Corporate Affairs Commission handles incorporation and filing, not securities clearance. Professional bodies and the Central Bank do not approve prospectuses for general corporate offers.

Question 17Corporate Law Practice

What is the effect of a company's failure to hold its annual general meeting as required by CAMA?

  1. The company is automatically dissolved
  2. The directors are automatically removed from office
  3. The company and its officers may be liable to penalties on application to the court Correct answer.
  4. The company's contracts become void

Explanation

CAMA requires an annual general meeting and empowers the court, on the application of a member, to order the meeting to be held and to impose penalties on the company and its officers for default. Failure does not dissolve the company or void its contracts. Removal of directors requires a separate process.

Question 18Corporate Law Practice

Which resolution is required for a company to remove a director before the expiration of his term, and what notice must be given?

  1. An ordinary resolution without any notice
  2. An ordinary resolution after special notice of twenty-eight days Correct answer.
  3. A special resolution after twenty-one days notice
  4. A board resolution passed unanimously

Explanation

CAMA allows a company to remove a director by ordinary resolution, provided special notice of the intention to move the resolution is given to the company at least twenty-eight days before the meeting. The director has a right to make representations. A special resolution is not required, and a board resolution cannot remove a director.

Question 19Corporate Law Practice

A director of a Nigerian company fails to disclose his interest in a contract before the board. What is the consequence under CAMA?

  1. The director must account to the company for any profit and the contract may be avoided by the company Correct answer.
  2. The director is automatically disqualified for ten years
  3. The contract remains valid and no consequence attaches
  4. The contract is automatically void and unenforceable by either party

Explanation

A director with a personal interest in a contract must disclose it to the board. Where disclosure is not made, the company may avoid the contract and the director is liable to account for any profit made. Automatic voidness and fixed disqualification periods are not the statutory consequences of mere non-disclosure.

Question 20Corporate Law Practice

What is the principal purpose of the statutory audit of a company's financial statements?

  1. To determine the company's tax liability on behalf of the revenue authority
  2. To guarantee that the company will make a profit
  3. To calculate the directors' remuneration
  4. To provide an independent opinion on whether the financial statements give a true and fair view Correct answer.

Explanation

An auditor expresses an independent professional opinion on whether the financial statements present a true and fair view in accordance with applicable standards. The audit does not guarantee profits, set remuneration or determine tax liability, which are separate functions. Independence is central to the value of the audit opinion.

Question 21Corporate Law Practice

A member of a company discovers that the register of members has been altered to remove his name. What remedy is available to him?

  1. He may apply to the court for rectification of the register Correct answer.
  2. He has no remedy once the register is altered
  3. He must wait until the next annual general meeting
  4. He may only complain to the Corporate Affairs Commission

Explanation

CAMA gives a person aggrieved by an improper entry or omission in the register of members the right to apply to the court for rectification. The court may order the register corrected and award damages. A complaint to the Commission or waiting for a meeting is not the primary statutory remedy.

Question 22Corporate Law Practice

Which of the following is a recognised mode of winding up a company under Nigerian law?

  1. Voluntary winding up by the board of directors alone
  2. Compulsory winding up by the court Correct answer.
  3. Administrative dissolution by the auditors
  4. Winding up by the Nigerian Exchange Limited

Explanation

CAMA recognises winding up by the court (compulsory) and voluntary winding up by members or creditors. The board cannot wind up a company on its own, and auditors and the Exchange have no winding-up jurisdiction. The court acts on grounds such as inability to pay debts or just and equitable grounds.

Question 23Corporate Law Practice

A creditor petitions to wind up a company on the ground that it is unable to pay its debts. Which fact most directly supports that ground under CAMA?

  1. The company has changed its registered office
  2. The company has not held a board meeting for six months
  3. The company has failed to comply with a statutory demand for a debt exceeding the prescribed amount within the stipulated period Correct answer.
  4. The company has appointed a new managing director

Explanation

A company is deemed unable to pay its debts where it neglects to comply with a statutory demand served at its registered office for a sum exceeding the prescribed threshold within the stipulated period. Changes of office, management or board meeting frequency do not establish insolvency. The statutory demand mechanism gives the company an opportunity to dispute or pay the debt.

Question 24Corporate Law Practice

What is the role of the Corporate Affairs Commission in relation to the annual return of a company?

  1. It receives and keeps the annual return on the public register Correct answer.
  2. It audits the financial statements attached to the return
  3. It approves the company's dividend policy
  4. It appoints the company's directors

Explanation

The annual return is a statutory filing made to the Corporate Affairs Commission, which maintains it as part of the public record of the company. The Commission does not audit accounts, approve dividend policy or appoint directors. Its function is registry and regulatory oversight rather than management of the company.

Question 25Corporate Law Practice

A company wishes to give financial assistance for the purchase of its own shares. What is the position under CAMA 2020?

  1. Financial assistance is absolutely prohibited in all circumstances
  2. Financial assistance is permitted subject to compliance with the statutory conditions and procedures Correct answer.
  3. Financial assistance is permitted only with the consent of the auditors
  4. Financial assistance requires no formalities at all

Explanation

CAMA 2020 relaxes the older absolute prohibition and permits a company to give financial assistance for the acquisition of its shares, provided the statutory conditions and procedures, including solvency-related safeguards and member approval where required, are satisfied. It is therefore neither absolutely prohibited nor free of formalities. Auditor consent is not the governing requirement.

Question 26Corporate Law Practice

Under CAMA 2020, which body is vested with the power to incorporate companies in Nigeria and to issue certificates of incorporation?

  1. The Nigerian Exchange Limited
  2. The Federal High Court
  3. The Securities and Exchange Commission
  4. The Corporate Affairs Commission Correct answer.

Explanation

CAMA 2020 vests the administration of the incorporation regime in the Corporate Affairs Commission, which receives the application, registers the documents and issues the certificate of incorporation. The Securities and Exchange Commission regulates the capital market, the Exchange operates the trading platform, and the court adjudicates disputes; none of them registers companies.

Question 27Corporate Law Practice

A promoter of a proposed company wishes to reserve the name 'Zenith Harvest Logistics Limited' before incorporation. What is the correct procedure under CAMA 2020?

  1. Apply to the Commission for name reservation and obtain approval before delivering incorporation documents Correct answer.
  2. Deliver the incorporation documents first and request the name at the point of collecting the certificate
  3. Publish the name in two national newspapers and proceed to incorporate without further approval
  4. Register the name with the Federal High Court and then file the court order with the Commission

Explanation

CAMA 2020 requires a promoter to apply for and obtain approval of the proposed name before the incorporation documents are delivered to the Commission. The reservation protects the name for a limited period within which the applicant must complete incorporation. Filing first, court registration and newspaper publication are not substitutes for name approval.

Question 28Corporate Law Practice

A private company limited by shares has 40 members and wishes to remain private. Which statement correctly reflects the membership ceiling under CAMA 2020?

  1. A private company may not exceed 20 members apart from persons in the employment of the company
  2. There is no statutory maximum number of members for a private company under CAMA 2020 Correct answer.
  3. A private company may not exceed 35 members unless it converts to public status
  4. A private company may not exceed 50 members, counting employees as members

Explanation

CAMA 2020 removed the old ceiling of fifty members, so a private company may now have any number of members while retaining its private status. The restriction that survives concerns transferability of shares and public subscription, not the number of members. Options stating fixed ceilings reflect repealed provisions.

Question 29Corporate Law Practice

A public company incorporated in Nigeria intends to allot shares to subscribers. Which statement is correct about the minimum issued share capital required?

  1. The company must have a minimum issued share capital of N2,000,000 Correct answer.
  2. There is no minimum issued share capital requirement for a public company
  3. The company must have a minimum issued share capital of N500,000
  4. The company must have a minimum issued share capital of N10,000,000

Explanation

CAMA 2020 prescribes a minimum issued share capital of N2,000,000 for a public company and N100,000 for a private company. This replaced the older authorised share capital regime. The figures in the other options do not correspond to any statutory threshold.

Question 30Corporate Law Practice

A company's articles provide that the quorum for a general meeting is five members. At an adjourned general meeting only three members attend. What is the legal position?

  1. The meeting is incompetent to transact business because the quorum in the articles has not been met Correct answer.
  2. The members present may pass only ordinary resolutions and not special resolutions
  3. The members present may transact business because an adjourned meeting has no quorum requirement
  4. The chairman may waive the quorum requirement and proceed to take decisions

Explanation

Where the articles fix a quorum, business cannot validly be transacted unless that quorum is present; a decision taken without quorum is invalid. The chairman has no power to dispense with a quorum fixed by the articles. The type of resolution proposed does not cure the absence of a quorum.

Question 31Corporate Law Practice

A shareholder of a Nigerian company wants to inspect the minutes of board meetings. Which statement best states the position under CAMA 2020?

  1. Members have an unrestricted right to inspect all minutes, including those of directors' meetings
  2. Only a director may inspect any minutes, and members have no inspection rights at all
  3. Inspection of minutes requires the prior consent of the Corporate Affairs Commission
  4. Members may inspect minutes of general meetings, but minutes of directors' meetings are not open to members Correct answer.

Explanation

CAMA 2020 entitles members to inspect the minutes of general meetings, but the minutes of directors' meetings are internal records of the board and are not open to member inspection. Members' statutory inspection rights are therefore narrower than those of directors. Neither the Commission's consent nor a total bar reflects the statute.

Question 32Corporate Law Practice

A director of a Nigerian company is also the sole owner of a supplier company. The board is about to consider a contract with that supplier. What must the director do under CAMA 2020?

  1. Resign from the board before the contract is discussed
  2. Obtain the prior written approval of the Corporate Affairs Commission
  3. Declare his interest in the contract at a meeting of the directors and ensure it is recorded in the minutes Correct answer.
  4. Abstain silently from the discussion without any formal declaration

Explanation

CAMA 2020 imposes a duty on a director interested in a proposed contract to disclose the nature of that interest at a meeting of the directors, and the disclosure must be recorded in the minutes. Disclosure permits the board to assess the transaction with full knowledge. Resignation, regulatory approval and silence are not the statutory response.

Question 33Corporate Law Practice

A director of a company diverts a business opportunity that came to him in his capacity as director to a company he controls. Which common law rule is most directly engaged?

  1. The no-conflict and no-profit rule forming part of the fiduciary duty of directors Correct answer.
  2. The rule against perpetuities
  3. The doctrine of ultra vires the company
  4. The rule in Royal British Bank v Turquand on indoor management

Explanation

Directors owe fiduciary duties, including the duty not to place themselves in a position of conflict and not to make an undisclosed profit from their office; diverting a corporate opportunity breaches this rule. The Turquand rule concerns outsiders relying on internal procedures, and perpetuities and ultra vires concern different questions.

Question 34Corporate Law Practice

A director of a Nigerian company is convicted of fraud and sentenced to imprisonment. What is the effect on his directorship under CAMA 2020?

  1. He ceases to hold office as a director by operation of the disqualification provisions Correct answer.
  2. He remains in office but may not vote at board meetings for two years
  3. He remains in office until the members pass a resolution removing him
  4. He is automatically converted to an alternate director

Explanation

CAMA 2020 disqualifies a person convicted of fraud or dishonesty from acting as a director, and the office becomes vacant on conviction. The disqualification operates by statute and does not await a decision of the members. There is no mechanism converting a disqualified director into an alternate.

Question 35Corporate Law Practice

A company wishes to appoint an auditor for the current financial year. Which statement correctly describes the appointment process under CAMA 2020?

  1. The directors alone appoint the auditor for an indefinite term without member involvement
  2. The Corporate Affairs Commission appoints the auditor from a panel of approved firms
  3. The members appoint the auditor at the annual general meeting, and the directors may fill a casual vacancy Correct answer.
  4. The company secretary appoints the auditor and reports the appointment to the board

Explanation

The general rule is that members appoint the auditor at the annual general meeting, while the directors may fill a casual vacancy where one arises during the year. The appointment is not left to the Commission or the secretary. This preserves auditor independence through shareholder oversight.

Question 36Corporate Law Practice

An auditor of a Nigerian company discovers that the directors have concealed a material related-party transaction from the financial statements. What is the auditor's proper course?

  1. Resign immediately without any report to the members
  2. Adjust the accounts silently and issue an unqualified opinion without comment
  3. Report the matter only to the chairman of the board
  4. Report the matter to the members and, where the circumstances require, to the Corporate Affairs Commission Correct answer.

Explanation

The auditor owes a duty to the members to report the true financial position and, under CAMA 2020, has a duty in certain circumstances to report suspected offences to the Corporate Affairs Commission. Silence or private reporting to the chairman does not discharge that duty. Resignation without explanation leaves the members uninformed.

Question 37Corporate Law Practice

A member of a company wishes to requisition an extraordinary general meeting. Which statement correctly states the position under CAMA 2020?

  1. Only the board chairman may requisition a general meeting
  2. Members holding the prescribed proportion of paid-up capital may requisition the directors to convene a meeting, and the requisition must state the objects Correct answer.
  3. A requisition may be made only by a director who is also a shareholder
  4. Any single member may requisition a meeting regardless of the size of his holding

Explanation

CAMA 2020 allows members holding the prescribed proportion of the paid-up capital to requisition the directors to convene an extraordinary general meeting, and the requisition must set out the objects. If the directors fail to act, the requisitionists may convene the meeting themselves. A lone member, the chairman and directors as such have no equivalent statutory power.

Question 38Corporate Law Practice

A company proposes to reduce its share capital. Which statement correctly states the procedure under CAMA 2020?

  1. The company must pass a special resolution and obtain the confirmation of the Federal High Court Correct answer.
  2. The directors may reduce capital by board resolution alone
  3. A reduction requires only an ordinary resolution of the members
  4. The company must obtain the prior approval of the Corporate Affairs Commission and no court order is needed

Explanation

A reduction of share capital is a matter requiring a special resolution of the members and confirmation by the Federal High Court, which protects creditors. The court may require the creditors to be secured before confirming the reduction. Board resolution, ordinary resolution or mere regulatory approval are insufficient.

Question 39Corporate Law Practice

A company wishes to buy back its own shares from a dissenting member. Which statement reflects the position under CAMA 2020?

  1. A share buy-back is permitted where it complies with the conditions in the statute, including the use of distributable profits or proceeds of a fresh issue Correct answer.
  2. A company may never purchase its own shares under Nigerian law
  3. A company may freely purchase its own shares at any time by simple board decision
  4. A company may purchase its own shares only if the Corporate Affairs Commission approves the price

Explanation

CAMA 2020 permits a company to acquire its own shares subject to statutory conditions, including the source of funds and procedural safeguards, so that creditors are not prejudiced. It is not a matter of free board discretion, nor is it absolutely prohibited. Commission approval of the price is not the statutory condition.

Question 40Corporate Law Practice

A member of a Nigerian company is dissatisfied with a special resolution altering the articles in a manner that unfairly prejudices him. Which remedy is available under CAMA 2020?

  1. Apply to the Federal High Court for relief on the ground of unfair prejudice Correct answer.
  2. Petition the Corporate Affairs Commission to reverse the resolution
  3. Refer the matter to the Nigerian Exchange Limited for arbitration
  4. Seek the intervention of the company's auditors

Explanation

CAMA 2020 gives a member the right to apply to the Federal High Court where the affairs of the company are conducted in a manner that is oppressive or unfairly prejudicial to him. The court may make a wide range of orders, including regulating the company's affairs or requiring a purchase of his shares. The Commission, the Exchange and the auditors have no power to reverse a resolution.

Question 41Corporate Law Practice

A creditor has obtained judgment against a company, served a statutory demand, and the company has failed to pay or secure the debt for the prescribed period. What is the consequence under CAMA 2020?

  1. The company is deemed unable to pay its debts and may be wound up on that ground Correct answer.
  2. The company's directors become personally liable for the debt automatically
  3. The creditor must first obtain a fresh judgment before any winding-up step
  4. The debt is extinguished by the failure to pay

Explanation

CAMA 2020 provides that a company is deemed unable to pay its debts where a creditor has served a statutory demand and the company has neglected to pay or secure the sum for the prescribed period. This deemed insolvency grounds a winding-up petition. Personal liability of directors and extinction of the debt do not follow automatically.

Question 42Corporate Law Practice

A liquidator in a winding up discovers that a director caused the company to prefer a related company by paying its debt shortly before the winding-up petition. What is the liquidator's proper response?

  1. Report the matter to the members in general meeting for a vote
  2. Take no action because preferences are lawful if documented
  3. Accept the payment as a valid discharge of the company's debt without further enquiry
  4. Challenge the transaction as an unfair preference and seek to have it set aside for the benefit of creditors Correct answer.

Explanation

CAMA 2020 empowers the liquidator to challenge transactions entered into within the relevant period before winding up that give an unfair preference to one creditor over others. The court may order the preferred party to restore the advantage. Documentation does not validate a preference, and members have no vote on the liquidator's statutory powers.

Question 43Corporate Law Practice

A company registered in Nigeria wishes to establish a branch in Ghana and to hold assets there. What is the position under Nigerian company law?

  1. The company must obtain a fresh certificate of incorporation in Ghana and surrender its Nigerian one
  2. The company must first re-register as a foreign company in Nigeria
  3. The company loses its Nigerian incorporation on establishing a foreign branch
  4. The company may carry on business outside Nigeria and hold property abroad, subject to compliance with the law of the host country Correct answer.

Explanation

A Nigerian company retains its legal personality and may carry on business and hold property outside Nigeria, provided it complies with the law of the country where it operates. It does not lose its Nigerian incorporation, nor must it re-register as a foreign company in its home jurisdiction. Local registration abroad may be required by the host state's law.

Question 44Corporate Law Practice

A foreign company not entitled to a statutory exemption wishes to carry on business in Nigeria. Which statement correctly states the requirement under CAMA 2020?

  1. The foreign company must incorporate a separate Nigerian company with the Corporate Affairs Commission before carrying on business in Nigeria Correct answer.
  2. The foreign company must first convert into a Nigerian public company
  3. The foreign company needs only a bank account in Nigeria to commence business
  4. The foreign company may operate freely in Nigeria without any registration

Explanation

Under section 78 of CAMA 2020, a non-exempt foreign company must incorporate a separate entity in Nigeria before carrying on business there. Registration of the overseas entity as a foreign company is not sufficient. The Nigerian entity need not be a public company.

Question 45Corporate Law Practice

A company secretary of a Nigerian company resigns. Which statement correctly describes the position on the office of company secretary under CAMA 2020?

  1. Only a legal practitioner may serve as company secretary of any company
  2. The office of company secretary may only be held by a director of the company
  3. Every private company must appoint a qualified company secretary at all times
  4. A private company is not obliged to appoint a company secretary, but where one is appointed the statutory duties apply Correct answer.

Explanation

CAMA 2020 removed the mandatory requirement for private companies to appoint a company secretary, although a public company must do so. Where a secretary is appointed, the statutory duties and qualifications apply. The office is not restricted to legal practitioners or to directors.

Question 46Corporate Law Practice

A minority shareholder discovers that the directors have caused the company to sell an asset to a company owned by them at a price far below market value. The board controls the general meeting. What is the most appropriate course?

  1. Petition the Corporate Affairs Commission to prosecute the directors
  2. Wait for the next annual general meeting and vote against the directors
  3. Commence a personal action to recover damages for his own loss as a shareholder
  4. Bring a derivative action on behalf of the company to recover the loss caused by the directors' breach Correct answer.

Explanation

Where the wrong is done to the company and the wrongdoers control the general meeting, the fraud on the minority exception to the rule in Foss v Harbottle permits a member to bring a derivative action for the company's benefit. A personal action fails because the loss is reflective of the company's loss. The Commission does not prosecute directors on a member's petition, and voting at a meeting controlled by the board offers no effective remedy.

Question 47Corporate Law Practice

A company wishes to enter into a transaction with a director who has disclosed his interest. What is the effect of a properly disclosed interest on the validity of the contract?

  1. The contract is automatically void notwithstanding full disclosure
  2. The contract is valid only if approved by the Corporate Affairs Commission
  3. The contract is voidable at the instance of the director alone
  4. The contract is not void merely because of the director's interest if disclosure was made and the constitution permits it Correct answer.

Explanation

Where a director discloses his interest in accordance with CAMA 2020 and the company's constitution allows the transaction, the contract is not invalidated by the interest alone. Disclosure removes the objection of secrecy. Commission approval is not required, and the director cannot treat the contract as voidable at his own instance.

Question 48Corporate Law Practice

A company has failed to file its annual returns for several years. What is the consequence under CAMA 2020?

  1. The company is automatically dissolved on the first day of default
  2. The company and its officers commit an offence and are liable to penalties, and the Commission may take steps including striking the company off the register Correct answer.
  3. The company's certificate of incorporation is void ab initio
  4. The directors are automatically disqualified for life

Explanation

Failure to file annual returns is an offence for which the company and its officers may be liable to penalties, and persistent default may lead to striking off. The consequences do not include automatic dissolution on the first day, lifelong disqualification, or retrospective invalidity of incorporation.

Question 49Corporate Law Practice

A company wishes to change its registered office address to another state in Nigeria. Which statement is correct under CAMA 2020?

  1. The company must give notice of the change to the Corporate Affairs Commission within the prescribed period Correct answer.
  2. The change is effective only after the Federal High Court approves it
  3. The company must obtain the consent of every member before the change
  4. The change takes effect only when published in the Federal Gazette

Explanation

A change of registered office requires notice to the Corporate Affairs Commission within the prescribed period so that the register reflects the current address. Court approval, unanimous member consent and gazette publication are not the statutory conditions for the change.

Question 50Corporate Law Practice

A director of a Nigerian company signs a contract on the company's behalf without a board resolution authorising him, though the articles permit the board to delegate. The other party dealt in good faith. What is the likely position?

  1. The contract is void because no board resolution was passed
  2. The contract is valid only if later ratified by the Corporate Affairs Commission
  3. The company is likely bound because the other party may rely on the indoor management rule Correct answer.
  4. The director is personally liable and the company is discharged

Explanation

Under the rule in Royal British Bank v Turquand, an outsider dealing in good faith may assume that the company's internal procedures have been complied with. Absence of a board resolution is an internal matter, so the company is likely bound. The contract is not void, the director is not automatically personally liable, and the Commission does not ratify contracts.