A Critical Analysis Of The Administrative Powers Of Investigation Into Companies By Company Inspectors

This article evaluates the extent, scope, and implications of the administrative powers conferred on company inspectors in investigating companies pursuant to the Companies and Allied Matters Act, 2020 and related legislations. The administrative powers of investigation into companies by company administrators play an essential role to promote and guarantee corporate transparency, regulatory compliance, and accountability. This paper critically analyzes the scope, effectiveness, and limitations of these investigative powers within corporate governance frameworks. It examines the legal, moral, socio-political, institutional and regulatory basis for such powers, their practical implications, and the factors that impedes exercise of such power. Moving on, the research discusses the balance between corporate autonomy and regulatory oversight, considering the potential for abuse or overreach. By evaluating case studies and recent legal developments, this paper further highlights emerging trends and offers recommendations for enhancing the efficiency and fairness of company investigations. In the conclusion, recommendations are made including that the legislature should extend the law to confer more stakeholders with the right to apply for investigation of the company, provide for compulsory and periodic investigation and impose stiff penalty on collusive company inspectors. 

Introduction

Once a company is duly incorporate, it automatically assumes the status of a legal person¹. Although it is a legal person distinct from the members, the company carries its activities through the instrumentality of its directors². The director of a company has been defined as-

A person duly appointed by the company to direct and manage the business of the company. A director is an agent of the company but does not, by that fact alone, become the servant of the company or an employee. The Company acts through it directors, who control and manage its business affairs³.

Since directors are charged with the roles of managing the affairs of the company, it is important to observe that the directors are not impervious to the natural human propensity to err. The Companies and Allied Matters Act, 2020 (CAMA) as well as various Codes of Corporate Governance⁴ have, as a matter of remedial measures, stipulated various compliance ethics and modus operandi for companies in Nigeria. The CAMA vests on the Corporate Affairs Commission (“the Commission”) the power to appoint one or more competent inspectors to investigate the affairs of a company and report on them in such manner as it directs, if the Court, by order declares that its affairs ought to be investigated⁵.

As already implied in the abstract, the power of investigation is a fundamental tool in corporate governance, ensuring compliance, transparency, and accountability in business operations. Company administrators, including regulatory bodies and insolvency practitioners, are vested with administrative powers to investigate companies suspected of misconduct, financial mismanagement, or regulatory breaches. These powers are essential for maintaining market integrity and protecting stakeholders, including members of the company; a director or officer, former director or officer of the company; a creditor; the Commission; or any other person who, in the discretion of the Court, is the proper person to make an application⁶.

It is noteworthy to state that while these investigative powers are necessary for corporate oversight, they also raise concerns regarding due process, corporate autonomy, and potential misuse. Striking a balance between regulatory authority and business freedoms is crucial to ensuring that investigations are conducted fairly and effectively. Furthering this study, we shall explore case laws, statutory provisions, and comparative perspectives from different jurisdictions, to provide insights into the evolving nature of corporate investigations. We shall also beam our searchlights on the recent trends and reforms aimed at strengthening or constraining these powers.

Understanding the basic concepts

Meaning of a Company

The Companies and Allied Matters Act, 2020 is the principal law regulating registration and operation of companies in Nigeria. The term company has been defined by the Act as follows:

company” or” existing company” means a company formed and registered under this Act or, as the case may be, formed and registered in Nigeria before and in existence on the commencement of this Act⁷.

This statutory definition of company is somehow unhelpful. This is because it is a circular definition. Circular in that one needs to refer to another section to understand the concept. It therefore appears that section 18 of the Act will be helpful. It states:

18.(1) As from the commencement of this Act, any two or more persons may form and incorporate a company by complying with the requirements of this Act in respect of registration of the company.

(2) Notwithstanding subsection (1), one person may form and incorporate a private company by complying with the requirements of this Act in respect of private companies.

(3) A company may not be formed or incorporated for an unlawful purpose.

From the foregoing provisions, a company is any entity stated to be a company within the provisions of the CAMA, formed with defined objectives which must not be unlawful purpose by one or two persons who are willing to and comply with the Act.

Once duly incorporated, a company becomes separate person distinct from the owners⁸.

Meaning of Administrative Power of Investigation into a Company

Administrative power of investigation into a company refers to the statutory authority given to regulatory bodies, government agencies, or other competent authorities to examine a company’s affairs, financial records, and operations to ensure compliance with laws and regulations. This power is typically exercised to detect fraud, mismanagement, insider dealings, or other unlawful practices within a company. In the context of our research, this power is statutorily provided section 358 of CAMA, 2020. We shall examine it in details with the progress of this work. In EFCC v. Olam Nigeria Ltd⁹), the Court of Appeal upheld the power of regulatory agencies to investigate financial transactions of companies suspected of economic crimes.

1. Salomon v Salomon (1879) A.C. 22; Companies and Allied Matters Act 2020, section 42. [↩]
2. See the case of FIRS V. Halliburton (WA) Ltd (2014) 7 NWLR (PT.1407)1. The Court of Appeal held that since a company lacks a physical body and mind, it can only function through its directors and officers. [↩]
3. Longe v. First Bank of Nigeria PLC (2010) 6 NWLR (pt.1189)1 (SC). [↩]
4. For instance: The Code of Corporate Governance for Public Companies 2011; The Code of Corporate Governance for Banks and Discount Houses 2014; The Nigerian Code of Corporate Governance 2018 [↩]
5. Companies and Allied Matters Act 2020, section 358(1). [↩]
6. Ibid, section 353(1). [↩]
7. Ibid, section 868, the interpretation section [↩]
8. Salomon v. Salomon & Co Ltd (1897) AC 22 (HL). See also section 42 of CAMA, 2020. [↩]
9. (2021) LPELR-54578(CA [↩]