22 January 2024
by Convergence Law Practice
Convergence Law Practice
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THE DISSOLUTION OF BANKS BOARD BY THE CENTRAL BANK OFNIGERIA: ILLEGAL OR NOT?1
- Introduction: On the 10thJanuary 2024, the Central Bank of Nigeria (CBN)dissolved the Board and Management of Union Bank, Keystone Bank andPolaris Bank in Nigeria.2 The CBN disclosed that"This action became necessary due to thenon-compliance of these banks and their respective boards with theprovisions of Section 12(c), (f), (g), (h) of Banks and OtherFinancial Institutions Act, 2020. The Bank's infractions varyfrom regulatory non-compliance, corporate governance failure,disregarding the conditions under which their licenses weregranted, and involvement in activities that pose a threat tofinancial stability, amongothers."3This Article seeks toexplore whether the dissolution of the Bank Boards and Managementby the CBN is illegal or not?
- Who Regulates Nigerian Banks? The CBN'shas the primary responsibility for the regulation of Nigerian Banksand part of its statutory objective is to promote a sound financialsystem in Nigeria4 and ensure a high standard of conductand management throughout the banking systems5. TheBanks and Other Financial Institutions Act, 2020 (BOFIA) alsoempowers the CBN to regulate and supervise Banking and the businessof other Financial Institutions in Nigeria. While the CBN hasregulatory oversight on Nigerian Banks as Financial Institutions,these Banks are primarily Companies and the chief statute for theoperation of companies in Nigeria is the Companies and AlliedMatters Act (CAMA) 2020 (as amended)6.
- How must Directors be legally removed inNigeria? 288 (1) of CAMA outlines the procedure for theremoval of Directors of a company. It expressly states that aDirector can only be removed through an ordinary resolution of theCompany. It however outlines some condition precedents that must befulfilled before such an ordinary resolution can be legally andvalidly passed. Section 288 (2) provides that the Company mustissue a special notice convening the meeting and detailing thatpart of the agenda for the meeting is the removal of a Director(s).A copy of such notice must be sent to the concerned Director,whether he is a Member of the Company or not, and such Director isentitled to be heard on the resolution of his/her removal at theMeeting. Section 288 (3) of CAMA further provides that theconcerned Director(s) shall have a right of representation to suchremoval notice, either written, oral or both.
- Removal of Directors outside of CAMA: WhileSection 288 of CAMA broadly details the process for the legalremoval of Directors, Section 288(6) of CAMA acknowledges thatDirectors of a Company can be removed under other powers which mayexist outside the provisions of Section 288 of CAMA. Underscoringthis fact, Section 53 (2) of BOFIA provides that where any of theprovisions of the Companies and Allied Matters Act are inconsistentwith the provisions of BOFIA, the provisions of this BOFIA shallprevail. Hence, it would be perfectly legal for the CBN to remove aBank Director(s) under BOFIA, even though such process may conflictwith the provisions of Section 288 of CAMA.
- Was the removal of the Board and Management of UnionBank, Keystone Bank and Polaris Bank under BOFIA Legal?The CBN purportedly dissolved the Management and Board of the banksdue to their non-compliance with the provisions of Section 12(c),(f), (g), (h) of BOFIA. Interestingly, Section 12 of BOFIA speaksspecifically to the revocation of a Banking License and what mustbe done by CBN if a Financial Institution does not conform with itsLicense obligations. Nowhere does Section 12 of BOFIA speak to theremoval of a Director or the dissolution of Bank's Board as theappropriate regulatory intervention for the contravention ofSection 12 of BOFIA. It is however instructive that Section 34 (2)(e) and (f) (i) of BOFIA empowers the CBN Governor to remove, forreasons to be recorded in writing with effect from such date as maybe set out in order, any manager, officer or Director of a Bank,where after a special examination under Section 33 of BOFIA, CBN issatisfied that the Bank is in grave situation based on the outcomeof the special examination.
- CONCLUSION: Following from the above, it isour reasoned opinion that the recent dissolution of the Board andManagement of Polaris Bank, Union Bank and Keystone Bank Boards bythe CBN is legal, statutorily recognized and within the ambit ofthe powers of the CBN Governor as contained in BOFIA. We howeverfurther opine, that the Memorandum circularizing the Boarddissolution should have been made sequel to the provisions ofSections 33 and 34 of BOFIA and not Section 12 as contained. Thepowers of the CBN under Section 34 of BOFIA is quite enormous andwould have been a better fit for purpose than Section 12 of BOFIA.For mischief, one can argue that the appropriate response for acontravention of Section 12 of BOFIA is revocation of theBank's license, which was not done in this case, and not theremoval of the Directors or dissolution of the Board.
1. Kesi Seun-Adedamola (Partner, Convergence lawPractice) and Gloria Igalawuye (Associate, Covergence Law Practice)can both be reached on firstname.lastname@example.org
2. Via a circular on the CBN website https://www.cbn.gov.ng/ and accessed on15.1.2024 at 15.08pm WAT
4. Section 2 (d) of the Central Bank of Nigeria (CBN) Act2007 Cap A66. N0.7. LFN
5. Sec 42 (1) (b) of CBN Act
6. Companies and Allied Matters Act (CAMA)2020.
The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.
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As someone deeply versed in the intricacies of banking regulations and legal frameworks, I will delve into the content of the article titled "THE DISSOLUTION OF BANKS BOARD BY THE CENTRAL BANK OF NIGERIA: ILLEGAL OR NOT?" published on January 22, 2024, by Convergence Law Practice.
The article discusses the Central Bank of Nigeria's (CBN) decision to dissolve the Board and Management of Union Bank, Keystone Bank, and Polaris Bank, citing non-compliance with provisions of the Banks and Other Financial Institutions Act, 2020 (BOFIA). The key points and concepts covered in the article include:
Regulation of Nigerian Banks by CBN:
- The CBN is the primary regulator of Nigerian banks, responsible for ensuring a sound financial system and high standards of conduct and management.
- The Banks and Other Financial Institutions Act, 2020 (BOFIA) empowers the CBN to regulate and supervise banking and other financial institutions in Nigeria.
Legal Removal of Directors in Nigeria:
- Section 288(1) of the Companies and Allied Matters Act (CAMA) outlines the procedure for removing directors of a company through an ordinary resolution.
- Conditions precedent for the legal removal of directors, including issuing a special notice and providing the concerned director with the right of representation, are highlighted.
Removal of Directors under BOFIA:
- Section 288(6) of CAMA acknowledges that directors can be removed under powers outside CAMA, such as those existing in BOFIA.
- Section 53(2) of BOFIA asserts that if any provision in CAMA is inconsistent with BOFIA, the latter prevails.
Legal Basis for Dissolution by CBN:
- The CBN claimed the dissolution was necessary due to non-compliance with specific sections (12(c), (f), (g), (h)) of BOFIA by the banks.
- Section 34(2)(e) and (f)(i) of BOFIA grant the CBN Governor the power to remove managers, officers, or directors of a bank under certain circumstances.
Analysis and Conclusion:
- The article concludes that the dissolution of the Boards by the CBN is legal, statutorily recognized, and within the powers of the CBN Governor as outlined in BOFIA.
- However, it suggests that the Memorandum circularizing the Board dissolution should have referenced Sections 33 and 34 of BOFIA rather than Section 12.
- The article includes contact information for Kesi Seun-Adedamola and Gloria Igalawuye from Convergence Law Practice.
- It references the circular on the CBN website, which can be accessed for additional information.
In summary, the article provides a comprehensive analysis of the legal basis for the dissolution of bank boards by the CBN, emphasizing relevant sections of BOFIA and CAMA, and concludes that the action was legal but suggests a more appropriate reference section for the Memorandum.