Following its decision to go ahead with a Rights Issue despite multiple court orders, Nigeria’s oldest banking institution, FBN Holdings, may be facing further legal repercussions.
Some legal opinions are now asking questions about the legality of the capital raise.
In August 2023, FBN Holdings announced it would be holding its 11th Annual General Meeting, AGM, and was served with an ex-parte order, titled, ‘Olojede Solomon, Adebayo Abayomi, and Ogundiran Adejare v. FBN Holdings Plc.’, for an interim injunction that prohibited it from moving forward with the meeting.
This order followed a previous one demanding that FBN Holdings Chairman, Managing Director, Nnamdi Okonkwo, and its Chairman, Ahmad Abdullahi, refrain from “proceeding with the 11th AGM of FBN Holdings Limited proposed for August 15, 2023, from seeking approval to issue or raise share capital in any manner whatsoever.”
This order was issued after the court instructed all parties to maintain the current status quo in response to a legal challenge by another shareholder regarding the actions taken at the previous AGM held in 2022.
The financial institution disregarded both orders, proceeding with the AGM during which, amongst other things, it approved a rights issue to raise capital and noted that the rights issue might be underwritten on terms to be determined by the directors, subject to regulatory approvals, and shareholders may purchase unsubscribed shares in the event of under-subscription on terms also to be determined by directors.
A Lagos based lawyer, Efe Ugboro, stated the intervention by the courts and the financial institution’s defiance of the court orders added a new layer of complexity to the already contentious debate surrounding the bank’s governance.
The next stage of the various cases is currently awaiting a decision by the Court of Appeal.
By proceeding with the AGM despite legal objections, Ugboro’s assertion raises critical questions about the bank’s adherence to corporate governance standards, obedience of the laws of the land and its compliance with regulatory requirements and the potential repercussions for both the institution and its stakeholders.
The lawyer stated “The legal implications of First Bank of Nigeria disobeying a court order restraining them from conducting an Annual General Meeting (AGM) are significant and can result in various legal consequences, including but not limited to the outcome of the AGM being likely to be set aside as the meeting was held in contravention of a court order”.
Discussing the implications of FBNH Management’s defiance and disregard of the law, including potential charges of contempt of court, the lawyer pointed out that the bank could face sanctions from regulatory authorities, such as fines, license suspensions, or other penalties. Regulatory authorities may intensify their scrutiny of the bank’s operations, governance, and compliance with applicable laws and regulations, potentially leading to further investigations and penalties. He indicated that shareholders or other affected parties might also initiate civil lawsuits to seek damages resulting from the bank’s non-compliance with the court order.
Ugboro noted that the AGM exhibited an unusual characteristic: a notable lack of specificity in the resolutions pertaining to the rights issue, leaving numerous crucial decisions to be made by the directors at a later date.
Traditionally, in the context of other rights issues, AGMs/EGMs offer shareholders the opportunity to endorse well-defined resolutions outlining the terms of any capital increase. However, in this case, the requests presented to shareholders during the August AGM were rather broad, deferring a multitude of determinations to be made by the directors in the future.
These included crucial matters such as the rights’ terms, underwritten conditions, and the terms and conditions governing the allocation of shares to interested shareholders who do not take them up (typically, such terms would be explicitly defined as “offered pari-passu”).
The lack of transparency in these terms, along with the directors’ discretionary authority, introduces the potential for manipulation. This becomes especially concerning since the current directors may not comprehensively represent shareholders’ interests, primarily being appointees of the former CBN Governor. Such a situation runs counter to the principles of company law, which aim to ensure that shareholders have the right to determine the course of a business and raise capital in a manner they consider appropriate.