Annual returns: CAC’s threat to delist erring firms

THE Corporate Affairs Commission (CAC), the custodian of all registered, incorporated and trustee companies in the country, issued a warning a few days ago, stating that companies operating in the country that fail to file their annual returns as provided by the law would be delisted. And judging by the antecedents of the CAC, the threat is not an empty one as the commission had struck off the names of many erring firms from its register in the past. It is a statutory and mandatory requirement for every registered business entity or organisation, be it an enterprise, limited liability company, or incorporated trustees, to file annual returns.  In other words, under the Companies and Allied Matters Act (CAMA), all firms are obligated to file yearly returns to CAC. But for a myriad of reasons ranging from negligence to deliberate avoidance, a lot of companies tend to shirk this statutory responsibility.

Section 374 of CAMA does not expect a new entity to file any return until after the first 18 months of its incorporation. But for older companies, the yearly return is due not later than 42 days after its Annual General Meeting. The CAC uses the annual returns to determine the numerical strength of active companies and obtain essential information about their composition, activities and financial position. CAC could also use the returns to have a loose sense of the economic activities being undertaken by structured entities within the economy. But as is customary with other areas of daily living, some Nigerians tend to observe laws in the breach unless they are compelled to do otherwise. The CAC will simply be acting within the precincts of the law if and when it carries out its threat to delist erring firms over annual returns. Even though the delisting of erring companies does not necessarily mean the dissolution of the firms, their status and recognition as legal entities before the law is nonetheless badly vitiated and the costs of restoration, which of course were patently avoidable, will be much higher than the costs of complying with the law ab initio.

In this era of much touted official efforts at improving the ease of doing business in the country, quite a few bureaucratic bottlenecks and red tapes have been removed to facilitate fast registration and incorporation of businesses. The services of the commission have been substantially decentralised, with powers devolved to state offices and many of its processes and procedures can be carried out online. The implication of the simplified and fast-tracked services of CAC is that many more firms will continue to be registered swiftly. And if the current trend of nonchalance of registered companies and incorporated entities on the filing of returns continues, the commission may be inundated with a deluge of defaulting firms in its books. No one should expect the CAC to fold its arms in the circumstance.  Nonetheless, it should be stressed that while some enlightened but crooked companies may deliberately refuse to file returns at CAC in order to circumvent their obligations to the state, there are quite a few that are acting in ignorance.

Yes, ignorance of the law is not an excuse or a tenable reason to gain freedom from culpability, but the objective of the commission to ensure that all active companies are captured will be better served if it ups its ante in the area of enlightenment campaign about the significance of filing annual returns. The truth is that some companies that have been delisted or slated for delisting on the grounds that they were/are inactive because they did not, or have yet to file annual returns, may not be dormant.  People register or incorporate companies for different reasons:  some do so in the hope that they will need them in the future but never revert to using the firms or file returns on them, while there are those who were literally coerced into registering companies as one of the requirements for other parties, banks, contracting firms, government and so on to deal with or transact business with them. Many of the companies that belong to the latter category see the incorporation of the companies as a one-off obligation to fulfill the condition to do business but ignorantly neglect, fail or refuse to reckon with the mandatory and statutory commitment to filing annual returns.

Therefore, at the risk of granting seemingly unwarranted indulgence to the defaulting and would-be erring firms, it has become imperative for the CAC to increase its levels of education and enlightenment of this class of companies about the statutory nature and significance of filing yearly returns. The objective is to encourage them to obey the law and free them from the rigour and costs of taking correctional and ameliorative measures to restore their companies after delisting. It will also be helpful if the commission can publish on its website the names of delisted companies and those earmarked for delisting, so that companies to be delisted can swiftly do the right thing in order to forestall their impending fate, while those whose companies have been delisted can begin to take steps towards restoration. Perhaps it should be stressed that the failure and/refusal of some firms to file returns as specified in the law is symptomatic of the abhorrent tendency of many a Nigerian to disobey  lawful order. In this clime, laws tend to be obeyed only if infringement attracts immediate and dire consequences. This is inappropriate.

The conduct of the defaulting firms is condemnable and it indeed points in the direction of the attitudinal change that citizens, individual and corporate, need to embrace if they are to be counted among the law abiding members of the society. The laws of the land are meant to be complied with, not breached.

 

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