Regulatory Compliance: A Stitch in Time Saves Nine

Welcome to December, the last month in the year 2023. Amidst the change in government and the consequent changes in administrative policies across all government parastatal, we all can agree that this year has been a long year for both businesses and individuals alike. Without a doubt, these changes have triggered regulatory compliance requirements in different sectors of the Startup ecosystem. Perhaps you expanded your business, exited a region, modified your business, were involved in a merger or acquisition, refinanced your business, grew your business internationally, or even ceased doing business altogether. It is important, now more than ever, that you ensure that you’ve covered any outstanding regulatory compliance requirement so as not to open you to any penalty prescribed by the applicable regulatory agency.

What is Regulatory Compliance?

Regulatory compliance means a company is aware of and aligned with all the laws and regulations relevant to its business and industry. These regulations may be set at local, state, federal, or international levels. Regulatory compliance differs from corporate compliance, which is about following internal policies and rules to achieve some self-set goals and objectives. However, both types of compliance are essential since they can drive the company’s strategic direction, determine its ethical framework, and ensure accountability and transparency.

The importance of regulatory compliance cannot be overstated as it has been shown time and time again that non-compliance is more expensive in the long run. Businesses that avoid compliance are at risk of fines and sanctions which cost a lot of money to regularize. They end up paying the requisite fees, and fines or paying the cost of compliance at a higher price which could have been avoided if done at the right time.

Regulatory Compliance does not only exist as a means to check businesses, it also helps protect businesses and all stakeholders. It helps businesses from making preventable errors that could cost them a fortune or endanger their employees. The regulatory landscape is constantly changing and regulatory compliance will not sort itself out. The more it changes, the more risk of ability to comply. Laws are constantly changing and these changes impact the way businesses are being done. Staying on top of regulatory compliance helps companies stay ahead of competitors and potential fines that may apply, and is vital for ensuring long-term success and sustainability in the Nigerian market.

Earlier this year, in response to the widespread non-compliance of companies to the obligation the Company and Allied Matters Act (CAMA) 2020 places on businesses to file their annual return with the Corporate Affairs Commission (CAC), the CAC made a publication drawing the attention of the public at large to the need to file annual returns by companies who have been in default for a long period or stand the risk of being struck off the Register of Company. This can easily be seen as one of the risks posed by non-compliance with regulatory requirements. Once a company is struck off the Register of Companies, it is deemed that the company is no longer a going concern and no longer a legal entity capable of carrying on business. 

A list of affected companies was published on the CAC website. The affected companies were advised that failure to comply with the provisions of the CAMA by taking steps to file their annual returns up to date within 90 days of publication on the CAC’s website the companies shall be struck off the Register of Companies.

Irrespective of the CAC’s notice to the public, many companies remain in default and have failed to file their annual returns up to date as required by the CAMA. To this end, the CAC has issued another notice to the general public and, in particular, companies operating in Nigeria, their directors, and officers of the CAC’s intention to commence the full application of the penalties for failure to file annual returns by companies and recovery of the penalties against company directors and officers. 

In line with its statutory mandate, the CAC has announced that starting from 1^st January 2024 it shall commence the full application of the penalties provided by the Companies Regulations 2021 for non-compliance with this requirement. As from that date, the penalties prescribed by the Companies Regulations against a company and each of its directors or officers shall be applied fully by the Commission for failure to file annual returns. What this entails is that any company that remains in default of filing annual returns would not only be subjected to penalties of fines and standing the risk of being struck off the Register of Companies, but their directors and officers would also be fined for the company’s default.

Defaulting companies, their directors, and officers are therefore encouraged to take advantage of the window between the date of publication of the notice, which was 2^nd November 2023 and 1^st January 2024, to comply with the requirement of the CAMA by promptly filing their annual returns with the CAC.

Furthermore, the CAC has also stated that it shall proceed against directors and officers of struck-off and wound-up Companies who have failed and continued in default of filing their annual returns for recovery of undischarged penalties against them. So, just because a company has been struck off the Register of Companies or wound-up does not mean that the defunct company has been exonerated from paying undischarged penalties.

Our Thoughts

While the cost of complying with regulations may be expensive, the cost of regulatory non-compliance can be infinitely more expensive. The most obvious costs, of course, are the governmental penalties for non-compliance, such as fines which could range from a few thousands of Naira to millions of Naira depending on the type of default. As steep as fines can be, a much greater cost to a company’s reputation can occur when a company is found to have significantly violated laws or regulations. That reputation damage can affect sales and profits for years afterward. It is therefore advisable that companies pay attention to the various requirements that regulate their sector to avoid the risk of being penalized by the relevant authorities regulating it.