Why FBN Holdings Is Facing Possible Sanctions Over Rights Issue

FBN Holdings Limited, the parent company of Nigeria’s oldest bank – First Bank – is facing possible multiple sanctions over a recent far-reaching decision according to professional opinion.

Against multiple court orders, the corporate entity with Nnamdi Okonkwo as Managing Director and Ahmad Abdullahi the Chairman held its 11th Annual General Meeting (AGM) on August 15, 2023, and amongst other things, 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.

The decisions were against multiple court rulings including 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.

The ex parte order, on the heels of a previous one regarding the 2022 AGM, expressly refrained Chairman Ahmad Abdullah and Managing Director Nnamdi Okonkwo from “proceeding with the 11th Annual General Meeting of FBN Holdings Limited proposed for August 15, 2023, from seeking approval to issue or raise share capital in any manner whatsoever”.

Sharing a professional opinion on the development, Lagos based Lawyer Efe Ugboro pointed out that “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 held in contravention of a court order.”

Ugboro further 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.

The legal mind added that ” traditionally, in the context of other rights issues, AGMs/EGMs (Annual General Meetings / Extraordinary General Meetings) 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”).”

Ugboro raised telling concerns with the added explanation that “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.”

The information at hand revealed that the various cases regarding the matter have been elevated to the Court of Appeal.