*Says “Form CAC 10 Alone Was Insufficient To Establish Shareholder Status”

The Court of Appeal, Lagos Division, has held that the allotment of shares to a person by a company does not of itself make that person a shareholder of the company, and that a person who cannot show shares registered in his or her own name has no legal capacity to present a petition for the winding up of the company as a contributory.

The decision, in Babybird Cosmetics Limited & Anor. v. Mrs Elizabeth Omolewa Ogunlesi, sets aside the foundation of a set of orders the Federal High Court, Lagos Division, had made on a petition brought by a woman whose name was not in the company’s register of members.

Mrs Elizabeth Omolewa Ogunlesi, the Respondent on the appeal, presented a winding-up petition against Babybird Cosmetics Limited, the 1st Appellant, alleging that the affairs of the company were being conducted in a manner that was oppressive, unfairly prejudicial and injurious to her interests in the company. She maintained that she had an interest in the company which entitled her to seek reliefs against it and against its principal shareholder.

In determining the petition, the Federal High Court considered the documents relating to her alleged interest, particularly Form CAC 10. Relying on those documents, the trial Court held that she was a contributory of the company.

On that holding the trial Court made three orders. It ordered the Institute of Chartered Accountants of Nigeria to determine the value of her alleged interest in the company. It directed the 2nd Appellant, described as the majority shareholder, to buy out her interest within six months. And it ordered that the company would be wound up if the buy-out was not completed within that period.

The Appellants appealed, contending that the Respondent had failed to establish that she was a shareholder or contributory, and that the trial Court ought not to have recognised her alleged interest or made consequential orders against the company without satisfactory proof of her membership.

The issue reported was whether the Respondent was a shareholder of the 1st Appellant, and whether the trial Court was right to order the 2nd Appellant to buy out her alleged interest following its valuation by the Institute.

Counsel for the Appellants argued that the Respondent had failed to establish, through credible and sufficient documentary evidence, that she was a shareholder or contributory of the company, and that a person seeking to present a winding-up petition on the basis of membership or shareholding must first establish the requisite legal status.

A mere assertion of an interest in a company, without adequate proof of the acquisition, allotment, transfer or registration of shares, could not confer the legal standing required to maintain such a petition. The Respondent was neither a shareholder, a director nor a member, and her name did not appear in the company’s register of members.

Counsel argued expressly that mere allotment of shares did not automatically make a person a shareholder, and that ownership ought to be established through documentary evidence including receipts showing payment for the shares, registration of the shares in the company’s register of members, and share certificates evidencing the shares acquired.

On Form CAC 10, counsel contended that the trial Court had placed undue reliance on it without sufficient proof that the Respondent had acquired the requisite legal status, and that the document did not conclusively establish that she had become a member of the company. A person claiming an interest in a company must demonstrate the legal basis of that interest through satisfactory evidence of allotment, payment, transfer or registration.

Counsel for the Respondent argued that the petition disclosed a legal and financial interest in the company, and that the principles governing contributory status were sufficiently broad to accommodate persons alleged to be contributories. On that basis she was entitled to present the petition and seek the reliefs claimed.

Counsel further argued that the Appellants’ insistence on the production of share certificates or other specific corporate documents was misconceived, that the absence of a share certificate did not necessarily defeat a claim to shareholder status, and that the documents attached to the petition, particularly Form CAC 10, disclosed the shareholding structure of the company and sufficiently demonstrated her interest in it.

The Court of Appeal held, resolving the issue in favour of the Appellants, as follows.

First, on allotment. Mere allotment of shares to a person by a company does not make that person a shareholder of that company. Ownership of shares in a company cannot be established by mere assertion or verbal claim. A person claiming to be a shareholder must produce satisfactory documentary evidence demonstrating the acquisition and ownership of the shares. Such evidence may include:

  • receipts showing payment for allotted shares;
  • registration of the shares, and their numbers, in the shareholder’s name in the company’s register of members; and
  • share certificates evidencing the shares acquired.

Second, on standing to petition. A person seeking to qualify as a contributory entitled to present a winding-up petition must establish ownership of shares registered in his or her name before the commencement of the winding-up proceedings. A person claiming to be a shareholder must therefore demonstrate that the shares have been duly registered in his or her name. The assertion of an interest in a company, without satisfactory evidence of the requisite membership, would not confer the legal capacity to institute winding-up proceedings.

Third, on the facts. The Respondent had failed to establish that she was a shareholder or contributory of the company. The documentary evidence relied upon, including Form CAC 10, was insufficient to establish the status required to maintain the petition. Having failed to prove that she was a member of the company, she lacked the requisite legal capacity to present the winding-up petition.

Counsel listed for the Appellants were Olawunmi Nwano, with O. Ayela Uwangwe and E. Orogun.

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