The Securities and
Exchange Commission (SEC) is statutorily mandated as the apex regulator of the
Nigerian capital market to ensure the protection of investors, and to maintain
a fair, efficient and transparent market. One of the ways in which the
commission carries out this function is intervening in the management and
control of public companies which are ‘failing’, ‘failed’ or ‘in cirsis’.

A recent
judicial precedent that affirms the powers of the commission in this respect is
the case of
SEC v. BIG TREAT PLC & ORS (2019) LPELR-46520 (CA). On 31st January, 2019, the Court of
Appeal, in overruling the decision of the trial court, held that the Securities
and Exchange Commission, being the ‘beacon light of the powers of the Appellant
under the Investment and Securities Act’ had the power to intervene the
management and control of Big Treat Plc, a public listed company.

Brief Facts:

Upon assessing
the 2008 audited accounts of Big Treat Plc (1st respondent), the Securities and
Exchange Commission (appellant) discovered that the 1st respondent was drifting
into deplorable financial state, and therefore decided to intervene in the
affairs of the 1st respondent to ascertain its true financial position and prevent
further depletion of the company’s assets, thereby protecting the interest of the

the appellant instituted an action at the Federal High Court in the course of
which it applied ex-parte for a preservatory order of injunction to restrain
the 2nd – 6th respondents from obstructing the appellant in the appointment of
an interim management to take charge of the day-to-day administration of the
1st respondent, with a view to preserving its assets and the interests of its
stakeholders. The trial court however refused to grant the application on the
ground that the 1st respondent was not a capital market operator and could
therefore not be under the control and management of the appellant in times of
financial distress. The appellant being dissatisfied with the order of the
trial court appealed to the Court of Appeal.

Court of
Appeal’s Decision:

Allowing the
appeal, the Court of Appeal held in favour of the appellant that the 1st
Respondent was a capital market operator having registered itself with the
appellant as an operator in the Nigerian capital market. The learned justices
maintained this position by relying heavily on section 315 of the Investment
and Securities Act (ISA) which defines a capital market operator as any person,
individual or corporate, duly registered by the Securities and Exchange
Commission to perform specific functions in the capital market. The court also held
in favour of the appellant that it (the appellant) had the statutory power to
intervene in the management and control of the 1st Respondent, if in
the appellant’s opinion; the company had failed, was failing or was in crisis
by doing whatsoever it considered necessary to protect the interest of the
investors. The court reached this decision by relying on Section 13(v) of the
Investment and Securities Act which states that the Commission shall
“…intervene in the management and control of capital market operators which it
considers has failed, is failing or in crisis including entering into the
premises and doing whatsoever the Commission deems necessary for the protection
of investors”.

The Court of
Appeal held thus:

“That the 1st Respondent, an issuer of securities,
having been duly registered with the Appellants and was at all material times
performing the specific function of issuing securities in the capital market
was subject to the intervention of the statutory powers of the Appellant as the
pinnacle regulatory authority for the Nigerian capital market whose sole
purpose is to ensure the protection of investors and to maintain fair,
efficient and transparent capital market as well as reduction of systemic risk
as stated in the preamble of the ISA- the beacon light to the powers of the
Appellant under the ISA.”


The court’s
decision in this case reveals the extent of interpretation of the provisions of
the Investment and Securities Act on the definition of capital market operators
and the responsibilities of the Securities and Exchange Commission in relation
to the control and management of failing capital market operators.

This recent
judgment of the Court of Appeal therefore serves as a warning signal to many
public companies in the capital market. Every capital market operator owes its
investors a duty to thrive trade wisely in the capital market, and to continue
to operate as a going concern by all means legally possible. Accordingly, as
required by section 61 of the Investment and Securities Act, capital market
operators need to take more practical steps to establish a system of internal
controls over their financial reporting and security of their assets to ensure
the integrity of their companies’ financial controls and reporting by means of
policies, procedures and practices to ensure safety of assets, accuracy of
financial records and reports, achievement of corporate objectives and compliance
with laws and regulations.

The judgment
also serves as a great beacon light of hope to millions of investors in
Nigeria. Investors can feel safer to invest in the capital market, knowing full
well that there is a watchdog commission which constantly monitors market
activities to forestall manipulative, illegal or unfavourable practices.

Ayodeji Ayolola is an Adjunct Lecturer of Corporate
Law Practice at the Nigerian Law School, Lagos campus; and an Associate Counsel
at Wole Olanipekun & Co., Lagos, Nigeria.,