With the Covid-19 outbreak wreaking havoc on businesses worldwide, many may need to restructure soon. Several areas of the Nigerian economy were ripe for restructuring even before the crisis. In order to thrive in today’s Nigeria, a company must have a tremendous desire to expand. This is because Nigeria’s commercial terrain is so competitive that constant evolution is unavoidable in corporate governance. Essentially, any organization that does not pursue growth and expansion will fall behind its competitors. This is where corporate restructuring comes into play. Corporate restructuring is a technique of reorganization that is used all over the world. While mergers and acquisitions continue to be the most prevalent way of corporate restructuring, other options exist.


It is necessary to clearly define the different words that make up the phrase to comprehend what corporate restructuring entails fully.

To begin, the Oxford Learner’s[1]dictionary defines the term “corporate” as follows: being formed into an association and endowed by law with the rights and liabilities of an individual. To “restructure” an organization or system, on the other hand, means changing how it is organized, usually to make it perform more successfully.

As a result of the foregoing, we can reasonably conclude that corporate restructuring is the procedure for redesigning a company or a commercial organization to improve its productivity and profitability.


Corporate restructuring is an action taken by an organization to alter the structure or operations of the company drastically. This restructuring usually happens when a company is faced with significant problems and financial threats. The restructuring also necessitates strategies to reduce the company’s size. Corporate restructuring is required to resolve all financial concerns and improve the company’s performance.

The rationales for a company’s restructuring are several. However, they frequently involve one or more of the following issues:

  • Downsizing in response to changes in the economy, market conditions, or demand;
  • Relocating the company, such as shifting a production process or an entire office;
  • Management changes, such as a director’s departure
  • Administration changes, such as management buyouts;
  • Diversification to fulfil rising demand and enhance market share; or
  • Need for more capital.


The focus of this paper will be on one of the restructuring strategies. However, before diving into this article’s primary focus, we shall briefly consider the types of corporate restructuring. The types of corporate restructuring are as follows:

  1. External restructuring
  2. Internal restructuring


External restructuring is a procedure in which a company’s financial affairs are wound up, and a new company is formed to take over the former company’s assets and liabilities after the financial position has been reorganized. It requires a lot of deliberations, approval, and authorization by the Federal High Court.

External restructuring typically involves multiple companies redesigning the company’s critical components, such as ownership, management, liabilities, and assets.


Internal reconstruction is a business strategy involving making significant changes to the company’s capital structure without liquidating the existing company. Specifically, it is the internal reorganization of a firm’s financial structure, during which the company being reconstructed continues to exist.[2]

Internal reconstruction aims to free the company from debts and losses by negotiating with creditors and minimizing the volume owed to them to ensure a desirable position.


Five different internal restructuring approaches are available to a struggling company in Nigeria. They are as follows:

  1. Arrangement and compromise
  2. Arrangement on sale
  3. Increase or reduction of share capital
  4. Corporate Buyout
  5. Salary adjustments


Arrangement and compromise in business restructuring are covered by Chapter 27 of the Companies and Allied Matters Act (CAMA).[3] It has been argued that the terms ‘arrangement’ and ‘compromise’ are not synonymous.[4] As a result, an agreement allowing the majority of creditors to accept less than they are owed may be referred to as a compromise. However, where the stakeholders do not give up any entitlements, there is no compromise, only an arrangement.[5]

An arrangement is defined in the Companies and Allied Matter Act[6] as any change in the rights or liabilities of members, debenture holders or creditors of a company or any class of them or the regulation of a company, other than a change effected under any other provision of this Act or by the unanimous agreement of all parties affected. On the other hand, compromise is simply an agreement between a corporation and its creditors and members, or a group of them, to accept less than they are entitled to in complete and final payment of the firm’s obligations to them.

When a company offers an arrangement or compromise with its creditors, the company or the creditors, or the liquidator in the case of a corporation getting wound up, will apply to the Federal High Court in a summary way for an order calling a meeting of creditors or members of the company as the court may prescribe.[7] The meeting will be convened after it has been sanctioned to resolve the arrangement or compromise.

During the meeting, a compromise or agreement will be offered, and the attendees represented or present at the meeting will vote. Suppose a majority of the members at the meeting (at least three-quarters) agree to the arrangement or compromise, and the Federal High Court will refer the matter to the Securities and Exchange Commission (SEC), which will evaluate its fairness.[8] If the court is satisfied with the fairness of the arrangement after the Securities and Exchange Commission’s probe, it will be sanctioned. As the case may be, the creditors, members, corporations, liquidators, and donors become bound by this agreement or compromise once approved.[9]

However, the sanction will not take effect until the corporation submits a certified true copy of the agreement or compromise to the Corporate Affairs Commission and annexes it to the company’s memorandum created after the court has sanctioned the agreement or compromise.[10]


One of the internal reconstruction methods for a failing company’s survival is to put it up for sale. A General Meeting can decide by special resolution that the company should be wound up and that the liquidator be appointed and licensed to sell all or part of the company’s undertaking or assets to another corporate entity. Cash, shares, debentures, or policies may be used as consideration for the sale, which will then be distributed among the company’s members in line with their interests in liquidation.[11]

All transactions or distributions made per the special resolution are binding on the company and its members. The members are deemed to have agreed with the transferee business to take fully paid shares, debentures, insurance, cash, or other forms of interest to which they are entitled.[12] However, if a member pursues an action against the company’s winding up based on unfairly discriminatory and oppressive conduct[13], the arrangement for sale and distribution will not be enforceable unless the Federal High Court sanctions it.[14]


Company Capital is, without dispute, the heart of the corporation. One thing remains true, whether examined through the subjective lens (capital as physical products that can be used to produce additional goods and services) or the objective lens (the monetary sum at the investors’ disposal), companies cannot function without capital.

An alteration to the company’s share capital can help scale through the financial hurdles and help restructure the corporation. A change in a company’s existing capital structure is referred to as a change in share capital. A company’s capital can be changed by revising its bylaws and notifying the relevant regulatory authorities. Internal reorganization can take the form of increasing or decreasing a company’s share capital.


Increasing the share capital is a way to channel more equity into the company. It is the authority given to companies to raise additional capital. The Companies and Allied Matters Act[15] provides that a company with a share capital may in a general meeting[16] and not otherwise increase its issued share capital by allotting new shares of the amount the company considers expedient. This increment is also carried out by ordinary resolution.[17] Ordinary resolution means a resolution passed by a simple majority by members of the company at a general meeting.[18]

An increase in the capital cannot be carried out unless the article of association expressly permits it. If no such authorization exists, the article would be changed by a special resolution[19] giving the business the authority to expand its capital. An increment in share capital would come into operation if at least 25% of the whole share capital, as well as the increase, have been paid up, and the directors have delivered a statutory declaration to the Corporate Affairs Commission confirming that fact.[20]

When a company’s share capital is increased, a notice of the increase must be filed with the Corporate Affairs Commission within 15 days of the resolution authorizing the increase. The notice must include information such as the class of shares affected by the increase and the terms under which the new shares were or will be issued.[21]


The decrease in share capital can also help a company scale through some financial difficulties. Where there are insufficient distributable profits, they can be used to pay dividends to shareholders or to finance the acquisition of the company’s shares.[22]

The nature of the reduction would be determined by the reduction type specified in section 131(2)[23] which provides that:

In particular, and without prejudice to subsection (1), the company may

(a) extinguish or reduce the liability on any of its shares in respect of share capital not paid up,

(b) either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up share capital which is lost or unrepresented by available assets, or

(c) either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up share capital that exceeds the company’s wants.

The share capital can also be reduced in other ways not included in the list provided above.[24]

Due to the potential negative impact on investors, creditors, and shareholders, the reduction of firm capital is accompanied by severe restrictions. The criteria for capital reduction are subject to judicial confirmation,[25] authorization under the article of association or through a special resolution.[26] Where the company has no prerogative under its article to lower the capital, it must, therefore, modify the article to give it the authority to reduce capital and, by special resolution, reduce the capital. It is important to note that these motions cannot be passed at a single meeting since a special resolution requires 21 days’ notice.[27]


A buyout refers to acquiring a controlling interest in an organization.[28] This is an arrangement or agreement in which some interest groups within a company purchase other people’s shares. It could be in the context of an Employee’s buyout or a Management buyout.


Employees may buy out a company because of their job security or affinity, pooling their capital to purchase the company’s management. An employee buyout occurs when a company offers a voluntary severance payment to a group of employees. Benefits and compensation are typically included in the package for a set time. An EBO is frequently used to save costs or avoid or postpone layoffs.

An employee buyout is also a reorganization technique in which employees purchase majority ownership of their company. In either case, EBOs are most commonly used when a company is in danger of foreclosure.[29]


A management buyout is a purchase of controlling shares of a company or its subsidiaries by the company’s management team (typically the directors and executives). MBO is the acquisition of controlling shares of a company or its subsidiaries by that company’s management team, with or without third-party funding.[30] The procedure for management buyout is outlined in the Securities and Exchange Commission Rules and Regulation of 2013.[31]

The management prefers this structure option to avoid an external takeover, acquisition, or merger by third parties who may not share the company’s goal and vision. The procedure for management buyout according to the Securities and Exchange Commission Rules and Regulation of 2013[32] are as follows:

The management team making the transaction must file an application for approval of the management buyout accompanied by the following documents:

  • A resolution of the company’s shareholders approving the management buyout;
  • A resolution of the management team to carry out the management buyout;
  • A copy of the company’s certificate of incorporation;
  • A copy of the company’s Memorandum and Articles of Association;
  • Two copies of the Company’s Prospectus
  • A copy of the company’s selling agreement with the management team and any additional documents that the Securities and Exchange Commission may demand from time to time.


When the company is in a bad financial state, the remuneration of employees and executive directors may be revised. In this case, the company management is usually forthright with the employees to ensure that they understand the salary decrease that will be made and how long they anticipate the adjustment to last. The remuneration will be altered accordingly once this is accepted. The modification does not have to affect the employee’s basic salary; it could only affect the work benefits to which they are entitled.[33]

6.0 CONCLUSION              

Corporate restructuring aims to increase efficiency, improve the market edge, and help maintain and enhance the value of a company. The restructuring aims to achieve an organization’s financial performance, liquidity, and solvency goals. A corporation that has been efficiently reformed is likely to be more efficient, organized, and focused on its primary business. A corporation can also avoid financial harm and improve its performance via restructuring.


[1] https://www.merriam-webster.com/dictionary/corporate (accessed on 14th June 2022)

[2] https://www.legalwiz.in/blog/when-is-corporate-restructuring-required-its-characteristics-and-types (Accessed 14th June 2022)

[3] 2020

[4] Orojo Olakunle.Company Law &Practice in Nigeria. 5th Ed.,Durban, LexisNexis, 2008. Pp. 334.

[5] Yinka Folawiyo and Sons Ltd v. TA Hammond Projects Ltd [1977] 3 FHCR 143

[6] 2020

[7] Section 715 (1) CAMA 2020

[8] Section 715 (2) CAMA 2020

[9] Section 715 (3) CAMA 2020

[10] Section 715 (4) CAMA, 2020

[11] Section 714 (1) CAMA, 2020

[12] Section 714 (2) CAMA, 2020

[13] Section 353 – 355 CAMA 2020

[14] Section 714 (2) CAMA 2020

[15] Section 127(1

[17] Section 127 (8)

[18] Section 258 (1)

[19] Section 53 (1)

[20] Section 128

[21] Section 127 (2)

[22] https://burlingtonslegal.com/insight/an-overview-of-share-capital-reductions-all-you-need-to-know/ (Accessed 15th June 2020)

[23] CAMA, 2020

[24] Section 131 (1)

[25] Section 133

[26] Section 131 (1)

[27] section 258(2)

[28] https://thebusinessprofessor.com/en_US/business-transactions/buyout-definition (Accessed 15th June 2020)

[29] https://www.investopedia.com/terms/e/ebo.asp (Accessed 16th June 2020)

[30] Rule 449 (a)

[31] Rule 449

[32] Rule 449 (b)

[33] https://associationsnow.com/2020/11/how-to-restructure-salaries-and-staff-in-lean-financial-times/ (accessed 16th June 2020)


  1. Companies and Allied Matters Act, 2020.
  2. Securities and Exchange Commission Rules and Regulation of 2013.
  3. Orojo Olakunle.Company Law &Practice in Nigeria. 5th,Durban, LexisNexis, 2008.
  4. “Alteration of Company Capital in Nigeria. 2021. https://www.grin.com/document/1064722 (Accessed 15th June 2022).
  5. Udo Udoma & Belo – Osagie. “Nigeria: The Companies & Allied Matters Act 2020- What You Need To Know – Part 5- Share Capital.” 8th January 2020. https://www.mondaq.com/nigeria/shareholders/1023802/the-companies-and-allied-matters-act-2020–what-you-need-to-know–part-5-share-capital (Accessed 15th June 2022).
  6. Atoyebi S.A.N. Ayara Joy. “Corporate Restructuring Options for Companies in Nigeria. 13th May 2022. https://omaplex.com.ng/corporate-restructuring-options-for-companies-in-nigeria/#_ftn1 (Accessed 15th June 2022).
  7. Adekola Habeeb. “Nigeria: A General Overview of Corporate Restructuring in Nigeria.” 18th February 2022. https://www.mondaq.com/nigeria/corporate-governance/894972/a-general-overview-of-corporate-restructuring-in-nigeria (Accessed 15th June 2022).


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