Removal of Bank Directors by the Central Bank of Nigeria: The Recent Case of First Bank of Nigeria Limited and FBN Holdings Plc

Last week, the Central Bank of Nigeria (CBN) approved and directed the removal of all directors of First Bank of Nigeria Limited (FBN) and its parent company, FBN Holdings Plc (FBN Holdings) and appointed new directors to replace the directors removed.

The CBN in its Governor’s Statement on the Purported Management Change at the First Bank of Nigeria Limited explained that its action has been necessitated to preserve the stability of FBN in order to protect minority shareholders and depositors. The CBN in its Governor’s Statement frowned at the changes in the executive management of FBN without proper recourse to the apex banking regulator. According to CBN “It was, therefore, surprising for the CBN to learn through media reports that the board of directors of First Bank, a systemically important bank, under regulatory forbearance regime, had effected sweeping changes in executive management without engagement and/or prior notice to the regulatory authorities,”.  The CBN Governor argued that the action of the board of directors of FBN sends a negative signal to the market on the stability of the leadership of the bank in view of the performance of the bank in the last five years which has necessitated the CBN to provide regulatory forbearance and closely monitor the bank in order to stem a slide in the going concern status of the bank. The CBN Governor further explained that FBN is a systemically important bank which makes it imperative for the CBN to step in to stabilize the Bank to ensure financial stability.

The action of the board of directors of the FBN and CBN raises a number of legal issues. In this newsletter, we undertake a preliminary analysis and an elaborate consideration of the key legal issues on this development will be discussed in our subsequent article.

Meanwhile, we have highlighted hereunder some of the issues that underpin the CBN’s actions such as regulatory forbearance, systemically important bank, and minority shareholders vs. depositors, in addition to the legality of the removal and appointment of the directors.

 The Legality Question

 The appointment and removal of directors of any company are primarily governed by the Companies and Allied Matters Act (CAMA). Every corporate entity is subject to the provisions of CAMA except where a overriding statute expressly limits the application of CAMA. The Banks and other Financial Institutions Act 2020 (BOFIA) provides such exception. The provisions of BOFIA shall apply notwithstanding the provisions of CAMA as they relate to financial institutions. By virtue of Section 34 of BOFIA, the CBN may direct the removal of a manager or officer of a bank where after an examination, it is satisfied that the bank is in a grave situation. Two critical conditions must be satisfied before CBN can take such action: first, CBN must have conducted an examination on the bank, secondly the CBN is satisfied that the bank is in a grave situation. The earlier case between shareholders of Union Bank of Nigeria Plc (Union Bank) and the CBN provides a useful precedent. In 2009, the CBN removed the Chief Executive Officers and Executive Directors of seven banks including the directors of Union Bank of Nigeria. The Court held that the CBN had powers under Section 34 of BOFIA, to remove directors of the bank. Although this is an important precedent, but the facts may be distinguishable from the current matter. In the Union Bank case, the removal of the directors of the bank was a remedial action by the CBN following an examination on the bank. In the instant matter, the CBN had conducted an examination on FBN in 2016 and resolved to grant the bank regulatory forbearance which has been in place till date. The removal and appointment of directors was triggered by the failure by the bank and its parent company to obtain CBN’s prior approval for the removal of the bank’s managing director. Note that the distinguishing fact of this matter may or may not be of much value given the fact that CBN had already conducted an examination on FBN in 2016. Section 34 of BOFIA neither stipulate the timeline within which the CBN can exercise the power to remove and appoint directors following such examination nor define what amounts to grave condition.

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