Still on FRCN, NOTAP Registration and Qualified Opinions - Some Developments*

INTRODUCTION

A background to this post can be found in the previous post. This post highlights some developments in relation to the said previous post.

FRCN RULES

Further to its powers under the FRCN Act, the FRCN issued rules (the “FRCN Rules”) on a number of matters including: transactions requiring registration by statutory bodies such as NOTAP; submission of financial statements for which external auditors express opinions other than an unqualified opinion; certification requirement for CEOs, CFOs and other professionals engaged in the financial reporting process; the provision of “non-audit” services; and functional and presentation currencies. 

Paragraph 4 of the FRCN Rules stipulates that transactions or agreements which a statutory body has to approve or register shall be regarded as having financial reporting implication only when the required approval or registration has been obtained from the statutory body. 

Where such a transaction is recognised as part of the financial reporting of an entity, the details of the approval (such as registration certificate number) obtained from the relevant statutory body is required to be disclosed by way of note in the financial report, returns or document .

However, it should be noted that paragraph 4 of the FRCN Rules, specifically requires the disclosure of the financial implication of inter-company transfer and technical management agreements between a company and its significant local and overseas suppliers (if any) including its affiliates.

Paragraph 5 of the FRCN Rules clarify that the requirement to submit qualified reports to FRCN under section 8(1)n of the FRCN Act applies to all reports (emphasis of matter, qualified, adverse, disclaimer, etc) other than unqualified reports issued by external auditors on annual reports, financial statements, accounts, financial reports, returns and other documents of a financial nature.

DIVERGENT DECISIONS OF THE FEDERAL HIGH COURT

Two recent decisions of the Federal High Court are divergent on the effect of failure to register an agreement required to be registered under the NOTAP Act.

As discussed in the previous post, section 5(2) of the NOTAP Act imposes an obligation to register with NOTAP, all agreements having effect in or entered into in Nigeria for the transfer of foreign technology to Nigerian parties. Further, section 7(1) of the NOTAP Act provides for the consequences of non-registration as follows:

“… no payment shall be made in Nigeria to the credit of any person outside Nigeria by or on the authority of the Federal Ministry of Finance, the Central Bank of Nigeria or any licensed bank in Nigeria in respect of any payments due under a contract or agreement mentioned in … this Act, unless a certificate of registration issued under this Act is presented by the party or parties concerned together with a copy of the contract or agreement certified by … [NOTAP].”

In practical terms the foregoing provision imposes a restriction on purchasing foreign currency from official banking channels with which to make payments due under a relevant agreement which is not registered with NOTAP. However, the provision does not expressly prohibit making foreign currency payment (or any form of payment) through other means or channels.

In the case of Beecham Group Ltd v. Essdee Food Ltd[1], the Court of Appeal stated in relation to agreements which are required to be registered under the NOTAP Act, that the failure to register such an agreement with NOTAP does not render same invalid or unenforceable. According to Mohammed JCA:

 “…penalty has been provided for a violation of the provision of S.4(d) of Decree 70 of 1970. Under S.7 of the said Decree foreign exchange will not be released in respect of any contract or agreement which is not registered as provided by S.4(d) of the Decree. This is the penalty for non-registration of the said agreements. It did not say that failure to register had rendered such agreements unenforceable or invalid.”

Although, the foregoing was cited with approval and followed in the Federal High Court decision of Vitamalt (West Africa) Limited v. Vitamalt Plc,[2] the decision was neither cited nor followed in the decision of the Federal High Court in Stanbic IBTC Holdings Plc v. Financial Reporting Council of Nigeria and National Office for Technology Acquisition and Promotion,[3] which both FRCN and NOTAP are parties to. In the Stanbic IBTC case, the court held inter alia that: section 7 of the NOTAP Act does not distinguish between payments made in local or foreign currency, that the section has the effect of preventing payments either in local or foreign currency, and that an agreement required to be registered with NOTAP which has not been so registered is illegal, void and unenforceable.

CONCLUSION

In relation to NOTAP registration, it can be said that the FRCN Rules are consistent with the Stanbic IBTC case which FRCN is a party to. It can also be argued that being a subsidiary legislation, the FRCN Rules is presumed valid unless otherwise set aside by a court.

However, it is also important to note that the accounting treatment of a transaction would not necessarily preclude a court from enforcing same. Therefore, even if in the relevant financial year(s) the financial statement of an entity does not recognise or reflect a transaction, the obligations of the entity on such transaction may remain legally enforceable. 

* This post is the personal view of the author, written only to provide general information and not legal advice. The author accepts no responsibility for any loss or damage that may arise from reliance on information contained in same.

[1] [1985] 3 NWLR pt 11 pg 11 at 12, per Mohammed JCA

[2] Suit No: FHC/L/CS/719/14

[3] Suit No: FHC/L/CS/1596/2015