Oando: Dissecting the Anatomy of a Saga

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The Securities and Exchange Commission (SEC) ruling on the outcome of forensic audit of Oando Plc’s is capable of not only destabilizing the operations of the company but also discourage investors from patronizing the capital market. Oando Plc, which is listed on the Nigerian Stock Exchange (NSE) and Johannesburg Stock Exchange (JSE), suffered significant decline in investor confidence and financial performance in 2017 as result of a board crisis due to petitions by two shareholders.

Following the petitions, SEC opened preliminary investigation that led to forensic auditing of Oando Plc operations, and suspension of trading in the shares of the company. While trading resumed in April 2018 and the company has been reporting improvement in financial performance, the result of forensic auditing was being awaited. Last Friday, the SEC said it had concluded its and found Oando management involved in serious infractions such as false disclosures, market abuses, misstatements of financial statements and corporate governance lapses stemming from poor board oversight.

As a result, the SEC ordered Oando Group Chief Executive Officer, Wale Tinubu; his deputy, Omamofe Boyo, and other board members to resign and directed that an extraordinary general assembly meeting be convened to appoint new directors, on or before July 1, this year. It also barred Tinubu and Boyo from being directors of public companies for five years. However, in a swift reaction, the oil firm said it would challenge SEC’s ruling, saying the alleged infractions and penalties were “unsubstantiated, ultra vires, invalid and calculated to prejudice the business of the company.”

Genesis of Probe

The capital market apex regulator decided to probe Oando following petitions by Ansbury Inc. (owned by Gabriele Volpi) and Alhaji Dahiru Mangal in 2017. The duo had petitioned SEC, claiming majority shareholding in Oando, alleging mismanagement by the Wale Tinubu-led executive. They had sought Tinubu’s removal as CEO to save the company from bankruptcy. SEC said it carried out a comprehensive review of the petitions and found: breach of the provisions of the Investments & Securities Act 2007; breach of the SEC Code of Corporate Governance for Public Companies; suspected insider trading; suspected related party transactions and discrepancies in the shareholding structure, among others.

Suspension of Trading

The SEC explained that since its primary role is to regulate the market and protect investors, the above findings were weighty and therefore needed to be further investigated. The regulator added that after due consideration, the commission believed it was necessary to conduct a forensic audit into the affairs of Oando. This was pursuant to the statutory duties of the commission as provided in section 13(k), (n), (r) and (aa) of the ISA 2017. “To ensure the independence and transparency of the exercise, the forensic audit shall be conducted by a consortium of experts made up of auditors, lawyers, stockbrokers and registrars.” SEC explained that to further ensure the interest of all shareholders of Oando is preserved during the course of the exercise; it directed the NSE to place the shares of Oando on technical suspension on October 18 and full suspension on October 20, 2017.

Oando’s Initial Reactions

Reacting to the actions of SEC, Oando said they appeared to be biased and illegal, adding that they were illegal, invalid and calculated to prejudice the business of the company. Dissatisfied with the actions and to safeguard the interests of the company and its shareholders immediately, Oando took steps to file an action with the Federal High Court (FHC), Ikoyi, Lagos, against the SEC and the NSE. On October 23, 2017 the company obtained an ex-parte order from the FHC granting an interim injunction, via an order restraining the NSE from effecting the directive of the SEC to implement a technical suspension of the shares of the company, and an order restraining the SEC from conducting any forensic audit into the company’s affairs pending the hearing and determination of the matter.

Oando  raised questions why the SEC investigated a petition brought by an indirect shareholder (Ansbury Inc.) domiciled outside Nigeria, in a jurisdiction outside the SEC’s purview and one currently in arbitration court in the UK when SEC’s Complaints Management Framework says it shall not consider any matter which is currently in arbitration. Furthermore, in a recent letter to Oando, SEC re-categorized the petitioner as a “whistle blower” contrary to its former position as a “shareholder”, which according to Oando shows a clear bias as it suggests the SEC re-categorized the petitioner’s position to ensure it is able to carry on investigating the petitions.

The company highlighted letters sent by its Chairman, HRM Oba MA Gbadebo, to the DG alleging bias and lack of due process in the way and manner in which the SEC conducted the investigation. Oando disclosed that the chairman asked to be granted an audience to present the company’s case, a request that the SEC repeatedly denied, whilst the regulator has granted an audience to Ansbury and gone so far as to offer what is tantamount to legal advice to them. Oando had alleged that action taken by the regulator confirmed that the SEC appeared to be working to its own conclusion rather than looking at the facts before it, and acting in the best interest of the company and the minority shareholders whom, it claims, it seeks to protect.

To further reinforce the company’s strong reservations with the SEC’s findings, Oando outlined all of the alleged infractions identified by the SEC and details its position, for the most part disagreeing with the commission’s  pronouncements and going so far as to highlight the prescribed penalties as set out by the regulators for said infractions none of which singularly or together warrant the institution of a forensic audit, full or technical suspension of trading of the company’s shares on the NSE.

According to Oando, it does not believe that SEC has presented a strong enough case to support the engagement of a forensic auditor to conduct a forensic audit into their affairs and highlights seven reasons to support this belief. Reasons include SEC requesting a forensic audit in order to investigate whether its findings are true which is a clear contradiction. “How did the SEC arrive at its findings if it cannot be sure of the veracity of those findings, and more importantly how did it ascribe the appropriate level of weight to be given to those findings, enough to warrant an immediate suspension followed by a technical suspension of the shares of the company, especially if those findings are still mere allegations at this point, as the commission has clearly communicated?” the company queried.

In a letter, the SEC informed Oando that the N160 million cost of the forensic audit will be borne by the company, to which Oando responded by saying that this must be an error in light of all its submissions to date, and not the best use of shareholder funds at this time. Also, the company has highlighted that in the letter sent to Oando by the SEC, both the petitioners were copied, Alhaji Mangal and Ansbury Inc. Oando stressed  that it is unheard of and prejudicial for petitioners to be copied on correspondence to the investigated party on findings yet to be concluded.

Oando wondered how SEC arrived at its findings if it could not be sure of the veracity or otherwise of those findings and how did it ascribe the appropriate level of weight to be given to those findings, enough to warrant an immediate suspension followed by a technical suspension of the shares of the company, if those findings were still mere allegations at that point. “The company has fully co-operated with the SEC since the commencement of this investigation in May 2017 and provided all information requested. It is evident that submissions made to the SEC have not been duly considered due to the conclusions reached and actions taken, as all of the matters raised have been responded to in great detail with all supporting documents requested by the SEC. 

The company repeatedly, through its chairman, requested an audience with the SEC to enable it present its case before the commission but to date, no invitation has been extended to the company,” Oando said. The company argued that each of the alleged infractions has a penalty prescribed by the respective provisions of the ISA, SEC Code, SEC Rules and Regulations, NSE Listing Rules and CAMA, adding that none of them whether singularly or together warranted  the suspension of free trading in the securities of the company or the institution of a forensic audit.

Shareholders’ Concerns

Some shareholders of Oando had raised concerns that if an indirect and foreign shareholder could wield so much power over a public listed company, with the backing of SEC, with no regard for all the other shareholders, then their investments were not safe and secure. “Contrary to their mission to protect the capital market and Nigerian shareholders, the SEC has folded its arms and watch the investment of hundreds of thousands of Nigerian shareholders go down the drain while the public has had to appallingly watch what should have been a closed door investigation play out in the media. For those of us who have invested in Oando and seen the drastic nosedive that its share price has taken, we are deeply saddened by the SEC’s management of this investigation,” the shareholders said.

Similarly, another shareholder, Olatunde Olufemi, said going by the decision of SEC that Oando would bear the cost of N160 million for the forensic audit, the shareholders were already losing money. “This penalty begs the question, is this the most effective use of shareholders money? How independent and objective is the process? Oando has confirmed that they weren’t carried along on the panel selection; they have not received a scope of work and timeline for the audit and accordingly a justification for the N160 million bill. So how did SEC arrive at this cost? What SEC is doing is setting a bad precedent in the market,” he said.

Other shareholders had expressed displeasure at the SEC’s neglect of minority shareholders and public display of unprofessionalism stating that the leak from SEC on the proceedings of the investigation was mind-boggling. They said SEC could not have reached an objective conclusion especially because it’s clear the commission had been working in favor of the majority shareholders to the detriment of the over 270,000 shareholders whose investments are languishing as a result of the saga.

Lifting of Suspension

After over 170 days, the suspension on the shares of Oando was lifted in April 2018 with SEC explaining that the prolonged suspension was because there were lawsuits initiated by parties against the planned forensic audit of the company. “Shares of Oando Plc were placed on technical suspension in October 2017 upon the announcement of forensic audit, which aimed to protect investors as a short-term measure. Suspensions are typically intended for a short period to ensure market stability and thereafter lifted to allow market dictates. “However, the suspension of the shares of Oando Plc was prolonged due to several litigations by Oando and other shareholders contesting the propriety of the forensic audit and technical suspension. All litigations have now been withdrawn, the independent forensic audit by Deloitte is ongoing and the preliminary result is expected,” SEC said.

Settlement with Dahiru Mangal

In May last year, Oando announced a settlement with one of the petitioners, Dahiru Mangal, saying, it had been notified that Mangal was a substantial shareholder. According Oando, all the issues raised by Mangal in his petition to the SEC had been successfully addressed and clarified by the company.

Commenting on the development, Tinubu said: “I am pleased we have reached an amicable agreement with Alhaji Dahiru Mangal and have satisfactorily addressed the concerns he raised in his petition to the SEC. We encourage him to exercise his rights as a shareholder and be more involved in oversight of the affairs of the company. Shareholders must be confident in the operations of the company they are invested in; this can only occur through active participation.’’

On his part, Mangal said: “Following the clarification I have received from Oando’s management team, I have withdrawn my petition to the SEC. I invested in Oando because I could see its potential. It is therefore with excitement that I concur to this Peace Accord signifying the renewal of our relationship; one that gives me more insight into the company’s operations and aspirations and involves more dialogue. I am confident in the company’s leadership team and trust that with the right support it will continue to grow from strength to strength, returning real value to all its shareholders including my good self.’’

SEC’s Ruling

While it was hoped that the disagreement with the shareholders, who wrote the petitions, was over, SEC on Friday raised new dust announcing that it had concluded its investigation into Oando and found its management involved in serious infractions such as false disclosures, market abuses, misstatements in financial statements and corporate governance lapses stemming from poor board oversight.

Consequently, it directed Tinubu, Boyo and other board members to resign and ordered that an extra-ordinary general meeting (EGM) be convened to appoint new directors, on or before July 1, this year.

The commission also barred Tinubu and Boyo, from being directors of public companies for a period of five years.

According to the regulatory agency, these were part of measures to address identified violations in the company. It also directed the payment of monetary penalties by the company and by the affected individuals and directors, as well as refund of improperly disbursed remuneration by the affected board members to the company.

As required under Section 304 of the Investments and Securities Act, (ISA) 2007, the commission said it would refer all issues with possible criminality to the appropriate criminal prosecuting authorities.

In addition, SEC stated that other aspects of the findings would be referred to the Nigerian Stock Exchange (NSE), Federal Inland Revenue Service (FIRS), and the Corporate Affairs Commission (CAC).

SEC said: “Following the receipt of two petitions by the Commission in 2017, investigations were conducted into the activities of Oando Plc., (a company listed on the Nigerian and Johannesburg Stock Exchanges). Certain infractions of Securities and other relevant laws were observed. The commission further engaged Deloitte & Touche to conduct a forensic audit of the activities of Oando Plc.

“The general public is hereby notified of the conclusion of the investigations of Oando Plc. The findings from the report revealed serious infractions such as false disclosures, market abuses, misstatements in financial statements, internal control failures, and corporate governance lapses stemming from poor board oversight, irregular approval of directors’ remuneration, unjustified disbursements to directors and management of the company, related party transactions not conducted at arm’s length, amongst others.

Oando’s Reaction to SEC’s Ruling

Oando came out with a point-by-point rebuttal of SEC’s grounds for indictment. In a letter signed by its Chairman, Oba Michael Adedotun Gbadebo, Oando recalled that following SEC’s receipt of two petitions from Ansbury and Alhaji Dahiru Mangal, SEC wrote to the company requesting responses to the petitions. Oando responded to the allegations in its letter dated 21st July 2017 addressed to the Acting DG, Mary Uduk. However, SEC only responded by communicating its interim findings in its letter dated 17th October 2017 wherein it stated that its findings are “weighty and therefore need to be further investigated to ascertain their veracity…”

The SEC thereafter suspended the Company’s scheduled Annual General Meeting (AGM) and ordered the appointment of a forensic auditor into the affairs of the company. In October 2017, Oando filed a suit before the Federal High Court in Lagos challenging the SEC’s directives which later went to the Court of Appeal. The company later withdrew the appeal on the strength of the assurance given by the SEC that the forensic investigation will be impartial and independent. 

While noting that it was aware that a copy of the forensic report was submitted by the forensic auditors to the SEC in December 2018, Oando said it  had never at any time been furnished with the forensic report neither had it been afforded the opportunity to defend or make any representations on the final findings therefrom. Having stated its general position on SEC’s letter and without waiving its rights to receive the full report pursuant to which the commission’s letter was issued, it responded to the specific points raised in the letter.

•Corporate Governance Lapses: 

The Company firmly states that the SEC has not substantiated its findings on alleged ‘several corporate governance lapses stemming from poor Board oversight’. Oando prides itself as a pioneer Nigerian company in the adoption of best corporate governance practices. Oando was the first NSE-listed company to achieve a cross-border dual listing of its 100% shares on the Johannesburg Stock Exchange in 2005 and a further listing of 100% shares in its upstream subsidiary on the Toronto Stock Exchange in 2012. These successful listings required the Company to institute and maintain the highest international standards of corporate governance in its management and business operations.

• Irregular Approval of Director’s Remuneration 

The Company denies that there was any irregular approval of director’s remuneration at any period under review. All payments to directors were in accordance with the Board Remuneration Policy, were approved by the Board of the Company and disclosed in the audited financial statements.  

•Unjustified Disbursements to Directors and Management

The SEC has failed to furnish instances of such ‘unjustified disbursements’. All remuneration (including expenses) to directors and management are approved and paid in accordance with the approved Delegation of Authority document of the Company. 

•Failure of Audit Committee to hold meetings with Management, Internal and External Auditors

This is completely false and raises quality assurance concerns on the SEC’s findings.  The records of the Audit Committee meetings of the Company clearly show that the Committee holds regular meetings with the Management of the Company and its internal and external auditors. In addition, the Audit Committee meets separately with the internal auditor and the Management is absent at such meetings. The rationale behind this is to reinforce the independence of the internal auditor in compliance with the requirements of the Audit Committee.

• Directors’ participation in conflicted matters

The SEC has again failed to provide details of this allegation, which is denied. It is the practice and tradition of the Board of the Company to have as the first item on the agenda in all Board Meetings, the disclosure of any interest they may have in the business of the day. Any director(s) of the Company who disclose an interest in a matter before the Board always recuse themselves from exercising their right to vote on that matter. 

• Failure of Internal Controls 

The Company denies the allegation in your Letter that it does not have an effective internal control process in place as required by S61 of the Investments and Securities Act 2007 (“ISA”). In the absence of any specific instances or examples, the Company is of the position that there is no basis for this finding. The SEC is therefore put to further proof of this allegation. 

•Incidental Issues arising from the sale of a Subsidiary  

 The accounting treatment accorded the sale of Oando Exploration and Production Limited (OEPL) was in line with International Financial Reporting Standards (IFRS) and rules of Financial Reporting Council. The Company rejects the assertion by the SEC that the sale of OEPL in 2013 was fictitious or orchestrated to enable the company to record a profit and pay dividends. 3.3   The 2013 audited accounts and subsequent quarterly reports of the Company were the proper account to be used in the 2014 Rights Circular and at the time of inclusion, did not contain any untrue statement or misstatement. There was no intention on the part of the Company to mislead the public as alleged by the SEC. 

•Suspected Market Abuse and Insider Dealings: 

The Company has always maintained that its policy and procedure on Insider dealings and sale of shares during closed periods are in accordance with best corporate governance standards. Oando is however not in a position to provide a response regarding alleged actions of shareholders as these are independent and separate legal entities.

•Related Party Transactions

 The SEC has again not specified the details of the related party transactions that were undisclosed in 2012 and 2014. As a result, we are unable to respond in detail to this allegation and again put the SEC to further proof of same. 

• Payment of Interim Dividends despite liquidity constraints

The Commission claims that the Company paid interim dividends in 2014 when it was facing liquidity constraints.  There is no legal basis for the SEC’s findings. As the SEC should be aware, Section 379 (2) of the Companies and Allied Matters Act permits the payment of dividends from distributable reserves. The interim dividend declared in September 2014 was paid by the Company in November 2014 from the H1 2014 profits of the Company.  At that point in time, Oando had sufficient distributable reserves and it is acceptable under the law to pay out dividends if reserves exist at the point of declaration. 

•False Disclosures  

The SEC’s claim that Oando failed to comply fully with the SEC Code of Corporate Governance for public companies is false, unsubstantiated and for the records, unhelpful. 

•.Non-disclosure of Beneficial Ownership: 

The SEC would observe that by the Company’s letters dated 21st July 2017, 23rd August 2017, 24th August 2017, 28th August 2017  and 21st September 2017, Oando repeatedly brought to the attention of the SEC the fact that to the best of the Company’s knowledge,  Alhaji Dahiru Mangal held less than 5% of the shares in the Company and requested that the SEC compel Alhaji Mangal to disclose his full beneficial ownership in Oando PLC  in accordance with Section 95(1-5) of the Companies and Allied Matters Act to enable the Company comply with Rule 17.13 of the NSE Rule book.  The SEC did not send Oando a response to its request and Alhaji Mangal did not contact the Company until 29th September 2017 and 11th October 2017. We thereafter promptly notified the SEC that his shareholding had exceeded 5% based on his notification.  

• Tax-Related Issues

The Company denies that it deducted and/or remitted any amount in excess of the statutory 10% Withholding Tax deductions from the dividend paid to shareholders in 2014 as required by the Companies Income Tax Act (CITA). We put the SEC to further proof of this allegation. We also note that the SEC has clearly exceeded the remit of its powers by alleging non-compliance with ‘several tax laws such as Companies Income Tax Act, Value Added Tax Act etc’…We respectfully request that the Commission restricts its regulatory oversight to the matters permitted by the applicable law. 

•Directives including resignation of Directors from the Board 

Oando hereby states that the SEC did not follow due process in the conduct of this investigation and reserves its rights to challenge the legality of the directives in your Letter. We therefore maintain that such directives from the SEC are invalid, illegal, ultra vires and should be rescinded.  We reiterate that the SEC’s actions on this matter would have a huge negative impact on the Company’s reputation as a leading indigenous oil and gas company and its shareholders, investors and stakeholders, whose interests the SEC has a duty to protect. We condemn the disturbing pattern in which the SEC has repeatedly taken harsh punitive actions towards the Company without according it the fundamental principle of fair hearing.