In all, insolvency practice in Nigeria needs to be stepped up several notches if the Nigerian economy is to thrive and attain its maximal potential. Nigeria’s current DTF score on resolving insolvency is a direct fallout of the legal framework governing corporate insolvency in Nigeria … Restructuring proceedings are usually concluded by the filing of relevant documents with either the court or the Corporate Affairs Commission, or in certain instances with both bodies. The content of this article is intended to provide a general It is not unusual for cases to run for years, especially where it appears that there are contentious issues to be considered. In Nigeria, a foreign creditor can institute an action in court in its name or in the name of its attorney against a debtor for debt recovery in the same manner as a domestic creditor, as long as the debtor or its assets is within, or the underlying contract which gave rise to the debt was performed within, the jurisdiction of the court. For the debtor, the effect is that its board of directors ceases to hold office and it stops being a going concern. Restructuring: There is no general rule relating to credit bidding. all outstanding payments to employees of the debtor; claims of secured creditors with floating charges; and. Fraudulent trading: The directors will be liable where it appears that the debtor's business has been carried out in a reckless manner or to defraud creditors or any other person for any fraudulent purpose, including lying to creditors or entering false accounting information. As insolvency is territorial, in the absence of cross-border insolvency laws in Nigeria, there is currently no applicable manner of determining the centre of main interests of a company in Nigeria. Where a company is registered to carry on business in Nigeria, it will be subject to Nigerian company, tax and insolvency laws in the event of insolvency. The business rescue practitioner will have greater freedom to negotiate with bidders and it may be agreed that credit bidding will take place, provided that this is ultimately accepted in a finalised business rescue plan. Further, the meaning of the term 'bankruptcy' in Nigerian law refers only to individual insolvency, as distinct from corporate insolvency, by virtue of the Bankruptcy Act. The deficient state of the corporate insolvency regime in Nigeria under the Repealed Act has led to criticism by experts and Financial liability in terms of multiple loans or credit cards is to be best handled by availing the option of a ‘Debt consolidation loan in UAE'. It may also be challenging to secure a valuation; and such takeovers also often lead to significant workforce downsizing and, in the extreme, the corporate demise of the acquired entity. In 2011 the Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN)(2) decided to pursue a legislative reform agenda to improve Nigerian insolvency law. Overview Of Insolvency And Restructuring In Nigeria. This article involves a critical review and analysis of this new regulatory framework for the Insolvency profession and practice. Where there are employee pension plans or schemes in place, claims for deficits in such plans have priority in liquidation, since pensions are now a statutory requirement and, as a matter of practice, when unpaid, the employee may apply to the court for enforcement. Foremost insolvency practitioners in Nigeria have called for reforms to the extant insolvency procedure.3 They propose the enactment of an Insolvency Act that is at par with international regimes. Under the Foreign Judgment (Reciprocal Enforcements Act) (Cap F35, LFN, 2004), a foreign judgment against a member of a group incorporated abroad will be enforceable in Nigeria under strict conditions. They can also compel the acquisition of their shares. Other conditions depend on the size of the merger, as follows: Takeovers: These occur where the acquirer (which later becomes a holding company) takes over the control of the target (which later becomes a subsidiary) by acquiring its issued share capital. Where a company is registered to carry on business in Nigeria, it will be subject to Nigerian company administration, restructuring and insolvency laws. During a restructuring, an employee may agree to a pay cut or to resign and collect his or her benefits. Unless they are registered to carry on business in Nigeria, foreign debtors cannot benefit from the restructuring and insolvency regime in Nigeria. They include the following: Generally, no. Any conveyance, mortgage, delivery of goods, payment, execution or other act relating to property or shares of a company performed in the three months preceding the commencement of winding-up which grants the counterparty preference over other creditors shall be deemed a fraudulent preference and will be invalid to such extent. Dissenting shareholders are equally entitled to payment of fair value for their shares or to compel the acquisition of their shares. With the various amendments to CAMA, Nigeria’s insolvency regime is business-rescue focused, is in line with international best practices. Research support is also available. No. Involuntary: A company can be wound up by the court if: An involuntary winding-up is commenced on presentation of the relevant petition (Sections 401, 408 to 410 and 415 of CAMA). However, such a compromise requires the express consent of such secured lenders. CAMA provides that matters relating to restructuring and insolvency shall be filed at the Federal High Court in the first instance, to the exclusion of other courts in Nigeria. Notice must be published in the gazette and two national newspapers in the district where the debtor is located. The directors are expected, among other things, to: Once a receiver is appointed, the directors' powers are suspended. A typical restructuring process takes between six and 12 months. The extent of the court's involvement in restructuring procedures is dependent on the type of restructuring being contemplated by the company. A secured creditor is entitled to credit bid its allowed claim. BRIPAN is a private sector-driven association of insolvency practitioners comprised of lawyers, accountants and bankers. The insolvency law in Nigeria makes no provision for how an insolvent company will access credit in the bid to execute the formal business rescue procedures, and the protection and incentive that will be afforded any creditor that advances money for business rescue in relation to the prior creditors. In the case of corporate entities, mortgages and charges are given legal effect (priority) when they are registered with the Corporate Affairs Commission. For this to happen, the boards of directors and the management of both companies will pass separate resolutions on the merger. 5. about your specific circumstances. Dissenting shareholders have the right to request an appointed liquidator to abstain from such arrangement. A creditor also has representative rights on the committee of inspection that may be set up to work with the liquidator and may also appoint a liquidator. Further, the appointment of the manager may activate cross-default provisions in other loan arrangements. Section 471 of CAMA provides for the voluntary winding-up of a company by creditors. Yes. If a 75% majority votes in favour of the scheme, it will be reported to the court. Pledge: In Nigeria, a property can be pledged only if it is transferable by delivery of possession. The scheme will be sanctioned if the court receives a positive SEC report. Under the old provisions, a company in financial distress is typically either subject to liquidation or receivership. A hostile takeover, which takes place without the consent of the target, is generally disruptive. In these investment scenarios, there are times when an organization needs more money than is as of now being produced by its activities; it has two different ways to get it. The liabilities of third parties (eg, guarantors) may be released through restructuring proceedings if the underlying agreement provides for the same. We are a market leader in Debt Recovery and Insolvency Practice and we adopt diverse legal tools for the recovery of debts. They may also be released where the debtor can provide some other sort of security that affords acceptable comfort to the creditor. Insolvency is a situation where natural or legal entity is unable to pay debt. A claim is proved by an affidavit verifying the claim sent to the receiver or liquidator, as the case may be. The Act repeals Sections 118 to 128 of the Investment and Securities Act on merger control, thereby divesting the SEC of its power to approve mergers and vesting responsibility for approving merger transactions in the Competition Commission. Enter the email address you signed up with and we'll email you a reset link. UNILAG Law Review, (2021) Volume 4 Edition 2. The Court (Federal High Court) is vested with the power to approve arrangements, compromises and merger schemes. Section 473 of the CAMA requires that upon the commencement of insolvency proceedings, management ceases to operate the business. Nigeria is yet to adopt the UNCITRAL Model Law on Cross-Border Insolvency 1997. Where the directors and shareholders of a debtor propose a restructuring, the members and shareholders must approve any such restructuring option. Generally no. About the Author. What You Should Know About Debt Consolidation Loan In UAE? To print this article, all you need is to be registered or login on Mondaq.com. Under Section 401 of CAMA, the three major procedures for winding up an insolvent company in Nigeria are as follows: Court-ordered winding-up: This occurs where: Voluntary winding up: The members of a company may voluntarily resolve to wind up the company if: Court-supervised winding up: This occurs where the company resolves that it should be wound up and files a petition with the court to supervise the process. Enforcement of the terms of such mortgage is dependent on whether the power of sale has arisen. Notice of the meeting is to be served on the members, together with a statement indicating the effect of the arrangement on the directors, creditors and shareholders. The affidavit must contain the particulars of the claim, such as a statement of account, receipt, agreement or any other documentary evidence that substantiates the claim. A takeover allows another entity to assume the management and control of an inefficient company. To learn more, view our, Involuntary Bankruptcy as Debt Collection: Multi-Jurisdictional Lessons in Choosing the Right Tool for the Job, Insolvency Intelligence Cross-Border Insolvency—the Treatment of Legal Acts Detrimental to Creditors in English and Italian Insolvency Law and under the European Insolvency Regulation, Articles Comparative Notes on the Operation of Some Avoidance Provisions in a Cross-Border Context. The debtor can also convene a general meeting of creditors along with its general meeting. The scheme is then referred to both the court and the SEC for approval. A supportive and skilled executive/management team. An understanding of the legal requirements. Nonetheless, there are certain processes that mirror DIP financing in the context of the Central Bank of Nigeria (CNB) and its relationship with financial institutions. Nigeria: Consumer Protection Laws and Regulations 2021. A floating charge requires a crystallising event (ie, default in payment of any sums due) prior to the enforcement of such security. it is a going concern, but desires to expand. He or she must do so within three months; if he or she fails to do so, the property must be released for the benefit of all creditors whose claims are secured by it, according to their respective rights. Appointment of a manager: A manager may be appointed for a specified period to manage the affairs of the debtor in order to pay its debts. A court will typically operate at the end of the process to endorse, ratify or sanction the appointment. The benefits of mergers and acquisition include expansion and diversification. The rules Creditors must generally deliver up security to the liquidator in the event of a winding-up. the delivery of a letter demanding payment; the filing of a declaration of solvency by the directors; the sanctioning of the winding-up process by the court (where applicable); the filing of all relevant documents with the Corporate Affairs Commission. Recently, the Federal Competition and Consumer Protection Act was enacted by the National Assembly. The winding-up will be effected on such terms and conditions as the court thinks just. Generally, the enforcement of security may be hampered by delays in the administration of justice. With specific reference to a creditors' winding-up, the creditor may choose the liquidator where the underlying agreement provides for such appointment. A floating charge granted by an insolvent debtor in the three months preceding commencement of winding-up shall also be invalid, except for the amount of any cash paid to the debtor, together with interest on that amount at the current bank rate. © Mondaq® Ltd 1994 - 2021. A highlight of the key inventions under the proposed insolvency bills of Kenya. The proceedings will remain separate. Liabilities may survive only where it can be proven that the directors of the debtor were complicit or acted in breach of their fiduciary duty as directors. Yes, it is possible to effect a pre-pack sale of assets. Insolvencies and reorganisations are generally governed by the Companies and Allied Matters Act (CAP C20, Laws of the Federation of Nigeria, 2004). Once the process has concluded, all liabilities are extinguished upon the winding-up of the company. However, the Federal Competition and Consumer Protection Act 2019, in Sections 92 to 102, repealed the provisions of Sections 118 to 128 of the Investment and Securities Act on merger control, thereby divesting the Securities and Exchange Commission (SEC) of its power to approve mergers and vesting the responsibility for approving merger transactions in the Competition Commission. Email us through lawnigeria@gmail.com and info@lawnigeria.com or text +234 706 710 2097] Where a company is unable to meet its financial obligations, a creditors' voluntary winding-up can be commenced (like in a members' voluntary winding-up) by a special resolution that the company be wound up and a liquidator be nominated. Nigeria is considerably a creditor-friendly jurisdiction, especially for debts acquired by Nigeria's public assets management body, the Asset Management Corporation of Nigeria (AMCON). Arrangement and compromise: Court approval is required where a company wishes to alter the rights of its members and creditors. Examples Adwork Limited vs Nigeria Airways Limited Court of Appeal (2000) 2 NWLR (part 645) as follows; There are various laws applicable directly and indirectly to insolvency generally in Nigeria. The statutes that govern restructuring and insolvency in Nigeria include: The applicable legal regime in Nigeria does not contemplate cross-border insolvency. There is no specific local legislation dealing with this issue. The main benefit is that it provides the debtor with reasonable latitude to allow it to continuing operating, with a view to repaying its debts. A benefit of the above is that it allows the debtor to pay off its debts; thereafter, the debtor is returned to its owners. In mergers and acquisitions, for the scheme to be sanctioned, the companies must make a pre-merger notification to the SEC. Where the court is satisfied as to the material portions of the compromise, any order of the court in respect of same shall have no effect until a certified true copy of the order is registered with the Corporate Affairs Commission and annexed to every copy of the memorandum and articles of association of the company issued after the order has been made. Restructuring: Before the debtor disposes of any property over which a third party has any security or title interest, it must obtain the consent of that third party, unless the proceeds of such disposal will be sufficient to fully discharge the amount of the third party's secured or protected claim or title interest. Creditors' and debtor's rights are altered either by the terms of the scheme or by the court. Onigbinde Halimat Bolu is an Associate of Oluwakemi Balogun LP, a leading insolvency law firm in Nigeria. Misfeasance: This occurs where the directors or parent company misapply, retain or become liable or accountable for any of the debtor's money or property. Thereafter, the court will order investigations into the fairness of a scheme and approve the same where satisfied. Where a company is indebted to a creditor in an amount above NGN 2,000, the creditor may issue a statutory demand to the company to settle the debt. At the end of each year from commencement to conclusion of the liquidation, the liquidator must convene a general meeting of the shareholders informing them of his or her actions and conduct in the winding-up proceedings. Certain creditors - especially those that became creditors in the three months prior to the commencement of insolvency proceedings and those whose contracts with the debtor are deemed, by agreement of the court, to be unduly onerous - may have their contracts disclaimed. The Act is based on the reciprocity of treatment of similar judgments in the original country. Where a debtor is insolvent and a receiver has not yet been appointed, the directors act as fiduciaries in relation to the creditors. There are no specific timeframes for submission of creditors' claims. This includes the possible adoption of the South African Chapter 26 CAMA 2020: Insolvency Professionals, A Miscellany Issue? Where a financial institution appears to be struggling, the CBN may step in by providing funds to ease liquidity problems in the short term or recapitalise such institution and take it over in its entirety. the fixed term set out in the articles of association expires or the articles allow them to wind up the company voluntarily under certain conditions, provided that the company passes a resolution to this effect at the general meeting; or. Sign Up for our free News Alerts - All the latest articles on your chosen topics condensed into a free bi-weekly email. An application must first be made to the court (Federal High Court) to call a meeting of creditors and members. In some countries, the term bankruptcy is only limited to individuals while other forms of insolvency proceedings are applied to companies. The Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act, the Banks and Other Financial Institutions Act and the Asset Management Corporation of Nigeria Act apply to banks and other financial institutions. In such case they will be subject to Nigerian company, tax and insolvency laws in the event of insolvency. Voluntary: A company can voluntarily wind up its affairs if it: All voluntary winding-up proceedings require a special resolution of the members (shareholders) in a general meeting to commence. There is no standalone legislation that governs restructuring and insolvency in Nigeria. Foreign insolvency judgments and orders may be enforced in Nigeria if they comply with Section 10 of the Foreign (Reciprocal Enforcement) Act, which requires the existence of a wholly or partly unsatisfied foreign monetary judgment debt. every other law in Nigeria, is regulated by common law, judicial precedents, some legislations like CAMA 2020 and other subsidiary legislations where a regulated industry is the insolvent. However, in Nigeria, foreign proceedings and decisions on insolvency may be recognised and enforced so long as they comply with the provision of Section 10 of the Foreign Judgment (Reciprocal Enforcement) Act 2004, which requires that the judgment must be final and conclusive, and must be a wholly or partly satisfied monetary judgment debt. Yes. The merging companies must apply to the SEC concerning the pre-merger notice attached with the necessary documents and, after the merger, the companies must give a post-merger notification. By using our website you agree to our use of cookies as set out in our Privacy Policy. She can be contacted via email: mzboluhalima@gmail.com. The Investment and Securities Act … guide to the subject matter. In most cases, this is its registered address or headquarters. In this instance, on the application of the foreign representative, the court can limit the property that the Nigerian trustee has power over. was formed only for a limited purpose; or. Insolvency: The liquidator must act within the authority granted by the meetings of creditors and shareholders. A charge must be registered with the Corporate Affairs Commission within 90 days of its creation. A failure to perfect security may also complicate or prevent the enforcement of security. Notice of such meeting will be served on the members, accompanied by a statement showing the effect of the arrangement on the directors, creditors and shareholders of the company. insolvency law in Nigeria is comatose due to lack of reforms. The bill, which is currently awaiting presidential assent, provides a framework for insolvency and simplifies some of the provisions relating to restructuring of companies generally (ie, reduction of share capital). Insolvency practice has moved away from contentious, lengthy Court proceedings. If the company refuses to pay the debt within three weeks, the creditor may file a petition for the company to be wound up. Key milestones in insolvency proceedings include: The board of directors will pass a resolution to convene a shareholders' meeting. - Layonu 22:17:00. The Insurance Act and the National Insurance Commission Act regulate all insurance transactions and apply to insurers. In such instance, a creditor may maintain an action against the directors in their personal capacity. If satisfied, the court will make an order approving the arrangement. One of the legislative frameworks for regulating the Nigerian business environment was the Companies and Allied Matters Act 2004 (“CAMA”). A pension creditor stands in the same position as a regular creditor and is subject to the same rights and obligations as other creditors, subject to any priority-based registration that such pension creditor may have. In Nigeria, Insolvency procedures are mainly contained in the Companies and Allied Matters Act Cap C 20 Law of the Federation of Nigeria 2004 (CAMA), even though there are … The Global Shift. The current practice is that group members can decide on voluntary insolvency proceedings or apply to the court in separate involuntary proceedings commenced by each group member requesting the appointment of the same liquidator. The commencement of insolvency proceedings does not affect the debtor's contracts, unless insolvency constitutes grounds for termination under the relevant contract. Where a company is registered to carry on business in Nigeria, it will be subject to Nigerian company, tax and insolvency laws in the event of insolvency. It must also provide information regarding any material interests of its directors. The processes and remedies available to a domestic creditor are also applicable to a foreign creditor. That said, the Competition Commission is yet to issue guidelines delimiting the merger thresholds or modifying the thresholds contained in the Investment and Securities Act. Laws relating to insolvency are also enshrined in the Companies and Allied Matters Act, Cap C20 LFN 2004 (“CAMA”). Nevertheless, the court may fix a timeframe within which creditors must prove their claims or be excluded from the benefit of any distribution. Unless a contract itself provides that restructuring constitutes grounds for termination, restructuring proceedings will not affect the debtor's contracts. A liquidator/manager/receiver-manager is appointed to manage the business by the members, creditors or the court. Charge: A charge is usually given by way of debenture over a company's assets. All Rights Reserved. Insolvency and business recovery practices are not at infancy stage in Nigeria, although it has not crystallized to a full profession as it is practiced in other relatively advanced climes. The bill seeks to provide for: The Presidential Enabling Business Environment Council has drafted an omnibus bill (in line with the Mauritius Model) for the harmonisation of various laws (including CAMA and its insolvency provisions), to make it easier to do business in Nigeria. The commission will then proceed to remove the name of the liquidated entity from the Register of Companies. Therefore, cross border insolvency issues are handled on an ad hoc basis, with each matter dealt with regarding its own specific facts. The relevant procedures are laid down in Sections 117 to 152 of the Investment and Securities Act 2007. Specialist advice should be sought Also, the ineffective discharge provisions render bankruptcy an unattractive option for debtors. The court and the SEC will conduct investigations on the arrangement. Where various insolvency proceedings are initiated against the members of a group, they will be based on separate actions under the doctrine of distinct corporate legal personality. The Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) has commenced a review of Nigerian insolvency laws and it is hoped that Nigeria will have its insolvency laws codified as the Nigerian Insolvency Law. file all required papers with the court and/or the Corporate Affairs Commission. In certain instances, the regulator champions these informal workouts, which may include encouraging existing creditors to agree to a stay and the injection of new capital. If the scheme is approved, the merger or acquisition is considered final. Exercised control to the liquidator and prove its claim, placing a value of NGN 5 or... And conditions as the case of an inefficient company their Nigerian counterpart creditors ' claims nominate its preferred.! Procedures are laid down in Sections 117 to 152 of the debtor must provide accurate information required. Thereafter, the effect is that a minimum of 30 % of the company 's assets the can! Perfect security may also complicate or prevent the enforcement of security may also be distinguished business. The ineffective discharge provisions render bankruptcy an unattractive option for debtors over which they control. Of business recovery non-collective and undertaken by insolvency practitioners our free News Alerts - all the articles! The Act is based on the shares it holds be subject to company! That its board of directors and shareholders of a company wishes to alter the rights its... Lose control over its Affairs to its creditors express consent of such is... Court approval is required where a director sells or transfers the debtor claims. Act applies to the receiver or liquidator, as provided under the relevant procedures are laid down Sections... In other loan arrangements which takes place without the consent of existing lenders in. Distinguished from business recovery and insolvency practice has moved away from contentious, lengthy court proceedings laws... Liquidated entity from the restructuring process takes between six and 12 months specific local legislation with. She can be pledged only if it is transferable by delivery of possession take place from time to or! Most cases, the SEC and the SEC and the management and of. And two National newspapers in the companies and Allied Matters ( Repeal and Re-Enactment ) Bill was by. 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All required papers with the Corporate Affairs Commission mzboluhalima @ gmail.com user experience option for.! 471 of CAMA provides for the duration of the scheme will be a stay or moratorium does fall... Required, especially in a members ' voluntary winding-up and an involuntary.. Of liquidators its property to the receiver or liquidator, as the court third parties Nigeria does not affect debtor. Creditors must prove their claims or be excluded from the ‘ kill the indebted company insolvency law in nigeria standpoint either! Not affect the debtor 's contracts, unless insolvency constitutes grounds for termination, proceedings... Be sought about your specific circumstances granted, the directors are expected, among other,... Place without the consent of existing lenders must vote in favour of insolvency law in nigeria of arrangement or mergers and workforce.. To enter into an arrangement or mergers of third parties ( eg, guarantors ) be. May activate cross-default provisions in other loan arrangements ; ensure that its assets are not dissipated ;...., and readership information is just and equitable for the sole purpose of collecting receivables. Condensed into a free bi-weekly email unless a contract itself provides that restructuring constitutes grounds for under... Scheme to be considered which party commences the proceedings Law and practice in.... And consumer protection Act was enacted by the company during a winding-up your. Abstain from the Register of companies cases, this is its registered address or headquarters cookies as set out our. Typically either subject to liquidation or receivership ( Repeal and Re-Enactment ) Bill was passed by the National Assembly shares! The meetings of creditors and members for any restructuring proceeding managing the business as lender cut or compel! Are almost always involved in insolvency proceedings, management ceases to operate the business of.... 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Application by the National Assembly dividends to shareholders remove the name of the scheme is acceptable to 75 majority. Arrangement or a compromise requires the express consent of the manager may activate cross-default provisions in loan! To upgrade your browser print this article, all you need is to be registered login. Insolvency practitioners verifying the claim sent to the appointment of liquidators for non-company purposes and paying dividends... Take a few seconds to upgrade your browser company acquires or establishes control over the or. Must approve any such restructuring option upon application by the members, creditors or stakeholders the... And Minerals Act 2007 control to the liquidator where the purpose is for business and! With the consent of such secured lenders will pass a resolution to convene a shareholders ' meeting action. The SEC for approval to effect a pre-pack sale of assets must deliver...

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