Secured Lending in Nigeria: A Practical Guide to Collateral, Perfection and Enforcement

Introduction

Secured lending is the backbone of credit in Nigeria. It is the mechanism by which a lender converts a promise to repay into an enforceable claim over identified assets, and by which the risk of a borrower’s default is priced, allocated and, so far as possible, contained. Security does not merely sit at the end of a transaction as a remedy of last resort; it shapes the transaction from the outset, informing how much credit is extended, on what terms, and who is repaid and in what order, if things go wrong. Security may be taken over land, shares, receivables, plant and equipment, bank accounts, inventory, intellectual property or the undertaking of a company as a whole, and it may be granted by the borrower itself or by a third party such as a parent, subsidiary or affiliate.

The impact of taking security is apparent at every stage of a credit relationship. Security reallocates risk, provides comfort and is instrumental to the determination of who is repaid and the order of repayment.

Navigating Nigeria’s financial sector requires an understanding of the processes, parties, statutes and considerations that must be accounted for in secured lending.

For a lender, four questions determine whether the security has value. First, does the security attach – ie, does it create a valid interest over the asset? Second, is it perfected, that is, have the statutory steps been taken to make it effective against third parties, a liquidator and competing creditors? Third, does it have priority, that is, where does it rank against other claims over the same asset? Fourth, can it be enforced, that is, what remedies are practically available on default, and at what cost and speed?

A security package that fails any one of these is, in commercial terms, incomplete. This guide addresses each in turn, across the principal asset classes, under the current framework, principally the Companies and Allied Matters Act 2020 (CAMA), the Secured Transactions in Movable Assets Act 2017 (STMA), the Land Use Act 1978, and the Nigeria Tax Act 2025.

Types of security interests

Nigerian law recognises several forms of security, each attaching to a different class of asset and each governed by its own statutory framework. The principal types are considered below.

Mortgage

This is a transfer of a proprietary interest from the borrower to the lender, with the understanding that such interest will be retransferred to the borrower upon fulfilment of contractual obligations. This transfer may take two forms, being either an equitable mortgage or a legal mortgage, with each being guided by distinct procedures and having varying implications.

An equitable mortgage is characterised by the creation of an equitable interest in the lender’s favour, without an accompanying transfer of proprietary rights. The legal interest remains vested in the borrower, although the title documents are typically deposited with the lender, usually accompanied by a memorandum of deposit as evidence of an intention to utilise the property as security for the loan.

A legal mortgage involves the transfer or conveyance of legal title to the creditor as security for repayment, subject to the debtor’s equity of redemption on discharge of the debt. A legal mortgage is governed by various statutes, depending on where the asset in question is located. Land located in theformer Northern and Eastern Region States is governed by the Conveyancing Act of 1881, under which a legal mortgage can only be created by either an assignment or a sub-demise. Creation of a legal mortgage over property located therein through any other mechanism or without full compliance with the Act increases the risks borne by the lender significantly.

The Property and Conveyancing Law of 1959 guides the creation of legal mortgages over assets located in the former Western Region of Nigeria. The modes of creation are sub-demise and charge by deed expressed to be by way of legal mortgage. Although both Acts recognise “sub-demise” as a valid means of creating a legal mortgage, a lender who desires the power to dispose of the asset governed by the Conveyancing Act, without the consent of the borrower, must ensure that either a power of attorney is conferred or a trust declaration clause is inserted to grant such authority. This requirement, however, is unnecessary where the property is situated in the former Western Region of Nigeria.

Although Lagos State falls within the former Western Region of Nigeria geographically, a different set of laws applies to the creation of legal mortgages within the state. The Mortgage and Property Law of Lagos State of 2010 is the appropriate statute to consult for the valid modes of creating a deed of legal mortgage. Under the law, this could be through a demise for a term of years absolute with a provision for the cesser on redemption, a charge by deed expressed to be by way of legal mortgage, or a charge by deed expressed to be by way of statutory mortgage.

A great deal of nuance and discernment is required when navigating the waters of secured lending, particularly when that security is land.

Charge

A charge is an equitable proprietary interest created by way of security, under which neither the assets nor title to them is transferred to the creditor but instead remains vested in the borrower, who retains possession of the assets. A charge may be created as fixed or floating.

A fixed charge is a form of security granted over specific, identifiable assets which limits the powers a borrower may exercise over the asset, particularly as it relates to disposal. Where a fixed charge has been created, the asset owner cannot dispose of the property without first seeking and obtaining the consent of the lender.

Where a floating charge is granted as security, the borrower’s ability to deal with the secured assets is not restricted. The borrower may continue to deal with assets subject to the floating charge in the ordinary course of its business until the charge crystallises. The borrower’s day-to-day activities in relation to those assets therefore remain unaffected unless and until an event of default occurs.

Assignment by way of security

This is a legal agreement whereby the borrower agrees to transfer any contract, interest, benefit, right or claim due to the borrower under a contract with a third party, to the lender as security for a loan. The borrower temporarily assigns the relevant right or claim to the lender, which is then reassigned to the borrower upon repayment of the loan sum. The rights that have transferred may be exercised only where there is default, to facilitate recovery of the money owed.

Pledge

A pledge is the deposit of tangible movable property, negotiable instruments or title documents with the lender as security on the condition that delivery of the pledged item to the borrower will be made upon payment of the loan. The occurrence of a default event will trigger the sale of the pledged item by the lender to recover the loan sum. A defining feature of a pledge is actual or constructive possession of the pledged asset.

Types of properties, security interests that can be created over them, and perfection of security interests

Shares

A share is a financial asset, ownership of which represents an equity interest in a company. A security interest over shares may be created by way of a mortgage or charge. However, the most common forms of security taken are an equitable mortgage and fixed and floating charges. Although a legal mortgage may be taken over shares, the process of share transfer required under the Companies and Allied Matters Act 2020 may confer responsibilities on the lender beyond what the lender may anticipate. The transfer would require entry of the lender in the register of members of the company, payment of 0.75% of the total value of the shares as stamp duties and filing of the executed forms at the Corporate Affairs Commission. This process can be dispensed with if an equitable mortgage or a charge is created in favour of the lender instead.

Perfection of an equitable mortgage or charge over shares requires the borrower to deposit the share certificates with the secured party with or without a memorandum of deposit. The mortgagor must also provide the mortgagee with an undated share transfer form in respect of the shares executed in blank. These documents must also be accompanied by a signed and undated resolution of the mortgagor’s board of directors approving the transfer of the shares in the event of enforcement. While these steps are not expressly provided in law, it has become market practice amongst lenders to ensure ease of enforcement in the event of a default.

To perfect a legal mortgage over shares, the mortgagee must be registered as a shareholder in the register of company members, with an undertaking for the re-transfer of the shares to the mortgagor following the discharge of the secured obligations. Although no statute requires the registration of a fixed charge or legal mortgage over shares at the CAC, in practice registration is advised to provide third parties with constructive notice as a protective measure.

Intellectual property

Patents, copyright, trade marks, and industrial designs are intangible assets that may serve as security for a secured party. The security may take the form of a mortgage, assignment, fixed or floating charge.

Security interests created over patents and designs must be registered at the Patent and Design Registry to ensure full enforceability against third parties, liquidators, and competing creditors. For security interests or assignments over trademarks, registration is effected at the Trademark Registry, while security interests over copyright are exclusively registered at the Nigerian Copyright Commission.

Intellectual property is recognised under the Secured Transactions in Movable Assets Act (STMA) as movable collateral; as a result, perfection requires the filing of a financing statement with the National Collateral Registry, a process that can be completed onlywith the grantor’s consent or, where applicable, pursuant to a duly executed security agreement. The registration process attracts a filing fee of NGN1,000 set by the Registry’s published schedule, and instruments registrable at the NCR are exempt from stamp duty. A financing statement is deemed registered when a unique registration number, date, and time are assigned to it and a confirmation statement has been delivered to the creditor by the Collateral Registry. There are therefore two distinct registration processes to be completed: first with the NCR and second with the appropriate registry based on the nature of the rights being used as security.

Where the security interest is created by a company, there must be registration of the instrument with the Corporate Affairs Commission within 90 days of the creation of the charge to prevent the charge from being void against a creditor of the company or a liquidator.

Movable assets

A charge, mortgage, or pledge can be created over plants and machinery, with the asset deposited with the lender for the duration of the loan or by transfer of title to the asset, subject to retransfer upon discharge of the loan facility. The assets may be sold in the event of default in repayment.

The STMA established a National Collateral Registry for registering security interests in movable assets, expressly excluding security over land, vessels and mortgages. To perfect a security interest in a movable asset, such interest must be registered at the Nigerian Collateral Registry (NCR) in accordance with the STMA. The priority of interests is determined by the order of registration of such interest with the NCR. The same procedure for perfection of intellectual property assets at the NCR applies to the registration of movable assets at the Registry because both are governed by the STMA. No stamp duty is payable under the Act.

Registration of a charge with the CAC must be carried out within 90 days of the creation of the security instrument. A company is also required to keep a register of charges in which it must record every charge over any property of the company and the interest of the chargee over such property.

Land

A security interest over land may be created by way of a legal or equitable mortgage or by a fixed or floating charge. Where a legal mortgage or charge is used to create the security interest, perfection is required.

Where a legal mortgage or charge is created over immovable property, the perfection process comprises three stages: obtaining the Governor’s consent, stamping the security instrument and registering the instrument.

The Land Use Act 1978 mandates holders of a statutory right of occupancy to secure the consent of the Governor of the State in which the land is situated before a mortgage can be validly created. The absence of this consent renders the legal mortgage incomplete, thereby transforming it into an equitable mortgage, with all the rights arising therein accruing to the lender. For land owned by the federal government, or its agencies, the consent of the Minister of Works and Housing is required, or the Minister of the Federal Capital Territory in the case of land situated in Abuja.

The repeal of the Stamp Duties Act by the Nigeria Tax Act has not altered the legal position that documents transferring a legal interest in land are required to be stamped. Stamping must be completed within 30 days; however, failure to comply within that period does not invalidate the transfer, although it may give rise to late-payment penalties. The lender has the statutory duty to pay the stamp duties, which are currently calculated at the ad valorem rate of 0.375% except where the property is worth less than NGN10,000,000. In practice, the stamp duties are paid by the mortgagor. The principal consequence of failing to stamp the relevant document is that it may be inadmissible in evidence in enforcement proceedings.

Registration is the final stage of perfection, which is conducted at the relevant Land Registry. This should occur within 60 days of the creation of the security interest. The registration fee is not uniform but depends on the state where the registration is being conducted. The fee, however, ranges between 0.5% and 1% of the assessed value of the property. Once the registration is successfully completed, the perfection process ends, and the lender is fully protected.

The Companies and Allied Matters Act 2020 requires charges to be registered within 90 days of creation of the security interest with the Corporate Affairs Commission where the borrower is a company, to ensure it is legally recognised and enforceable. This establishes priority in the event of a company’s insolvency or winding-up. Registered charges generally take precedence over unregistered charges and subsequent registered charges.

Enforcement of security interests

Enforcement rights under secured loan agreements arise upon default in repayment of the loan or the occurrence of any other event or circumstance specified in the security documents giving rise to the lender’s right to enforce.

These events of default and enforcement mechanisms operate in accordance with the terms of the relevant security documents and applicable law. Where a borrower defaults, the lender may enforce its security interest to recover the outstanding debt. The legal process for enforcement depends on the nature of the security, the terms of the security agreement and the applicable local laws.

Enforcement of legal mortgage over land

A lender may exercise a statutory power of sale upon the borrower’s default and, after service of the requisite notice, may sell the mortgaged property, generally through a licensed auctioneer under the applicable state law, and apply the proceeds first to the mortgage debt and costs, with any surplus returned to the mortgagor.

Appointing a receiver to collect rents and income from the mortgaged property pending sale or full repayment and foreclosure are also options available to lenders to facilitate the recovery of the loan amount. A foreclosure order nisi is granted by the court for a period of six months, after which it becomes absolute. Although less commonly used than the other options, the lender may also elect to take possession of the property. This is generally inadvisable because the lender then becomes responsible for maintaining the property and is under an obligation to account for any profits received during the period of possession.

Legal mortgages are preferred to equitable mortgages because they provide the lender with a wider range of enforcement options through which its interests are protected and the loan advanced can be more readily recovered.

Enforcement of equitable mortgage over land

The power of sale is exercisable by the lender under an equitable mortgage, but only upon application to the court for an order of sale. An equitable mortgagee has no legal interest, and, as a result, cannot exercise the power of sale on its own. This may cause the enforcement process to slow down, but the lender will in time be able to recover the loan sum.

The lender may also enforce through foreclosure, appointment of a receiver, or by taking possession of the property.

Enforcement of shares

A lender who, at the time of creating the security, was registered as a shareholder may, upon default, sell the shares without requiring a court order, insofar as this is provided as a term in the security instrument. Where the lender is unregistered, prior to selling the shares, the pre-signed transfer forms must be duly completed to enable the lender to effect the sale.

The lender may also appoint a receiver to manage the assets pending the recovery of the loan.

Enforcement of assignment by way of security

The lender can simply enforce the rights that have been assigned to it provided that notice has been given.

If a third-party approval is required prior to the commencement of the enforcement process, the issuing authority’s approval must first be obtained before enforcement can commence. The order of priority for enforcement is dependent on the order in which notice is given to the assignee.

Enforcement of charges

Upon default under a charge instrument, the lender may appoint a receiver to take control of the charged assets, realise them and apply the proceeds in the statutory order of priority. Where recovery under the security is insufficient, the creditor retains a claim for any shortfall as an unsecured creditor, and enforcement may also proceed by way of a winding-up petition where the company is unable to pay its debts.

Enforcement under the STMA

Enforcement under the STMA relies on contractual rights, such as the power of sale or repossession. Under the STMA, secured creditors may take possession of movable assets without court intervention where the debtor has agreed to such enforcement in the security agreement.

Priority between competing creditors

Security may be granted over the same asset to more than one creditor. Priority (ie, which creditor is paid first on enforcement) depends on the type of security, the date of creation and, critically, registration.

The governing principles under Nigerian law are as follows.

As a general rule, an earlier-created security interest ranks ahead of a later one, and a legal mortgage or interest ranks ahead of an equitable one over the same asset. Where an interest is registrable at the CAC, a registered interest ranks ahead of an unregistered one; and where two registrable interests are both duly registered, the date of creation, rather than the date of registration, governs priority between them. A fixed charge ranks ahead of a floating charge over the same asset, unless the floating charge was created first on terms prohibiting later security ranking ahead of it (a negative pledge) and the later chargee had actual notice of that prohibition when its charge was granted.

Negative pledges deserve emphasis because CAMA 2020 changed the position materially. Particulars of a negative pledge may now be noted at the Corporate Affairs Commission, and once noted they constitute constructive notice to any subsequent chargeholder. This is a departure from the previous position, under which registration did not constitute constructive notice of a negative pledge, and it substantially strengthens the protection a floating-charge holder can secure by including and registering a negative pledge.

Creditors may also vary priority among themselves by intercreditor, subordination or priority agreement, contractually reordering, waiving or subordinating their interests. Such arrangements are ordinarily recognised, subject to the insolvency qualifications discussed below.

Guarantees and quasi-security

Beyond security over assets, lenders routinely take personal credit support and quasi-security. These do not create a proprietary interest in an asset but reallocate credit risk contractually.

Guarantees

A guarantee is a common and important form of credit support. It must be in writing (or evidenced in writing) and signed by the guarantor or a person authorised by the guarantor; where no consideration is given for it, it must be granted by deed. Where a corporate guarantee is taken, it is essential to confirm that the giving of the guarantee, and its amount, is permitted by the guarantor’s articles of association (or governing law as the case may be), and, where the commercial benefit to the guarantor is not obvious (as with upstream or cross-stream guarantees), that the directors have approved it in good faith and that, as a prudent measure, shareholder approval has been obtained to guard against a challenge for breach of directors’ duties.

Negative pledges and other quasi-security

A negative pledge restrains the borrower from creating security or quasi-security over its assets without the lender’s consent (or without granting the lender equivalent security). As noted above, a negative pledge noted at the CAC now carries constructive notice under CAMA 2020, which markedly increases its value. Other quasi-security devices common in Nigeria include retention-of-title clauses, hire-purchase and conditional-sale arrangements, and letters of comfort, the last of which may provide moral rather than legally enforceable assurance, and requiring careful drafting if any binding effect is intended.

Insolvency and the secured lender

The value of security is tested on the borrower’s insolvency, and CAMA 2020 structures the landscape in ways every secured lender must anticipate.

Effect of insolvency on enforcement

Provided the security interest was validly created and duly perfected, the borrower’s insolvency does not, by itself, defeat the secured party’s ability to enforce against the secured assets. Perfection is thus the lender’s protection: an unperfected charge is void against the liquidator, and the lender is relegated to the unsecured pool.

The rescue regime: administration and company voluntary arrangements

CAMA 2020 introduced administration and the company voluntary arrangement (CVA) as rescue-oriented alternatives to winding-up. These regimes can affect the timing and exercise of a secured lender’s remedies, for example through a moratorium during administration, and a lender should understand, at the point of taking security, how the borrower entering administration or a CVA would interact with its enforcement rights. Because the regime remains relatively untested in the Nigerian courts, security documents should be drafted with these possibilities expressly in mind, and the enforcement analysis for any significant facility should address them.

Claw-back and preference risks

Several statutory provisions can unwind security taken shortly before insolvency. A conveyance, mortgage or transaction that unfairly prefers one creditor in view of an impending winding-up may be set aside as a fraudulent preference. A floating charge created within a defined period before the commencement of winding-up may be invalid except to the extent of new money advanced at or after its creation, unless the company was solvent immediately after creation. A liquidator may also, with the court’s approval, disclaim onerous property within the statutory period, though this does not defeat proprietary interests already acquired by third parties.

Preferential creditors and the order of priority on insolvency

The priority of a floating-charge holder is subject to the claims of preferential creditors, which comprise statutorily preferred debts, including certain rates and taxes, PAYE deductions, pension and social-insurance contributions, wages and salaries, accrued leave pay and compensation due to workers. On a winding-up, these are paid ahead of floating-charge claims, while secured assets otherwise fall outside the general pool available to unsecured creditors. The order of priority on insolvency is, broadly: creditors secured by a fixed charge; preferential creditors; creditors secured by a floating charge; secured but contractually subordinated creditors; and unsecured creditors.

Subordination on insolvency

Contractual subordination is ordinarily recognised and enforceable. There is, however, real uncertainty as to whether subordination and intercreditor arrangements bind a liquidator on the debtor’s insolvency, given the pari passu principle governing distribution among unsecured creditors. Nigerian case law suggests the courts may uphold such arrangements where they do not undermine pari passu distribution, but lenders should treat the point as not fully settled and structure accordingly.

Conclusion

Taking security remains integral to secured lending and structured commercial transactions in Nigeria. Its value depends not only on the quality of the underlying credit agreement but also on completion of the perfection steps required under the applicable law, and on a clear understanding of the enforcement remedies available under each form of security. Addressing the creation, perfection and enforcement of the security from the outset of the transaction will best protect the interests of all parties.