The restructuring of banks has been successful in Nigeria through mergers and acquisitions in Nigeria. This success is attributable to the directive from the Central Bank of Nigeria in 2005, requiring banks to increase their minimum capital base to NGN25 billion. As a result of this, the majority of banks either merged with other banks, acquired smaller ones, or were acquired themselves, in order to meet the capital base requirement. This led to the reduction in the number of banks from 89 to 25. More recently, in 2019, Diamond Bank Plc merged with Access Bank Plc.
In the food and beverages sector, Chi Limited was acquired by Coca-Cola Company early in 2019.
There have been amendments to the Asset Management Corporation of Nigeria (AMCON) Act, No 4 of 2010, via the Asset Management Corporation of Nigeria (Amendment No 2) Act, 2019. AMCON was established to efficiently resolve non-performing assets of banks in Nigeria. AMCON is responsible for managing, realising and disposing of eligible bank assets, including the collection of all outstanding sums and the takeover or disposal of collateral used in securing such assets. The new amendments, amongst others, empower AMCON to access the financial details of debtors without the procedural restrictions preventing access to bank details of bank customers. In addition, AMCON is empowered to provide the government Ministries, Departments and Agencies (MDAs) with a list of debtors and advise the MDA’s to deny contract awards to such defaulting companies and persons. This has led to the increased activities of AMCON in pursuing and recovering debt from top debtors of AMCON.
In addition, the establishment of the Federal Competition and Consumer Protection Act (FCCPA), 2018, The Federal Competition and Consumer Protection Commission (FCCPC) and the Competition and Consumer Protection Tribunal established pursuant to the FCCPA, has provided a robust regulatory framework for restructuring. It is expected that these changes will stimulate substantial local and foreign investment.
The Companies and Allied Matters Act (CAMA), Chapter C20 LFN 2004 is the primary legislation dealing with insolvencies and restructuring in Nigeria. The Companies Proceedings Rules, 1992 and Companies Winding-Up Rules, 2001 made pursuant to CAMA, also govern corporate insolvency and restructuring in Nigeria.
The Central Bank of Nigeria (CBN) Act, 2007 gives the Central Bank of Nigeria (CBN) a supervisory role over the management, restructuring and insolvency of banks and other financial institutions.
The Nigeria Deposit Insurance Corporation (NDIC) Act, 2006 established the Nigeria Deposit Insurance Corporation to insure deposit liabilities of banks, provide assistance to the banks in the event of imminent or actual financial difficulties, guarantee payments to depositors upon suspension of payments due to the insolvency of a licensed bank, and to wind up the affairs of the bank.
The Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act, CAP F2, LFN 2004 regulates the recovery of debts owed to failed banks and provides for trial of offences relating to financial malpractices in banks and other financial institutions.
The Federal Competition and Consumer Protection Act (FCCPA), 2018, regulates restructuring by mergers, acquisition and business combination between or among companies. The Federal Competition and Consumer Protection Commission (FCCPC) and the Competition and Consumer Protection Tribunal were established by the FCCPA to administer its provisions.
The Investment and Securities (ISA) Act No 25 of 2007 regulates takeovers of public companies and it established the Securities and Exchange Commission (SEC) to regulate the Nigerian capital market, investments and securities business in Nigeria. The SEC also reviews takeovers, regulates takeovers and determines the fairness of restructuring transactions involving public companies.
Asset Management Corporation of Nigeria (AMCON) Act, No 4 of 2010 and its amendments created AMCON to efficiently resolve non-performing assets of banks in Nigeria. AMCON is responsible for managing, realising and disposing of eligible bank assets, including the collection of all outstanding sums and the takeover or disposal of collateral used in securing such assets.
The Bankruptcy Act, Chapter B2 LFN 2004, and Bankruptcy Rules, 1990, regulate personal bankruptcy and insolvent partnerships.
The Insurance Act, Chapter I18 LFN 2004, regulates insurance business and regulates the insolvencies of insurance companies.
Voluntary restructuring proceedings available in Nigeria includes purchase and assumption, management buy-out, arrangement on sale, share reconstruction and consolidation, increase of share capital, reduction of share capital, arrangement and compromise, takeovers, mergers and acquisitions or business combination.
Acquisition of deposit money banks by bridge banks pursuant to intervention by the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation is a primary example of involuntary restructuring available in Nigeria.
Insolvency proceedings available in Nigeria include receivership, compulsory winding-up by the court, winding-up subject to the supervision of the court, members voluntary winding-up and creditors voluntary winding-up.
There are no statutory provisions compelling a company to commence formal insolvency proceedings within specific timelines. However, a company may be obligated to commence formal insolvency proceedings where the company passes a resolution for members’ voluntary winding-up, where the article of association provides for dissolution upon an even which has occurred, or where the duration fixed for the existence of the company in the articles has expired.
Liquidation is the major procedural option available to a company that may be obligated to commence a formal voluntary procedure. The company may also enter into an arrangement and compromise with its creditors, with an end to liquidation.
Creditors and parties may commence involuntary insolvency proceedings by presenting petitions before the Federal High Court for the winding-up of companies, including:
Insolvency is not required to commence voluntary proceedings as members of the company may decide to wind up the company where the objects of the company have been achieved, or the company has entered into a merger, acquisition or other form of business combination. A solvent company may also decide to pay off its creditors and be wound up for commercial reasons.
On the other hand, insolvency is required to commence involuntary proceedings. Insolvency is the inability of a company to pay its debts. Under Section 409 of the Companies and Allied Matters Act, a company is deemed unable to pay its debts if:
Banks and other financial institutions are not permitted to enter into arrangement which results in change in the control of the bank, for the sale, disposal or transfer of the whole or any part of the business of the bank, or for the reconstruction of the bank to employ a management agent or to transfer its business to any such agent, without the prior consent of the Central Bank of Nigeria (CBN).
Where the CBN revokes the license of a failed bank, the Nigeria Deposit Insurance Corporation (NDIC) as the statutory liquidator of banks, applies to the Federal High Court for an order to wind up the affairs of the bank. The NDIC realises the assets of the bank, settles the deposit liabilities in priority to all other liabilities of the bank and applies the statutory waterfall payments under the Companies and Allied Matters Act to make payments to the general creditors of the bank.
Voluntary winding-up proceedings cannot be initiated by insurance companies transacting life insurance business, except for the purpose of effecting an amalgamation, transfer or an acquisition. However, involuntary winding-up proceedings may be commenced with the approval of the National Insurance Commission by not less than 50 policyholders presenting a petition to wind up the company on various grounds including a default in delivering the statutory report to the Commission or in holding the statutory meeting and that the company is unable to pay its debts.
If the application to wind up the company is granted, the National Insurance Commission carries out the statutory role of monitoring the winding up process. In settling the debts of the company after the realisation of its assets, priority is accorded to debts in the order of; liquidation fees, secured creditors, policy-holders, other creditors, staff, shareholders and directors.
In practice, consensual restructuring is common as market participants consent to the restructuring of a company in financial difficulty in order to preserve value and enable the company to continue as a going concern. Existing legislations do not prohibit informal and consensual restructuring procedures in Nigeria and courts generally uphold the sanctity of contracts between parties. There are no statutory provisions imposing mandatory consensual restructuring negotiations before the commencement of a formal statutory process.
There are currently no statutory provisions or guidelines on consensual restructuring and workout processes applicable in Nigeria. Parties to a consensual restructuring and workout processes are at liberty to adopt contractual terms and provisions on standstills, priority, etc, that will promote their interests vis-à-vis the interest of the other parties. In practice, parties enter into these arrangements and agreements on a contractual basis and Nigeria law recognises that such agreements freely entered into, are binding and will result in obligations and liabilities on the contracting parties.
There are no statutory provisions for injection of new money. Beyond statutory or other formal processes, investors seeking to advance new money enter into contractual agreements with existing creditors. In practice, creditors may enter into an inter-creditor agreement providing that priority is accorded to new money investors.
There are no laws or legal doctrines imposing duties on creditors to each other.
There are no statutory provision or insolvency rules on out of court financial restructuring or workout. However, companies in regulated industries, like the banking and financial sector, have to consider and ensure that proposed informal workouts comply with the industry’s specific framework.
Changes in the terms of credit agreements are regulated by the relevant inter-creditor agreement between creditors. The approval threshold for schemes of arrangement or compromise is a supermajority and, by the use of a cram down device, the supermajority of lenders may be able to bind dissenting lenders subject to the examination of the fairness of the transaction by the court.
In Nigeria, secured creditors may take the following types of lien/security.
Creditors can either create a legal or equitable mortgage over real estate as security for the payment of debt or discharge of other obligations. A legal mortgage has the effect of transferring the debtor’s interest in the real estate to the creditor, subject to the equity of redemption of the debtor. The equitable mortgage simply charges the property, but does not convey legal title to the creditor.
Creditors with a legal mortgage, who have taken the necessary perfection steps, may enforce their security by selling the asset or appointing a receiver to realise their security. However, in an equitable mortgage, a court order must be obtained before the right to sell the secured property can be exercised by the creditor.
A charge is an equitable proprietary interest created over the whole or specified part of the debtor’s undertaking and assets as security. A charge may be fixed or floating.
Every charge must be registered within 90 days of its creation (unless the court extends time) before it can be enforced. If it is not registered, the charge becomes void against the liquidator and any creditor of the company and the debt secured becomes immediately repayable.
A lien may arise by the agreement of parties or by operation of law (common law or statute). A creditor may rely on common law lien, statutory lien or contractual lien to retain possession of the debtor’s property until a debt due is discharged.
Secured creditors are not permitted by law to enforce their liens or security upon commencement of winding-up by the court, or winding-up subject to the supervision of the court. Once winding-up has commenced, any disposition of the property of the company, including things in action and any transfer of shares, or alteration in the status of the members of the company, shall be void, unless the court otherwise orders. In addition, any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the commencement of the winding up, is void. Winding-up is deemed to commence from the date the petition for winding-up is presented at the Federal High Court.
Unless a creditor completes the execution of a judgment debt before the commencement of the winding-up, such creditor cannot retain the proceeds of the execution, but must deliver it to the liquidator.
Outside of restructuring and insolvency proceedings, secured creditors are not prohibited from enforcing their liens and security, subject to existing contractual inter-creditor covenants (if any).
During formal restructuring, creditors may enforce a lien/security in accordance with the security documents and terms of agreement entered into by the company and its creditors. Also, prior to commencement of winding-up of a company, secured creditors may enforce their lien/security, subject to the test for determination of fraudulent preference by the Federal High Court. However, upon the commencement of winding-up, secured creditors are prohibited from carrying out enforcement actions.
There are no special procedures or impediments applicable to foreign secured creditors.
Secured creditors are entitled to special procedural protection in statutory insolvency and restructuring proceedings as follows:
Section 494 of the CAMA provides for the ranking of claims and preferential payments in the course of a winding-up. The section does not expressly give priority to secured creditors. In practice, however, insolvency practitioners and creditors have taken the view that secured creditors rank higher than unsecured creditors.
In practice, this would depend on the extent of the restructuring terms agreed by the creditors of the company.
Unsecured creditors may rely on common law lien, statutory lien or contractual lien to retain possession of the debtor's property until a debt due is discharged as a result of the repayment pressure created.
Unsecured creditors may institute an action for debt recovery before the High Courts and may proceed to obtain summary judgement in the absence of a defence, or judgment on the merit. With the judgment obtained, the unsecured creditor may take judgment enforcement steps and if the judgment is not satisfied in whole or in part, an action for the winding-up of the debtor may be commenced. Alternatively, a statutory demand for unpaid debt in excess of NGN2000 may be made to the debtor and upon the debtor’s failure to liquidate the sum due, an unsecured creditor may commence winding up proceedings against the debtor.
There are no statutory rights and remedies of unsecured creditors in a restructuring and insolvency context. However, a winding-up order, once made, operates in favour of all the creditors and all the contributories of the company as if a joint petition had been presented, no matter who applied for the liquidation. This means that a creditor who has not participated in the winding up processes may still recover its debt in priority to the petitioning creditor, subject to the priority of payments.
Pre-judgment attachments are available as provisional remedies during a court action if an unsecured creditor can adduce sufficient evidence that a debtor is likely to dissipate its assets prior to the delivery of judgment. The unsecured creditor will be required to give an undertaking for damages.
In Nigeria, a lien may be exercised at any time when the debt is due and unpaid. The statutory period for enforcement of any claim arising from a simple contract is six years from the date that the cause of action arose.
Landlords have a statutory right to enforce claims for payment of outstanding rent.
There are no special procedures, impediments or protections applicable to foreign creditors.
The statutory preferred payments to be made by the liquidator before all other creditors can be paid are as follows:
Where the assets of the company are not sufficient to pay all the creditors, preferential creditors may be paid out of property, subject to a charge. Preferential debts rank equally among themselves and, if the assets are sufficient, they are paid in full, otherwise they are paid pro rata.
There are no statutory provisions for priority of new money claims over the claims of secured creditors or preferential payments. Creditors may by contractual agreements accord priority to new money claims.
Apart from new money claims, priority of claims are as stated in 5.8 Statutory Waterfall of Claims.
The statutory process for reaching formal restructuring and reorganisation are schemes of arrangement or compromise, mergers and acquisition or other form of business combination.
Schemes of Arrangement and Compromise
A scheme of arrangement or compromise is a statutory procedure that allows a company, subject to the approval of the Federal High Court, to alter the rights and relationships between itself and its creditors. Under a scheme of arrangement, the creditors may be offered repayment in full, but on terms different from that presently in existence between the company and the creditors, while in a compromise, the creditors may accept less than is due to them.
The company makes an application to the court for leave to call a meeting of the affected class of creditors and of the members of the company to consider and approve the proposed scheme. Where the court grants the order convening the meeting, the company will forward the notice of the meeting as well as the scheme document to the relevant stakeholder.
After the approval of the scheme by a majority representing not less than three quarters in value of the shares of members or class of members, or the interest of creditors or a particular class of creditors, the court may refer the scheme to the Securities and Exchange Commission (SEC) to investigate the fairness of the compromise or arrangement. Upon referral, the SEC will appoint one or more inspectors to investigate the fairness of the scheme and forward a written report to the court within the timeframe specified by the court. The purpose of the referral to the SEC is to ensure that the interest of minority creditors are fairly considered and treated in the scheme approved by the majority. In practice, however, the courts tend to approve the schemes once they have received the required majority votes, as required by law.
If the court is satisfied as to the fairness of the scheme and it sanctions same, it becomes binding on all the affected creditors or members of the company, and on the company. Thereafter, a copy of the order should be filed at the Corporate Affairs Commission.
Merger, Acquisition or Business Combination
Every merger, acquisition and business combination between or among companies is subject to the prior review and approval of the Federal Competition and Consumer Protection Commission (“the Commission”).
A merger may be a small or a large merger and the Commission sets the threshold of annual turnover for determining the categories of small and large merger. Considering that the Commission was recently given the responsibility to regulate Merger, acquisition or business combination, the Commission is yet to issue a guideline on the thresholds for merger categorisation. Therefore, the joint advisory issued by the Commission and Securities and Exchange Commission, provides that the existing SEC regulations, guidelines and fees, including the thresholds, continue to apply until a further advisory or guideline is issued by the Commission.
A party to a small merger is not required to notify the commission of the merger, and may implement the merger without approval, unless the commission requires it to do so. Upon implementation of the small merger, the Commission may request the parties to notify it of the merger within six months. After notification, the Commission is required to consider the small merger within 20 business days or an extended period not exceeding 40 business days. If, after the expiry of 20 business days or the extension period, the Commission does not issue a report, the small merger shall be deemed approved.
A party to a large merger must notify the Commission of the merger in the prescribed manner and form and seek prior approval. A large merger cannot be implemented until it is approved, with or without conditions. The Commission is required to consider a large merger within 60 business days or an extended period not exceeding 120 business days. If, after the expiry of 60 business days or the extension period, the Commission has not issued a report, a large merger shall be deemed approved, subject to the powers of the Commission to revoke its own decision to approve or conditionally approve a small or large merger.
Where a party is aggrieved by the Commission’s decision on a proposed merger, the party may file an application for review before the Competition and Consumer Protection Tribunal and, if aggrieved by the decision of the tribunal, may appeal to the Court of Appeal. The duration of the entire restructuring process will depend on the restructuring option chosen by the company. In practice, restructuring spans six months to one year.
The existing provisions on formal restructuring procedures do not include a moratorium or automatic stay of claims by the creditors against the company. The company is, therefore, exposed to enforcement action by both secured and unsecured creditors.
The ability of the company to continue operating its business will be based on the contractual agreement between the company and the counter parties in the restructuring.
Where a bank is undergoing formal restructuring and its assets and liabilities have been acquired by a bridge bank, the bank will cease to operate, and its business will be taken over and operated by the bridge bank.
Under mergers and acquisitions, takeovers or other business combination procedures, incumbent management may continue to manage the company. However, where a receiver is appointed (or another person appointed to control and manager the company by a debenture holder), the incumbent management would cede management of the company to the receiver.
There is no statutory provision on whether and how the company can borrow money during a formal restructuring procedure.
In a scheme of arrangement or compromise, creditors with different interests are separated into separate classes. Each class of creditors whose interests are affected by the scheme must approve its terms as they affect that class.
In a scheme of arrangement or compromise, dissenting creditors will be bound by the majority votes and the sanction of the court.
Claims may be traded in a scheme and may be transferred at any time, subject to notification to the company and any lock up terms between classes of creditors.
Schemes are technically limited to compromises or arrangements between a company and its creditors or members. However, it may be utilised to reorganise a corporate group on a combined basis for administrative efficiency.
In schemes of arrangement and compromise, the directors retain management control of the company and are in possession and control of the assets. Subject to contractual terms regulating the sale of assets and their proceeds, there are no additional permissions or restrictions on a company’s use or sale of its assets. Upon completion of the scheme, the company will be subject to the terms of the restructuring and agreements relating to the sale of assets.
In schemes of arrangements and compromise, the directors execute the sale of the assets or the business and a purchaser ideally acquires good title in a sale executed pursuant to the restructuring.
In schemes of arrangement and compromise, secured creditors may reach an arrangement to release securities, including guarantees, as part of the scheme arrangement.
There is no statutory provision for priority of new money. New money may be given priority by creditors as part of the terms of the proposed scheme and the agreement of parties will be sanctioned as part of the scheme.
There are no specific provisions for the determination of the value of claims under the existing insolvency legislations in Nigeria. However, there are guidelines which may be relied on in arriving at the value of claims and identifying the creditors with economic interest in the company. For example, it is a requirement that the statement in a scheme of arrangement or compromise sets out the interest of the secured debenture holders and general creditors of the company as well as the price of purchase of shares of a dissenting member. Also, the liquidator has the duty to value the claims of creditors after assessing the proof of debts filed.
Restructuring or reorganisation arrived at through schemes of arrangement or compromise are subject to a review for fairness by the court. In practice, the court would refer the scheme to the Securities and Exchange Commission (SEC) to investigate the fairness of the compromise or arrangement.
There are no statutory provisions for disclaimers of onerous contracts in a restructuring or reorganisation.
In schemes, non-debtor parties, such as guarantors, may be released from liabilities, subject to the test for overall fairness of the agreement by the court.
There is no mandatory right of set-off in schemes. However, contractual set-off may be available in relation to individual debts and this may be reflected in the terms of the scheme, subject to the approval of the majority of creditors.
Where a company fails to observe the procedural requirements for a scheme, it may fail at the creditors meeting, or at the sanction hearing in court, on grounds of procedural or substantive unfairness.
Where the company or creditor fails to observe the terms of an agreed restructuring plan in the course of implementation, the company or the creditor will be exposed to the consequences of any breach, subject to the terms of the relevant agreements and applicable law on breach of contract. The creditors may institute enforcement action against the company or seek for specific performance by the company of the terms of the agreement. In addition, the creditors may consider the breach as a ground for winding-up the company and a defaulting creditor may be subject to injunctive relief.
Subject to the terms of the restructuring agreements, existing equity owners may receive or retain any ownership or other property on account of their ownership interests.
Voluntary Liquidation Proceedings
Voluntary liquidation proceedings are commenced where a specified period or event in the articles of association of the company occurs, or the company passes a special resolution that the company be voluntarily wound up. The two types of voluntary proceedings are the Members’ Voluntary Winding-Up (MVW) and the Creditor’s Voluntary Winding-Up (CVW).
Members’ Voluntary Winding-Up (MVW)
MVW is a solvent liquidation commenced when a special resolution that the company be wound up voluntarily is passed by members. For a company to embark on a MVW, the directors are required to make a declaration of solvency (not more than five weeks prior to the passing of the special resolution) that the company will be able to pay its debts in full within 12 months of passing the special resolution.
After the passing of the special resolution, the directors will appoint one or more liquidators who will wind up the affairs of the company and distribute the assets among its members following the payment of all debts in accordance with the statutory preferential payments. The special resolution will be filed at the Corporate Affairs Commission within 14 days of it being passed and from that day the company ceases to carry on any business and the powers of the directors cease, except as permitted by the liquidator.
The liquidator, in the discharge of their responsibility, may disclaim onerous property with the leave of court at any time within 12 months after the commencement of the liquidation or such other period allowed by courts. Upon the conclusion of the MVW, the liquidator will issue a public notice for a general meeting where an account of the winding up will be presented Within seven days of holding the meeting, a copy of the account and minutes of the meeting will be sent to the Corporate Affairs Commission. Upon preparation of the audited account, a final meeting will be convened to discuss the audited account and within 28 days after the meeting, the liquidator will file copies of the accounts and a statement of holding of the meeting at the CAC. The company is deemed dissolved three months after the registration of the audited accounts and the returns.
Creditors’ Voluntary Winding-Up (CVW)
A CVW is initiated by the company where the directors of the company are unable to depose to a statutory declaration of solvency or where during a MVW the liquidator believes that the company will not be able to pay its debts as stipulated in the declaration of solvency. Where an MVW is converted to a CVW, the liquidator would convene a meeting of the creditors of the company and present to them a statement of the company’s assets and liabilities. If the company initially opts for a CVW, separate meetings of the members and the creditors of the company will be held with the creditors’ meeting taking place immediately after the meeting of the company, either on the same day, or the next day. At the creditor’s meeting, a director will present a statement of the company’s affairs, with a list of all the company’s creditors, for a decision on the CVW and appointment of a liquidator. If the members meeting nominated a different person as liquidator of the company, the liquidator nominated by the creditors’ meeting shall be the liquidator. Any creditor, member or director of the company dissatisfied with the appointment may apply to the court within a period of seven days for redress.
The creditors have the right to constitute a committee of inspection, consisting of not more than five persons, at the first or any subsequent meeting, and the company may, at a general meeting, also nominate up to five persons to join the committee of inspection. Upon the appointment of a liquidator, all the powers of the directors cease, except to the extent permitted by the committee of inspection or the creditors.
Liquidators are able to disclaim onerous property in a CVW. In addition, the liquidator makes payments to the creditors in accordance with the statutory preferential payment waterfall. Similarly, liquidators in a CVL will prepare an account of their dealings, and summon a final meeting of creditors. Thereafter, they would make the necessary returns to the CAC, and the company will be dissolved three months after the registration of the accounts and the returns.
Involuntary Liquidations (Winding-up Subject to the Supervision of the Courts/Compulsory Winding-up by the Courts)
Winding-up subject to the supervision of the courts and compulsory winding-up by the courts are involuntary liquidations proceedings.
Winding-up subject to the supervision of the courts
A company that is being liquidated voluntarily may become subject to court supervision where a creditor, contributory or a person with sufficient interest files a petition in court for the winding-up to proceed with the supervision of the court and this is granted. The applicant is required to show that they have some special interest in the company or that the liquidation process will be jeopardised by the manner the liquidation is being presently conducted. Where voluntary winding up is made subject to the supervision of the court, any dispositions of property by the company become void unless the court otherwise orders, and all writs of attachment and execution issued out against the property of the company also become void. As part of the order for supervision, the court may appoint an additional liquidator to act with the liquidator appointed under the voluntary winding-up or may remove the first liquidator entirely.
A liquidator appointed by a supervision order may make any compromise or arrangement with creditors or claimants against the company, compromise any calls or liabilities to make calls as against contributories with the sanction of the court, or of a committee of inspection.
Compulsory Winding-Up by the Courts (CWC)
Generally, a CWC is commenced by the presentation of a petition to the court by a creditor on the ground that the company be wound up for an inability to pay its debts. A company will be deemed unable to pay its debt if:
If the order to wind up is granted by the court, a copy of the order must be forwarded to the Corporate Affairs Commission immediately after it is obtained. Although the responsibility to forward the order is that of the company being wound up, in practice it may be forwarded by the petitioner. In other cases, the liquidator appointed by the creditors will forward the order to the Commission. Within 14 days of the granting of the order, the company is required to submit a statement of its affairs to the Official Receiver. Once the statement is received, the Official Receiver uses it to prepare a preliminary report. Thereafter, a liquidator may be appointed by order of court, if required. As a matter of practice, the appointment of a liquidator is only applied for when the creditors believe that sufficient assets of the company are available to satisfy creditor demands.
With the role of realising the assets and distributing proceeds, the liquidator has wide-reaching powers to fulfil this objective. The liquidator is also empowered to disclaim onerous contracts and make payments in accordance with the statutory preferential payments waterfall.
Creditors are required to prove their debts by submitting an affidavit in the relevant format to the Official Receiver or liquidator, and secured creditors will indicate their security in the affidavit. Upon verification of the proof of debts, the liquidator will settle claims of creditors and undistributed and unclaimed monies will be paid into the Company Liquidation Account kept by the Accountant General of the Federation. The winding-up is concluded when the order dissolving the company is reported by the liquidator to the Commission, or when the Attorney General of the Federation makes an order releasing the liquidator.
Generally, the liquidator negotiates, executes and authorises the sale of assets. Where the liquidator acts with the Committee of Inspection, they may require a resolution of the Committee of Inspection authorising such a sale.
In winding-up, subject to the supervision of the court, any sale of assets by the liquidator would be subject to the control of the court. Liquidators would usually not give any representations, indemnities or warranties for the sale of assets and will exempt themselves from any liability in that regard.
In this case, a purchaser will acquire good title save for claims attaching to assets in the ordinary course, such as retention of title claims and other competing ownership claims and liens, and the transfer will benefit from very few warranties (a position which is usually reflected in the price). There are no specific provisions regulating bidding by creditors for company assets during insolvency proceedings.
There are no statutory provisions with respect to effectuating pre-negotiated sales transaction’s following the commencement of a statutory procedure. However, the liquidator, upon appointment, has the power to carry on the business of the company so far as may be necessary for its beneficial winding-up and can also terminate contracts that are not geared towards beneficial winding-up. Furthermore, where any part of the property of the company being wound up consists of unprofitable contracts, the liquidator may, with the leave of court and subject to the provisions of CAMA, disclaim such onerous contracts/properties.
The insolvency and liquidation proceedings in Nigeria do not involve a rescue plan instead, there is a sale of assets and a distribution. If, for example, the liquidator gives a direction, or the company or creditors fail to honour some agreement, they may be exposed to litigation.
There is no statutory provision for post commencement financing or priority of new money. However, the liquidator has the power to raise money using the assets of the company as security. Repayment of the new money raised may be treated as a liquidation expense and therefore accorded priority before preferential payments.
There is no statutory provision dealing uniquely with the liquidation of a corporate group. Each corporate entity is dealt with individually and all the assets of each of the entities disposed of on an case-by-case basis. As a matter of administrative convenience, it is possible for the same liquidator to be appointed to a corporate group and for connected companies to be subject to combined court proceedings before the same judge.
Creditors in a compulsory winding-up, may decide to appoint a Committee of Inspection, and make an application to the court for this purpose. The Committee of Inspection comprises of creditors and contributories of the company, or persons holding powers of the creditors and contributories. No member of a Committee of Inspection is allowed to derive any profit from any transaction arising out of the winding except under and with the sanction of the Court.
In a CVW, the creditors may appoint a Committee of Inspection of not more than five persons. The creditors will also decide the extent to which they will act with the liquidator(s) through a Committee of Inspection. Generally, the powers of the Committee vary and are usually dependent on the mandate given by other creditors. The Committee sanctions the exercise of the liquidator’s powers, and may also fix the remuneration to be paid to the liquidator. The liquidator is expected to give due regard to the resolutions of the Committee, although the decisions of the Committee may be superseded by decisions taken at a meeting of the creditors.
The liquidator has no conditions imposed for the exercise of powers to take possession of, use, sell and lease assets, save that it should be for the beneficial winding-up of the company.
Nigeria is yet to adopt the UNICTRAL Model Law on Cross-Border Insolvency (the “Model Law”). There is no specific local legislation dealing with this issue. Therefore, cross border insolvency issues are handled on an ad hoc basis, with each matter dealt with regarding its own specific facts.
Since Nigeria is yet to adopt the Model Law, it is unlikely that Nigerian courts would enter into protocols or other arrangement with foreign courts to co-ordinate proceedings.
See 8.2 Co-ordination in Cross-border Cases. Nigeria courts are most likely to take the view that Nigerian law is paramount.
Foreign creditors are not dealt with in a different way.
Statutory officers in Nigeria are:
In a winding-up by the Court, the Official Receiver, before the appointment of a liquidator, exercises all the powers of a liquidator with respect to the examination, admission and rejection of proofs.
Provisional Liquidator and Liquidator
The liquidator has the general duty to maintain an impartial relationship with all those who have dealings with the company and to act for all creditors, even those who were not involved in his initial appointment.
The liquidator, by virtue of the appointment, becomes the alter ego of the company and can keep in office such staff as are continually utilised after the date of appointment. The liquidator has a range of powers including, amongst others, the ability to settle the list of creditors and contributories, make calls on shareholders to contribute to the assets, hold and conduct meetings of the creditors and the members of the company to find out their views regarding the winding-up, and collect and apply the assets during the winding-up. Certain actions, however, require the prior approval of either the court or a creditors’ committee of inspection.
A receiver can, subject to the rights of prior encumbrancers, take possession of and protect a secured property, receive the rents and profits from the property and realise the security for the benefit of their appointor. A receiver who acts as manager has the power to carry on the business, stands in a fiduciary relationship to the company and must observe the utmost good faith towards it in any transaction with it or on its behalf.
Some of the statutory power of a receiver manager include:
Special managers are appointed where the nature of the business requires specialised skills for the management of the affairs of the company in winding-up by court.
The Official Receiver is the Deputy Chief Registrar of the Federal High Court (FHC) or an officer designated for the purpose by the Chief Judge of the FHC. They can be replaced on the appointment of a liquidator by a winding-up order of the court. A provisional liquidator is appointed by the court in a winding-up by the court pending a winding-up order
Receivers are usually appointed by the secured creditor, out of court, by virtue of powers conferred on the creditor by a deed of debenture or mortgage. A receiver/manager may be removed in line with the terms of the instrument appointing them.
Liquidators may be appointed by the company, the courts or the creditors. A liquidator appointed by the court may resign or, on cause shown, be removed by the court and any vacancy in the office of a liquidator shall be filled by the court.
Special managers are appointed by the Federal High Court on an application by the official receiver.
Powers of management and the directors cease upon the appointment of the statutory officers in insolvency and liquidation proceedings. However, these officers may direct the directors to provide information relevant to the management of the affairs of the company. For example, directors are obliged to verify, by affidavit, the statement of affairs prepared and submitted by the liquidator to the official receiver.
Although, the directors have no power to manage the company, they retain residual powers on behalf of the shareholders to challenge the statutory officers by court action, if it appears that they are not performing their duties in good faith.
Where it appears, in the course of liquidation, that the business of the company was conducted in a reckless manner, the official receiver, provisional liquidator, or liquidator may apply to court for personal liability of the responsible member of the management team.
Upon appointment of a receiver or manager, the powers of the directors or liquidators in a members' voluntary winding ceases unless and until the receiver or manager is discharged. In a CVW, the liquidator is not bound to release property over which they have control, except with the order of court.
Those not competent to be appointed or to act as liquidator, receiver or receiver and manager include:
In practice, creditors are not appointed to serve as statutory officers. However, they may be appointed into the Committee of Inspection and charged with an oversight responsibility over statutory officers.
There is no law which restricts restructuring professionals from serving as statutory officers.
Attorneys, accountants and valuers are typically engaged in voluntary and involuntary liquidation proceedings. In restructuring, investment bankers, financial advisors, attorneys and accountants are engaged.
Advisers in restructurings are usually engaged by the company or their attorney. Compensation and reimbursement of expenses to these advisers are determined by the terms of engagement in their contract.
In insolvency proceedings, the professional advisers are employed and their professional fees negotiated by statutory officers. Payment of the agreed fees and expenses are typically treated as insolvency expenses which are statutorily accorded priority.
Depending on the terms of the Articles of Association of the companies, necessary board (or shareholder) approval will be obtained prior to the employment of advisers in restructuring procedures.
In liquidations, the liquidators can engage professional advisers without the need for judicial approval.
Professional advisers owe duties/responsibilities to the company in liquidation, on whose behalf they have been retained by the liquidators.
Parties can arbitrate or mediate their disputes in restructuring and insolvency situations where existing or new contracts provide for arbitrations and/or mediations.
Courts do not order mandatory arbitration. For issues on settlement of claims, the courts may order parties to mediate in order to reach a compromise.
Pre-insolvency agreements to arbitrate disputes are enforceable in statutory proceedings, provided that the suit is commenced in the name of the relevant statutory officer (on behalf of the company).
The Arbitration and Conciliation Act, CAP A18, Laws of the Federation of Nigeria, 2004 (ACA), governs arbitration proceedings in Nigeria.
There is no federal law governing mediation in Nigeria. Some states have, however, enacted mediation related laws.
Parties are generally at liberty to determine their arbitrator or mediator. Parties may choose their arbitrator or resort to an appointing authority. The parties to an arbitration agreement may determine the number of arbitrators to be appointed under the agreement.
Mediators are either appointed by the parties or a specified appointing authority.
The directors and all the past and present officers of the company are bound to deal with the liquidator in utmost good faith and make full disclosure of the circumstances of the company to the liquidator. In order to protect the creditors of a company in the event of its being wound up, and also ensure balance and fairness between its creditors and contributories, the Companies and Allied Matters Act attaches criminal liability to certain acts of officers of the company, either past or present, which take place within a period of 12 months before the winding-up commences. The law defines an officer of the company as including “any person in accordance with whose directions or instructions the directors of a company have been accustomed to act". The possibility then exists that a person not on the board of directors of the company being wound up may be criminally liable under this section.
Generally, directors’ fiduciary duties are towards the company, not the creditors. Therefore, the shareholders can assert direct fiduciary breach of claims against the director. Where there are such claims in insolvency, they must be asserted through the insolvency office holder.
We are not aware of restructurings in Nigeria, where a Chief Restructuring Officer was appointed.
The concept of shadow directorship exists in our jurisdiction.
Prior to the commencement of any insolvency proceedings, creditors may become shadow directors of a company depending on certain terms in a contract, for example, where an agreement between the company and a specific creditor permits the creditor to exercise powers attributable to shadow directors. However, upon the commencement of insolvency proceedings, the powers of the directors (shadow directors) ceases upon the appointment of a statutory officer.
Liability of shareholders or owners in a company are limited to the extent of any unpaid share capital. Therefore, the owners/shareholders would be liable to creditors to the amount of any unpaid shares.
Historical transactions may be set aside where any part of the property of a company which is being wound up consists of land of any tenure burdened with onerous covenants, shares or stock in companies, unprofitable contracts, or of any other property that is unsaleable or not readily saleable (by reason of its binding the possessor to the performance of any onerous act, or to the payment of any sum of money within 12 months preceding the insolvency process).
Fraudulent preference transactions can be set aside under Nigeria law. However, the law currently does not specify the look-back period for these transactions.
Furthermore, Nigeria law provides for the invalidation of certain floating charges when the company is being wound up. Floating charges created within three months of the commencement of the winding-up are invalid unless it is proved that the company was solvent immediately after the creation of the charge.
In addition, the liquidator can disclaim onerous contracts, with the leave of the court, at any time within 12 months after the commencement of the winding-up or such extended period as may be allowed by the court.
The law makes specific provisions for bringing claims in respect of onerous property, fraudulent preference transactions and certain floating charges in insolvency proceedings.
Valuation is important where insolvency office-holders seek to realise the assets of the debtor and they are particular about obtaining the best available market value for the assets. A challenge of a transaction as a fraudulent preference will require the tendering of valuation evidence to show that the company was insolvent at the time.
Valuations would typically be initiated by the liquidator to determine the right price for the disposal of assets. However, creditors may also insist on valuation.
There are no statutory provisions regulating valuation in Nigeria. The requirements and scope of valuation are regulated by the relevant services agreements between the valuers and the requesting entity. There are valuation experts regularly employed in Nigeria.
It is prudent for office-holders to ensure that the assets to be sold are valued to determine the best market price for such asset. This is to avoid a challenge that the assets were sold at an undervalued amount.