Project Finance 2021

Last Updated November 04, 2021


Law and Practice


Aluko & Oyebode is the largest full-service commercial law firm in Nigeria. The firm strives for excellence in everything it does. Clients come to Aluko & Oyebode for the firm's deep knowledge of Nigerian law, as well as its breadth of international expertise – and an understanding of clients’ industries that can only be born of direct experience. The firm's practice areas include banking, capital markets, competition and antitrust, corporate services, corporate governance and compliance, employment, immigration and incentives, energy and natural resources, financial institutions advisory, infrastructure finance and PPP, intellectual property, international trade, litigation, dispute resolution and risk management, mergers and acquisitions, private equity, privatisation and public procurement, real estate, tax, telecommunications, media, entertainment and technology, venture technology and emerging growth companies, and white-collar and investigation.

The main trends that have influenced the project finance market in Nigeria in the last 12 months are not unconnected to the need to bridge the infrastructure deficit in Nigeria. The absence of capital from the government and the need to bridge the existing deficit in infrastructure have led to the current promotion of public-private partnership (PPP) projects by the government (federal and state) across all levels, including the introduction of initiatives such as the Highway Development and Management Initiative (HDMI).

The HDMI was set up to attract private-sector involvement in the form of expertise and financing for the construction and rehabilitation of roads in Nigeria. There are about 12 roads under the HDMI that are up for concession, as well as other dual-carriage roads and bridges under the control of the federal government. The affected roads would be tolled and managed by the respective concessionaires.

Also, there has been an increase in investment by the private sector in large-scale infrastructure projects in Nigeria such as ports and agriculture storage facilities.

In addition, legislative reforms such as the enactment of the Petroleum Industry Act (PIA) have also played a crucial role in the resurgence of the project finance market. The PIA introduced certain changes in the oil and gas space in Nigeria relating to fiscal terms, licensing, new regulatory regimes for both the upstream, midstream and downstream sectors, and the deregulation of the downstream sector. It is expected that these changes, which are aimed at providing a conducive environment in the oil and gas sector, will generate the necessary investments in the sector.

Another significant development was the establishment of an infrastructure company - Infrastructure Corporation (InfraCorp) by the President of the Federal Republic of Nigeria. The President, in June 2021, announced the establishment of InfraCorp with an initial capital seed of NGN1 trillion and it is envisaged that it will grow into NGN15 trillion in assets and capital. InfraCorp is co-owned by the Central Bank of Nigeria (CBN), the African Finance Corporation (AFC) and the Nigerian Sovereign Investment Authority (NSIA) and it is expected to raise capital from the CBN, the NSIA, and pension funds, as well as private-sector development financiers, for the purpose of funding the development of hard infrastructure assets such as roads, ports, bridges and soft infrastructure such as broadband penetration, which will have a multiplier effect on the growth and expansion of business activities within the country.

With regard to PPP projects, the typical sponsors are public-sector entities, ie, states or federal governments or their agencies, while the typical sponsors for commercial types of projects such as refineries, petrochemical plants or ports are private-sector developers and investors. Financial institutions that typically arrange and structure project-finance loans are development finance institutions (DFIs), and investment banks. Commercial banks would typically participate in such loans as a lender.

PPP transactions are currently gaining traction in the project finance market in Nigeria, particularly for infrastructure projects, as this model appears to be a viable means of resolving the significant infrastructure gap in Nigeria. Some of the most recent of these are the Ajaokuta – Kaduna – Kano Natural Gas Pipeline, the Lekki Port Project and the Federal Government HDMI.

Also, the Infrastructure Concession Regulatory Commission (Establishment) Act 2005 (ICRC Act) allows private-sector involvement in the development, construction, maintenance of federal infrastructure. PPPs initiated by the federal government and agencies of the federal government are governed by the ICRC Act, while a large number of states have PPP legislations that govern the procurement and management of PPP projects in the state.

One of the limitations to PPP projects in Nigeria is the extensive public tender process contained in various PPP laws in Nigeria, both at the federal and state levels. Significant investment in time, finances and resources from both the public sector and private sector are required to close out procurement processes. Unsolicited bids and proposals are subjected to a challenging procurement process for PPPs. This is contributory to the rare attempts from the private sector to initiate PPPs directly in Nigeria.

In addition, the absence of adequate capacity and resources to facilitate PPP processes, inefficiency in the public sector and unstable policies are part of the obstacles to PPP transactions in Nigeria.

Some of the issues to be considered when structuring a project finance deal include the risk allocation between the parties and the risk mitigation solutions/options available.

Political risks, such as a change in government, and uncertainty as regards policy direction which may impact on the transaction, are part of the issues that domestic investors consider when structuring a deal. For domestic investors, this risk is usually mitigated by obtaining sovereign guarantees and support from the relevant government entity that may be involved in the project. However, in recent times, government entities have been reluctant to grant any such guarantee and support. Domestic investors, therefore, must ensure that deals are structured in a way that their interests are adequately protected. Foreign investors are, however, able to get political-risk insurance cover to help mitigate politically related risks.

With respect to funding techniques, most project finance transactions in Nigeria are financed by a combination of both debt and equity. The equity can be structured as equity capital and shareholders loans which ordinarily will be subordinated to senior debts.

The debt financing, which is usually provided by international financial institutions, DFIs, international investment banks as well as domestic banks in Nigeria, is usually structured as a syndicated senior debt. The assets of the company provided as security for the debt are held on behalf of the syndicate of lenders by a security trustee. In certain instances, sponsors’ guarantees are provided where required.

Also, particularly for PPP projects, government entities provide financing either through equity or debt.

The oil and gas and the infrastructure sectors are expected to have increased activities in the project finance space. With the passage of the Petroleum Industry Act (PIA) and the transformation it is expected to effect in the oil and gas industry, this should succeed in securing the needed investment to enhance project-finance transactions such as the building of refineries, the construction of gas infrastructures, and pipeline networks.

As the government makes daily efforts to bridge the infrastructure deficit in Nigeria in terms of road, port, bridges and other areas, it is expected that the activities in the infrastructure sector will enjoy an increase in the coming years. The establishment of InfraCorp will also contribute significantly to the  development of this sector.

In addition to the foregoing, the agricultural sector is also expected to be active in the coming years. The issues plaguing the agricultural sector in Nigeria include the absence of adequate and appropriate storage and processing facilities, and of an efficient transportation network for agricultural produce. In providing solutions to these issues, it is envisaged that industrial storage and processing facilities will be built and the necessary transportation network will also be constructed. These projects will generate an inflow of project finance transactions in the sector.

The type of assets that are available to lenders include movable and immovable properties belonging to the project company. Immovable properties are usually in the form of land, buildings, easement rights, and fixtures permanently fixed to land. Movable properties can be classified as tangible or intangible properties, and for the purpose of a security can include shares and other equity rights of the borrower, corporate guarantees, claims and receivables, licences of the company, cash-flows, bank accounts, contracts of the project company, project documents, and insurance policies.

The most common types of security taken by lenders are a fixed and floating charge, a mortgage, an assignment by way of security, a pledge, and a lien. In limited circumstances, a third-party guarantee may be taken as part of a security package.

Types of Security


Under Nigerian law, a mortgage can either be legal or equitable. In a legal mortgage, the legal title to the mortgaged asset is transferred from the mortgagor to the mortgagee to secure the debt. The transfer is, however, subject to the reconveyance of the mortgaged property upon the settlement of the debt. A legal mortgage is created by a deed and grants an immediate right to the mortgagee against the mortgaged property. 

Conversely, an equitable mortgage is created by the deposit of title documents of the relevant asset to the lender or facility agent/security trustee.

A mortgage can be created over land, real estates, equipment, machines, shares, and financial instruments.


A charge does not transfer title to the assets or properties charged but creates a security interest in favour of the chargee, which can be enforced upon the occurrence of specific events.

A charge can either be a fixed charge or a floating charge. A fixed charge is created over definite and specific assets of the chargor from the point of creation. Except with the consent of the chargee, the chargor is precluded from dealing with the charged asset.

A floating charge, however, covers the whole or specified part of the chargor’s undertakings and assets, which may include cash and uncalled capital of the company, both in the present and the future. The chargor is allowed to deal with the charged assets until the occurrence of events which would cause the charge to crystallise.

A charge, either floating or fixed, can be created over movable assets, financial instruments, claims and receivables, and cash deposits.


This is the deposit of tangible movable assets, or titles to the tangible movable assets as security for a debt with a condition to redeliver the assets to the borrower upon the repayment of the debt. The lender or anyone holding security on its behalf must have an actual or constructive possession of the pledged assets.  The assets can, however, be sold where the borrower defaults.


Simply, a lien confers the right to hold a property until a debt is satisfied. It is a security interest granted over a property to secure the payment of a debt. It grants a party a passive right to retain (but not sell) the lien property until the debt is satisfied.

A lien confers a proprietary interest in an asset that makes it enforceable against the owner and third parties. A lien can be granted over financial instruments and tangible movable properties.

Assignment by way of security

Assignment by way of security is the transfer of rights by the assignor to the assignee, subject to an obligation to reassign those rights back to the assignor upon the discharge of the obligations which have been secured. This is different from a charge which automatically terminates when the secured liabilities are discharged. Vesting legal rights by an assignment would require that the notice of assignment be given to the borrower’s counterparty. Practically, the lenders would require that the counterparty of the borrower acknowledge the notice of assignment.

Assignment by way of security can be used for contractual rights, insurance proceeds, claims and receivables. An assignment by way of security is usually registered as a charge in Nigeria.

The law requires that security created over assets is to be perfected. The nature of perfection and registration will depend on the type of security created and the type of assets used as security. See 2.3 Registering Collateral Security Interests for further details.

Nigerian law permits the creation of fixed and floating charges over the present and future assets of a company.

A floating charge can be created over a specific category of future assets while, in respect of a fixed charge, the future assets must be adequately identified or identifiable and ascertainable when they come into existence or when the debtor acquires the assets.

See 2.3 Registering Collateral Security Interests for the perfection requirements.

The costs incurred during the registration of a security interest depend on the nature of the security interest.

A secured transaction involving immovable property typically incurs the following costs.

  • Governor’s consent and land registry registration – where the security relates to land, the consent of the Governor where the land is situated will be required, as well as registration at the land registry. For instance, in Lagos State, the cost of obtaining the Governor’s consent is 0.25%, and the cost of registration at the land registry is 0.5%, of the secured debt.
  • Stamping – the security will be required to be stamped by the Stamp Duties Office upon the payment of stamp duty. This is a tax imposed on instruments under the Stamp Duties Act (SDA) (as amended), Cap S8 Laws of the Federation, 2004. The SDA requires that instruments executed in or relating, wheresoever executed, to any property situated, or to any matter or thing done or to be done, in Nigeria be stamped in order for them to be admissible in evidence in civil proceedings before Nigerian courts. The applicable stamp rate is 0.375% in the case of a mortgage, and 0.125% in the case of a fixed and floating charge. Counterpart documents are often stamped at a nominal flat fee of NGN50 per copy. This is paid to the Federal Inland Revenue Services (FIRS) and must be paid within 30 days from the date of execution of the mortgage document.
  • Registration at the Corporate Affairs Commission (CAC) – the security should also be registered with the CAC within 90 days of its creation, otherwise it will be void against the liquidator and third parties. This incurs a fee of NGN25,000 or 0.35% of the amount secured by the charge, whichever is higher. 
  • Nigerian Collateral Registry (NCR) – where the security transaction involves movable property, in addition to stamp duty and registration at the CAC, depending on the type of security interest created, registration at the NCR is required. This costs NGN1000 for the registration of initial financing statements, and NGN500 for a renewal or amendment, subject to changes that may be prescribed by the registry.

For certain classes of assets such as aircrafts and ships, security created over these assets requires registration at the relevant registry (for example, security created over aircrafts must be registered at the Nigerian Civil Aviation Authority (NCAA) and security over ships must be registered at the ship’s registry in the Nigerian maritime Administration and Safety Agency).

Security created over mining assets is required to be registered at the Mining Cadastre Office.

Under the Petroleum Act, Cap P10, Laws of the Federation of Nigeria, 2004, security created over oil and gas assets by way of a fixed charge would require the consent of the Minister of Petroleum. Most lenders would typically create a floating charge over these assets, as the Minister’s consent will not be needed. However, under the Petroleum Industry Act 2021 (PIA), depending on the assets used as security, either the consent of the Nigerian Upstream Regulatory Commission (the Commission) or the Nigerian Midstream and Downstream Petroleum Regulatory Authority (the Authority) will be required when security is created.

The type and nature of security to be created will determine whether the assets need to be specifically identified in the security document.

A floating charge created over the present and future assets of the company will not require that the specific assets be identified and therefore can be classified generally as assets. However, for other types of security interests such as a mortgage, a fixed charge or an assignment by way of security, the assets the security are created over must be specifically identified in the security document. In addition, where a fixed charge is created over a future asset, that asset must be identifiable and ascertainable, either when it becomes existent or when the asset is acquired by the borrower.

Generally, a private limited liability company in Nigeria is not restricted from creating security over its assets, except where the constitutional documents of the entity require that certain approvals and consent be obtained where that security is to be created.

Also, there are no restrictions on the grant of guarantees in Nigeria. However, guarantees must be in writing, signed by the guarantor and duly stamped. The guarantee is usually for a consideration or otherwise made by deed. In accepting corporate guarantees, it is important to ensure that the issuance of the guarantee, as well as its value, is permitted by the articles of association of the corporate guarantor.

Due to the World Bank negative pledge and Nigeria being a member of the World Bank, public entities or private companies owned by public entities would usually not grant security over their assets. The World Bank negative-pledge clause (NPC) is contained in its loan general conditions. The NPC is to the effect that the security created on any public assets to secure external debt that would grant priority to a third-party creditor over the bank will equally and ratably serve as a security to all amounts due to the bank from the borrowing state.

On foreign guarantees, Nigerian banks are not permitted to accept foreign guarantees on Naira-denominated loans, except where that foreign guarantee is a bank guarantee, and foreign currency deposits, whether that foreign currency is in a foreign bank account or a domiciliary account with a Nigerian bank. The foreign-bank guarantee must be from a first-class bank or a bank that the Central Bank of Nigeria (CBN) finds acceptable.

Most forms of consensual security created in Nigeria require registration at the relevant registry, except for non-registrable security interests such as pledges.

Security interests are required to be registered at the relevant registries. Mortgages and registrable charges are also required to be registered with the CAC and where the charge is over a land asset, it must be registered with the relevant land registry.

Security over movable assets must also be registered with the NCR.

Lenders can confirm existing security over any assets in any of registries above. In addition, since companies are required under the Companies and Allied Matters Act (CAMA 2020) to keep statutory books such as a register of charges, a register of particulars of charges, and a register of debenture-holders, lenders can confirm existing security from the statutory books. Also, security created over shares can be confirmed in the register of members of the company.

Usually, security created by deed is released by way of a deed of release. It is executed upon the payment of the borrowed sum by the debtor.

The deed of release must be stamped ad valorem and registered at the CAC, together with the memorandum of satisfaction. According to the Companies Regulations 2021, a flat fee of NGN25,000 is paid for the registration of the deed of release and memorandum of satisfaction.

In addition, if the secured asset is real property, that deed of release must be registered at the relevant land registry. The same applies for collateral registered in the NCR.

Where the security is non-registrable or equitable, the releasing documents need not be by deed nor be registered.

A secured lender has several options to enforce the collateral upon default by the borrower.

Power of Sale

The power of sale arises once the debt has become due and there is default in payment. However, the power of sale does not become exercisable until:

  • a notice requiring repayment has been served (for at least three months in most states, with the exception of Lagos that provides for at least two months);
  • the interest on the facility has been in arrears for at least two months; and
  • the mortgagor is in breach of some covenants in the mortgage deed or some other provisions of the law.

In addition, the Mortgage and Property Law of Lagos provides that the power of sale can be exercisable where there is a breach of any of the provisions of the mortgage deed or the law other than the covenant to repay debt.

In the event that the power of sale has arisen and is exercisable, the secured assets can be sold by public auction, or by private sale where the power of sale is provided under the security document.

Step-in Rights

Step-in rights are exercisable by a lender where such an arrangement is agreed by the relevant parties. This enables the lender to replace the borrower in respect of the receivables due to the borrower as well as the obligations of the borrower under the relevant contract.

Appointment of a Receiver

The appointment of a receiver is a common method of enforcement, because the receiver can be appointed with or without recourse to the court. Once appointed, the receiver may act by taking over the project or in any other way he or she sees fit. Typically, the court is eventually approached to sanction the receiver's appointment and to provide him or her with police protection to carry out his or her duties.

The CAC must be notified when a receiver is appointed.


Foreclosure is common in the case of a mortgage. The current regime in Nigeria allows only for judicial foreclosure. Hence, a foreclosure process must be sanctioned by a court before it can be carried out.

Entry into Possession

Generally, there are no statutory restrictions imposed on the secured lender in enforcing the security. The restrictions will usually arise from the nature of the agreement between the parties, waivers or concessions extended by the lender and the demeanour of the enforcing party in enforcing the security.

Movable Property

For movable property, a secured creditor may enforce its rights under the NCR Regulation or under any law governing the transaction that relates to the security interest in the manner agreed to in the security agreement between the parties.

The NCR Regulation also provides that the secured creditor may enforce its security interest by taking possession of the collateral or rendering the collateral inoperative. Subsequently, it may dispose of the collateral through a sale. A secured creditor may proceed extra-judicially to enforce the security without having to obtain a court order before repossessing the collateral. The secured creditor may also choose to apply to the court to authorise enforcement.

Under Nigerian law, the parties to an agreement are at liberty to choose the applicable law of a jurisdiction that would govern their contract and their preferred dispute resolution mechanism.

Nigerian courts would give effect to a choice of foreign law and choice of a foreign dispute resolution which parties to a contract elect to govern their transaction.

Nigerian courts have held that their duty is strictly to interpret the terms of a legal and valid contract agreed between parties and not to impute alternative arrangements that would effectively re-write the terms of that contract.

There are two laws governing the enforcement of foreign judgments in Nigeria: (i) Reciprocal Enforcement of Judgments Ordinance (Ordinance), Cap 175 Laws of the Federation of Nigeria, 1958, and (ii) the Foreign Judgment (Reciprocal Enforcement) Act (Act), Cap C35, Laws of the Federation of Nigeria 2004.

Under the Ordinance, which was enacted to enhance reciprocal enforcement of judgments rendered in Nigeria and England, the courts of the Federal Republic of Nigeria will recognise and enforce (without re-examination or re-litigation of the matter adjudicated upon) any judgment rendered by the High Court in respect of any suit, action or proceedings which satisfies the requirements of the Reciprocal Enforcement of Judgments Ordinance.

However, under Section 3 of the Act, the Minister of Justice (Attorney-General of the Federation) (the Minister) is empowered to make an order directing that part 1 of the Act be extended to any foreign country; the courts of the foreign country shall be deemed to be superior courts in order to enforce their judgments in Nigeria. Before the power is exercised, the minister must satisfy himself or herself that the judgments of superior courts in Nigeria will also be granted reciprocal treatment for enforcement in that foreign country. However, there has not been any instance where the Minister of Justice has made an order extending Part 1 of the Act to any country.

Foreign arbitral awards are enforceable in the Federal Republic of Nigeria without the need for a re-litigation of the facts or merits. The New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (the Convention) has been given effect in the Federal Republic of Nigeria by the Arbitration and Conciliation Act, Cap A15 Laws of the Federation 2004. An arbitral award made in any country that is a party to the Convention will be enforced by the courts in the Federal Republic of Nigeria, subject to the provisions of the Convention.

A foreign lender may enforce its rights under a loan or security agreement, provided that the security has been properly created and registered. However, the conversion of the proceeds of the security into foreign currency for the purpose of repatriation where the proceeds are denominated in Naira would require the consent of the CBN.

There are no restrictions prohibiting a foreign entity (lender) from granting loans to a Nigerian borrower. However, where the loan is to be converted to Naira, the Nigerian borrower is required to obtain an electronic certificate of capital importation (CCI) from an authorised dealer for the inflow of funds. The CCI enables the Nigerian lender to access the Nigerian foreign exchange market to purchase foreign currency at the official exchange rate for repatriation/repayment to the foreign entity.

There are no restrictions on the grant of security or guarantees to foreign lenders. The same principles applicable to a Nigerian lender on the grant of security and guarantee would apply to a foreign lender.

The Nigerian Investment Promotion Commission Act (NIPCA) promotes and protects foreign investment in Nigeria. A foreigner can invest in any business in Nigeria except businesses on the NIPC’s negative list, which are those involved in the production of ammunition and dealing in narcotics. There are sector-specific restrictions that may relate to the sector where the foreign company will be operating in Nigeria.

The NIPCA guarantees the non-expropriation and nationalisation of the assets of a foreign company by the government. However, where this is done in the national interest or for a public purpose, the NIPCA provides for compensation and allows the investor the right to seek redress in a court to determine the appropriate compensation. Any such compensation must be paid for repatriation in a convertible foreign currency.

Nigeria has exchange control provisions and regulations that regulate the repatriation of capital or payment of foreign currency abroad. Foreign investors, when bringing foreign currency into Nigeria, either through equity or a loan, are required to obtain a certificate of capital importation (CCI). This serves as evidence of the inflow of the funds and the conversion into Naira. The CCI is to be obtained from a Nigerian bank that is a licensed authorised dealer.

With the CCI, the borrower of a loan from a foreign lender is able to access the foreign exchange market to source foreign currency to repay the loan and a foreign equity investor is also able, with the CCI, to receive a dividend payment.

A project company can maintain foreign currency accounts, as there are no restrictions to that effect. However, the project company may have a reporting obligation to the CBN and the Securities and Exchange Commission where it transfers or receives funds equivalent to USD10,000 or above. See Section 2(1) of the Money Laundering Prohibition Act 2011 (as amended).

Generally, no financing or project agreement needs to be registered or filed with a government authority, other the regular perfection processes which would require the consent of the Governor where the land is situated in respect of alienation of land, the stamping of the documents upon payment of the relevant stamp duty, and registration at the CAC, the NCR, the NCAA, and the NIMASA, depending on the assets used as security.

For the federal government's PPP projects, concession agreements (CA) are required to be filed with the Infrastructure Concession and Regulatory Commission (ICRC). Certain states also require that CAs be filed with the PPP office of the relevant states.

Ownership or interest in land and natural resources requires licences. While foreign investors cannot hold an interest in land, natural resources or any other type of assets directly, entities incorporated in Nigeria by foreign investors can hold such a licence or interest where the foreign investors are the shareholders in those companies.

The concepts of agency and trustee are recognised in Nigeria. An agent or trustee is usually used in syndicated financing deals to act on behalf of the lending parties. An agent or trustee can and will be allowed to enforce the security being held on behalf of a lender, in accordance with relevant laws and documents.

There are no other structures that are commonly used as an alternative to the trust structure.

The rules governing priority of competing interest in Nigeria follows English common law, which determines priority based on the nature of interest (legal or equitable) and the order of creation. 

A legal interest will take precedence over an equitable interest. A security created first in time will take priority over the subsequent security, except in certain instances. For example, a subsequently created legal interest will take priority over a previously created equitable interest, provided the person with the legal interest is unaware of the equitable interest. Also, a fixed charge will have priority over an uncrystallised floating charge, whether or not that floating charge was created before the fixed charge. However, if a floating charge prohibits the creation of any later charge that would take priority over the floating charge, and the holder of the fixed charge is aware of that prohibition, the floating charge will have priority. The registration of such a prohibition with the CAC is deemed to be sufficient notice.

The foregoing rules are complicated by certain statutory requirements. Where a charge is required to be registered with the CAC under the CAMA 2020, provided that the charge is properly registered within the stipulated time-line of 90 days, it is the date of creation that determines the priority, not when it was registered. However, the charge will fail completely where it is not registered and reverts the position of the creditor to that of an unsecured creditor. With respect to security interest required to be registered with the NCR under the Secured Transaction in Movable Assets Act (STMA), priority is determined by the order of registration.

Contractual subordination in Nigeria is usually done through parties entering into a deed of subordination or an inter-creditor agreement. Parties can vary priorities contractually. However, in winding-up proceedings commenced against a defaulting company, such arrangements are not enforceable. This is because a liquidator is not bound by any subordination arrangement, nor are the legal rights of the junior creditors in insolvency affected by that arrangement.

The typical form of a project company in Nigeria is a private limited liability company incorporated under the CAMA 2020. The liability of the company is separate and distinct from that of its shareholders. Therefore, the liabilities of the sponsors of the project company will be limited to the capital invested in the company. One of the advantages of a private limited-liability company is the ability of the company to sue and be sued as an independent legal entity. A private limited-liability company also can own assets separately from those of its owners.

The CAMA 2020 provides for certain reorganisation procedures for companies, some of which include the following.

Voluntary Reorganisations

Under the CAMA 2020, voluntary reorganisation processes include a company voluntary arrangement, an arrangement and compromise, and mergers.

A Company's Voluntary Arrangement (CVA)

A CVA is an arrangement that allows a company suffering financial difficulties to propose voluntarily to its creditors a compromise in satisfaction of its debt. This proposal can either be made by the directors of the company or by an appointed nominee. Where the company and its creditors agree on the proposal, the report of the details of the approval must be submitted to the Federal High Court for sanctioning.

Arrangement and Compromise

An arrangement and compromise will allow a company in debt, together with its creditors or any class of them, and its members or any class of them, as the case may be, to prepare a scheme of arrangement or compromise for the purpose of restructuring the debts of the company or reorganising the company, and to apply to the Federal High Court (FHC) to sanction that scheme.

At least three quarters in value of the shares of members or class of members, or of the interest of creditors or class of creditors, as the case may be, being present and voting either in person or by proxy at the meeting, must agree to any compromise or arrangement. The compromise or arrangement may be referred by the FHC to the Securities and Exchange Commission, which shall appoint one or more inspectors to investigate the fairness of the compromise or arrangement and to make a written report on it to the Court within a time specified by the Court.

Where the Court is satisfied as to the fairness of the compromise or arrangement, it shall sanction it and the compromise or arrangement shall be binding on all the creditors or the class of creditors or on the members or the class of members, as the case may be, and also on the company or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company.


This occurs where an entity gains direct or indirect control over another entity. A merger can occur through the purchase or lease of shares, interests or assets in the other companies, an amalgamation or other combination with the other companies, or by a joint venture. Mergers are regulated by the Federal Competition and Consumer Protection Commission (FCCPC).

For public companies, the SEC’s approval will be required.

As long as the security interest is validly created and duly perfected, the insolvency or bankruptcy of the borrower or the person who created the security interest will not affect a secured party’s ability to enforce the security on the assets. However, there are certain insolvency processes, such as winding up, that limit a lender’s right to enforce its security once the process commences.

Under Section 576 and 651 of the CAMA 2020, where a winding-up proceeding is commenced, any disposition of the property of the company, including things in action unless the Court otherwise orders, will be void. Furthermore, section 577 of the CAMA 2020 provides that, upon the commencement of a winding-up proceeding, an attachment, sequestration or execution put in force against the estate or effects of the company is void.

Similarly, as provided under section 480 of the CAMA 2020, where a company is under administration, no step shall be taken to enforce security over the company’s property, except with the consent of the administrator, or the permission of the Federal High Court.

In the event of a company’s insolvency, section 657 of the CAMA 2020 sets outs the order in which the creditors of a company would be paid:

  • the liquidator's expenses;
  • preferential debts, including all local rates and charges due from the company at the relevant date that became due and payable within the 12 months before that date;
  • deductions made from the remuneration of employees and contributions of the company under the Pension Reform Act;
  • the wages or salaries of any clerk or servant of the company;
  • the wages of workers or labourers;
  • accrued holiday remuneration payable to clerks, servants, workers or labourers on termination of employment, or in the event of death;
  • secured creditors (fixed-charge creditors before floating-charge creditors);
  • unsecured creditors; and
  • shareholders.

Where a borrower, security-provider or guarantor becomes insolvent, the risk areas for the lender would be whether security created in its favour was created within or outside certain periods, which would in turn determine if the security is valid or void. For example, anything done or to be done by a company, within the time of presenting a petition for winding up in the case of a winding-up by or subject to the supervision of the court, or the passing of a resolution for winding up in the case of a voluntary winding-up, which has the effect of giving a person (other than the employee of a company)who is one of the company’s creditors or a surety or guarantor an undue advantage, shall be deemed a preference of that person and be declared invalid accordingly. Likewise, floating charges created on the undertaking of a company within three months of the commencement of the winding-up of a company is invalid, except where it can be proved that the company was still solvent at the time the floating charge was created.

Premised on the foregoing, any security created outside of the aforementioned specified periods is valid and enforceable against the borrower. However, the ability to enforce will be dependent on whether an insolvency proceeding has commenced when the lender seeks to enforce.

The only entities excluded from bankruptcy proceedings in Nigeria are statutory corporations established by specific statutes. All other corporate entities can be subject to bankruptcy proceedings.

Under the Insurance Act, only a company registered in Nigeria can carry out insurance and reinsurance business on risks classified as domestic insurance in Nigeria. The National Insurance Commission (NAICOM) can, in writing, permit a foreign insurer and reinsurer to insure and reinsure risks that fall within the domestic insurance classification where it is convinced that the risk is of an exceptional nature and cannot be handled by a local insurance company. There is an express prohibition of the assignment of reinsurance proceeds.

There are no taxes payable on insurance policies. However, the necessary premium on such policies must be paid by the relevant parties.

Insurance policies over project assets are payable to foreign creditors. However, the CBN prohibits the assignment of insurance proceeds to non-residents. Therefore, a foreign lender intending to take security over insurance policies in Nigeria will either appoint a security trustee or agent to whom the proceeds are assigned, or an account is created by the borrower to receive the insurance proceeds and the lender takes security over that account.

Under Section 78 of the Companies Income Tax Act, Cap C19, Laws of the Federation 2004, payment of interest is subject to withholding tax. The withholding tax rate payable on interest is 10% of the interest amount to be paid. Companies must deduct or withhold 10% from the date on which the payment is made. However, payment of the principal is not subject to withholding tax. Companies who have tax treaties in Nigeria enjoy a reduced rate of 7.5%.

See 2.3 Registering Collateral Security Interests.

Generally, there are no usury laws limiting the amount of interest that may be charged.

In the CBN Guide to Charges for Banks and Other Financial Institutions (the Guide) dated 1 January 2020, it was stated that the lending rate in local currency loans is negotiable. The Guide also provided that a 1% flat penal rate shall be charged on an unpaid amount per month, in addition to charging the current rate of interest on outstanding debts, and subject to guidelines for the particular category of financial institution.

The law that governs a project agreement is mostly based on the contractual negotiation and agreements by the parties. Project agreements are usually governed by either English law or Nigerian law, depending on the parties involved.

The law that typically governs financing agreements is also based on what the parties to the agreements decide. Typically for foreign lenders, English law is usually adopted. For Nigerian lenders, the local law is usually adopted as the governing law.

Typically, matters relating to tax, insolvency, immovable properties are governed by domestic laws.

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Aluko & Oyebode is the largest full-service commercial law firm in Nigeria. The firm strives for excellence in everything it does. Clients come to Aluko & Oyebode for the firm's deep knowledge of Nigerian law, as well as its breadth of international expertise – and an understanding of clients’ industries that can only be born of direct experience. The firm's practice areas include banking, capital markets, competition and antitrust, corporate services, corporate governance and compliance, employment, immigration and incentives, energy and natural resources, financial institutions advisory, infrastructure finance and PPP, intellectual property, international trade, litigation, dispute resolution and risk management, mergers and acquisitions, private equity, privatisation and public procurement, real estate, tax, telecommunications, media, entertainment and technology, venture technology and emerging growth companies, and white-collar and investigation.

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