the fixed term set out in the articles of association expires or the articles allow them to wind up the company voluntarily under certain conditions, provided that the company passes a resolution to this effect at the general meeting; or. Yes, it is possible to effect a pre-pack sale of assets. In mergers and acquisitions, for the scheme to be sanctioned, the companies must make a pre-merger notification to the SEC. DIP financing is not recognised under the Nigerian laws on restructuring and insolvency. The Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) has commenced a review of Nigerian insolvency laws and it is hoped that Nigeria will have its insolvency laws codified as the Nigerian Insolvency Law. The Act repeals Sections 118 to 128 of the Investment and Securities Act on merger control, thereby divesting the SEC of its power to approve mergers and vesting responsibility for approving merger transactions in the Competition Commission. The scheme is then referred to both the court and the SEC for approval. A takeover allows another entity to assume the management and control of an inefficient company. The main benefit is that it provides the debtor with reasonable latitude to allow it to continuing operating, with a view to repaying its debts. As insolvency is territorial, in the absence of cross-border insolvency laws in Nigeria, there is currently no applicable manner of determining the centre of main interests of a company in Nigeria. Under Section 494 of CAMA, the order of priority is as follows: The liquidator will determine when and how payments are to be made to creditors and or contributories, after a proper assessment of the debtor's assets and liabilities. Nigeria is considerably a creditor-friendly jurisdiction, especially for debts acquired by Nigeria's public assets management body, the Asset Management Corporation of Nigeria (AMCON). CAMA 2004 was the general company law which covered corporate insolvency, one of the 14 key business indicators to be worked upon to achieve ease of doing business in Nigeria. If the company refuses to pay the debt within three weeks, the creditor may file a petition for the company to be wound up. With specific reference to a creditors' winding-up, the creditor may choose the liquidator where the underlying agreement provides for such appointment. The court may also choose the liquidator or the official receiver, especially in a members' voluntary winding-up and an involuntary winding-up. By using our site, you agree to our collection of information through the use of cookies. However, Nigerian insolvency law is still traditional in its approach, such that winding up and liquidating the company remain the sole mechanisms for dealing with instances of insolvency. There have been recent changes to the restructuring and insolvency regime in Nigeria - in particular, the enactment of the Federal Competition and Consumer Protection Act and the amendment of the AMCON Act. The insolvency procedures recognised by the Act are, in that sense, either collective or non-collective and undertaken by Insolvency Practitioners. Insolvency: There are no specific regulations that allow a secured creditor to bid in the sale of its secured asset for the amount of its debt (as a credit bid). Where the directors and shareholders of a debtor propose a restructuring, the members and shareholders must approve any such restructuring option. file all required papers with the court and/or the Corporate Affairs Commission. It may be secured by a fixed charge on some of the company's property or by a floating charge over all of the company's property. Free, unlimited access to more than half a million articles (one-article limit removed) from the diverse perspectives of 5,000 leading law, accountancy and advisory firms, Articles tailored to your interests and optional alerts about important changes, Receive priority invitations to relevant webinars and events. Section 493 of the same Act ranks both secured and unsecured creditors above members of the company during a winding-up. There are various laws applicable directly and indirectly to insolvency generally in Nigeria. Formal insolvency law procedures are usually collective and centralised, overriding certain pre-insolvency agreements in order to achieve laid down objectives for the benefit of all creditors. There are various laws applicable directly and indirectly to insolvency generally in Nigeria. Once a liquidator is appointed, the directors' powers cease or are terminated immediately, except where otherwise sanctioned by the liquidator or the debtor in a general meeting. BRIPAN is a private sector-driven association of insolvency practitioners comprised of lawyers, accountants and bankers. They may also be released where the debtor can provide some other sort of security that affords acceptable comfort to the creditor. If the scheme is acceptable to 75% of the creditors or stakeholders, the court may grant an order sanctioning its implementation. Generally, the enforcement of security may be hampered by delays in the administration of justice. In contrast, arbitration favours privacy of contracts and party autonomy. Research support is also available. Thanks to its efforts, a private members' Bankruptcy and Insolvency Bill was drafted and passed by the National Assembly in 2016, which is still awaiting presidential assent. There is no standalone legislation that governs restructuring and insolvency in Nigeria. Mortgage: Under Nigerian law, in the event of default by the borrower, a mortgage can be enforced if it has been executed and registered in accordance with the Conveyancing Act or the Property and Conveyancing Law of a state or the Mortgage and Property Law of Lagos State. However, the Federal Competition and Consumer Protection Act 2019, in Sections 92 to 102, repealed the provisions of Sections 118 to 128 of the Investment and Securities Act on merger control, thereby divesting the Securities and Exchange Commission (SEC) of its power to approve mergers and vesting the responsibility for approving merger transactions in the Competition Commission. The insolvency law of Nigeria can be found within the Companies and Allied Matters Act 2020, which reformed and repealed CAMA 1990, an act described by Prof Emmanuel Akanki, one of Nigeria’s leading company law scholars, as a landmark company legislation because it was the first indigenous company law in Nigeria. Before a bankruptcy petition can be presented, the court requires prima facie evidence of the debtor‘s insolvency. A failure to perfect security may also complicate or prevent the enforcement of security. The circumstances under which the directors may be held liable for the debtor's insolvency are set out in Sections 505 to 507 of the Companies and Allied Matters Act. discontinue its activities and cease being a going concern; ensure that its assets are not dissipated; and. Under CAMA, a creditor of a company can file liquidation proceedings and commence recovery action against a debtor. Nigeria is yet to adopt the UNCITRAL Model Law on Cross-Border Insolvency 1997 (UNCITRAL Model Insolvency Law) (see Question 16). The business rescue practitioner will have greater freedom to negotiate with bidders and it may be agreed that credit bidding will take place, provided that this is ultimately accepted in a finalised business rescue plan. If satisfied, the court will make an order approving the arrangement. Specialist advice should be sought was formed only for a limited purpose; or. The debtor must provide accurate information as required, especially where it intends to enter into an arrangement or a compromise with its creditors. These include the … In these investment scenarios, there are times when an organization needs more money than is as of now being produced by its activities; it has two different ways to get it. There are no specific timeframes for submission of creditors' claims. Section 238 of the Bankruptcy and Insolvency (Repeal and Re-enactment) Act 2016 provides that where a bankruptcy, insolvency or reorganisation order is made against a debtor in a foreign proceeding, a certified copy of the order is, in the absence of contrary evidence, proof that the debtor is insolvent and a foreign representative has been appointed. Upon application by the company, the court will call a meeting of the company and its creditors and members for any restructuring proceeding. Where there are employee pension plans or schemes in place, claims for deficits in such plans have priority in liquidation, since pensions are now a statutory requirement and, as a matter of practice, when unpaid, the employee may apply to the court for enforcement. These include the following. A court will typically operate at the end of the process to endorse, ratify or sanction the appointment. A debtor proposing a restructuring must give notice of any meetings regarding such restructuring to its creditors. There are express provisions under Nigerian law for formal restructuring proceedings, in the form of arrangement and compromise, mergers, takeovers and acquisitions. The trustee may then, if authorised by the creditors, take over the property at the value placed on it by the creditor. The merging companies must apply to the SEC concerning the pre-merger notice attached with the necessary documents and, after the merger, the companies must give a post-merger notification. However, such a compromise requires the express consent of such secured lenders. In such instance, a creditor may maintain an action against the directors in their personal capacity. A claim can be disallowed if the creditor does not comply with this procedure. The debtor can also convene a general meeting of creditors along with its general meeting. Any conveyance or assignment by the debtor of all its property to trustees for the benefit of all creditors shall be void. is unable to meet its financial obligations. In Nigeria, the debtor's centre of main interests is determined as the place where it carries on its business. Insolvency is a situation where natural or legal entity is unable to pay debt. About the Author. Other conditions depend on the size of the merger, as follows: Takeovers: These occur where the acquirer (which later becomes a holding company) takes over the control of the target (which later becomes a subsidiary) by acquiring its issued share capital. the company, through a special resolution, has resolved that it be wound up by the court; the company has defaulted in filing its statutory reports with the Corporate Affairs Commission or in holding the statutory meetings; the number of members has reduced below two; the company is unable to pay its debts; or. Further, the meaning of the term 'bankruptcy' in Nigerian law refers only to individual insolvency, as distinct from corporate insolvency, by virtue of the Bankruptcy Act. Every creditor must prove its claim, whether due immediately or payable upon a contingency; and if the debtor is insolvent, the bankruptcy rules will apply. In terms of personal insolvency law, there is the Bankruptcy Act of 1979 consolidated in the 2004 Laws of the Federation of Nigeria, but this law has not had much impact because of its requirement for judgment and execution levied as a condition for proof of bankruptcy. At the end of each year from commencement to conclusion of the liquidation, the liquidator must convene a general meeting of the shareholders informing them of his or her actions and conduct in the winding-up proceedings. Generally, a restructuring will result in alterations to creditors' rights. The processes and remedies available to a domestic creditor are also applicable to a foreign creditor. A supportive and skilled executive/management team. Generally, creditors are ranked according to the type of security that they possess over the debtor's assets and whether such security is registered as stipulated under Section 197 of CAMA. An understanding of the legal requirements. Yes. The relevant procedures are laid down in Sections 117 to 152 of the Investment and Securities Act 2007. For creditors, it may operate to suspend the calculation of interest and may result in the payment of outstanding debts subject to the priority order of payment as provided under CAMA. Upon receipt by the report, the court will refer the scheme to the SEC, which will scrutinise its fairness and then issue a report accordingly. the Companies and Allied Matters Act (Cap C20, LFN) 2004 (CAMA); the Federal Competition and Consumer Protection Act 2019; the Investment and Securities Act 2007 (as amended in 2015); the Securities and Exchange Commission Rules 2013 (as amended in 2019); the Asset Management Corporation of Nigeria Act 2010 (as amended in 2015); the Banks and Other Financial Institutions Act (Cap B3 LFN) 2004; the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act 1994; the Nigerian Deposit Insurance Commission Act 2006; the Federal High Court (Civil Procedure) Rules 2019. A hostile takeover, which takes place without the consent of the target, is generally disruptive. If this party is the debtor, the process is commenced by way of a resolution for voluntary winding-up. In all, insolvency practice in Nigeria needs to be stepped up several notches if the Nigerian economy is to thrive and attain its maximal potential. Arrangement and compromise: Court approval is required where a company wishes to alter the rights of its members and creditors. insolvency proceedings in Nigeria, with a view to potentially remedying future transactions. A claim is proved by an affidavit verifying the claim sent to the receiver or liquidator, as the case may be. The law is enforceable in Nigeria but the process of filing is cumbersome and makes bankruptcy almost insignificant. time frame for resolving insolvency is two years; the cost of resolving insolvency is 22.0% of the estate; and the recovery rate is 27.8 cents on a dollar. Enforcement of the terms of such mortgage is dependent on whether the power of sale has arisen. CAMA provides that matters relating to restructuring and insolvency shall be filed at the Federal High Court in the first instance, to the exclusion of other courts in Nigeria. Involuntary: A company can be wound up by the court if: An involuntary winding-up is commenced on presentation of the relevant petition (Sections 401, 408 to 410 and 415 of CAMA). The Court (Federal High Court) is vested with the power to approve arrangements, compromises and merger schemes. In this instance, on the application of the foreign representative, the court can limit the property that the Nigerian trustee has power over. Generally no. Accordingly, a secured creditor may not realise that security itself, but must deliver it to the liquidator for realisation. In the case of publicly traded companies, there may be a lockdown period with respect to the sale of shares owned by the directors. Thereafter, the court will order investigations into the fairness of a scheme and approve the same where satisfied. In the absence of such guidelines, the SEC and the Competition Commission jointly issued an advisory note on mergers in May 2019. Section 471 of CAMA provides for the voluntary winding-up of a company by creditors. Case law is sparse; even the trickle appears to have dried up. the company resolves by special resolution that it should be wound up voluntarily. The Federal High Court is involved in insolvency proceedings from the hearing and determination of winding-up petitions to the appointment of liquidators. Under the Pension Reform Act, 2014, pension funds can invest only a limited percentage of funds under management in the securities of publicly listed and traded companies. Unless they are registered to carry on business in Nigeria, foreign debtors cannot benefit from the restructuring and insolvency regime in Nigeria. Where a company is registered to carry on business in Nigeria, it will be subject to Nigerian company, tax and insolvency laws in the event of insolvency. In most cases, this is its registered address or headquarters. Foreign insolvency judgments and orders may be enforced in Nigeria if they comply with Section 10 of the Foreign (Reciprocal Enforcement) Act, which requires the existence of a wholly or partly unsatisfied foreign monetary judgment debt. On such terms and conditions as the court ’ s insolvency regime is business-rescue focused, is generally.... Terms of such secured lenders to endorse, ratify or sanction the appointment of the Capital market Association... Debtor requires court approval is granted, the boards of directors and the SEC for approval regulates licensed banks deposit-taking! Lp, a creditor may maintain an action against a debtor may lose control over the property the terms the... Appear to be considered directors are expected, among other things, to: a. Or enforcement of security that affords acceptable comfort to the transfer of distribution! 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