Legal framework

Legislation

What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?

There is no primary or standalone legislation governing insolvency and restructuring in Nigeria.

However,  legislations governing insolvency and restructuring include:

  • the Companies and Allied Matters Act 1990;
  • the Companies Winding-up Rules 1983;
  • the Investment and Securities Act 2007 (as amended 2015);
  • the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act 1994;
  • the Nigeria Deposit Insurance Corporation Act 1988 (as amended 2006);
  • the Banks and Other Financial Institutions Act 2004;
  • the Asset Management Corporation of Nigeria Act 2010 (as amended 2015);
  • the Insurance Act 2003;
  • the National Insurance Commission Act 1997; and
  • the Federal High Court Rules (Civil Procedure) Rules 2009.

Regulatory climate

On an international spectrum, is your jurisdiction more creditor or debtor friendly?

Nigeria is more of a creditor-friendly jurisdiction.

For a debt as little as N2,000 (approximately £4.30), a creditor is entitled to file a petition at the Federal High Court, seeking that a company be wound up for its inability to pay its debts, three weeks after its receipt of the creditor’s demand notice.

Once a receiver or manager takes over the secured assets and affairs of a debtor company, it can sell the secured assets to pay off the debt owed.

Sector-specific regimes

Do any special regimes apply to corporate insolvencies in specific sectors (eg, insurance, pension funds)?

Yes, including:

  • the Investment and Securities Act 2007, which regulates the capital market (including activities of the Securities and Exchange Commission and public-quoted companies) and has provisions on mergers and acquisitions;
  • the Nigeria Deposit Insurance Corporation Act 2006, which regulates licensed banks and deposit-taking financial institutions;
  • the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act 1994, the Banks and Other Financial Institutions Act 2004 and the Asset Management Corporation of Nigeria Act 2010 (as amended 2015), which apply to banks and other financial institutions; and
  • the Insurance Act 2003 and the National Insurance Commission Act 1997, which apply to all insurance businesses and insurers.

Reform

Are any reforms to the legal framework envisaged?

Yes.

The Business Recovery and Insolvency Practitioners Association of Nigeria is endeavouring to introduce a standalone insolvency bill featuring the Cross-Border Insolvency Model Law.

A Private Member’s Bankruptcy and Insolvency Bill to reform the Bankruptcy Act 1979, was passed by the National Assembly in 2016, but it is awaiting the Nigerian president’s assent.

The Presidential Enabling Business Environment Council has drafted an Omnibus Bill (in line with the Mauritius Model) amending various laws (including the Companies and Allied Matters Act and its insolvency provisions) to ease doing business in Nigeria.

In 2018 the Companies and Allied Matters (Repeal and Re-enactment) Bill 2018 was passed by the National Assembly of  Nigeria. It is currently awaiting the Nigerian president’s assent. Among other welcome developments, the bill provides for business rescue proceedings and increases the threshold entitling a creditor to file a petition at the Federal High Court to wind up a debtor company from N2,000 (approximately £4.30) to N200,000 (approximately £430.10). A company can now reach a compromise on its debts under this amendment. For businesses which are nearly insolvent, a new process for administration has been introduced that will enable them to keep running under the supervision of an administrator for a 12-month period.

Director and parent company liability

Liability

Under what circumstances can a director or parent company be held liable for a company’s insolvency?

A breach of a director’s fiduciary duties resulting in the insolvency of a company may, according to Section 279 of Companies and Allied Matters Act, occasion civil or criminal liabilities. Under Sections 495, 502, 505 and 506 of the act, a director may be held liable for a company’s insolvency where:

  • it is shown that proper books of accounts were not kept by the company throughout the two-year period immediately preceding the commencement of the winding up or between the incorporation of the company and the commencement of winding up, whichever is the shorter;
  • the company has been carried on in a reckless manner or with the intent to defraud its creditors, and any conveyance, mortgage delivery of goods, payment, execution or other act relating to property is deemed a fraudulent preference;
  • such directors have mis-applied, retained or become accountable for any money or property of the company, or are guilty of misfeasance or breach of duty;
  • any part of the company’s property valued at N100 or above, or debt due to or from the company is concealed;
  • any part of the property valued at N100 or above is fraudulently removed;
  • property is obtained on credit for and on behalf of the company under false pretences, which the company does not subsequently pay for; and
  • through misrepresentation, the consent of the company’s creditors is obtained in respect of company affairs.

A parent company will also be liable where there is an agreement between the parent and its subsidiary that it will be liable in such a circumstance.

Defences

What defences are available to a liable director or parent company?

The following defences are available to a liable director or parent:

  • if he or she acted honestly and, in the circumstances in which the company’s business was carried on, the default was excusable;
  • if he or she was unaware of the fraudulent way that the company’s business was conducted;
  • if there was no intent to defraud the company’s creditors;
  • if there was no intent to conceal the company’s affairs or break the law;
  • if he or she acted as a reasonably diligent and skilful manager, consulted, used or worked with other professionals, and followed due process in his or her activities; and
  • in criminal cases, if reasonable doubt is created by raising a defence of business judgment, or a defence showing a lesser intent than the intent to defraud, or gross criminal negligence.

Due diligence

What due diligence should be conducted to limit liability?

To limit liability, directors must ensure that reasonable steps are taken to minimise the company’s exposure to potential losses. These reasonable steps must be taken in consideration of the directors’ duties (eg,  fiduciary care, skill and experience).

Directors must ensure that decisions in the interest of the company are taken in the light of the company’s current and updated audit and financial reports.

Independent legal and financial advice should be sought regularly to ensure compliance with the requisite legal regimes. It is advisable to take professional liability insurance before accepting an appointment as director.

Directors should keep previous and current records, and understand the business and industry peculiarities, regulations and the resulting risks assessments.

Position of creditors

Forms of security

What are the main forms of security over moveable and immoveable property and how are they given legal effect?

In Nigeria, the main forms of such security are as follows:

  • A mortgage – a mortgage is a conveyance of title to property that is given as security for the payment of a debt or performance of some other obligation. It is commonly used in respect of real properties and ships. Under Nigerian law, mortgages in the event of default by the borrower, are enforceable once 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.
  • A pledge – a pledge is a deposit of property (whether movable or immovable) as security for a debt or obligation. Under Nigerian law, a property can be pledged only if it is transferrable by delivery of possession. The possession and use of the property are usually given to the pledgee as guarantee for the repayment of a loan with the common intention of redeeming the asset on payment of the debt.
  • A charge – a charge gives certain rights over property as security for the debt. The charge is usually given by way of a debenture over the assets of the company and may be secured by a fixed charge on some property or a floating charge over the whole properties of the company. Charges, especially by way of all assets fixed and floating debenture, are to be registered with the Corporate Affairs Commission within 90 days of their creation.
  • A lien – a lien is a legal right where the creditor has a right to another party’s property until a debt or duty has been satisfied. It is usually applied to movable properties.

Mortgages and charges are given legal effect on their registration with the Corporate Affairs Commission.

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

Pursuant to Section 494 of the Companies and Allied Matter Act 1990, creditors’ claims are ranked in the following order:

  • costs, charges and expenses incurred in the winding up, including the remuneration of the liquidator;
  • labour claims, such as social insurance and tax deduction claims, wages and salary and pensions, accrued holiday remuneration, and local tax rates and charges (these preferential unsecured claims rank equally among themselves but below administrative costs and expenses);
  • secured creditors;
  • unsecured creditors; and
  • claims of contributories, if any.

Secured claims should ordinarily take precedence and priority over all the above, but in the context of winding up and the Companies Winding-Up Rules, the rules create uncertainty regarding their status in respect of costs, the expenses of the winding up and the liquidator.

Can this ranking be amended in any way?

Yes. The liquidator is empowered to make any compromise or arrangement with creditors regarding their claims. This ranking may also be amended based on the terms of the relevant contracts between the debtor company and the creditor.

The following legislations have intervened in some sectors and amended ranking:

  • According to Section 42 of the Investment and Securities Act 2007, the unsecured claims of investors are viewed as third-party assets held in trust and have priority over the general ranking.
  • Pursuant to Section 20 of the Nigeria Deposit Insurance Corporation Act 2006, specific protection and priority in ranking are granted to account holders and depositors in failed banks by the combined provisions of Sections 20 and 21 of the Nigeria Deposit Insurance Corporation Act and Section 54 of the Banks and Other Financial Institutions Act.

Foreign creditors

What is the status of foreign creditors in filing claims?

Foreign creditors are entitled to the same rights as domestic creditors. A petition may be filed by a solicitor on their behalf at the Federal High Court, as long as all requisite procedures have been followed in accordance with the applicable requirements stipulated in the Companies and Allied Matters Act 1990or other applicable legislations and  regulations).

Unsecured creditors

Are any special remedies available to unsecured creditors?

No. The remedies available to unsecured creditors are open to any creditor, secured or unsecured.

Except that in the context of collective insolvency procedures which replace their individual contractual rights to claims and imposes a stay of individual actions, unsecured creditors may ordinarily, among other things:

  • sue for breach of contract and damages;
  • sue for debt recovery;
  • apply for summary judgment; or
  • resort to arbitration.

Debt recovery

By what legal means can creditors recover unpaid debts (other than through insolvency proceedings)?

The legal means available to creditors to recover  unpaid debts are:

  • by delivery of a demand notice to a debtor, requesting that the unpaid debts be satisfied within a specific period, usually not fewer than 21 days, based on Section 409 of the Companies and Allied Matters Act;
  • by negotiation and mediation, which create a more relaxed environment to discuss and come up with realistic solutions to the settlement of the debt owed;
  • by filing an action in court under the rules of the court, for summary judgment or under the undefended list process; or
  • by an action, which may also lie for damages for breach of loan contract.

Is trade credit insurance commonly purchased in your jurisdiction?

Yes, by businesses that intend to protect their account receivables from loss due to credit risks, insolvency and bankruptcy. The trade credit insurance system is also provided by the Nigerian Export-Import Bank and other government export credit agencies

Liquidation procedures

Eligibility

What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?

The following entities are entitled to initiate liquidation procedures in Nigeria under the Companies and Allied Matters Act:

  • the company;
  • a creditor;
  • a contributory;
  • the official receiver;
  • a trustee in bankruptcy to, or a personal representative of, a creditor or contributory;
  • the Corporate Affairs Commission under Section 323 of the Companies and Allied Matters Act, as approved by the attorney general;
  • a receiver authorised by an instrument under which he or she was appointed; or
  • all or any of these parties together or separately.

Under Section 41(2) of the Nigeria Deposit Insurance Corporation Act, the liquidator of a failed financial institution has the power to:

  • realise the assets of the failed insured institution;
  • enforce the individual liability of the shareholders and directors thereof; and
  • wind up the affairs of such failed institution as provided in the act.

Pursuant to the Asset Management Corporation of Nigeria Act, a liquidator can be appointed over a debtor company, whose eligible bank asset has been bought from a financial institution, if it fails to pay a judgment debt against it within 90 days.

The following entities are barred from initiating liquidation procedures in Nigeria:

  • policy holders of fewer than 50 in number; and
  • insurers.

Procedures

What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?

The primary procedures to liquidate an insolvent company are:

  • winding up by the court or court-ordered winding up;
  • winding up voluntarily by members or company creditors; and
  • winding up subject to the supervision of the court or court-supervised winding up (see Section 401 of the Companies and Allied Matters Act).

Winding up by court Under section 408 of the Companies and Allied Matters Act, a company may be wound up by the court if:

  • the company has, by a special resolution, resolved that the company be wound up by the court;
  • default is made in delivering the statutory report to the Corporate Affairs Commission or in holding the statutory meeting;
  • the number of members of the company has reduced to below two;
  • the company is unable to pay its debts; and
  • the court is of the opinion that it is just and equitable that the company should wind up.

Winding up voluntarily by members or by members and creditors of the company Under section 457 of the Companies and Allied Matters Act , a company may be wound up voluntarily:

  • when the period, if any, fixed for the duration of the company by its articles of association expires, or the event, if any, occurs, on occurrence of which the articles provided that the company is to be dissolved and the company has passed a resolution in a general meeting requiring the company to be wound up voluntarily; or
  • if the company resolves by a special resolution that it should be wound up voluntarily.

Under Sections 472 and 473 of the Companies and Allied Matters Act , the company can insist that a meeting of the creditors be held in addition to the meeting of the members and creditors, and at the respective meetings the company may nominate a person to be liquidator for the purpose of winding up the company.

Winding up subject to supervision of the court Under Section 486 of the Companies and Allied Matters Act , a company passes a resolution for its voluntary winding up and, based on a petition filed, the court orders that the voluntary winding up continues subject to court supervision.

How are liquidation procedures formally approved?

Formal approval depends on the procedure adopted:

  • In a winding up by the court, a petition for winding up is presented to the court seeking that the company should be wound up on any of the grounds provided under Section 408 of the Companies and Allied Matters Act. However, where it is a winding up by the court commenced voluntarily by the company itself, a special resolution, passed by the company before filing the petition, is required.
  • In a members’ voluntary winding up, the company will pass a board or company resolution to wind up its affairs and appoint one or more liquidators for the purpose of winding it up, after which the notice of the resolution will be given by advertising the same in the Gazette or two daily newspapers. A copy of the resolution, a statutory declaration of solvency and all other required documents must be filed with the Corporate Affairs Commission, following which the procedure will be approved by the Registrar General of the Corporate Affairs Commission on the requisite documents and regulatory requirements being submitted and met.
  • Winding up voluntarily by members and creditors also requires a special resolution passed by the company, in addition to a meeting of the creditors, at which meeting a person will be nominated as liquidator for the purpose of winding up the affairs and assets of the debtor company.
  • Winding up subject to the supervision of the court requires the filing of a petition seeking for the court’s supervision of a voluntary winding up.

What effects do liquidation procedures have on existing contracts?

Liquidation procedures generally have no effect on existing contracts, except if such contracts relating to property are deemed a fraudulent preference, rendering them invalid.

However, the terms of any existing contract may determine its outcome on the commencement of liquidation proceedings, as they may expressly stipulate that the contract would be determined on the commencement of liquidation procedures.

Also, a liquidator can disclaim contracts which are onerous to the company in liquidation. On the completion of the liquidation procedure, the company's contracts are deemed terminated.

What is the typical timeframe for completion of liquidation procedures?

There is no typical timeframe for the completion of liquidation procedures.

This is because the commencement and completion of the liquidation process are dependent on certain factors, including:

  • whether the petition is contested and if so, the complexity or difficulty of questions concerned;
  • how quick the parties, their counsel and the court are prepared to conclude the hearing and avoid delays;
  • how busy the court is;
  • how soon the winding-up petition is heard and determined by the court; and
  • the acts of the Corporate Affairs Commission, where relevant.

Depending on these factors, a liquidation procedure (including voluntary liquidation) may not be concluded in under 12 months.

Role of liquidator

How is the liquidator appointed and what is the extent of his or her powers and responsibilities?

By virtue of Section 422 of the Companies and Allied Matters Act , a liquidator may be appointed by the court. Such liquidator is empowered to do the following:

  • bring or defend any action or other legal proceeding in the name and on behalf of the company;
  • carry on the business of the company so far as may be necessary for its beneficial winding up;
  • appoint a legal practitioner or any other relevant professional to assist him/herin the performance of his/her duties;
  • pay any classes of creditors in full;
  • make any compromise or arrangement with creditors or persons claiming to be creditors;
  • compromise all calls and liabilities to call, debts and liabilities capable of resulting in debts, and all claims, and take any security for the discharge of any such call, debt, liability or claim and give a complete discharge;
  • sell the property of the company by public auction or private contract;
  • perform all acts and execute in the name and on behalf of the company, all deeds, receipts and other documents;
  • prove, rank and claim in the bankruptcy, insolvency or sequestration any contributory for any balance against the estate, and receive dividends in the bankruptcy, insolvency or sequestration in respect of that balance as a separate debt due from the bankrupt or insolvent;
  • draw, accept, make and endorse any bill of exchange or promissory note in the name of and on behalf of the company;
  • raise money on the security of the assets of the company;
  • take out, in their official name, letters of administration to any deceased contributory and perform, in their official name, any other act necessary for obtaining payment of any money due from a contributory to the estate which cannot be conveniently done in the name of the company;
  • appoint an agent to conduct any business which the liquidator cannot do himself or herself ; and
  • do all such other things as may be necessary for the winding up of the affairs of the company and distributing its assets.

Court involvement

What is the extent of the court’s involvement in liquidation procedures?

The Federal High Court is particularly and significantly involved in liquidation procedures, from the hearing and determination of winding-up petitions to the appointment of a liquidator. The court:

  • makes the order for the delivery of the company’s properties to the liquidator after a winding-up order has been made;
  • orders payments to be made to the liquidator’s account; and
  • may exclude creditors that failed to prove their claims within the fixed time limit or prevent them from benefitting from any distributions made before the debts are proved.

The Federal High Court has special rules of procedures for winding up, known as the ‘Companies Winding-Up Rules’.

Creditor involvement

What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?

Under the Companies and Allied Matters Act, any creditor of a debtor company is entitled to file liquidation proceedings in Nigeria and commence a recovery action against the debtor company.

Such creditors also have a representative right in the committee of inspection that may be set up to work with the liquidator.

However, in the course of these liquidator proceedings, a creditor is prohibited from:

  • instituting or maintaining any action against such company in any court in Nigeria;
  • disposing of the property of the company; and
  • attaching, sequestrating, distressing or levying execution on, the company’s property-after liquidation has started, any attachment of or levying of execution against the debtor company’s assets will be void..

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in liquidation procedures?

Members’ voluntary winding up and winding up by and subject to court supervision The directors will pass a board resolution for a shareholders’ meeting. At this meeting, the shareholders will pass a special resolution for the winding up of the company.

At the end of each year from the commencement to the conclusion of the liquidation, the liquidator will also summon a general meeting of the shareholders, informing them of his or her acts and the conduct of the winding-up proceedings.

Creditors’ voluntary winding up The company will cause a meeting of the company’s creditors to be called simultaneously with the notices of the general meeting of the company. This notice must be published in the Gazette and in at least two national newspapers in the district where the company is situated.

In attendance at the creditors’ meeting, the shareholders will pass the resolution for its voluntary winding up and directors will ensure that a full statement of the company’s affairs, together with a list of the creditors of the company and the estimated amount of their claims, are before the creditors at the meeting.

Restructuring procedures

Eligibility

What are the eligibility criteria for initiating restructuring procedures? Are any entities explicitly barred from initiating such procedures?

Under the Companies and Allied Matters Act, there are generally no eligibility criteria for initiating restructuring proceedings and no entities are explicitly barred from initiating such procedures because there is no formal insolvency restructuring procedure available in that act. However in practice, insolvency practitioners have been relying on and using the neutral Scheme of Arrangements and Compromises in the act.

The provisions on mergers and acquisitions under the Investments and Securities Act 2007 require public companies to meet with certain threshold and compliance conditions before engaging in mergers and acquisitions as a restructuring tool in the best interest of the investing public.

Under Section 48 of the Asset Management Corporation of Nigeria Act 2015, where a receiver has elected to manage the affairs of a debtor company, such receiver must:

  • give notice of his or her election by publication in at least two newspapers with nationwide circulation;
  • state in the notice the period during which the affairs of the debtor company will be managed; and
  • cause to be prepared, within 30 days of the publication of the notice, a detailed and comprehensive plan for the rehabilitation of the debtor company. This plan contains plans for the restructuring of the company, its debt and business.

Under Section 7 of the Banks and Other Financial Institutions Act, there is a bar on the restructuring of banks except with the prior consent of the Central Bank of Nigeria.

Procedures

What are primary formal restructuring procedures available in your jurisdiction and what are the key features and requirements of each?

The primary formal restructuring procedures available in Nigeria are as follows:

  • Arrangement and compromise – a change or alteration of the rights or liabilities of members, debenture holders or creditors of a company.
  • Mergers and acquisitions – the amalgamation of the undertakings or interest of two or more companies and where one company purchases substantial assets or shares of another company.
  • Takeover – a person or group of persons acquires or wishes to acquire a minimum of 30% shares in a public-quoted company, with the intention of taking control of that company.
  • Scheme of arrangement/reorganisation/reconstruction – employed when the rights of the investors and creditors of a company are varied.
  • Management buy-out – the purchase of a company from its owners by the existing management team of the company.
  • Receivership – a receiver and manager  appointed over a debtor company  either under a legislation or deed of debenture, or if the debtor company’s assets have been charged, mortgaged or pledged as security for an eligible bank asset acquired by the Asset Management Corporation of Nigeria; to recover its debts from realising its assets or by managing its business after restructuring the company, its debt or business.
  • Bridge bank – under Sections 38 and 39 of the Nigeria Deposit Insurance Corporation Act, the Nigeria Deposit Insurance Corporation, in consultation with the Central Bank of Nigeria (CBN), organises, incorporates and the CBN issues a banking licence to one or more banks (known as ‘bridge banks’) to assume such deposits and liabilities and to purchase such assets, of a failing insured institution and perform any other function or business as the act may determine. The bridge bank is also granted forbearance, exemptions and waivers in respect of its operations.

How are restructuring plans formally approved?

Restructuring plan approval varies.

Arrangements and compromises Under Section 537 of the Companies and Allied Matters Act, a company may, by special resolution, decide that the company be put into members’ voluntary winding up and that the liquidator be authorised to sell the whole or part of its assets to another company, in consideration or part consideration of fully paid shares, debentures, policies or cash.

Under Section 539, a compromise or arrangement may be proposed between a company and its creditors, or between the company and its members. If a majority (representing not less than 75% in value of the shares of members or the interest of creditors) is present and voting and agree to such compromise or arrangement, that compromise or arrangement may be referred by the court to the Securities and Exchange Commission.

If the court is satisfied with the fairness of this arrangement or compromise, based on a report delivered by the Securities and Exchange Commission, it will authorise it to become binding on all creditors or members.

Mergers, acquisitions, takeovers, management buy-outs and schemes of arrangement These are subject to the prior review and approval of both the Securities and Exchange Commission and the Nigerian Stock Exchange. Each formal procedure must also be approved by the board of directors and shareholders of the companies involved and authorised by the Federal High Court.

Receivership Under Section 48 of the Asset Management Corporation of Nigeria Act, a  receiver appointed by the corporation causes a detailed and comprehensive plan for the rehabilitation of the debtor company to be prepared.

Banks Under Section 7 of the Banks and Other Financial Institutions Act, a bank can be restructured with the prior consent of the Central Bank of Nigeria

What effects do restructuring procedures have on existing contracts?

The terms of the contracts may provide for their terminations or a transfer of the rights and liabilities of the debtor company to the new entity post-restructuring.

What is the typical timeframe for completion of restructuring procedures?

There is no typical timeframe for the completion of restructuring procedures.

The timeframe is dependent on how soon the Federal High Court approves the restructuring procedure. It may take six to 12 months (perhaps less) for schemes of arrangements which are not contentious; and six to 18 months for mergers and acquisitions, depending on the sector involved and the speed of obtaining the necessary Securities and Exchange Commission and other regulatory approvals in the given sector.

Court involvement

What is the extent of the court’s involvement in restructuring procedures?

The Federal High Court is significantly involved in restructuring procedures. It is vested with the power to approve the scheme of arrangement or merger after giving stakeholders the opportunity to be heard and reviewing their presentations. 

Creditor involvement

What is the extent of creditors’ involvement in restructuring procedures and what actions are they prohibited from taking against the company in the course of the proceedings?

Creditors are entitled to be notified of and vote at meetings (especially court-ordered meetings) regarding the formal restructuring procedures of schemes of arrangements and mergers.

Creditors must not act in ways prejudicial to any of the restructuring procedures.

Under what conditions may dissenting creditors be crammed down?

Where a minority of the creditors disagree with the terms of the scheme of arrangement, the court may go ahead and allow the scheme if it is satisfied that, based on the Securities and Exchange Commission written report, it is fair. Where the fairness of the process is satisfactory, and the scheme is acceptable to 75% of the body of creditors or stakeholders, a court may grant an order permitting its implementation. A highly qualified majority of 90% is required in order to proceed with a M&A scheme.

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in restructuring procedures?

The board of directors and shareholders of the debtor company must approve the relevant restructuring procedure.

Shareholders can also apply summarily for the court to order a meeting of the creditors or members in order to agree to and determine the scheme.

Dissenting shareholders to the restructuring procedures are also entitled to payment of the fair value of their shares or an acquisition of their shares.

Informal work-outs

Are informal work-outs available for distressed companies in your jurisdiction? If so, what are the advantages and disadvantages in comparison to formal proceedings?

Yes, in some situations companies may elect to apply informal work-outs.

In the Companies and Allied Matters (Repeal and Re-enactment) Bill 2018, there is a specific provision for business rescue. Insolvency practitioners have been embracing informal methods, including the International Insolvency’s International Association of Restructuring, Insolvency and Bankruptcy Professionals’ Principles of Multi-Creditor Workouts, the London Approach and the Harvard Model of Negotiation.

Advantages Informal workouts are:

  • generally cheaper and avoid publicity;
  •  flexible;
  • avoid the long hurdles and delays usually associated with court approvals;
  • encourage collaboration, cooperation and restoration of cordial debtor/creditor relationships; and
  • more advantageous for an unsecured creditor.

Disadvantages In informal workouts:

  • creditors must rely on management promises to execute a turnaround plan;
  • creditors may break ranks without a court order or court supervision; and
  • directors run the risk of trading recklessly if the business becomes solvent.

Transaction avoidance

Setting aside transactions

What rules and procedures govern the setting aside of an insolvent company’s transactions? Who can challenge eligible transactions?

A transaction may be set aside and deemed void if it is a fraudulent preference for the benefit of a creditor. Under the Asset Management Corporation of Nigeria Act, a transaction which is a breach of fiduciary duty of the receiver may be set aside by the company, appointor or creditors.

An official receiver, liquidator, creditor or contributory of a debtor company, may apply to the court to declare that the officers be personally liable where the business of the company has been carried on in a reckless manner or with the intent to defraud creditors of the company (Section 506 of the Companies and Allied Matters Act).

Operating during insolvency

Criteria

Under what circumstances can a company continue to conduct business during an insolvency procedure?

A company can continue to conduct business during an insolvency procedure where it is necessary for the beneficial winding up of the debtor company.

Stakeholder and court involvement

To what extent are relevant stakeholders (eg, creditors, directors, shareholders) and the courts involved in any business conducted during an insolvency procedure?

As soon as winding-up proceedings commence and a liquidator is appointed, the extent of the stakeholders’ involvement significantly reduces and in most cases ceases.

However, the directors may still advise and assist the liquidator (not the receiver) in the proper running of the company.

Financing

Can an insolvent company obtain further credit or take out additional secured loans during an insolvency procedure?

Yes. On behalf of the debtor company, and if creditors agree, an insolvency practitioner may raise any money required on the security of the assets of the company, subject to the control of the court and any creditor or contributory.

Employees

Effect of insolvency on employees

How does a company’s insolvency affect employees and the company’s legal obligations to employees?

A liquidator is not obliged to retain the employees of an insolvent company. Realisation of the company’s assets automatically stop the employment of the pre-insolvency employees not absorbed by the buyer. However, where employees are disengaged, the liquidator must pay all wages and salaries of employees as a priority above all other secured and unsecured debts. Where insufficient funds are realised, the receiver may carry out a ‘hair-cut’ with employees on their outstanding salaries so as to be able to pay a part, in full settlement, of their outstanding salaries..

Cross-border insolvency

Recognition of foreign proceedings

Under what circumstances will the courts in your jurisdiction recognise the validity of foreign insolvency proceedings?

In Nigeria, foreign insolvency proceedings and decisions may be recognised and enforced, so long as they comply with the Foreign Judgment (Reciprocal Enforcements) Act (Cap F35 LFN 2004) or the Reciprocal Enforcement of Judgments Ordinance 1958 or, on the rare occasions where it is by arbitral award, the Arbitration and Conciliation Act 1988.

Winding up foreign companies

What is the extent of the courts’ powers to order the winding up of foreign companies doing business in your jurisdiction?

Every foreign company intending to do business in Nigeria must take necessary steps to be incorporated or exempted from incorporation as a separate entity in Nigeria.

Once registered as a Nigerian company, the Federal High Court can exercise its jurisdiction to entertain and determine petitions for its winding up. A company should be wound up in the relevant court of the country where it is incorporated.

Centre of main interests

How is the centre of main interests determined in your jurisdiction?

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.

Cross-border cooperation

What is the general approach of the courts in your jurisdiction to cooperating with foreign courts in managing cross-border insolvencies?

The Federal High Court is enjoined by the  Bankruptcy and Insolvency (Repeal and Re-enactment) Bill 2016 to facilitate, approve or implement arrangements that will result in a coordination of proceedings with any foreign proceedings for a bankrupt individual. In corporate insolvency, there is no provision on judicial cooperation with foreign courts because Nigeria has not adopted the UNCITRAL Model Law on Cross-border Insolvency, although any qualified judgment of a foreign court may be recognised, registered and enforced in Nigeria.