In the recent case of Hotel De Island Ltd v Central Bank of Nigeria (FHC/L/CS/273/2013), the Federal High Court has upheld the complaints of certain Nigerian companies against the procedure which the Central Bank of Nigeria (CBN) has adopted for the designation of debts which they owe to Nigerian bank Ecobank as eligible assets pursuant to the Asset Management Corporation of Nigeria (AMCON) Act 2010, and the subsequent acquisition of those assets on that basis by AMCON.
The total alleged debts came to the equivalent in naira of approximately $40 million.
AMCON was established in 2010 following a sweeping purge of the banking sector by then Central Bank Governor Sanusi Lamido Sanusi. Sanusi alleged (in replacing the management of eight out of the 25 banks licensed to operate in Nigeria) that the banks were overburdened with non-performing assets which had created negative capital. On the basis of these allegations, he nationalised four of the banks and placed four others on the market for purchase by investors. Ecobank bought a controlling shareholding in what was then Oceanic Bank as a result of the purge. The debts in question in this action were owed to Oceanic Bank.
Since most (if not all) of the 22 banks had the same non-performing asset problem, the CBN sponsored a bill to establish AMCON. According to Section 4(a) of the AMCON Act 2010, AMCON's objectives include assisting "eligible financial institutions to efficiently dispose of eligible bank assets in accordance with the provisions of this Act". Section 24 of the act empowers the CBN to "designate through guidelines any class of bank assets as eligible bank assets"; while Section 25 provides that AMCON:
"may, subject to the provisions of this act, within 3 months of the designation of any asset as eligible bank asset in pursuance of section 24, specifying a class of bank assets as an eligible class of bank assets, purchase, on a voluntary basis, eligble bank assets from any eligible financial institution desirous of disposing of such eligible bank assets."
The plaintiffs' action, premised on the doctrine of lis pendens (notice of pending action), challenged the CBN's power to designate their alleged debts to Ecobank as eligible assets (qualified for acquisition by AMCON) under the AMCON Act 2010 while two consolidated suits in which they had questioned the existence and/or quantity of those alleged debts, and their liability for them, were still pending in the Federal High Court. The plaintiffs also challenged AMCON'S acquisition of the debts pursuant to their designation as eligible assets while the consolidated suits were pending.
The suit was fully contested, with each defendant filing counteraffidavits and written addresses apart from the notices of preliminary objection challenging the court's jurisdiction to entertain the suit.
The Federal High Court held that the defendants' action in designating the plaintiffs' alleged debts as eligible assets, and the acquisition of same while the consolidated suits were pending, were unlawful. The court nullified the designation of the debts and their acquisition as eligible assets, and awarded the equivalent in naira of $700,000 as general damages against the defendants, jointly and severally. The court also awarded the costs of the action in favour of the plaintiffs.
Essentially, the suit challenged the impunity with which Nigerian government agencies brazenly disregard the judicial powers vested in the courts to adjudicate disputes properly submitted to them. Specifically, it sought to correct the process of the banking reforms instituted by the CBN and implementation of AMCON's non-performing banking asset clean-up campaign, with a view to ensuring compliance with due process and the rule of law.
Ecobank has appealed and has served a motion on notice on the judgment creditors seeking a court order staying execution of the judgment pending determination of its appeal.
If the Federal High Court judgment stands, it could serve as a precedent for nullifying other eligible banking asset acquisitions effected by AMCON while the banks and their customers were already in litigation over the alleged debts.
For further information on this topic please contact Ifeoma Esom at TRLPLAW by telephone (+234 1 816 3135), fax (+234 1 8419373) or email (firstname.lastname@example.org). The TRLPLAW website can be accessed at www.trlplaw.com.