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General structuring of financing

Choice of law

What territory’s law typically governs the transaction agreements? Will courts in your jurisdiction recognise a choice of foreign law or a judgment from a foreign jurisdiction?

Transaction agreements in Nigeria are typically governed by Nigerian law or English law, although parties may, by mutual consensus, agree to other foreign laws. Foreign counterparties often propose other foreign laws but we usually see parties settle for English law as a compromise.

Nigerian courts recognise and give effect to parties’ choice of foreign law unless there is justification for a Nigerian court not to give effect to that foreign law. As a general rule, the intention of parties on the governing law of a contract determines the proper law of the contract but for such choice of law to be effective, it must be real, genuine, bona fide, legal and reasonable. That law must have some relationship to, and must also be connected with, the realities of the contract considered as a whole.

Judgments from foreign jurisdictions are generally enforceable in Nigeria, subject to complying with the requirements of the law. There are two statutory regimes for the enforcement of foreign judgments in Nigeria:

  • the Reciprocal Enforcement of Judgment Ordinance 1958, Cap 175, Laws of the Federation of Nigeria and Lagos; and
  • the Foreign Judgments (Reciprocal Enforcement) Act 2004, Cap F35, Laws of the Federation of Nigeria.

Restrictions on cross-border acquisitions and lending

Does the legal and regulatory regime in your jurisdiction restrict acquisitions by foreign entities? Are there any restrictions on cross-border lending?

Except for businesses on the negative list (such as production of firearms, munitions, production of, and dealing in, narcotic drugs and production of military and paramilitary wears); and coastal and inland shipping, the legal and regulatory regime in Nigeria does not restrict acquisitions by foreign entities.

In fact, Nigeria has put in place several mechanisms to ensure the ease of doing business in Nigeria and to encourage foreign investment within Nigeria. While ownership by Nigerians is encouraged in certain sectors such as oil and gas, with applicable incentives, acquisition by foreign entities in those sectors is not restricted. There are no regulatory restrictions on cross-border lending in Nigeria. In most cases, the Nigerian entities act as borrowers and the foreign entities are lenders.

Where the borrower wishes to access the official foreign exchange market to procure foreign exchange for payment of interest and principal, the foreign lender will be required to obtain a certificate of capital information (CCI) at the time the loan was being in-flowed into Nigeria. However, where a CCI is not obtained, the borrower may have to access the unofficial market to procure foreign exchange. Therefore, the absence of CCI does not restrict repayment of a cross-border loan.

Types of debt

What are the typical debt components of acquisition financing in your jurisdiction? Does acquisition financing typically include subordinated debt or just senior debt?

Depending on the size of the acquisition financing, in addition to taking security on the asset to be acquired, Nigerian banks typically require borrowers to contribute some form of ‘equity’ in support of the total sum required for the relevant acquisition. Therefore, for large acquisition financings, it would be rare to have that financing only provided by senior debt. The debt component is likely to be a mix of senior debt and subordinated debt (where the sponsors provide shareholder loans in addition to direct equity investment). On the other hand, with smaller financing transactions, the banks may be able to get comfortable with only taking security on the relevant asset to be acquired with little or no equity being provided by the borrower.

Certain funds

Are there rules requiring certainty of financing for acquisitions of public companies? Have ‘certain funds’ provisions become market practice in other transactions where not required?

In a takeover transaction, where the consideration for the shares will be cash, the law requires the offeror to make adequate arrangements to ensure that funds are available to make the required payment for those shares.

Furthermore, in an acquisition transaction requiring the approval of the Nigerian Securities and Exchange Commission (SEC), the acquirer must show the SEC, by way of documentary evidence, the source of funds to finance the acquisition.

In other instances, the acquirer only undertakes to the target that it has the funds to fulfil its payment obligations in the agreement. ‘Certain funds’ provisions are not commonplace in Nigeria.

Restrictions on use of proceeds

Are there any restrictions on the borrower’s use of proceeds from loans or debt securities?

Yes. There are restrictions in relation to a borrower’s use of proceeds from debt securities. For example, a company cannot use proceeds from loans or debt securities to pay dividends to its shareholders. Furthermore, an issuer of debt securities, where the issuance requires the approval of the SEC, is prohibited from using the proceeds of the issue for purposes other than those stated in the prospectus or offer document without the approval of the SEC.

Licensing requirements for financing

What are the licensing requirements for financial institutions to provide financing to a company organised in your jurisdiction?

To the extent that a foreign finance company or financial institution is merely providing finance to a company in Nigeria, no licence is required to be obtained by that finance company under Nigerian law. However, where a foreign financial institution intends to set up and carry out ‘banking or finance business’ in Nigeria (defined as the provision of financial services to individual consumers and to industrial, commercial and or agricultural enterprises), it must be registered at the Corporate Affairs Commission (CAC) of Nigeria as a company having a share capital, in accordance with the Companies and Allied Matters Act 2004, Cap C20, Laws of the Federation of Nigeria (CAMA) and obtain a licence from the Central Bank of Nigeria (CBN).

Withholding tax on debt repayments

Are principal or interest payments or other fees related to indebtedness subject to withholding tax? Is the borrower responsible for withholding tax? Must the borrower indemnify the lenders for such taxes?

Under Nigerian law, repayment of the principal sum of a loan is not subject to withholding tax but the borrower is statutorily obliged to withhold tax on the interest due to a lender. However, section 11 of the Companies Income Tax Act (CIT Act) exempts interest on certain types of loans from tax, where certain conditions are satisfied. Such exempt interests are set out in the following.

  • Interest on foreign loans: the Third Schedule to the CIT Act sets out the conditions under which interest on foreign loans should be exempt. They are:

Repayment period (including moratorium)

Grace period

Tax exemption allowed (per cent)

Above seven years

Not less than two years

100

Five to seven years

Not less than 18 months

70

Two to four years

Not less than 12 months

40

Below two years

Nil

Nil

  • Interest on loans granted by a bank to a company engaged in agricultural trade or business or:
  • section 11 (4) of the CIT Act, defines agricultural trade or business as any trade or business connected with:
  • the establishment or management of plantations for the production of rubber, oil palm, cocoa, coffee, tea and similar crops;
  • the cultivation or production of cereal crops, tubers, fruits of all kinds, cotton, beans, groundnuts, sheanuts, beniseed, vegetables, pineapples, bananas and plantains; and
  • animal husbandry (ie, poultry, piggery, cattle rearing, fish farming and deep-sea trawling); and
  • the fabrication of any local plant and machinery; and
  • providing working capital for any cottage industry established by the company; provided that the moratorium period is not less than 18 months and the rate of interest on the loan is not more than the base lending rate at the time the loan was granted; or
  • Interest on loans granted by a bank for the purpose of manufacturing goods for export from tax.

A company shall be deemed to be engaged in manufacturing for export if, the Nigerian Export Promotion Council (NEPC) certifies that:

  • no less than one-half of its manufactured goods disposed of in its year-of-account is sold outside Nigeria and is not re-exported to Nigeria; and
  • not less than 75 per cent of exported proceeds are repatriated to Nigeria through government-approved channels.

Interest on these loans shall only be exempted from tax upon presentation of a certificate issued by the NEPC, stating that the level of export specified has been achieved by the company. Where there is a withholding tax obligation, the borrower is not obligated to indemnify the lender for those taxes. However, the borrower can, and often in practice does, agree to ‘a gross-up’ obligation, under the facility agreement.

In relation to debt securities, there is currently a waiver on income tax on all forms of debt instruments pursuant to the Companies Income Tax (Exemption of Bonds and Short-Term Government Securities) Order 2011 (CIT Order) that exempts debt securities issued by corporate entities from tax imposed under the CIT Act for a period of 10 years from the date of the CIT Order, being 2 January 2012.

The Personal Income Tax Act 2004, Chapter P8, Laws of the Federation of Nigeria, as amended by the Personal Income Tax (Amendment) Act No. 20 of 2011, also exempts from taxation any income earned by an individual from debt securities issued by corporate entities. There is, however, no limitation period for the exemption granted in the Personal Income Tax Amendment Act 2011.

Restrictions on interest

Are there usury laws or other rules limiting the amount of interest that can be charged?

There are generally no usury laws or rules limiting the amount of interest that may be charged by a lender on a loan. In practice, interest on a loan typically reflects the applicable market rate. The transfer pricing regulations also seek to ensure that such transactions between connected persons are done at arm’s length.

In relation to licensed money lenders, however, section 15 of the Money Lending Law of Lagos State, applicable only in Lagos State, sets limits on interest that may be charged by money lenders under various forms of borrowing arrangements.

Indemnities

What kind of indemnities would customarily be provided by the borrower to lenders in connection with a financing?

A borrower generally provides standard indemnities, similar to those contained in the Loan Market Association’s (LMA) template loan facility agreements. These include, but are not limited to, indemnities for:

  • costs, losses and expenses incurred in connection with the preparation, negotiation and completion of the facility;
  • costs incurred in defending or settling legal claims (excluding where the claim is in connection with the lender’s acts of gross negligence or wilful default);
  • tax liabilities incurred by virtue of the lender’s participation in the borrowing; and
  • costs of creating and perfecting security.

Assigning debt interests among lenders

Can interests in debt be freely assigned among lenders?

Yes. Subject to the contractual provisions of the relevant debt agreement, there are no restrictions on the assignment of debt under Nigerian law.

Requirements to act as agent or trustee

Do rules in your jurisdiction govern whether an entity can act as an administrative agent, trustee or collateral agent?

The CAMA and the Investments and Securities Act 2007, No. 29, Laws of the Federation of Nigeria (ISA) contain provisions that govern the operation of an entity as a trustee in relation debt securities.

The SEC also has a code of conduct for trustees. There are no specific rules governing the operations of a security trustee, administrative or collateral agents in Nigeria.

Debt buy-backs

May a borrower or financial sponsor conduct a debt buy-back?

There is no legal or regulatory framework for debt buy-back in Nigeria. However, in the absence of any regulatory restriction, parties may contractually agree to a debt buy-back. Typically, borrowers in Nigeria effect debt buy-backs by way of loan pre-payment, which would typically involve additional costs to the borrower. While pre-payments may not be described as debt buy-backs in the strictest sense, it is one way of reducing or extinguishing debts by borrowers.

Exit consents

Is it permissible in a buy-back to solicit a majority of lenders to agree to amend covenants in the outstanding debt agreements?

There is no regulatory restriction in this regard (see question 12).

Guarantees and collateral

Related company guarantees

Are there restrictions on the provision of related company guarantees? Are there any limitations on the ability of foreign-registered related companies to provide guarantees?

Unless a company’s articles of association restrict it from providing a guarantee to a related company (or any company at all) or the purpose of that guarantee is unlawful, nothing under Nigerian law generally prevents Nigerian companies and foreign-registered companies from providing related company guarantees. Such arrangements must, however, comply with transfer pricing regulations under Nigerian law. Further, a Nigerian company is restricted from providing a guarantee if the same constitutes prohibited financial assistance.

Assistance by the target

Are there specific restrictions on the target’s provision of guarantees or collateral or financial assistance in an acquisition of its shares? What steps may be taken to permit such actions?

Yes. Section 159 of the CAMA prohibits a Nigerian company, or any of its subsidiaries, from giving financial assistance directly or indirectly for the purpose of acquisition of its shares; and the same also extends to post-acquisition of shares too. Financial assistance is defined to include a gift, guarantee, security or indemnity, loan, any form of credit and any financial assistance given by a company, which has the effect of reducing the net assets of the company to a material extent or having no net assets.

Therefore, financial assistance for the purpose of acquisition of shares (or post-acquisition of shares) is prohibited under Nigerian law where such financial assistance will result in the material reduction of the net assets of the target company or where the target company has no net assets.

There is no whitewash process available under Nigerian law.

Types of security

What kinds of security are available? Are floating and fixed charges permitted? Can a blanket lien be granted on all assets of a company? What are the typical exceptions to an all-assets grant?

These types of security typically include charges, mortgages and pledges. The CAMA permits Nigerian companies to create fixed and floating charges. While there is no law that restricts the grant of a blanket lien on all the assets of a company, including future assets, the creation of a legal mortgage on future assets is likely to fail because proof of actual existence of the relevant property is required for registration of a legal mortgage.

Requirements for perfecting a security interest

Are there specific bodies of law governing the perfection of certain types of collateral? What kinds of notification or other steps must be taken to perfect a security interest against collateral?

Depending on the asset, perfection of security in Nigeria generally involves stamping (ie, affixing an official stamp) the relevant security documents and registering them at the relevant public registry. In addition, the creation of security over certain types of assets may require the consent of certain regulatory bodies.

Stamping

The relevant regulatory body in charge of the administration of stamp duties, where the borrower is a company, is the Federal Inland Revenue Service (the Nigerian tax authority), and where the borrower is an individual, it is the inland revenue service of the state of residence of that individual. For instance, if the individual is tax resident in Lagos State, the applicable body will be the Lagos State Inland Revenue Service.

Section 22 of the Stamp Duties Act 2004, Cap S8, Laws of the Federation of Nigeria (SDA) requires instruments executed in Nigeria, or relating, wheresoever executed, to any property situated or to any matter or thing done or to be done in Nigeria to be stamped in order for it to be admissible in evidence in civil proceedings before the Nigerian courts. Therefore, unless exempted by any other legislation, documents creating security over assets situated in Nigeria are typically required to be stamped to guarantee their admissibility in evidence in civil proceedings before Nigerian courts.

Registration

The relevant body in charge of registration of security will depend on the asset and the type of borrower. First, all Nigerian companies are required, in accordance with section 197 (1) of the CAMA, to register with the CAC, certain types of charges created by them over their assets, within 90 days of the date of its creation. Failure to undertake the registration will result in the relevant charge being void against a liquidator and any competing secured creditor of the company (in respect of such asset).

Where the asset in question is real estate, in addition to registering it at the CAC, the relevant legal mortgage will be required to be registered in the lands registry of the state where the land is situated. In the case of ships and marine vessels, that security will also be required to be registered with the Nigerian Maritime Administration and Safety Agency; for security on airplanes, the security shall be registered with the Nigerian Civil Aviation Authority.

Pursuant to the Secured Transactions in Movable Assets Act (also known as the Collateral Registry Act), security interests in movable assets can also be registered at the National Collateral Registry in Nigeria.

Regulatory consent

The consent of a regulatory body may be required to create security on a particular class of assets. For instance, the creation of a legal mortgage over real estate will require the consent of the governor where the land is situated. Additionally, the creation of a charge on interest in oil and gas assets will require the consent of the Minister of Petroleum. Failure to obtain the relevant consents will result in the creation of inchoate security interests.

Renewing a security interest

Once a security interest is perfected, are there renewal procedures to keep the lien valid and recorded?

We are not aware of any renewal procedures that are required after perfection of the security interest in Nigeria.

Stakeholder consent for guarantees

Are there ‘works council’ or other similar consents required to approve the provision of guarantees or security by a company?

The constitutional documents (and any shareholder agreements) typically set out the relevant corporate approvals that are to be obtained by a company for the purpose of creating security over its assets or issuing guarantees. These corporate approvals include resolutions of the board and or the shareholders or any relevant board or shareholder committees designated for that purpose. Except as discussed in question 17, and where the company may have expressly agreed to obtaining the consent of a third party to issue guarantees or provide securities, no employees’ (or similar body by way of a works council) consents are required to approve the provision of a guarantee or security under Nigerian law.

Granting collateral through an agent

Can security be granted to an agent for the benefit of all lenders or must collateral be granted to lenders individually and then amendments executed upon any assignment?

Yes. Under Nigerian law it is possible for security to be granted to a security agent or trustee to be held for the benefit of all lenders.

Creditor protection before collateral release

What protection is typically afforded to creditors before collateral can be released? Are there ways to structure around such protection?

Generally, there are no statutory enactments that afford creditors special protection in connection with the release of collateral under Nigerian law. However, it is important to note that the Rules and Regulations of the Securities and Exchange Commission 2013 (as amended) (Nigerian SEC Rules) on securitisation, prohibits any servicer (designated by an issuer to collect and record payments received on the pool of assets) from releasing or impairing the security interest or doing any act that is likely to have an adverse impact on the receivables except with the written authority of the board of the issuer, trustee or the interim representative, as the case may be.

Fraudulent transfer

Describe the fraudulent transfer laws in your jurisdiction.

Fraudulent transfers are regulated by the CAMA (in relation to companies) and the Bankruptcy Act 2004, Cap B.2, Laws of the Federation of Nigeria (Bankruptcy Act) in relation to individuals. The CAMA, however, incorporates the provisions of the Bankruptcy Act by reference. In this regard, the CAMA provides that any conveyance, mortgage, delivery of goods, payment, execution or other act relating to property that would, if made or done by or against an individual, be deemed in his or her bankruptcy a fraudulent preference, shall, if made or done by or against a company, be deemed, in the event of its being wound up, a fraudulent preference of its creditors, and be invalid accordingly. In addition, any conveyance or assignment by a company of all its property to trustees for the benefit of all its creditors shall be void.

Debt commitment letters and acquisition agreements

Types of documentation

What documentation is typically used in your jurisdiction for acquisition financing? Are short form or long form debt commitment letters used and when is full documentation required?

Typically, standard facility agreements, which are based on relevant LMA templates, are used in acquisition financing transactions. In certain instances, where the facility amount is not substantial and the tenor is short, disbursements may be made on the basis of a short form or long-form debt commitment letter. Such commitment letters may have a detailed term sheet annexed to it or may be in the form of a short or long-form term sheet executed by the parties. It is also useful to note that the aforementioned commitment or offer letters typically have clauses that contemplate definitive documentation such as facility agreements. However, in some instances, banks may proceed to lend on the basis of commitment letters or offer letters only.

Level of commitment

What levels of commitment are given by parties in debt commitment letters and acquisition agreements in your jurisdiction? Fully underwritten, best efforts or other types of commitments?

The level of commitment usually given by Nigerian lenders in debt commitment letters is on a best-efforts basis. However, in rare instances, the commitment may be fully underwritten.

Conditions precedent for funding

What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?

As commitment letters or offer letters are not as extensive as facility agreements, the CPs listed in them are also not very extensive. The lenders would typically request for the most basic requirements upon which credit committee approval was obtained (or will be obtained) for the transaction. Apart from other specific conditions that may be requested because of the nature of the asset or the borrowing, generally CPs to funding under the commitment letter or offer letter include but are not limited to:

  • corporate authorisations such as board or shareholder resolutions;
  • executed copies of transaction documents including security documents, share or asset purchase agreement etc;
  • closing legal opinions;
  • recent financial information on the borrower; and
  • evidence that relevant regulatory or third-party consents or approvals have been obtained.

Flex provisions

Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?

Flex provisions may be used in commitment (or mandate) letters. The provisions that are often subject to modification in respect of flex provisions are pricing terms and the re-allocation of amounts between tranches (where applicable).

Securities demands

Are securities demands a key feature in acquisition financing in your jurisdiction? Give details of the notable features of securities demands in your jurisdiction.

Securities demands are not a key feature in acquisition finance in Nigeria

Key terms for lenders

What are the key elements in the acquisition agreement that are relevant to the lenders in your jurisdiction? What liability protections are typically afforded to lenders in the acquisition agreement?

Subject to the nature of the acquisition (ie, share, asset or business acquisition), lenders will typically be concerned with provisions of the acquisition agreement that relates to the scope of representations and warranties given by the seller under the relevant underlying transaction document. Additionally, lenders also consider the remedies for breach of contract and the indemnity provisions of the acquisition agreement, particularly with respect to the extent to which the seller shall be liable to indemnify the buyer in the case of any breach occasioned by the seller.

As the lenders are typically not parties to the underlying acquisition agreement, they may not get the benefits of the indemnities provided by the seller to the buyer; however, under the acquisition financing agreement, it is possible for the lender to create security over the assets that are being acquired or require the buyer to assign the benefits of the indemnities and or guarantees given to the borrower under the acquisition agreement.

Public filing of commitment papers

Are commitment letters and acquisition agreements publicly filed in your jurisdiction? At what point in the process are the commitment papers made public?

Commitment letters are typically not filed at the companies’ (or other public) registry in Nigeria. However, where the acquisition is a takeover or an acquisition requiring the approval of the SEC, the commitment letters may be filed as ‘evidence of source of funds’.

Enforcement of claims and insolvency

Restrictions on lenders’ enforcement

What restrictions are there on the ability of lenders to enforce against collateral?

In general, the circumstances (and restrictions) under which collateral may be enforced by the lender(s) or security trustee, as applicable, will be governed by the terms of any security and intercreditor agreements that exist. Additionally, secured lenders generally have the right to enforce their security regardless of the borrower’s insolvency and the secured lender’s priorities in the asset secured will be preserved.

However, in an insolvency scenario, a lender (or security trustee) may have difficulty enforcing its security interest owing to insolvency clawback provisions under the CAMA (see question 33).

Debtor-in-possession financing

Does your jurisdiction allow for debtor-in-possession (DIP) financing?

Under the Nigerian Insolvency regime, there are no statutory regulated debtor-in possession (DIP) procedure and financing. Significantly, there is a dearth of statutory regulation on corporate rescue, turn around management and restructuring of insolvent estates.

Nigerian Banking supervision and regulation recognises a bail out procedure analogous to the DIP procedure whereby the Asset Management Corporation of Nigeria is allowed to purchase eligible bank assets of a Nigerian bank. However, outside the financial institution sector, no DIP financing is known under Nigerian law. Nevertheless, this does not preclude a contractual DIP financing agreed between an insolvent company and its creditors consulting a scheme of arrangement or creditors’ voluntary arrangement.

Stays and adequate protection against creditors

During an insolvency proceeding is there a general stay enforceable against creditors? Is there a concept of adequate protection for existing lien holders who become subject to superior claims?

Under Nigerian law, there is no moratorium or automatic stay for insolvency proceedings whether liquidation, administration or creditors voluntary arrangement. However, the insolvent company is entitled to apply to the Federal High Court of Nigeria for a stay against all creditors or other parties. Section 412 of the CAMA, provides that where a winding up petition has been presented against a company, the insolvent company or any creditor or contributor may apply for an order of court staying proceedings in the matter.

The granting of such an order for moratorium is generally at the discretion of the court and the court may grant a stay or restrain proceedings with or without imposing other terms. Section 417 of the CAMA provides that upon the appointment of a provisional liquidator, no action or proceeding shall be proceeded with or commenced against the insolvent company except by leave of court given on such terms as the court may impose.

The insolvency laws of Nigeria, by section 413 of the CAMA, also prohibit disposition of property or any transfer of shares or alteration after commencement of winding up of a company. A company is deemed to have commenced winding up, at the time of passing a resolution for winding up or immediately upon presentation of a petition for winding up.

Similarly, during insolvency proceedings, the Nigerian law prohibits any attachment, sequestration, distress or execution against the estate or effect of the insolvent company. Therefore, the law forbids asset grabbing by creditors by way of enforcement when insolvency proceedings are pending.

There is generally no protection for holders of rights such as lien at insolvency under Nigerian law. On the other hand, secured creditors or other creditors having special rights on securities of an insolvent debtor are excluded from the insolvency regime and accordingly, are entitled to claims for enforcement of their rights, which are not regarded as falling part of an insolvent estate.

Clawbacks

In the course of an insolvency, describe preference periods or other reasons for which a court or other authority could claw back previous payments to lenders? What are the rules for such clawbacks and what period is covered?

Section 495 of the CAMA allows a liquidator to claw back or avoid antecedent transactions carried out during a suspect period that, in its opinion, amounts to a fraudulent preference. The CAMA defines fraudulent preference as any conveyance, mortgage, delivery of goods, payment, execution or other act relating to property that would, if made or done by or against an individual, be deemed in his or her bankruptcy, a fraudulent preference.

Further, where a company is being wound up, a floating charge on the undertaking or property of the company created within three months of the suspect period before commencement of the insolvency proceeding, is another ground for clawback.

Last, the liquidator is also empowered to disclaim an onerous property within a period of 12 months after the commencement of winding up. Onerous property consists of land, of any tenor burdened with onerous covenants, and it includes shares or stock in companies or unprofited contracts or any other property that is unsellable or not readily sellable by reason of the fact that it binds the insolvent company to the performance of any onerous act or to the payment of any sum of money. These rights of disclaimer are exercisable by a liquidator with the leave of the court and from the date of the disclaimer, it terminates any right, interest and liabilities of the company in respect to the property that has been disclaimed.

Ranking of creditors and voting on reorganisation

In an insolvency, are creditors ranked? What votes are required to approve a plan of reorganisation?

In an insolvency proceeding, creditors are ranked in accordance with the type of security they hold over the insolvent company’s assets: a secured creditor having a fixed charge over the company’s assets is paid first. This is closely followed by secured creditors who have floating charges and then unsecured debentures holders. Under Nigerian law, all unsecured creditors rank pari passu and the assets of an insolvent company is distributed among them equally.

The above ranking is, however, subject, at all times, to the statutory preferences provided for under section 494 of the CAMA.

By the provisions of the CAMA, in a voluntary reorganisation, members of a company may resolve to wind up the company by passing a special resolution (being a resolution passed by not less than 75 per cent of the votes cast by the members of the company as, being entitled to do so, vote in person or by proxy at a general meeting of the company) that the company be wound up voluntarily.

Intercreditor agreements on liens

Will courts recognise contractual agreements between creditors providing for lien subordination or otherwise addressing lien priorities?

Generally, under Nigerian law, parties can enter into an agreement that would clearly set out terms and conditions under which their contractual relationship would be regulated, provided that the contract is a valid contract. In this respect, the courts will allow and recognise a subordination or inter-creditor agreements freely entered into between parties, in the absence of any impeding element of a contract, because parties are bound by the agreement they freely entered into.

Creditors can contractually subordinate their claims against a debtor and this may be achieved by one or more creditors agreeing to defer their right to claim the debt owed to it by a debtor, for the benefit of another creditor and, in the case of an insolvency, payments will be due first to a senior creditor before a junior creditor, whose debt will only arise upon the full payment of the senior creditors’ claims. This can be achieved by lenders and the borrower entering into a subordination agreement or an inter-creditor agreement.

In spite of the above, in an insolvency proceeding, the courts will normally give priority to the laid-down rankings of creditors, and a liquidator is not bound to follow the lien subordination provisions where those conflicts are with the laid-down priority of payments or rankings of creditors. Consequently, where, under a subordination agreement, the claim of a senior creditor is unsecured as against that of junior creditor, the claims of an unsecured senior creditor will come after the claims of a secured junior creditor during an insolvency proceeding, because a liquidator is not bound to follow the arrangement in a subordination agreement, not being a party to it and being bound to follow the provisions of the relevant statute on the priority of payments.

Discounted securities in insolvencies

How is the claim of an original issue discount (OID) or discount debt instrument treated in an insolvency proceeding in your jurisdiction?

There is no special provision directly addressing discounted debt instruments under Nigerian law. The creditor holding that instrument must make a claim to the liquidator or receiver and the court will determine the priority of that claim.

Liability of secured creditors after enforcement

Discuss potential liabilities for a secured creditor that enforces against collateral.

Where a secured creditor enforces its security in respect of a mortgaged property and becomes a mortgagee in possession, the law imposes on him or her a strict liability to account; and he or she is obliged to be diligent in collecting rents and profits and may be liable for sums not recovered owing to his or her negligence or willful default. Such a secured creditor also has an obligation to keep the mortgaged property in a state of repair and will be liable for deterioration where the property is left to degenerate into a state of disrepair. Regarding environmental liabilities, lenders may become liable for environmental violations where lenders (in an enforcement scenario) exercise any step-in rights pursuant to the finance documents and come into effective occupation of a polluting property or premises (becoming an occupier or owner, thereby incurring an owner or occupier’s liability). Lenders, however, typically insert appropriate protective provisions in relevant finance documents to protect themselves from liabilities of this nature.