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Security – general

Security agreements

Is it possible to create a security interest over all assets of an entity? If so, would a single security agreement suffice or is a separate agreement required for each type of asset?

Yes, it is possible to create a security interest over all the assets of an entity. In this case, one security document will suffice – typically called an ‘all asset debenture’ in Nigeria. 

Release of security

What are the formalities for releasing security over the most common forms of assets?

The lender will execute a deed of release. The deed of release is a registrable instrument which must be stamped at the Federal Inland Revenue Service and registered at the applicable registries. This may include the Asset Registry, the Corporate Affairs Commission and the National Collateral Registry (for movable chattels).

Asset classes used as collateral for security

Real estate

Can security be granted over real estate? If so, what are the most common forms of security granted over real estate and what is the procedure?

Yes, security can be granted over real estate. The common form of security granted over real estate is a mortgage or charge.

Mortgages must be made in writing and be registered at the land registry where the property is located. Until registered they will remain inchoate and are equitable mortgages. Where it is given by a corporate entity, it must also be registered with the Corporate Affairs Commission. The consent of the governor of the state where the property is located must be obtained for a legal mortgage over real estate to be valid and enforceable and where the land is held by the federal government or any of its agencies, the consent of the Minister of Lands, Housing and Urban Development is required.

Machinery and equipment

Can security be granted over machinery and equipment? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Security can be granted over machinery and equipment, usually in the form of a mortgage, charge or pledge.

A mortgage or charge over a tangible, movable asset (eg, machinery and equipment) is created by a transfer of title to the assets with a provision for re-conveyance at discharge – similar to creating a mortgage over real estate.

A pledge is created by depositing the machinery and equipment, and in certain cases, the title documents to the machinery and equipment, with the lender as security for the debt, on condition that the pledged machinery and equipment will be returned to the borrower if the debt is discharged or sold if the borrower defaults. The essential element of a pledge under Nigerian law is actual or constructive possession.

Such security interest, when created, must be registered with the National Collateral Registry pursuant to the Secured Transactions in Movable Assets Act 2017. Where it is created by a company, it must be registered with the Corporate Affairs Commission.

Receivables

Can security be granted over receivables? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes. Security can be granted over receivables such as debts, insurance policies proceeds and contractual rights. The common forms of security granted over these kinds of property are:

  • assignment of receivables by way of security;
  • charges;
  • option rights established as security; and
  • mortgages.

In the case of an assignment, notice of the assignment must be given to the borrower’s counterparty. Lenders also typically require an acknowledgment of the notice to create privity of contract between them and the counterparty. It must also be stamped at the Federal Inland Revenue Service and registered as a charge at the Corporate Affairs Commission.

Financial instruments and cash

Can security be granted over financial instruments? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over financial instruments by way of pledge or charge. The most common types of financial instrument security are granted over include equity instruments (eg, shares) and debt instruments (eg, commercial papers, bonds, treasury bills, futures and options).

Security over financial instruments typically do not require registration at the Corporate Affairs Commission but may require registration based on the law governing the financial instrument and the constitutional documents of the issuer. Where shares are involved, the borrower typically provides the lender with an undated blank share transfer form (which are to be dated and the name of the transferee inserted on enforcement), as well as board resolution accepting the transfer on enforcement and authorising the transferee’s name to be entered in the register of members in respect of the share on enforcement.

Can security be granted over cash deposits? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes. Security can be granted over cash deposits. The most common forms of security over cash deposits is a charge. The charge may be fixed or floating.

For a charge on cash deposits, the borrower and lender enter into a deed of charge and are required to inform the financial institution managing the account on the borrower’s behalf of the charge and the lender’s interest. In some cases, the borrower may be required to create an escrow account where such cash deposit is held by a third party for the benefit of the borrower and lender under agreed terms and conditions. Where the charge over deposits is a fixed charge, the deed of charge creating security over cash deposits need not be registered at the Corporate Affairs Commission, as it is not a book debt to which the registration requirements apply. However, where the charge is a floating charge, it requires registration at the Corporate Affairs Commission as a floating charge. The deed must also be duty stamped at the Federal Inland Revenue Service.

Intellectual property

Can security be granted over intellectual property? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes. Nigerian law recognises the grant of security over intellectual property. Often, the forms of security granted over intellectual property are mortgages, charges or security assignments.

Where the security provider (borrower) is the legal owner or licence holder of IP rights, the lender may take a mortgage or fixed or floating charge over the intellectual property.

The effect of the mortgage is a transfer of the legal title to the intellectual property to the lender as security on condition that such title will be re-assigned when the security obligations have been discharged.

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