Insolvency & Restructuring Practice Area Overview
Etigwe Uwa SAN of Streamsowers & Köhn takes an in depth look at the insolvency and restructuring legal sector.
Restructuring may be implemented by state authorities where a corporate entity has been declared insolvent or by private administrators to avert insolvency or expand the business base of an organisation. A number of matters pertaining to insolvency and restructuring occurred in Nigeria in 2012, particularly in the banking sector where policy changes and industry reform occasioned major overhauls in the way players in the sector operated. Some examples of restructuring were also undertaken in non-financial sectors such as manufacturing and processing.
In a bid to prevent a recurrence of the crisis in the financial sector circa 2009 caused essentially by the cavalier attitude of banks and bank debtors alike to the recovery and repayment of bank loans in a loosely regulated business environment, the Central Bank of Nigeria (CBN), the sector’s primary watchdog, implemented policies and directives aimed at remodeling the sector, including the recapitalisation of banks and other financial institutions.
An example of such a policy was the reversal of the universal banking policy (introduced in 2010) which permitted Nigerian banks to consolidate or integrate various distinct operations under one corporate structure. Instead the CBN directed commercial banks either to spin-off their subsidiaries involved in non-commercial banking activities such as insurance, asset management, capital market and investment banking or to adopt a holding company structure which would separate these subsidiaries from the mechanism of holding retail deposits. This policy was aimed at preventing depositors’ funds from being used to speculate in the capital markets to avoid a repeat of the 2009 crisis.
In September 2012, First Bank of Nigeria Plc (FBN), a top-tier Nigerian commercial bank, sought the approval of its shareholders to transfer the assets of its subsidiaries, including its capital market and asset management units, into a holding company called FBN Holdings Plc. The corporate restructuring was patterned to allow shareholders an equivalent holding in the new FBN Holdings Limited as they did in the previous incarnation of the bank. In July 2011, Oceanic Bank and Ecobank Transnational Incorporated entered into a Transaction Implementation Agreement, setting out the framework for the acquisition of Oceanic Bank by the latter which was later completed in 2012. The merger of Access Bank and Intercontinental Bank pursuant to Part XII of the Investments and Securities Act (No. 29) of 2007 was also concluded in 2012.
Further, in the Nigerian courts, there are several pending cases bordering on issues of insolvency and more cases are being instituted regarding this issue. The large volume of cases may be attributed to provisions of the law which provide for a company to be compulsorily wound up if it is unable to comply with its financial obligations. It is also possible for a company to voluntarily apply for winding up, especially where it is a special purpose vehicle (SPV) and the purpose has been achieved. This is not common in Nigeria as most SPVs are more often than not maintained as going concerns after they have achieved their intended purpose. However, in the course of insolvency proceedings, if a company is able to prove its ability to meet its financial obligations but still disputes the nature or quantum of the liability alleged, the Court may not make an order for compulsory winding up of the company.
As the global financial sector evolves, the focus of modern insolvency regulation has shifted from the punishment of insolvent entities through compulsory liquidation to the more constructive alternative of reorganisation and restructuring of such business entities and their operations with a view to rehabilitation to ensure economic stability and financial propriety. In Nigeria, on the other hand, the traditional approach is retained wherein the liquidation of the business and or the winding-up of the company remain the sole mechanism for dealing with instances of insolvency.
There are various laws applicable directly and indirectly to the area of insolvency in Nigeria. These include:
Primary Legislation
• Companies and Allied Matters Act (CAMA) CAP C20 Laws of the Federation of Nigeria (LFN) 2004.
• Companies Winding Up Rules 2001 (made subject to CAMA above).
• Bankruptcy Act – as amended by Decree 109 of 1992 CAP B2 LFN 2004.
• Bankruptcy Rules – made pursuant to the Bankruptcy Act.
• Investments and Securities Act (ISA) 2007.
• Securities and Exchange Commission Rules (made subject to ISA above)
Secondary Legislation
• Banks and Other Financial Institutions Act (BOFIA) CAP B3, LFN 2004.
• Assets Management Corporation of Nigeria (AMCON) Act 2010.
• Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act, CAP F2, LFN 2004.
• Insurance Act CAP. I17 LFN 2004
• Economic and Financial Crimes Commission Establishment Act 2004.
• Mortgage Institutions Act, CAP M19, LFN 2004.
• Nigeria Deposit Insurance Corporation Act CAP N102, LFN 2004.
The major legislation regulating the restructuring of companies in Nigeria is the Companies and Allied Matters Act (CAMA). Together with the Companies Winding Up Rules, CAMA makes provisions for the appropriate procedures to be taken in the event of insolvency. Under this statute, winding-up proceedings can be instituted voluntarily by a company or by its shareholders, creditors, a contributory, a trustee or personal representative, an official receiver, a receiver so authorised by a debenture, or by the Corporate Affairs Commission, which is the public body charged with the administration of the provisions of CAMA. Nonetheless, provisions in the Banks and Other Financial Institutions Act as well as the Nigerian Deposit Insurance Corporation Act also deal with insolvency as it relates to banks and other financial institutions. The Insurance Act contains certain provisions on the winding-up of Insurance Companies while the Investments and Securities Act provides for various alternatives to winding up or liquidation of an insolvent company; such as mergers and acquisition, management buyout, arrangement with creditors, receivership and administration, reorganisation by way of a scheme for a compromise, arrangement and reconstruction. The Bankruptcy Act governs bankruptcy of natural persons and partnerships together with the Bankruptcy Rules.
In the Nigerian context, the general trend is for creditors to commence winding-up proceedings to recover bad debts without exploring other alternatives by which debtors can achieve business recovery as a route to repayment of debts. For this reason, in a recent judgment, the courts rejected the practice whereby the procedure for winding-up of a company is used to extort the payment of debt or channelled as a direct means of debt collection.
Notwithstanding the foregoing, Nigeria’s financial institutions have benefited from a forward-looking policy shift in the regulation of the sector as the CBN has looked to restructuring as a tool for dealing with the financial crisis. Some of the changes imposed by the CBN which have necessitated restructuring include the increase in the minimum share capital requirement for banks and the subsequent recapitalisation by banks which resulted in several mergers and acquisitions; the recategorisation of banks based on equity and the reversal of the universal banking system. It is expected that there will be further developments in the area of insolvency in Nigeria. Some of these anticipated developments are:
Foreign investment and acquisitions in the banking Sector
Presently, the policies of the CBN encourage foreign investment in the sector to ensure a transfer of management expertise and skills lacking in the industry. Consequently, it is expected that the banking industry will see the entry of more foreign banks in addition to those already operating in Nigeria, such as Citibank and Standard Chartered Bank. Also, the proposed sale of the three banks which were nationalised during the banking reforms – Keystone Bank Ltd (formerly Bank PHB), Mainstreet Bank Ltd (formerly Afribank Plc) and Enterprise Bank Ltd (formerly Spring Bank Plc) – and subsequent restructuring by AMCON already indicates that a substantial number of interested bidders are looking for big impact and wider entry strategy since several foreign participants have so far indicated interest in these entities.
Further consolidation and restructuring among indigenous banks
In order to increase efficiencies and expand asset- and customer base in the face of ever increasing competition, it is expected that some of the better capitalised indigenous banks will merge or acquire the assets of smaller banks.
Review and enactment of legislation
A review of current legislation on insolvency and restructuring reveals some unresolved issues which have become a cause for concern for practitioners. For example, despite modernisation in the area, the Bankruptcy Act has not been amended since 1992. Also, the AMCON Act allows for the exercise of various arbitrary powers which conflict with the interests of shareholders and can be used punitively against banks with little scrutiny. It has been proposed by some eminent legal practitioners that a specialised revenue court may be set up with sole jurisdiction as a court of first instance for the settlement of disputes in the financial sector to curb the arbitrariness of the current regime for dealing with insolvency.
Nigeria does not have a composite approach to the issue of insolvency. Rather, there is piecemeal legislation to address disparate matters without providing for a consistent scheme for ensuring standardised practice thereunder. The Bankruptcy Act covers bankruptcy proceedings against individual debtors and partnerships alone while the Companies and Allied Matters Act (CAMA) deals with winding-up of companies as well as arrangements and compromises. The latter option is seldom used in reality because practitioners prefer to push for the courts to liquidate and terminate the life of companies without the debtor company being given an opportunity to restructure its business in other to pay its debt over time. While liquidation is the last resort in some other jurisdictions, in Nigeria it is used as a first option thus causing the untimely death of many companies which could have been salvaged if given the chance to properly manage their debts. The focus of modern insolvency laws elsewhere has been recalibrated to promote the option of restructuring business entities and their businesses and permitting the continuation of business which would yield prolonged employment, payment of taxes and dividends and other similar socio-economic benefits.
There is therefore the need for comprehensive reform of the existing insolvency legislation in line with the modern and global trend to focus more on nipping insolvency in the bud by encouraging business restructuring mechanisms. Non-governmental groups in the sector actively pursue this school of thought, including the Business Recovery & Insolvency Practitioners of Nigeria (BRIPAN) who, in their workshop held on 7-8 June 2012, expressed the view that Nigeria’s insolvency regulations need to be updated to align with the new global paradigm.
IT IS NOT POSSIBLE TO BUY ENTRY INTO ANY WHO'S WHO LEGAL PUBLICATION
Nominees have been selected based upon comprehensive, independent survey work with both general counsel and private practice lawyers worldwide. Only specialists who have met independent international research criteria are listed.
87 Lancaster Road, London
W11 1QQ, UK
W11 1QQ, UK
© Law Business Research Ltd 1998-2013. All rights reserved.
Company No.: 03281866 - IMPORTANT: Please read our Terms of Use.
Company No.: 03281866 - IMPORTANT: Please read our Terms of Use.
No comments:
Post a Comment