| Debtors & Recovery |    5767 VIEWS  |
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Thursday, May 30, 2019 / 06:02PM / By Perenami Momodu and Odinaka Okoye of AELEX / Header Image Credit: www.miningreview.com
In Nigeria, the current legal framework for corporate insolvency is
embodied in the Companies and Allied Matters Act, Chapter C20, Laws of the
Federation of Nigeria 2004 (CAMA). Under CAMA, the options available to
financially distressed companies are receivership,1 liquidation,2 and
arrangement and compromise.3 In practice however, liquidation
and receivership are most common.
While receivership is geared towards the recovery of debt through
secured assets, liquidation primarily seeks the dissolution of a company.
Nevertheless in most cases (and although not explicitly geared towards
dissolution), the result of receivership is a dissolution of the company.
The financial distress of a company may
occur due to a variety of circumstances and may be resolved, given time and
careful management by insolvency experts with the support of the company and
its creditors. The reorganisation and/or restructuring of an insolvent company
by insolvency experts based on a reorganisation plan is generally known as
business rescue.
The purpose of business rescue is to restore the financial well-being
and viability of a company's business in a way that either increases the
chances of the company continuing in existence as a solvent entity, or results
in a better return for the creditors of the company than would be the case
assuming the company went into liquidation.
Business rescue is a noble concept,
which seeks to balance out the interests of both the creditors and the debtor
in line with international best practices. It provides the opportunity needed
to reorganise and restructure the affairs of a debtor; structure a payment
scheme with its creditors, while also preserving jobs and allowing the business
to continue trading as an economically contributing entity.
Recognising the need to promote business rescue, create enabling
conditions for investment and improve the ease of doing business in Nigeria,
the House of Representatives on 17th January, 2019, passed the
Companies and Allied Matters (Repeal and Re-enactment) Bill ("the CAM
Bill") which is now awaiting presidential assent.
The CAM Bill seeks to bridge the gap in
the existing legal framework for corporate insolvency by introducing a series
of reforms. The CAM Bill, if passed into law, will change the narrative of
resolving insolvency in Nigeria as it prioritises business rescue above
liquidation and receivership.
The CAM Bill has introduced insolvency procedures for financially
distressed companies (or companies on the verge of financial distress) such as
Company Voluntary Arrangement ("CVA") and Administration with the aim
of engendering business rescue. The expectation is that before either
liquidation or receivership is considered, options such as CVA and
Administration will be explored and administered by insolvency experts.
In a CVA, the directors of a company may make proposals to its creditors
for a composition in satisfaction of the company's debts or scheme of
arrangement of its affairs for rescuing the company from its financial
distress. The proposal will provide for a qualified insolvency practitioner to
act either as a trustee or nominee for supervising its implementation. A
liquidator or an administrator can also initiate a CVA where the company is in
liquidation or administration.
Likewise, the main objectives of administration are (1) to rescue
the company, the whole or any part of its undertaking as a going concern; (2)
achieve a better result for the company's creditors as a whole than would be
likely if the company were wound up without first being in administration; and
(3) realise property in order to make a distribution to one or more
secured or preferential creditors.
During administration, control of the company is given to an insolvency
practitioner who will objectively review the profitable and non-profitable
aspects of the distressed company and propose a plan in line with the
objectives of administration for the business rescue of the company. To ensure
that business rescue is given a chance to succeed, the CAM Bill makes adequate
provisions (amongst others) for a suspension of enforcement actions by
creditors during administration.
The CAM Bill has also explicitly defined
the term "insolvency practitioner," provided the educational and
professional requirements for qualification as an insolvency practitioner and
conferred roles on the Business Recovery and Insolvency Practitioners
Association of Nigeria (BRIPAN), and the Corporate Affairs Commission in
determining an insolvency practitioner.
It is our view that this innovation may further ensure the overriding
objectives of business rescue are met as only qualified insolvency
practitioners who are conversant with these objectives will be permitted to
take on the role of Administrator, Nominee, Liquidator and the likes.
It is our view that the reforms in the
CAM Bill balance the interests of the creditors and the debtors. Overall, the
introduction of the CVA and Administration may bring about positive
developments in resolving insolvency since they significantly change the focus
of insolvency in Nigeria from business liquidation to business rescue. Besides,
the business rescue reforms will in turn, create and ensure confidence in the
insolvency regime in Nigeria.
We therefore anticipate that the
business rescue reforms would reduce the risk of corporate insolvency, directly
boost foreign investment in Nigeria and ensure that the Nigerian corporate
insolvency regime is in line with international best practices.
Footnotes
1.
Sections 387 – 400; 410(1)(c); 419 – 421
of CAMA.
2.
Sections 422 – 432; 464 – 468; 473 –
478; 481 – 518; 524 of CAMA.
3.
Sections 537 – 540 of CAMA.
Credits
The article Nigeria:
The Evolution Of Business Rescue In Nigeria first appeared in mondaq.com on Monday, May 27, 2019.
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