Understanding The AMCON And Shebah Loan Dispute And A Guarantor's Dilemma

Proshare

Monday, September 02, 2019 / 08.30PM / By News /Image Credit: EcoGraphics 



Serving as a guarantor to a commercial loan could prove to be terribly tricky business in Nigeria as Dr A.B.C. Orjiako, a director of Shebah Exploration & Production Company is learning the hard way. Dr Orjiako's faith in investing in the local upstream Oil & Gas business is fast turning into a nightmare as the local press has over the past week, spread him over a blackened charcoal grill concerning the recent legal suit filed against him and Shebah E&P by the Asset Management Company of Nigeria (AMCON).

 

The issues have been fairly muddy in the local media, but a review of the specific matters surrounding the loan may provide some clarity and educational moments/ learning points.  


The Suit

 

 This is a case resulting from an application by Mojisola Owoseni of Lexavier Partners, legal practitioners, legal counsel to AMCON in suit number FHC/ABJ/CS/945/19 against ABC Orjiako, Shebah Exploration & Production Company Limited, with RC No 499348, and Allenne Limited.

 

In the application, AMCON asked the court to grant Francis Chuka, a Senior Advocate of Nigeria, right to exercise its function as Receiver/Manager of Dr. Orjiako's assets in Nigeria and abroad, including Shebah Exploration & Production Company Limited.

 

Mr. Chuka was appointed by AMCON as Receiver/Manager on July 30, 2019, with the mandate to "take possession of and preserve all its assets and undertakings" by Dr. Orjiako.

 

The assets and undertakings included his personal properties at Nos. 10C and 25A Lugard Avenue, Ikoyi, Lagos; an oil vessel, MT Trinity Spirit, used as a floating, Production, Storage, and Offloading (FPSO) facility in Ukpokiti Oil Field belonging to Shebah Exploration & Production Company Limited.



Proshare Nigeria Pvt. Ltd.



The Parties

 

Parties to the current suit are the following: 

 

1.      Asset Management Company of Nigeria and,

 

2.      Shebah Exploration & Production (E&P) Company Limited.

 

3.     Dr A.B.C Orjiakor


Recent Judgment

 

The Federal High Court holden at the FCT Abuja granted the Asset Management Corporation of Nigeria's application to take over the assets of Dr. A.B.C. Orjiako. The order was given by Honourable Justice Taiwo O. Taiwo and issued on August 15, 2019.

 

By this order, banks are mandated to henceforth prevent all further withdrawals of funds and other debit transactions from the defendants' accounts domiciled with the banks. 

They are also expected to furnish the Receiver/Manager within seven (7) days from the date of the notice with comprehensive statements in respect of each accounts while the order is expected to be binding and enforceable against the banks.



The Background-Main Facts 

 

In 2012 Shebah E and P obtained a $150million loan facility from a consortium of banks (AFREXIM/Diamond- now Access/Skye- now Polaris) led by AFREXIM. 

 

The loan facility was meant for work over and drilling campaign at the Ukpokiti field (OML 108) operated by Shebah E&P. 

 

In the offshore Niger Delta, Shebah drilled a successful horizontal well, the first of its kind and tested 4000 barrels per day of oil and condensate production but encountered large gas reserves. 

 

Then, the company decided to find a solution to the huge Associated gas based on professional oil field best practices before continuation of the oil/ condensate production. Shebah required more funds to commercialise the gas to avoid excessive flaring while producing the discovered oil. Then, AFREXIM led consortium of lenders, could not provide further facilities to Shebah to conclude the operations. In 2014, Shebah approached Zenith Bank, which appraised the situation and provided a $200million loan facility fully approved by its board to rescue the situation. 

 

Zenith proposed to pay the consortium of banks $50million to reduce their collective exposure, enhance the facility to $300million, provide Shebah with additional funds to monetize the gas and produce the discovered oil. 

 

The enhanced facility would have had Zenith join and lead the syndicate with $200million, while the consortium of existing lenders would have reduced their exposure and stay at $100million (about $33million each). 

 

In line with Shebah's need, Zenith is noted to have further requested a moratorium period of 9 months to conclude the projects and extend the facility tenure to 5 years. This was meant to spread the cash flow and enable easy repayment of the enhanced facility. Unexpectedly, the AFREXIM consortium rejected the $50million offered by Zenith Bank on the grounds that Zenith should not lead the syndicate and they were not willing to extend the tenure of the facility which was remaining about two and half years as at the time of Zenith's offer. 

 

The AFREXIM consortium allegedly rejected all the efforts being made by Shebah and proceeded to file an action to call the facility in 2014 (just two years after final draw down). The call of facility ahead of the maturity triggered the default on the loan. On February 19, 2016, Mr. Justice Phillips of the London High Court delivered a judgement in favour of the AFREXIM consortium for the repayment of the $150million loan facility. 

 

The judgement creditors then registered the judgement in Federal High Court in Lagos and applied for enforcement of the judgement. The defendants (Shebah Exploration & Production and ABC Orjiako) immediately opposed the registration and the enforcement of the judgement based on their convictions on rule of law and on the fact that they would like to negotiate an out of court settlement and pay back the loan under a restructured arrangement. This case still subsist before an Honourable Justice of the Federal High Court Lagos and the next hearing date is in October, 2019. 


Contrary to the Syndication agreement by the AFREXIM consortium, Polaris Bank is believed to have unilaterally transferred its share of the judgement facility to AMCON. 

 

Notwithstanding the unilateral action by Polaris Bank, some legal analysts have argued that AMCON should have joined the existing court case in the Federal High Court Lagos, but instead it initiated a fresh action in the Federal High Court  Abuja, not minding that the same case  had  already received a ruling in London and was subject to a contested enforcement proceedings in the Federal High Court Lagos. 

 

It is by the fresh case that AMCON is alleged to have obtained the Ex-Parte order which was reported by various media platforms.



Proshare Nigeria Pvt. Ltd.



Post Court Judgment Developments

 

Since the Judgment the AMCON/Shebah case has become one of the major financial flash stories in the country, and remains one with a delicate contour as it is still in court.

 

 

Lessons on Developments

 

A few learning moments from the episode shows that:


  • Banks need to adopt flexible perspectives to the lending process and loan workouts. Considering the willingness of Dr. Orjiako to repay the loan as a guarantor, a line of mediation that allows for non-litigious channels could have been seen as preferable. This is an important point in the process of debt delinquency and recovery especially when it has to do with a consortium of financial institutions.
  •  AMCON has done a decent job in the area of debt recovery, but in this case it may have shown more restraint in the case by pushing for mediated settlement, considering the action of the parties involved to find a lasting solution to the lingering issue.
  • Dr Orjiako has, from available information, shown willingness to repay about $68m of the debt outstanding from personal resources but this should have been a proactive step that would have reduced the incidence of the banks and AMCON seeking to institute legal action against him and his investments.

 

 

The reports of AMCON's purported move to impound the personal assets of Orjiako and Shebah could cripple efforts to meet the debt obligations. This portends a strong detour from the government's policy of encouraging direct domestic investment in the real sector and creating a less adversarial relationship between regulators and cooperative commercial debtors.



Editor's Note:

This post was updated at 08.30PM, Monday, September 02, 2019 to include Op-ed received from Olusegun Adeoye an Economist and Public affairs Analyst based in Abuja. 


Proshare Nigeria Pvt. Ltd.


Related News

1.      CBN Directive On Loan Defaulters: GTB CEO, Segun Agbaje Shares Perspective - Aug 29, 2019

2.     Henceforth, Loan Defaults Will Be Settled With Deposits From Other Banks - Aug 26, 2019

3.     P and ID vs. Nigeria: A Review by Reuben Abati - Aug 19, 2019

4.     UK Court Rules In Favour of Pand ID To Seize $9bn FGN Assets, Nigeria To Appeal Decision - Aug 16, 2019

5.     PMB Signs Into Law AMCON (amendment) Act, 2019 That Empowers It Access Financial Details Of Debtors - Aug 08, 2019

6.     FG To Enforce Recovery Of N5trn AMCON Debts - Jul 31, 2019

7.     ETI Specialized Resolution Company To Appeal Court Judgment On Honeywell Suit - May 31, 2019

8.     AMCON and The Burden of Debt Recovery in Nigeria - Case Study of 4 Debtors - May 31, 2019

9.     The Evolution Of Business Rescue In Nigeria - May 30, 2019

10.  AMCON, AMPs and Debt Recovery Turnaround - First Glance - May 17, 2019

11.   Supreme Court Backs BI-Courtney, AMCON to Pay N132bn - Apr 24, 2019

12.  A Garnishee Lacks The Power To Fight The Cause Of A Judgement Debtor - Mar 31, 2019

13.  AMCON Mulls Disengagement of Non-Performing AMPs - Mar 18, 2019

14.  No 'Forfeiture' Order On Sales Value Of Our Airtel Shares - O and O Networks Ltd, Subsidiary of ETI - Mar 15, 2019

15.  Court Orders Ecobank to Pay N22.5b Within 7 Days Over Airtel Shares; Suit Adjourned to May 28, 2019 -Jan 10, 2019

16.  Tax Debt: FIRS Shuts DN Meyer, Morrison, Others - Jan 10, 2019

17.  AMCON Seizes Egbema And Omoku Power Projects From Rockson Engineering - Dec 28, 2018

18.  Crisis Brews Over N8bn Unpaid Advertising Debt -Oct 25, 2018

19.  List of AMCON's Top 105 Debtors - Oct 24, 2018

20. AMCON Loses Bid To Take Over Old Federal Secretariat From Babalakin - Jun 15, 2018

21. AMCON 2017 Financial Result – Resolution Bank Turns the Corner - Jun 04, 2018

22. 2AMCON Intervention saved over 15,000 jobs in Nigeria-Ahmed Kuru, MD - Jun 02, 2018

23. National Assembly Seeks To Review The AMCON Act; Winding Up - Mar 27, 2018

24. The Use Of Prudential Backstops To Prevent The Building Up Of New NPLs - Mar 15, 2018

25. Multi-Trex and AMCON Reached Closing Phase in Resolving Differences on the Closure of Its Operation - Sep 15, 2017

 


Proshare Nigeria Pvt. Ltd.



Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP