In our last issue, we set out what the CVFF actually is: a loan, not a grant, disbursed through a panel of twelve Primary Lending Institutions, and structured to revolve rather than to be drawn down once. This issue is about why the CVFF has been structured the way it has, and the answer starts with a fund Nigeria has already tried once before.
Long before the CVFF, there was the Ship Acquisition and Ship Building Fund. It was meant to do exactly what the CVFF is meant to do now: grow the Nigerian shipping industry through stronger indigenous shipownership. Instead, it became a cautionary tale, and the reason is worth considering, because it is entirely avoidable.
An arrested vessel does not sit still and wait to be sold. It deteriorates, loses class, stops earning, and accumulates costs that rank ahead of the very lender trying to recover its money.
The Ship Acquisition and Ship Building Fund (SASBF) was established under Decree No. 10 of 1987 (codified under the National Shipping Policy Act). It was managed by the defunct National Maritime Authority, which is now known as the Nigerian Maritime Administration and Safety Agency (NIMASA). By the mid-1990s it went into severe distress and was suspended due to widespread loan defaults, poor credit evaluation, inadequate management and misappropriation of funds.
As SASBF loans went into distress, enforcement frequently took the form of vessel arrest. On paper, arrest looks like a straightforward enforcement mechanism. In practice, an arrested vessel does not sit still and wait to be sold. It stops trading. It stops earning charter hire. It continues to accrue port dues and, in some circumstances, crew-related costs, while certain maritime claims may rank ahead of the mortgage in the statutory order of priority. Where an arrest becomes protracted, the vessel may lose its classification certification before a judicial sale can be concluded, rendering it commercially unemployable until class is restored. What might otherwise have been a distressed but recoverable credit can become a near-total loss, for the lender and for the wider programme.
This is the lesson the CVFF cannot afford to relearn. It is also why we advocate an operating framework for CVFF stakeholders, including NIMASA, the twelve appointed Primary Lending Institutions, financiers and shipowners, that treats vessel arrest as a remedy of last resort rather than a first response.
The OAL operating framework is not a soft position on default. Arrest remains available and should be pursued without hesitation where a borrower cannot be located, where assets are being dissipated, where fraud is suspected or where restructuring has genuinely failed. But the framework does not treat default as an automatic trigger for arrest: before a lender reaches for arrest, it should be able to show that it considered and, where appropriate, attempted the alternatives available to it – taking control of the vessel’s earnings account, exercising step-in rights over management or where the vessel sits in a special purpose vehicle, negotiating a share transfer rather than an arrest, which can change control of the asset without ever touching its registration, class or insurance.
Each of these keeps the vessel trading. A trading vessel is a saleable, income-producing asset. An arrested one is neither.
The CVFF is structured as a revolving fund. Every naira and dollar recovered from a distressed facility is meant to be recycled into the next round of applicants. Value destroyed at the recovery stage is not just a loss to one lender on one loan; it is capital that the next generation of Nigerian shipowners will not have access to. That is what makes the recovery doctrine a matter of institutional design, not merely legal technique.
This is the lesson worth carrying into the next issue, where we turn to a more immediate, practical question: what does a Primary Lending Institution consider when assessing a shipowner’s application for the Fund? The CVFF’s success will not be measured by how much is disbursed, but by how well the Fund protects its capacity to lend again, and that starts at the application stage.
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