Hardening Period In Nigeria: Does Your Security Enjoy Immunity?

PUNUKA Attorneys & Solicitors


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With the enactment of the Companies and Allied Matters Act 2020 ("Act"/"CAMA"), Nigeria seeks to identify as a debtor friendly jurisdiction.
Nigeria Insolvency/Bankruptcy/Re-Structuring
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With the enactment of the Companies and Allied Matters Act 2020 ("Act"/"CAMA"), Nigeria seeks to identify as a debtor friendly jurisdiction. The slight challenge is that though the letters of the Act may have changed, the attitude of some debtors in filing frivolous grounds of objections may not have changed. As a matter of fact, some may argue that the law has equipped the debtors and/or the Insolvency Practitioners with more grounds of objection which though not frivolous may be argued in bad faith.

The objective of this article is to highlight the legal implication of the hardening period on any security between the parties particularly where the entire facility is to be refinanced.

Does your security enjoy immunity?

In England and Wales, when a new security is granted, there is a period of time when it is vulnerable to be set aside by a liquidator pursuant to the provisions of the Insolvency Act 1986 (IA). This is known as the security's "hardening period"1. A hardening period is basically the term used to describe the period of time during which the security is liable to be set aside if the company (the entity granting the security) enters into insolvency proceedings. The length of the hardening period and the defence(s) available will depend on circumstances for which the insolvency practitioner seeks to set aside the security2. In the main, the relevant provisions of IA 1986 concern transactions at an undervalue (s. 238), preferences (s. 239) and the avoidance of certain floating charges (s.245).

Incidentally, the principle guiding the hardening period is recognized under section 659 of CAMA. By virtue of section 659 (6) CAMA, the period of time is within 2 years ending with the onset of insolvency and in the event that the Court finds merit in the challenge by the Insolvency Practitioner, the Court shall make such order as it deems fit for restoring the position of what it would have been had the company not entered that transaction3.

From experience, some parties to security documents are not sensitive to this principle and its effect particularly when refinancing a facility. They fail to recognize that when a facility is refinanced and entirely new security documents are executed, it may be argued that the new security documents will have their own hardening period, effectively re-starting the clock on the security's validity.

On the other hand, assuming the security document is amended as opposed to executing an entirely new security document, it may be easier to argue in the event of an objection by an Insolvency Practitioner, that the prior existing security document is maintained. As such, the relevant hardening period will run from when the initial security document was executed and, provided the appropriate period has passed, the security may enjoy immunity of any challenge from an Insolvency Practitioner.

The principle guiding the hardening period reveals why careful consideration must be adopted in structuring the mode to adopt when refinancing a security. The Lenders must understand that where a new loan is to be entirely refinanced leading to a new loan agreement, it may rob the security of immunity against any objections from an Insolvency Practitioner.


1. Peter Baldwin, Andrew Barker, and Andrew Rotenberg, "Enforcing Security: The challenges", Butterworths Journal of International Banking and Financial Law April 2009

2. Hardening Periods: Is your security safe? – Memery Crystal accessed on January 4, 2024

3. In the case of preference given to a person connected with the company, the relevant time is three months ending with the onset of insolvency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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