INTRODUCTION
In today's interconnected global economy, businesses often operate across multiple jurisdictions. This globalisation has made it imperative for nations to devise robust frameworks to address issues affecting the dynamic business landscape. Commonplace issues in transactions with international flavour are plurality or conflict of laws, tax-related issues and dispute resolution. Often, parties reach mutual agreement on some of the issues while resolution of others are in the final analysis, entirely dependent on availability of relevant mechanisms in affected jurisdictions.
The focus of this article is 'cross-border insolvency' (also known as international insolvency)1 with the spotlight on the existing framework in Nigeria vis-a-vis other jurisdictions.
CONCEPT OF CROSS-BORDER INSOLVENCY
Generally, 'insolvency' is a term used to describe a company's inability to pay its debt2. The threshold for insolvency varies across jurisdictions. Thus, a company that is deemed insolvent in Nigeria may not be so deemed in other jurisdictions3. Insolvency is a ground for winding up a company in Nigeria, however, the debt in question must be undisputed4. A debt is said to be disputed if the debtor challenges its existence.
Contracting parties at the negotiation stage (or even after closing the transaction) have the latitude to agree on the applicable laws and the appropriate dispute resolution mechanism. An aggrieved party or a party to whom another is indebted can only seek redress in accordance with the applicable law and adopted dispute resolution mechanism. Initiation of insolvency proceedings is mostly a last resort and largely deviates from the agreement of parties5. This is because insolvency proceedings are sui generis6 in nature. Based on its uniqueness, it is believed that insolvency proceedings should not be employed as debt recovery mechanism but only invoked to achieve its main purpose – the termination of an insolvent entity.
The issue of cross-border insolvency proceedings comes to the fore in situations where an insolvent entity has assets or creditors in more than one jurisdiction. Depending on the permissible approach under the legal system in force, two practical situations may arise:
- a creditor may initiate insolvency proceedings in all jurisdictions where the insolvent entity has assets or economic presence;
- a creditor may institute insolvency proceedings in the jurisdiction where the insolvent entity has its centre of main interest7 and seek enforcement in other jurisdictions.
The situations in (i) and (ii) above are classified as territorial and universalist approach respectively. It is also not uncommon for a creditor to utilise the hybrid approach8, which is a combination of the territorial and universalist approach.
COMPARATIVE ANALYSIS OF CROSS-BORDER INSOLVENCY FRAMEWORK
In Nigeria today, the Federal High Court is clothed with exclusive jurisdiction to entertain and determine insolvency matters as they affect companies incorporated in Nigeria9. Therefore, notwithstanding that parties have agreed to be governed by foreign law and to submit to foreign courts or bodies for resolution of their disputes, any insolvency matter which arises and affects a Nigerian counter-party would be resolved by the Federal High Court in accordance with the extant insolvency regulations10.
In RRSAT Global Communications Ltd v DAAR Communications Plc11, the Federal High court affirmed its jurisdiction to hear a winding up petition brought against the Respondent, a Nigerian company despite the parties having adopted Laws of Israel as the applicable law and agreed to submit disputes between them to a competent court in Tel Aviv, Israel. The Respondent's argument that Israeli Law should be the applicable law was discountenanced and the Court held that the Respondent being a company incorporated under the laws of Nigeria is bound by Nigeria's insolvency laws.
The decision of the court in the above cited case affirms the position that insolvency proceedings in Nigeria are territorial in nature. This means that the jurisdiction of the Federal High Court in insolvency proceedings does not extend to assets of an insolvent Nigerian entity which are located outside Nigeria. Thus, a creditor who initiates insolvency proceedings against a Nigerian company which also has economic presence in other jurisdictions would need to rely on the existing insolvency framework in such other jurisdiction(s) to deal with assets located there.
Similarly, foreign insolvency proceedings are not recognisable under extant Nigerian legislations. A foreign creditor may encounter difficulties enforcing orders or judgments obtained in foreign insolvency proceedings in respect of assets of its debtor that are in Nigeria. Although the Reciprocal Enforcement of Judgments Ordinance12 Cap. 175 LFN and Foreign Judgment (Reciprocal Enforcement) Act 195813 provide the framework for registration and foreign judgments in Nigeria, such judgments must satisfy certain conditions to be registrable. Section 3 of the Foreign Judgment (Reciprocal Enforcement) Act 195814 provides that for a judgment to be registrable, it must be final and conclusive between the parties and there must be payable thereunder a sum of money (excluding taxes, fines or penalties). It is also often argued that an order of a foreign court declaring a foreign corporation insolvent and appointing a liquidator or trustee is not a judgment per se.
Furthermore, the issue of subject matter jurisdiction is fundamental to registration of foreign judgments in Nigeria as lack of it may result in the setting aside of any registered foreign judgment. The Foreign Judgment (Reciprocal Enforcement) Act 1958 categorised actions in respect of which a foreign judgment may arise into three (3) viz: actions in personam, actions in rem and others (action other than in personam and in rem)15. In addition to this categorisation, the Act also outlined instances where the foreign court would be deemed to have had jurisdiction. Remarkably, Section 2(2) of the Act expressly excludes the following matters from the scope of actions in personam over which a foreign court may exercise jurisdiction. These are matrimonial matters, administration of the estates of deceased persons, bankruptcy, winding up of companies, lunacy, or guardianship of infants.
Conversely, cross-border insolvency proceedings in other jurisdictions are governed by rules and procedures which have largely attempted to ease the commencement and enforcement of international insolvency judgement. The legal regime operable in the European Union (EU) and other countries that have adopted the United Nations Committee on International Trade Law (UNCITRAL) Model on insolvency is worthy of mention. In relation to the EU, the EC Regulation on Insolvency Proceedings 2000 which came into effect in 2002 attempts to create a framework for the commencement of insolvency proceedings and automatic recognition of same between member states. Similarly, insolvency proceedings commenced in a jurisdiction that has adopted the UNCITRAL Model Law on Cross-Border Insolvency 1997, may be continued and enforced in jurisdictions that have substantially implemented the UNCITRAL Model Law into their domestic legislation. The UNCITRAL Model Law has been adopted in 60 States in a total of 63 jurisdictions16. Common features of the above-mentioned cross-border insolvency regulations include recognition of foreign insolvency proceedings among member states, relief for foreign insolvency practitioners, facilitation of cooperation and communication between jurisdictions.
CONCLUSION
Stakeholders in the Nigerian polity are not unaware of the territorial limitations in the Nigerian insolvency regulations as presently constituted and have attempted an overhauling of the current insolvency framework in Nigeria with the introduction of the Bankruptcy and Insolvency Bill (the "Bill"). The Bill seeks to repeal the extant Bankruptcy and Insolvency Act17 and provide inter alia for cross-border/ international insolvencies by incorporating provisions of the UNCITRAL Model Law. Despite the passing of the Bill by the National Assembly, Nigeria's current President declined his assent to it.
Therefore, until Nigeria creates a solid framework for cross-border insolvency, the fate of foreign creditors seeking to enforce foreign insolvency judgement remains unattractive. It is therefore recommended that efforts be directed towards a reform of the Nigerian insolvency regime as this would not only benefit foreign creditors and investors but also strengthen the position of Nigerian businesses in the global market by ensuring reciprocal treatment of Nigerian insolvency proceedings in foreign jurisdictions.
Lastly, as Nigeria continues to position itself as a leading economy in Africa, modernising its cross-border insolvency framework is an essential step toward creating a more favourable environment for international trade and investments; ultimately contributing to the country's economic growth and development.
Footnotes
1.https://en.wikipedia.org/wiki/Crossborder_insolvency#:~:text=Cross%2Dborder%20insolvency%20(sometimes%20called,in%20more%20than%20one%20country. Last accessed 3/12/2025 at 11:30am
2 Section 572 Companies and Allied Matters Act (CAMA) 2020 Cap C20 Laws of the Federation of Nigeria (LFN) 2004.
3 For example, the threshold in Nigeria is N200,000.00 while it is GBP750 in the United Kingdom.
4 See Weide & Co. (Nig.) vs Weide & Co. Hamburg (1992) 6 NWLR (pt. 249) 627
5 See RRSAT Global Communications Ltd v DAAR Communications Plc – Suit No: FHC/L/CP/540/12 ("RRSAT v DAAR") delivered on 26 January 2018
6 See pharma-deko plc v. Financial derivates Co. Ltd (2014) LPELR-24047(CA), Per ALI ABUBAKAR BABANDI GUMEL, JCA (Pp 24 – 25 Paras D – B)
7 This is deemed to be the debtor's registered office, or habitual residence in the case of an individual. See Article 16 of the United Nations Committee on International Trade Law (UNCITRAL) Model Law on Insolvency 1997.
8 Supra note 2
9 Section 570 CAMA 2020; see also Section 868 on definition of 'company' and Nigerian company'
10 Companies and Allied Matters Act 2020, Companies Winding Up Rules 1991 and Insolvency Regulations 2022.
11 Supra note 6 at page 1.
12 Cap 175, Laws of the Federation of Nigeria and Lagos, 1958
13 Cap F35 Laws of the Federation of Nigeria (LFN) 2004
14 ibid
15 Ibid, section 6(2)
16 https://uncitral.un.org/en/texts/insolvency/modellaw/cross-border_insolvency/status last accessed on 12th March 2025 at 4:34pm.
17 No. 16 of 1979 Cap. B2 Laws of the Federation of Nigeria ("LFN"), 2004
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.
