5 October 2015

Recent Strides In Nigerian Insolvency Law - Banking Insolvency & AMCON Act

PUNUKA Attorneys & Solicitors


PUNUKA Attorneys & Solicitors is a fully integrated & multi-dimensional business law practice, providing legal services to a highly diversified clientele. Our practice areas cover Dispute Resolution, Energy Law, Insolvency, Capital Markets, Property/Real Estate, Media & Entertainment Law etc. The firm is distinguished by excellence, industry, technology and experienced Associates and Partners, with specialist legal knowledge.
The impression is strong that insolvency law in Nigeria is comatose due to lack of reform of the general insolvency law2.
Nigeria Insolvency/Bankruptcy/Re-Structuring
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By Anthony Idigbe & Okorie Kalu1

The impression is strong that insolvency law in Nigeria is comatose due to lack of reform of the general insolvency law2. The rich insolvency jurisprudence in Nigeria is said to be more like turning on a barber's chair. It is in that context that this write up proposes to focus on a) a comparative analysis of pace of modern reforms in Nigerian general and banking insolvency law and b) a review of salient points in recent amendments to the AMCON Act in May 2015 particularly in terms of its potential impact on insolvency and restructuring practice. In the end we would attempt a conclusion as to whether insolvency reform is progressing in Nigeria.

Asymmetric development of general and sector specific insolvency in Nigeria

The Nigerian legal framework for corporate insolvency dates back to the Companies and Allied Matters Act3 which was enacted in 1990 and was strongly influenced by the UK 1948 Companies Act4. The law has witnessed some major amendments or perhaps more appropriately excision with respect to dealing in securities and capital market issues5 and even in the context of mergers and acquisition6. CAMA has however witnessed no reform of its pro creditor and liquidation oriented insolvency regime for over 25 years7.

Less than three years ago, the Business Recovery & Insolvency Practitioners Association of Nigeria (BRIPAN) in line with its legislative reform agenda produced a draft General Insolvency Bill aimed at modernisation of Nigerian insolvency and bankruptcy legal framework. The Bill seeks the promotion of business restructuring, formal and less formal workout procedures, regulation of Insolvency profession, Cross-border Insolvency, etc.

Banking on lessons learnt from INSOL ART 2012 that private sector effort alone would probably not achieve legislative reform agenda, BRIPAN was able to secure the buy in of the Federal Ministry of Industry, Trade & Investments which then championed the draft as an Executive Bill. The Bill was reviewed under the Goodluck Jonathan administration by a Technical Committee and approved by the Ministry of Justice. Unfortunately, it was yet to be transmitted by the Minister to the Federal Executive Council for approval before the change of administration occurred. In other words, the Bill has not made much progress8.

In contrast to the foregoing, the banking sector has witnessed in the last decade several efforts at creating a more conducive legal environment for business restructuring in the financial sector. In 2006, the Nigerian Insurance Deposit Insurance Corporation (NDIC) Act was amended. It gave NDIC in addition to its core function of deposit insurer for banks deposits and possible liquidation of banks if adjudged as failed institutions, a framework for corporate restructuring and rescue of failing financial institutions under Part VIII9 of the Act. Further, the Soludo-led Nigerian Central Bank of Nigeria (CBN) by way of regulation also intervened in bank restructuring by compelling banking consolidation and recapitalization.

The 2008 global meltdown and 2009 capital market crisis in Nigeria left several Nigerian banks severely exposed with huge toxic assets (Non-Performing Loans). The Nigerian Government took several actions including injection of bailout moneys into financially distressed banks and reversal of the universal banking system. It further enacted the AMCON Act no. 4 of 2010 to provide a business rescue mechanism that would help to segregate the severely damaged aspect of banking business from the viable portion and create a third party institution to manage/absorb the polluted assets of banks10, without necessarily removing the managers of the banks whilst improving the liquidity and business of the bank as much as is possible. The AMCON approach contrasts with the CBN or NDIC approach which involve takeover of management and ultimately liquidation as once management was dislodged, public confidence is usually lost leading to a run on the bank.

The AMCON Act was hailed as a welcome development for business rescue with the use of AMC as an additional11 tool for banking restructuring and resolution of the 2009 financial crisis. However, the Act still attracted much criticisms on account of concerns regarding the draconian powers of AMCON under the Act, a deep aloofness to major principles on creditors' rights and lack of safeguard of constitutional rights, including right to property and labour rights.

Notwithstanding the criticisms, the Act was recently amended on the 25th May, 2015 and the brief assessment that follows would show that even more draconian powers appear to have been vested in AMCON. The implication of these amendments for insolvency reform in Nigeria would therefore need consideration.

The innovations introduced by the New AMCON Act 2015

A stronger institution

Some of the amendments touch on strengthening of corporate governance within AMCON, including a) rule on conflict of interest and prohibition of insider dealings with respect to acquisition of bank assets or underlying collateral or the enforcement/realization of any right relating thereto12, and b) mandatory submission of quarterly report of AMCON's operations, including such operations covering the Resolution Cost Fund, to the National Assembly through relevant standing committee13.

Some others appear to considerably strengthen AMCON's position as a virtually absolute super creditor with all manner of statutory shielding and powers. Thus for instance new subsections are added to the original Section 35 of the Principal Act with a view to circumventing normal limitation laws: they provide for the purpose of computation of time, that cause of action arises at the point of purchase of the eligible bank asset irrespective of whether an action was already commenced by the eligible financial institution or not based on underlying loan contract14. AMCON's position is further strengthened by completely insulating the Corporation from any obligation associated with the assets it has acquired or indeed any claim from the bank or borrower. In this regard, Section 34(1) of the Original Act is thus amended and some portions deleted to read – "Subject to the provisions of the Land Use Act and section 36 of this Act, where the Corporation acquires an eligible bank asset, such eligible bank asset shall become vested in the Corporation and the Corporation shall exercise, all the rights and powers and subject to the provisions of this Act, become subject to all of the obligations of the eligible financial institution from which the eligible bank asset was acquired in relation to the bank asset, the debtor concerned and any guarantor, surety or receiver, liquidator, examiner or any other person concerned and the eligible financial institution shall cease to have those rights and obligations.". The same provision envisage in new paragraph c of its subsection 2 that the full incidence of ownership free from any restriction would automatically inure to AMCON notwithstanding the pendency of an action before a court of law in respect of the eligible bank asset, except where there is in force and subsisting, a valid order of court, made after due notice to the eligible financial institution from which the eligible bank asset is to be acquired, expressly restraining such acquisition".

These ouster of liability and restriction provisions were a response to serious legal challenges faced by AMCON based on decisions in pre-existing cases over assets acquired by AMCON. The intendment was clearly to free AMCON from the shackles of pre-existing litigation in the hope that the amendment would improve its ability to realise the assets. It remains debatable whether the amendments would achieve the aim of fast tracking this specie of debt recovery when benchmarked against previous provisions of the law which also allowed for fast tracked extra judicial enforcement of security15, and fast tracked prosecution of debt recovery cases16 but which got bogged down in litigation. Although the argument may be made that there remains a recourse against the target bank, it is less clear whether these provisions would withstand the test of their constitutionality viz a viz basic protection of borrowers' right of access to court and to property, or more importantly rights of third parties or unsecured creditors who may also either have contractual or tortious claims against the debtor. One likely area of contention is echoed by a new Section 48(3) which states that the powers of the receivership appointed under the AMCON Act would extend to all assets and undertaking of the debtor company notwithstanding that only part of the assets of same was charged or pledged as security in relation to the eligible bank asset.

From a purely theoretical insolvency perspective17, it certainly also appears to promote liquidation and provide no incentive for business rescue or restructuring although it is conceded that the assumption of the bank's rights by AMCON is due to protracted corporate illiquidity and or debtor's recalcitrant attitude. But again in the absence of a business rescue regime under the general law, most debtors have no way of restructuring their debts as all creditors expect to be paid, leading to a race to collect.

The New Act however develops two other important mechanisms aimed at promoting business rescue of the borrower on the one hand and that of banks and financial institutions on the other hand.

New mechanisms towards corporate bail out for banks and business rescue

A choice between liquidating or business rescue receivership

Pending such a time when a more rescue friendly general insolvency regime is created, the AMCON Act takes a lead and makes available to the Nigerian insolvency practitioner appointable by AMCON a business rescue friendly option which oscillates between the UK administrative receivership and its procedure of administration18.

Section 48(3) of the Act gives a choice to an Insolvency Practitioner (IP) the right to elect to proceed on the basis of a purely liquidating approach with enhanced powers and protective provisions provided by the Act, or to proceed on the basis of business rescue of the debtor company for a period to be stated19. If the IP proceeds purely on the basis of liquidation20, he is effectively imbued with substantial control rights over the assets and the entire undertaking of the debtor company available to a UK administrative receiver appointed pursuant to a floating charge, irrespective of whether only a fixed charge was created or only a part of the assets of the company were charged without prejudice to existing rights of secured creditors or third parties on such assets.

What this would mean in practice is that he could for the sole purpose of realizing the debt secured, sell the company as a going concern or liquidate it piecemeal, howsoever that the secured creditors would have priority over the proceeds of the sale of the assets. What this should also mean is that he may not be able to sell assets belonging to third parties but in the debtor company's custody, and if he does, such proceeds would belong to the third parties.

The implication in the first instance above is that unsecured creditors may be short changed and left with even less remedial options21 particularly where the receiver's powers have been expanded only on account of this protective provision and not by reason of the nature of security instrument created over the assets of the debtor company pursuant to the loan transaction. Put another way, the powers of such receiver to take over all assets and entire undertaking of the debtor company without being subjected to the fiduciary obligations of company managers22 would have been more justifiable if limited to when such receiver elects to drive business rescue under the procedure spelt out in subsections 4 to 9 of Section 48. For it does put the AMCON IP functioning purely and only as a receiver in a better position than was created by the secured loan contract at the expense of unsecured creditors without establishing a counter balancing statutory obligation.

The new subsection 4 as pointed out earlier provides the IP with the alternative choice of driving business rescue and to manage the debtor company pursuant to his management powers under Section 48(2) (c) of the Principal Act. Where he elects to do so (not necessarily at the inception of his appointment23 and implied here is the fact that he apparently would have initially obtained the approval of his appointor), the IP is required to publish in at least two dailies with nationwide circulation, his intention to take over management before becoming so entitled to act24. The IP is then bound to act on behalf of and in the best interest of the debtor company for the benefit of the debtor company and the general body of creditors for the period that is specified in published notice25.

For that reason and bearing in mind the business rescue objective, there is an automatic stay of all judgments, claims and debt enforcement procedures other than labour claims or claims by professional advisers for a minimum of one year from the date of publication or more if the period of business rescue stated exceeds one year26. He is further bound to prepare within 30 days of the publication a comprehensive business recovery plan27, failing which the automatic stay provision shall cease to apply28.

Whilst it is important to commend the business rescue objective of these provisions, it is also equally important to properly situate the likely implications of these provisions and possible areas of challenges.

Firstly under the new provisions, there is an apparent contradiction: on the one hand, Section 48(2) of the Principal Act seems to provide that a receiver appointed under the AMCON Act is automatically empowered with rights of a receiver simpliciter29 and rights of management of company/control of the assets30. However, the more specific new sub provisions envisage that the powers to manage the debtor company are available when he elects to drive business recovery and complies with condition precedents earlier outlined. Although the principle of law is that specific provisions supersede general provisions31, it would have been neater to amend and qualify the general provision, and thereby avert potential litigation over the uncertainty created.

Secondly, the business rescue framework created under the Act envisages that as a fiduciary of the company, in paying debts out of proceeds realized, he is to adhere to the rules for preferential payments stated in section 494 of CAMA. The CAMA section provides that subject to costs and expenses of liquidation, labour claims and tax claims are to be paid in priority to other unsecured creditors rights or claims, including even the rights of debenture holders of floating charge32. The CAMA section also does not cover expressly priority ranking of a secured creditor such as the holder of a fixed (and floating) charge over the assets of the company or a super creditor created by statute like AMCON. The section did not really need to so provide, because the law of secured credit does provide for priority and in the context of formal collective winding up procedure, a liquidator is acting in the best interest of a body of creditors, specifically the unsecured creditors, such that a secured creditor who is interested in participating in the winding up is meant to elect to surrender his security. The new AMCON provisions however needed to have been clearer as they obviously envisage the application of the payment priorities stated in section 494 CAMA outside of a formal, public and collective proceedings such as winding up which is supervised by the court. In other words, the private nature of a business rescue oriented receivership required that ranking of secured creditor(s) and rights of third parties be clearly stated as was done under the proviso for the liquidating scenario envisaged by Section 48(3) of the AMCON Act.

Thirdly, it is not clear whether professional advisers claims mentioned as one of the exceptions to Section 48(7)33 will rank pari passu with the preferential payments such as labour claims available under section 494 CAMA if they pre-exist the receivership or indeed supersede same if regarded as cost of receivership. This uncertainty would also apply to the scope of the stay if the claim for payment of professional advice was to pre-date the receivership. Moreover, if Section 494 CAMA is applicable to receivership claims by professional advisers, there appears to be an assumption that it would not be sufficiently significant to disrupt any planned business recovery effort.

Fourthly, the question arises as to what happens where the receiver or IP fails to submit or keep to the Business Recovery Plan submitted. Apart from loss of right to automatic stay it is not clear if other creditors have any right in relation to submitting an alternative plan or discharging the receivership.

A Resolution Cost Fund

The Act also creates a new section 60 which established a banking sector Resolution Cost Fund (RCF) domiciled with the Central Bank of Nigeria (CBN) to avert potential failure of the Corporation in its asset management functions. The aim of the RCF is essentially to support the asset management function of the Corporation and enable it meet its obligations as at when due with respect to debt securities it has issued to refloat banks or pay for eligible assets it acquired. Where AMCON is unable to repay its bonds from the proceeds of its sale and management of NPL assets it acquired from banks then payment will be sourced from the RCF pending such time it is in a position to fulfill its obligations, in which case, monies released from the RCF would be refunded34.

The approach to this additional debt resolution mechanism targeted at sustaining the Corporation's core AMC function is both voluntary and compulsory (contributions and levies)35, private and public sector based (from eligible financial institutions and from the CBN)36. First, upon commencement of the Act, a provision of a minimum of NGN50 Billion as approved by the National Assembly is to be credited annually to the RCF with retroactive effect commencing from the year 201137. Second, all funds previously gathered and standing to the credit of the Corporation with the CBN based on the January 2010 MOU between the Corporation and the banks38 are transferred to the RCF39. Next, every eligible financial institution shall pay an amount equivalent to 50 basis points40 of its total assets as at date of publication of penultimate mandatorily published financial audited statement prior to 201441. Section 60F however provides that where the Total Fund realized from these different sources and available in the RCF are insufficient to meet the obligations of the Corporation with respect to debt securities issued, then the CBN Governor shall mandatorily increase and publish the quantum of the levy contribution by the eligible financial institutions, such increase taking effect in the financial year immediately following that determination42. Whilst the Act provides as incentive that the levy imposed on the bank is tax deductible43, on the other hand, banks are prohibited from paying dividends to their shareholders or bonuses to their directors and employees until compliance44. Several provisions are made to ensure corporate governance and good management of the RCF45 with the establishment of Board of Trustees with a strong presence of the private banking sector46 which shall have the responsibility of collecting the contributions and levies, disbursing monies standing to the credit of the RCF, investing such monies standing to the credit of the RCF and formulating policies for such investments amongst other functions consistent with the objective of the RCF47.


There is asymmetry between reform under general insolvency law in Nigeria and sector specific bank insolvency regime. Whilst general insolvency law remains liquidation focused and has provided little avenue for business rescue, the very absence of an exit under general insolvency law has spurred government intervention in bank insolvency as general insolvency eventually ended at the door steps of the banks and simply overwhelmed them.

Our analysis indicate that bank specific insolvency reform has been evolving in Nigeria. From amendments to NDIC and CBN laws that allowed those institutions to consider restructuring rather than liquidation to the AMCON Act which set up AMCON as an AMC to take out toxic assets from banks without necessarily interfering with management.

The more recent reform examined in details in this paper now sets the framework for a more sustainable business rescue for the banking sector to be paid for not just by the tax payer but also by the banks through contributions to the RCF.

Within this framework are also lights of hope for general business rescue through choices to be made by IPs appointed by AMCON. The impact of the 2015 AMCON Act amendment for general business rescue arguably remains limited by the fact that the choices provided are only available to AMCON appointed receiver. There is no right given to any debtor to apply for protection of automatic stay upon a plan to be approved by the general body of creditors. However, we are of the belief that we are at the twilight of an incoming tsunami of reform in the area of general insolvency law in Nigeria.


1. Senior Partner and Partner at PUNUKA Attorneys & Solicitors, Lagos, Nigeria.

2. World Bank ROSC Report on Insolvency in Nigeria released in October, 2007 and submitted to the Nigerian Government for possible action. The deteriorated state of business environment owing to archaic insolvency laws amongst other indices was reiterated by the World Bank in its Annual doing business report in 2014

3. Which was enacted as a decree.

4. The Bankruptcy Act enacted in 1979 which deals with personal insolvency has not been amended since 1992

5. Please see Investments & Securities Act no. 45 of 1999 as amended further in 2007 which repeals Part XVII of CAMA

6. Part XII Investments & Securities Act, 2007

7. In actual fact, the Companies Act was first promulgated in 1968 and the 1990 review did not feature amendment of its insolvency provisions.

8. The FMITI Committee on Reform of Investment Laws & Policies recently resolved at its meeting of 15th September, 2015 to handover same to such substantive new Minister appointed for the FMITI by the current administration, so that same can be forwarded to the Federal Executive Council for approval and transmission to the National Assembly.

9. In terms of restructuring options, NDIC is empowered to either provide financial intervention/assistance, intervene in or take over management, induce regulatory corporate restructuring such as M&A with another financial institution or float bridge banks to assume/acquire deposits & liabilities. See Sections 37 to 39

10. Neither NDIC nor CBN under its own enabling Act is statutorily empowered to acquire or take over by itself the assets and deposit liabilities of a financial institution.

11. In 2009, the Nigerian CBN intervened and removed existing management of banks which were perceived as failing, injected bailout money into these banks and -working together with NDIC- caused the assets and liabilities of many of these banks to be acquired by bridge banks.

12. New subsection 5 of Section 16

13. New subsection 2 of Section 22

14. The Corporation can elect to continue with the said action or discontinue without prejudice to her right to commence a new action in respect of the matter discontinued

15. Please see for instance Sections 36 and 40 of the Principal Act. For further reading on the principal Act, please check the article Dealing with bank insolvency: the Asset Management Corporation of Nigeria (AMCON) Act, 2010 accessible on

16. By Section 254 of the 1999 Constitution of the Federal Republic of Nigeria, and sections 53 and 61 of the AMCON Act, the Chief Judge of the Federal High Court issued a Practice Direction in 2013 for fast tracked hearing of AMCON cases. A review of our article titled fast tracking financial sector insolvency related cases: the AMCON Practice Directions is available on

17. These being very recent amendments which are yet to be tested by litigation.

18. Section 48 of the Principal Act receives a face lift with 7 additional sub sections, namely subsections 3 to 9. The receiver is expected to function as an administrator i.e. enforce a collective approach rather than a private approach to collection, yet this is to be done outside the formal walls of a court procedure with essentially the same type of objective of either first trying to rescue the business or run same in a way so as to achieve maximization of assets realization, etc.

19. Sections 48(5) in Amended Act.

20. Although he is statutorily empowered by virtue of Section 48(2)(c) already to manage the affairs of the debtor company with no mention of any equivalent obligation to act uberrima fidea

21. They remain entitled to apply for liquidation through a winding up petition. Unlike the receivership which is ordinarily out of court, this process is court regulated with an IP appointed who would act in the interests of all creditors, including unsecured creditors subject to ranking priority rules.

22. Please see Sections 390 and 393 CAMA on duties of receiver/manager and sections 279/280 on duties of directors

23. It is not stated whether this provision has retroactive effect/is immediately applicable to existing AMCON matters or becomes applicable only for receiverships commenced after enactment of the Act. Also, the phrasing of these new provisions seem to imply that Section 48 is more or less a general provision and that unless clearly so allowed by the terms of the secured loan contract leading to his appointment, or when he elects to do so under Section 48(4), (5) et al, an IP should proceed strictly from the perspective of liquidation.

24. Section 48(4) and (5)

25. Subsection 5

26. Subsection 7

27. Subsection 8

28. Subsection 9

29. Realization of assets Section 48(2) (a)

30. Section 48(2)(c)

31. In Osahon v FRN (2003) 16 NWLR Pt. 845, 89 @ 98-99) the court held "where there are two enabling provisions, one specific and the other general, the court ought to presume without more that the lawmaker has intended the specific provision to prevail over the general provision as to govern the matter. This is because the legislature in making the specific provision is considering the particular case and expressing its will in regard to that case; hence, the special provision forms an exception importing the negative. In other words ... the general provision will not apply."

32. Please see Section 182(1)

33. providing for automatic stay upon commencement of a business rescue oriented receivership

34. Please see Section 60E. This section was primarily described in Amcon Bill as Section 65 and some provisions of the Mended Act still erroneously make reference to Section 60E on the basis of initial numbering.

35. Section 60A(1)

36. Sections 60B, 60C and 60D

37. Section 60B

38. to meet the banking sector resolution costs

39. Section 60D. Formerly described as Section 64 in the initial Amendment Bill, which explains some of the unfortunate but erroneous references in new provisions of the Act to Section 64.

40. Or any other higher amount as may be from time to time be determined by CBN

41. Section 60C. a financial institution that had voluntarily contributed under the voluntary arrangement in the MOU dated 14th January 2010 as at 2013 would be exempted from any further contribution for that year

42. Section 60F

43. Section 60G

44. Section 60H

45. Sections 60 I to X

46. 4 representatives from any of the banks not below the rank of directors on a 2 year rotational basis, 2 representatives of CBN being deputy Governors, and 3 ex officio members from the Federal Ministry of Finance, Nigerian Deposit Insurance Corporation and AMCON respectively. Section 60I

47. Section 60J and 60P

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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