Restructuring & Insolvency Comparative Guide -

1 Legal framework

1.1 What domestic legislation governs restructuring and insolvency matters in your jurisdiction?

There is no standalone legislation that governs restructuring and insolvency in Nigeria. The statutes that govern restructuring and insolvency in Nigeria include:

the Companies and Allied Matters Act (Cap C20, LFN) 2004 (CAMA);
the Companies Winding-up Rules 2012;
the Federal Competition and Consumer Protection Act 2019;
the Investment and Securities Act 2007 (as amended in 2015);
the Securities and Exchange Commission Rules 2013 (as amended in 2019);
the Asset Management Corporation of Nigeria Act 2010 (as amended in 2015);
the Finance Act 2020;
the Banks and Other Financial Institutions Act (Cap B3 LFN) 2004;
the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act 1994;
the Central Bank of Nigeria Act;
the Nigerian Deposit Insurance Commission Act 2006;
the Insurance Act 2003; and
the Federal High Court (Civil Procedure) Rules 2019.

1.2 What international / cross-border instruments relating to restructuring and insolvency have effect in your jurisdiction?

The applicable legal regime in Nigeria does not contemplate cross-border insolvency. Nigeria is yet to adopt the UNCITRAL Model Law on Cross-Border Insolvency 1997.

Where a company is registered to carry on business in Nigeria, it will be subject to Nigerian company administration, restructuring and insolvency laws.

1.3 Do any special regimes apply in specific sectors?

Yes. They include the following:

The Investment and Securities Act regulates the capital markets (including the activities of the Securities and Exchange Commission (SEC) and public quoted companies), and includes provisions on mergers and acquisitions. In the context of business recovery and insolvency, CAMA is still the applicable regime.
Recently, the Federal Competition and Consumer Protection Act was enacted by the National Assembly. The Act repeals Sections 118 to 128 of the Investment and Securities Act on merger control, thereby divesting the SEC of its power to approve mergers and vesting responsibility for approving merger transactions in the Competition Commission. The above must also be distinguished from business recovery and insolvency, which does not fall under the typical M&A heading.
The Nigerian Deposit Insurance Commission Act regulates licensed banks and deposit-taking financial institutions.
The Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act, the Banks and Other Financial Institutions Act and the Asset Management Corporation of Nigeria Act apply to banks and other financial institutions.
The Insurance Act and the National Insurance Commission Act regulate all insurance transactions and apply to insurers.
The Petroleum Act applies to restructuring and mergers within the oil and gas industry, particularly as regards the transfer of a participating interest in an oil or gas asset/licence, as any such transfer requires ministerial consent.
The Nigerian Mining and Minerals Act 2007 applies to the transfer of any mining licence, as the same requires ministerial consent.

1.4 Is the restructuring and insolvency regime in your jurisdiction perceived to be more creditor friendly or debtor friendly?

Nigeria is considerably a creditor-friendly jurisdiction, especially for debts acquired by Nigeria's public assets management body, the Asset Management Corporation of Nigeria (AMCON).

Section 471 of CAMA provides for the voluntary winding-up of a company by creditors. Where a company is indebted to a creditor in an amount above NGN 2,000, the creditor may issue a statutory demand to the company to settle the debt. If the company refuses to pay the debt within three weeks, the creditor may file a petition for the company to be wound up. Section 493 of the same Act ranks both secured and unsecured creditors above members of the company during a winding-up.

In practice, due to needless bureaucracy and delays in the administration of justice, creditors sometimes have to spend an inordinate amount of time prior to receiving judgment and this delay sometimes result in a dissipation of the assets of the debtor.

1.5 How well established is the legal regime and infrastructure relevant to restructuring and insolvency in your jurisdiction (e.g. extent of recent legislative changes, availability of specialist judges / courts / advisers)?

There have been recent changes to the restructuring and insolvency regime in Nigeria - in particular, the enactment of the Federal Competition and Consumer Protection Act and the amendment of the AMCON Act.

CAMA provides that matters relating to restructuring and insolvency shall be filed at the Federal High Court in the first instance, to the exclusion of other courts in Nigeria.

The Business Recovery and Insolvency Practitioners Association of Nigeria promotes the development of insolvency and business rescue practice in Nigeria through training, advocacy and legislative reform. Thanks to its efforts, a private members' Bankruptcy and Insolvency Bill was drafted and passed by the National Assembly in 2016, which is still awaiting presidential assent. The bill seeks to provide for:

individual insolvencies;
certain aspects of corporate insolvencies;
rehabilitation of insolvent debtors;
creation of the office of supervisor of insolvency;
cross-border insolvency recognition and enforcement; and
other related matters.

The Presidential Enabling Business Environment Council has drafted an omnibus bill (in line with the Mauritius Model) for the harmonisation of various laws (including CAMA and its insolvency provisions), to make it easier to do business in Nigeria.

In 2018 the Companies and Allied Matters (Repeal and Re-Enactment) Bill was passed by the National Assembly. The bill, which is currently awaiting presidential assent, provides a framework for insolvency and simplifies some of the provisions relating to restructuring of companies generally (ie, reduction of share capital).

2 Security

2.1 What principal forms of security interest are taken over assets in your jurisdiction?

Security interests in Nigeria are categorised as follow:

mortgage;
pledge;
charge; and
lien.

2.2 How can those security interests be enforced (and what factors could complicate or prevent this process)?

Generally, there are no restrictions on who can enforce a security interest over assets in Nigeria, provided that the person seeking enforcement is the secured party or its trustee, agent, assignee, successor or transferee.

Mortgage: Under Nigerian law, in the event of default by the borrower, a mortgage can be enforced if it has been executed and registered in accordance with the Conveyancing Act or the Property and Conveyancing Law of a state or the Mortgage and Property Law of Lagos State. Enforcement of the terms of such mortgage is dependent on whether the power of sale has arisen. This is determined by default, as provided under the relevant agreement.

Pledge: In Nigeria, a property can be pledged only if it is transferable by delivery of possession. Usually, the possession and use of the property are given to the pledgee as guarantee for repayment of the debt, with a view to redeeming the asset upon payment of the debt. Notwithstanding the above, it is possible to create a pledge in respect of shares; and under the Companies and Allied Matters Act, there is no distinction or heading for a pledge - the reference is always to a ‘charge'.

Charge: A charge is usually given by way of debenture over a company's assets. It may be secured by a fixed charge on some of the company's property or by a floating charge over all of the company's property. A charge must be registered with the Corporate Affairs Commission within 90 days of its creation. A floating charge requires a crystallising event (ie, default in payment of any sums due) prior to the enforcement of such security.

In the case of corporate entities, mortgages and charges are given legal effect (priority) when they are registered with the Corporate Affairs Commission.

Generally, the enforcement of security may be hampered by delays in the administration of justice. It is not unusual for cases to run for years, especially where it appears that there are contentious issues to be considered. A failure to perfect security may also complicate or prevent the enforcement of security.

3 Restructuring

3.1 Are informal workouts available in your jurisdiction? If so, what forms do they typically take, and what are the benefits and drawbacks as compared to formal restructuring proceedings?

Yes, there are informal workouts - especially in the context of loan restructuring, which does not include changes to the corporate structure of the debtor. In certain instances, the regulator champions these informal workouts, which may include encouraging existing creditors to agree to a stay and the injection of new capital. The main benefit is that it provides the debtor with reasonable latitude to allow it to continuing operating, with a view to repaying its debts.

3.2 What formal restructuring proceedings are available in your jurisdiction, and what are the benefits and drawbacks of each?

There are express provisions under Nigerian law for formal restructuring proceedings, in the form of arrangement and compromise, mergers, takeovers and acquisitions. The relevant procedures are laid down in Sections 117 to 152 of the Investment and Securities Act 2007. However, the Federal Competition and Consumer Protection Act 2019, in Sections 92 to 102, repealed the provisions of Sections 118 to 128 of the Investment and Securities Act on merger control, thereby divesting the Securities and Exchange Commission (SEC) of its power to approve mergers and vesting the responsibility for approving merger transactions in the Competition Commission. That said, the Competition Commission is yet to issue guidelines delimiting the merger thresholds or modifying the thresholds contained in the Investment and Securities Act. In the absence of such guidelines, the SEC and the Competition Commission jointly issued an advisory note on mergers in May 2019.

The benefits of mergers and acquisition include expansion and diversification. The drawbacks include lost economies of scale; the potential strengthening of a monopoly; culture clash; consumer perceptions; and workforce downsizing.

A takeover allows another entity to assume the management and control of an inefficient company.

A hostile takeover, which takes place without the consent of the target, is generally disruptive. It may also be challenging to secure a valuation; and such takeovers also often lead to significant workforce downsizing and, in the extreme, the corporate demise of the acquired entity.

3.3 How, by whom and on what grounds are formal restructuring proceedings initiated? What are the main preconditions for success?

A company may be restructured where:

its liabilities exceed its assets;
it is on the brink of collapse; or
it is a going concern, but desires to expand.

Arrangement and compromise: Court approval is required where a company wishes to alter the rights of its members and creditors. An application must first be made to the court (Federal High Court) to call a meeting of creditors and members. Notice of such meeting will be served on the members, accompanied by a statement showing the effect of the arrangement on the directors, creditors and shareholders of the company. The court and the SEC will conduct investigations on the arrangement. If satisfied, the court will make an order approving the arrangement.

Mergers and acquisitions: These occur when one company acquires or establishes control over the whole or part of the business of another. For this to happen, the boards of directors and the management of both companies will pass separate resolutions on the merger. The scheme is then referred to both the court and the SEC for approval. The merging companies must apply to the SEC concerning the pre-merger notice attached with the necessary documents and, after the merger, the companies must give a post-merger notification. If the scheme is approved, the merger or acquisition is considered final. A primary condition for a merger is that the acquirer have a controlling share interest of not less than 51% in the target. Other conditions depend on the size of the merger, as follows:

Small mergers have a value of not more than NGN 500 million;
Intermediate mergers have a value between NGN 500 million and N 5 billion; and
Large mergers have a value of NGN 5 billion or more.

Takeovers: These occur where the acquirer (which later becomes a holding company) takes over the control of the target (which later becomes a subsidiary) by acquiring its issued share capital. A primary condition for a takeover is that a minimum of 30% of the shares of the target be bidded on.

3.4 What are the effects of the commencement of formal restructuring proceedings, both for the debtor and for creditors?

Creditors' and debtor's rights are altered either by the terms of the scheme or by the court. Depending on the tenure of the debt, a creditor may lose priority to a competing creditor.

A debtor may lose control over its affairs to its creditors - especially where a manager is appointed as part of the restructuring process.

3.5 Does a moratorium or stay apply and, if so, what is its scope? Are there exceptions?

The terms of the restructuring will determine whether there will be a stay or moratorium on proceedings or enforcement of claims against the debtor. The scheme may prohibit creditors (secured or unsecured) from instituting or continuing proceedings against the debtor for the duration of the restructuring.

3.6 What process do restructuring proceedings typically follow (including likely length of process and key milestones)?

In arrangements and compromises, the debtor requires court approval to alter the rights of members and creditors. Before such approval is granted, the debtor must apply to court to call a meeting of creditors and members. Notice of the meeting is to be served on the members, together with a statement indicating the effect of the arrangement on the directors, creditors and shareholders. If a 75% majority votes in favour of the scheme, it will be reported to the court.

Upon receipt by the report, the court will refer the scheme to the SEC, which will scrutinise its fairness and then issue a report accordingly. The scheme will be sanctioned if the court receives a positive SEC report. Where the court is satisfied as to the material portions of the compromise, any order of the court in respect of same shall have no effect until a certified true copy of the order is registered with the Corporate Affairs Commission and annexed to every copy of the memorandum and articles of association of the company issued after the order has been made

In mergers and acquisitions, for the scheme to be sanctioned, the companies must make a pre-merger notification to the SEC.

In takeovers, the acquirer must pass a resolution formally approving the takeover and bidding for the shares of the target, and send the takeover bid to the SEC and the target for approval.

A typical restructuring process takes between six and 12 months.

3.7 What are the roles, rights and responsibilities of the following stakeholders in restructuring proceedings? (a) Debtor, (b) Directors of the debtor, (c) Shareholders of the debtor, (d) Secured creditors, (e) Unsecured creditors, (f) Employees, (g) Pension creditors, (h) Insolvency officeholder (if any), (i) Court.

(a) Debtor

The debtor must provide accurate information as required, especially where it intends to enter into an arrangement or a compromise with its creditors. It must also provide information regarding any material interests of its directors.

(b)(c) Directors and shareholders

Where the directors and shareholders of a debtor propose a restructuring, the members and shareholders must approve any such restructuring option. The shareholders can apply summarily for the court to order a meeting of the company's creditors or members with a view to agreeing to and determining the terms of the restructuring scheme. Dissenting shareholders can request an appointed liquidator to abstain from the arrangement. Dissenting shareholders are equally entitled to payment of fair value for their shares or to compel the acquisition of their shares. In the case of publicly traded companies, there may be a lockdown period with respect to the sale of shares owned by the directors.

(d)(e) Secured and unsecured creditors

Generally, a restructuring will result in alterations to creditors' rights. A debtor proposing a restructuring must give notice of any meetings regarding such restructuring to its creditors. Creditors must vote in favour of schemes of arrangement or mergers. Dissenting shareholders have the right to request an appointed liquidator to abstain from such arrangement. They can also compel the acquisition of their shares.

(f) Employees

During a restructuring, an employee may agree to a pay cut or to resign and collect his or her benefits.

(h) Insolvency officeholder

It is not unusual to appoint a manager or receiver manager during a restructuring, especially where the purpose is for business recovery. The manager is tasked with managing the business for the sole purpose of collecting all receivables for the benefit of the company's creditors.

(i) Court

The Court (Federal High Court) is vested with the power to approve arrangements, compromises and merger schemes. The extent of the court's involvement in restructuring procedures is dependent on the type of restructuring being contemplated by the company. Upon application by the company, the court will call a meeting of the company and its creditors and members for any restructuring proceeding. Thereafter, the court will order investigations into the fairness of a scheme and approve the same where satisfied.

3.8 Can restructuring proceedings be used to "cram down" and bind dissentient creditors to a transaction supported by other creditors? Are creditors separated into classes for the purposes of voting in the proceedings? What are the relevant voting thresholds? Is "cross-class cramdown" available?

If, based on the SEC's written report, the court is satisfied that the scheme of arrangement or merger is fair and equitable to the dissenting creditors, the court may allow and sanction such arrangement or merger, despite such dissent.

If the scheme is acceptable to 75% of the creditors or stakeholders, the court may grant an order sanctioning its implementation.

3.9 Can restructuring proceedings be used to compromise secured debt?

Yes. However, such a compromise requires the express consent of such secured lenders.

3.10 Can contracts / leases be disclaimed or otherwise addressed through restructuring proceedings?

Generally no. Unless a contract itself provides that restructuring constitutes grounds for termination, restructuring proceedings will not affect the debtor's contracts.

3.11 Can liabilities of third parties (e.g. guarantors) be released through restructuring proceedings?

The liabilities of third parties (eg, guarantors) may be released through restructuring proceedings if the underlying agreement provides for the same. They may also be released where the debtor can provide some other sort of security that affords acceptable comfort to the creditor.

3.12 Is any protection and/or priority afforded to the providers of new money in the context of restructuring proceedings (i.e. is "DIP financing" available)?

DIP financing is not recognised under the Nigerian laws on restructuring and insolvency. Nonetheless, there are certain processes that mirror DIP financing in the context of the Central Bank of Nigeria (CNB) and its relationship with financial institutions. Where a financial institution appears to be struggling, the CBN may step in by providing funds to ease liquidity problems in the short term or recapitalise such institution and take it over in its entirety.

In the private sector generally, such processes may be achieved by agreement of the parties and with the consent of existing lenders. The provider of new money may demand such protection as it deems reasonable, including first-priority ranking as lender.

3.13 How do restructuring proceedings conclude?

Restructuring proceedings are usually concluded by the filing of relevant documents with either the court or the Corporate Affairs Commission, or in certain instances with both bodies. This may not necessarily apply in the case of an informal workout.

4 Insolvency

4.1 What types of insolvency proceeding are available in your jurisdiction, and what are the benefits and drawbacks of each?

Receivership: A creditor, creditors or class of creditors, or the court, may appoint a receiver to receive moneys and realise certain properties of a debtor for the sole purpose of making payments to its creditors. A benefit of the above is that it allows the debtor to pay off its debts; thereafter, the debtor is returned to its owners. A disadvantage is that where the receivables of the debtor appear to be insufficient, this may lead to its winding-up.

Appointment of a manager: A manager may be appointed for a specified period to manage the affairs of the debtor in order to pay its debts. An advantage of this process is that the debtor continues as a going concern and, upon payment of its debts, the directors are reinstated for the purpose of continuing the business.

A disadvantage is that the manager may inadvertently enter into contracts which may further jeopardise the business of the debtor. Further, the appointment of the manager may activate cross-default provisions in other loan arrangements.

Winding-up proceedings: Winding-up is generally a ‘last-mile' procedure for a debtor that has come to the end of its existence, either by agreement of its owners, the court or its creditors. A distinct advantage of winding-up is that all assets of the debtor are available to settle its obligations, subject to the priority order for the application of funds as provided under the Companies and Allied Matters Act (CAMA).

The disadvantages include that the debtor is no longer a going concern and that the funds and assets available may be insufficient to settle all obligations.

4.2 How, by whom and on what grounds are insolvency proceedings initiated? Can the instigating party (or any other parties) select the identity of the relevant insolvency officeholder?

Winding-up or liquidation can be done either voluntarily or involuntarily.

Voluntary: A company can voluntarily wind up its affairs if it:

is unable to carry on its business;
was formed only for a limited purpose; or
is unable to meet its financial obligations.

All voluntary winding-up proceedings require a special resolution of the members (shareholders) in a general meeting to commence.

Where a company is unable to meet its financial obligations, a creditors' voluntary winding-up can be commenced (like in a members' voluntary winding-up) by a special resolution that the company be wound up and a liquidator be nominated.

Involuntary: A company can be wound up by the court if:

the company, through a special resolution, has resolved that it be wound up by the court;
the company has defaulted in filing its statutory reports with the Corporate Affairs Commission or in holding the statutory meetings;
the number of members has reduced below two;
the company is unable to pay its debts; or
the court is satisfied that it is just and equitable for the company to be wound up.

An involuntary winding-up is commenced on presentation of the relevant petition (Sections 401, 408 to 410 and 415 of CAMA).

In certain cases, the instigating party may nominate its preferred liquidator. With specific reference to a creditors' winding-up, the creditor may choose the liquidator where the underlying agreement provides for such appointment. The court may also choose the liquidator or the official receiver, especially in a members' voluntary winding-up and an involuntary winding-up.

4.3 What are the effects of the commencement of insolvency proceedings, both for the debtor and for creditors?

For the debtor, the effect is that its board of directors ceases to hold office and it stops being a going concern.

For creditors, it may operate to suspend the calculation of interest and may result in the payment of outstanding debts subject to the priority order of payment as provided under CAMA. Certain creditors - especially those that became creditors in the three months prior to the commencement of insolvency proceedings and those whose contracts with the debtor are deemed, by agreement of the court, to be unduly onerous - may have their contracts disclaimed.

4.4 Does a moratorium or stay apply and, if so, what is its scope? Are there exceptions?

Upon the commencement of insolvency proceedings, a moratorium is imposed on the enforcement of security against the debtor. Accordingly, a secured creditor may not realise that security itself, but must deliver it to the liquidator for realisation. However, such stay or moratorium does not have extraterritorial effect.

4.5 What process do insolvency proceedings typically follow (including likely length of process and key milestones)?

The process varies, depending on which party commences the proceedings. If this party is a creditor, the process is usually commenced with a letter demanding payment of an outstanding debt; or the commercial loan agreement may incorporate provisions for acceleration in case of default. If this party is the debtor, the process is commenced by way of a resolution for voluntary winding-up.

Notwithstanding the above, the courts are almost always involved in the insolvency process.

Under Section 401 of CAMA, the three major procedures for winding up an insolvent company in Nigeria are as follows:

court-ordered winding-up;
voluntary winding-up, which may be either:
- a members' voluntary winding-up; or
- a creditors' voluntary winding-up; or
court-supervised winding up.

Court-ordered winding-up: This occurs where:

the company resolves by special resolution to be liquidated by the court;
the company defaults in holding statutory meetings or filing statutory reports;
the membership of the company is reduced below two;
the company is unable to pay its debts; or
the court finds that it is just and equitable to do so.

Voluntary winding up: The members of a company may voluntarily resolve to wind up the company if:

the fixed term set out in the articles of association expires or the articles allow them to wind up the company voluntarily under certain conditions, provided that the company passes a resolution to this effect at the general meeting; or
the company resolves by special resolution that it should be wound up voluntarily.

Court-supervised winding up: This occurs where the company resolves that it should be wound up and files a petition with the court to supervise the process. The court may order the company to be wound up under its supervision and provide creditors, contributories and others with the right to apply to the court. The winding-up will be effected on such terms and conditions as the court thinks just.

Key milestones in insolvency proceedings include:

the delivery of a letter demanding payment;
the application to the court;
the filing of a declaration of solvency by the directors;
the sanctioning of the winding-up process by the court (where applicable);
the appointment of the liquidator; and
the filing of all relevant documents with the Corporate Affairs Commission.

4.6 What are the respective roles, rights and responsibilities of the following stakeholders during the insolvency proceedings? (a) Debtor, (b) Directors of the debtor, (c) Shareholders of the debtor, (d) Secured creditors, (e) Unsecured creditors, (f) Administrator, (g) Employees, (h) Pension creditors, (i) Insolvency officeholder, (j) Court.

(a) Debtor

The debtor must:

discontinue its activities and cease being a going concern;
prepare the declaration of solvency;
ensure that its assets are not dissipated; and
file all required papers with the court and/or the Corporate Affairs Commission.

(b)(c) Directors and shareholders

The board of directors will pass a resolution to convene a shareholders' meeting. At the meeting, the shareholders will pass a special resolution for the winding-up of the debtor. At the end of each year from commencement to conclusion of the liquidation, the liquidator must convene a general meeting of the shareholders informing them of his or her actions and conduct in the winding-up proceedings.

(d)(e) Secured and unsecured creditors

Under CAMA, a creditor of a company can file liquidation proceedings and commence recovery action against a debtor. A creditor also has representative rights on the committee of inspection that may be set up to work with the liquidator and may also appoint a liquidator. The debtor can also convene a general meeting of creditors along with its general meeting. Notice must be published in the gazette and two national newspapers in the district where the debtor is located.

Creditors must generally deliver up security to the liquidator in the event of a winding-up.

(g) Employees

Employees may not bring claims with respect to wrongful termination, but they can bring claims relating to payment of their benefits in preference to all other claims. Where there are employee pension plans or schemes in place, claims for deficits in such plans have priority in liquidation, since pensions are now a statutory requirement and, as a matter of practice, when unpaid, the employee may apply to the court for enforcement.

(h) Pension creditors

Under the Pension Reform Act, 2014, pension funds can invest only a limited percentage of funds under management in the securities of publicly listed and traded companies. A pension creditor stands in the same position as a regular creditor and is subject to the same rights and obligations as other creditors, subject to any priority-based registration that such pension creditor may have.

(j) Court

The Federal High Court is involved in insolvency proceedings from the hearing and determination of winding-up petitions to the appointment of liquidators.

4.7 What is the process for filing claims in the insolvency proceedings?

A claim is proved by an affidavit verifying the claim sent to the receiver or liquidator, as the case may be. The affidavit must contain the particulars of the claim, such as a statement of account, receipt, agreement or any other documentary evidence that substantiates the claim. Every creditor must prove its claim, whether due immediately or payable upon a contingency; and if the debtor is insolvent, the bankruptcy rules will apply. There are no specific timeframes for submission of creditors' claims. Nevertheless, the court may fix a timeframe within which creditors must prove their claims or be excluded from the benefit of any distribution. A claim can be disallowed if the creditor does not comply with this procedure.

4.8 How are claims ranked in the insolvency proceedings? Do any claims have "super priority" and is there scope for subordination by operation of law (e.g. equitable subordination)?

Generally, creditors are ranked according to the type of security that they possess over the debtor's assets and whether such security is registered as stipulated under Section 197 of CAMA. Under Section 494 of CAMA, the order of priority is as follows:

all outstanding payments to employees of the debtor;
deductions for pensions;
accrued holiday remuneration;
claims of creditors with fixed charges;
claims of secured creditors with floating charges; and
claims of unsecured creditors.

The liquidator will determine when and how payments are to be made to creditors and or contributories, after a proper assessment of the debtor's assets and liabilities. This may take place from time to time or after the period specified for proof of claims.

4.9 What is the effect of insolvency proceedings on existing contracts? Is the counterparty free to terminate? Can they be disclaimed?

The commencement of insolvency proceedings does not affect the debtor's contracts, unless insolvency constitutes grounds for termination under the relevant contract. If the debtor is being wound up, the liquidator may request the court to disclaim certain contracts that are considered unduly onerous and of little or no benefit to the debtor.

4.10 Can transactions entered into by the debtor prior to be insolvency be challenged and set aside? What are the relevant grounds / look-back periods / defences?

Yes. Any conveyance, mortgage, delivery of goods, payment, execution or other act relating to property or shares of a company performed in the three months preceding the commencement of winding-up which grants the counterparty preference over other creditors shall be deemed a fraudulent preference and will be invalid to such extent. Any conveyance or assignment by the debtor of all its property to trustees for the benefit of all creditors shall be void.

A floating charge granted by an insolvent debtor in the three months preceding commencement of winding-up shall also be invalid, except for the amount of any cash paid to the debtor, together with interest on that amount at the current bank rate.

4.11 How do the insolvency proceedings conclude? Can any liabilities survive the insolvency proceedings?

Insolvency proceedings conclude once the liquidator has rendered its final accounts and has filed the relevant documents relating to the winding-up with the Corporate Affairs Commission. The commission will then proceed to remove the name of the liquidated entity from the Register of Companies.

Once the process has concluded, all liabilities are extinguished upon the winding-up of the company. Liabilities may survive only where it can be proven that the directors of the debtor were complicit or acted in breach of their fiduciary duty as directors. In such instance, a creditor may maintain an action against the directors in their personal capacity.

5 Cross-border / Groups

5.1 Can foreign debtors avail of the restructuring and insolvency regime in your jurisdiction?

No. Unless they are registered to carry on business in Nigeria, foreign debtors cannot benefit from the restructuring and insolvency regime in Nigeria. In such case they will be subject to Nigerian company, tax and insolvency laws in the event of insolvency.

5.2 Under what conditions will the courts in your jurisdiction recognise and/or give effect to foreign insolvency or restructuring proceedings or otherwise grant assistance in the context of such proceedings?

Under the Foreign Judgment (Reciprocal Enforcements Act) (Cap F35, LFN, 2004), a foreign judgment against a member of a group incorporated abroad will be enforceable in Nigeria under strict conditions. However, there is no law on cross-border insolvency in Nigeria, meaning that a foreign insolvency practitioner cannot obtain assistance from a Nigerian court unless there is a final enforceable judgment.

Foreign insolvency judgments and orders may be enforced in Nigeria if they comply with Section 10 of the Foreign (Reciprocal Enforcement) Act, which requires the existence of a wholly or partly unsatisfied foreign monetary judgment debt. The Act is based on the reciprocity of treatment of similar judgments in the original country.

5.3 To what extent will the courts cooperate with their counterparts in other jurisdictions in the case of cross-border insolvency or restructuring proceedings?

The applicable legal regime in Nigeria does not contemplate cross-border insolvency. Nigeria is yet to adopt the UNCITRAL Model Law on Cross-Border Insolvency 1997.

Where a company is registered to carry on business in Nigeria, it will be subject to Nigerian company, tax and insolvency laws in the event of insolvency.

5.4 How are corporate groups treated in the context of restructuring and insolvency proceedings? If there is no concept of a group proceeding (or consolidation), is there any regime through which insolvency officeholders must / may cooperate?

In Nigeria, there is no legal framework for joint insolvency proceedings for corporate groups. Where various insolvency proceedings are initiated against the members of a group, they will be based on separate actions under the doctrine of distinct corporate legal personality.

The current practice is that group members can decide on voluntary insolvency proceedings or apply to the court in separate involuntary proceedings commenced by each group member requesting the appointment of the same liquidator. The proceedings will remain separate.

Where separate involuntary proceedings have been started by creditors against each member of a group before the same judge or different judges, the debtor may apply for consolidation of the proceedings into the main insolvency proceedings (in relation to the controlling corporate member of the group).

The appointment of the same insolvency office holder is more likely to be achieved in a voluntary insolvency procedure where the liquidator is appointed out of court. A court will typically operate at the end of the process to endorse, ratify or sanction the appointment.

5.5 How is the debtor's centre of main interests determined in your jurisdiction?

In Nigeria, the debtor's centre of main interests is determined as the place where it carries on its business. In most cases, this is its registered address or headquarters.

5.6 How are foreign creditors treated in restructuring and insolvency proceedings in your jurisdiction?

In Nigeria, a foreign creditor can institute an action in court in its name or in the name of its attorney against a debtor for debt recovery in the same manner as a domestic creditor, as long as the debtor or its assets is within, or the underlying contract which gave rise to the debt was performed within, the jurisdiction of the court. The processes and remedies available to a domestic creditor are also applicable to a foreign creditor.

Section 238 of the Bankruptcy and Insolvency (Repeal and Re-enactment) Act 2016 provides that where a bankruptcy, insolvency or reorganisation order is made against a debtor in a foreign proceeding, a certified copy of the order is, in the absence of contrary evidence, proof that the debtor is insolvent and a foreign representative has been appointed. In this instance, on the application of the foreign representative, the court can limit the property that the Nigerian trustee has power over.

6 Liability risk

6.1 What duties do the directors of the debtor have when the company is in the "zone of insolvency" (or actually insolvent)? Do they have an obligation to commence insolvency proceedings at any particular time?

Where a debtor is insolvent and a receiver has not yet been appointed, the directors act as fiduciaries in relation to the creditors. The directors are expected, among other things, to:

prepare a statement of affairs of the debtor, which should set out details such as the following:
- its assets, debts and liabilities;
- the names and addresses of creditors;
- the securities held by secured creditors and the dates on which the securities were respectively given; and
be available to render account of all transactions/moneys over which they exercised control to the receiver.

Once a receiver is appointed, the directors' powers are suspended. Once a liquidator is appointed, the directors' powers cease or are terminated immediately, except where otherwise sanctioned by the liquidator or the debtor in a general meeting.

6.2 Are there any circumstances in which the directors could incur personal liability in the context of a debtor's insolvency?

The circumstances under which the directors may be held liable for the debtor's insolvency are set out in Sections 505 to 507 of the Companies and Allied Matters Act. They include the following:

Fraudulent trading: The directors will be liable where it appears that the debtor's business has been carried out in a reckless manner or to defraud creditors or any other person for any fraudulent purpose, including lying to creditors or entering false accounting information.
Misfeasance: This occurs where the directors or parent company misapply, retain or become liable or accountable for any of the debtor's money or property. It includes using the debtor's property for non-company purposes and paying illegal dividends to shareholders.
Undervalue: This occurs where a director sells or transfers the debtor's assets at an undervalue.
Wrongful trading: This occurs where credit is obtained for the debtor with no realistic prospects of repayment and the debtor continues to do business in the knowledge of its insolvency.

6.3 Is there any scope for any other party to incur liability in the context of a debtor's insolvency (e.g. lender or shareholder liability)?

Generally, no. However, a shareholder may incur liability where there is any amount unpaid on the shares it holds.

7 Other

7.1 Is it possible to effect a "pre-pack" sale of assets, and is it possible to sell the assets free and clear of security, in restructuring and insolvency proceedings in your jurisdiction?

Yes, it is possible to effect a pre-pack sale of assets.

Yes, the security can be released without the creditor's consent in certain circumstances.

Restructuring: Before the debtor disposes of any property over which a third party has any security or title interest, it must obtain the consent of that third party, unless the proceeds of such disposal will be sufficient to fully discharge the amount of the third party's secured or protected claim or title interest.

Insolvency: The liquidator must act within the authority granted by the meetings of creditors and shareholders. There is no general rule that a purchaser will acquire assets ‘free and clear' of claims and liabilities, and there are no specific legislative requirements.

7.2 Is "credit bidding" permitted?

A secured creditor is entitled to credit bid its allowed claim.

Insolvency: There are no specific regulations that allow a secured creditor to bid in the sale of its secured asset for the amount of its debt (as a credit bid). The secured creditor must deliver the property to the liquidator and prove its claim, placing a value on the property. The trustee may then, if authorised by the creditors, take over the property at the value placed on it by the creditor. He or she must do so within three months; if he or she fails to do so, the property must be released for the benefit of all creditors whose claims are secured by it, according to their respective rights.

Restructuring: There is no general rule relating to credit bidding. The business rescue practitioner will have greater freedom to negotiate with bidders and it may be agreed that credit bidding will take place, provided that this is ultimately accepted in a finalised business rescue plan.

8 Trends and predictions

8.1 How would you describe the current restructuring and insolvency landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Please see question 1.5.

9 Tips and traps

9.1 What are your top tips for a smooth restructuring and what potential sticking points would you highlight?

Leadership.
Clarity in vision.
Careful planning.
A supportive and skilled executive/management team.
Communication.
Transparency and integrity.
An understanding of the legal requirements.
Ongoing business momentum.
Talent management and protection.
Culture integration strategies.
Continued relationships with customers.
Measures and evaluation.

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.

Nigeria: Restructuring & Insolvency Comparative Guide