Nigeria: Restructuring & Insolvency Review 2017

Etigwe Uwa SANStreamsowers & Köhn

In legal parlance, restructuring of a corporate entity is effected upon a declaration of insolvency or to avert insolvency or in some cases for the expansion of the business base of such organisation. In the case of statutory or corporate organisations, state authorities may implement the restructuring, while for private companies, private administrators effect the restructuring. A number of matters pertaining to insolvency and restructuring have occurred in Nigeria very recently; the most apparent being the power sector, where change in policy and industry reforms occasioned major overhauls in the structure and operation of the sector.

Etigwe Uwa

In 2001, the National Electric Power Policy (NEPP) was drawn up to address the twin issues of poor operational and financial performance. It was geared towards the elimination of the monopoly held by the National Electric Power Authority (NEPA), which was heavily indebted and inefficient in its operations.

Prior to the sectorial reform occasioned by this policy, the federal government of Nigeria (FGN) was responsible for policy formulation, regulation, operation and investment in the Nigerian power sector. Regulation of the sector was done through the Federal Ministry of Power (FMP) with operations through the National Electric Power Authority (NEPA), a wholly state-owned enterprise (SOE) responsible for power generation, transmission and distribution. The sector was regulated under the framework of the Electricity Act and the NEPA Act.

Consequent to the NEPP, the FGN enacted the Electric Power Sector Reform Act (EPSRA) in 2005. The NEPP specified the reform agenda, while EPSRA provided the legal basis for the unbundling of NEPA, the formation of successor companies and the privatisation of the latter. EPSRA also provided for the development of a competitive electricity market, the establishment of a dedicated regulatory body and the establishment of a rural electrification agency.

Pursuant to these initiatives, NEPA was disbanded into 11 distribution companies, seven generation companies and one transmission company. A holding company, the Power Holding Company of Nigeria (PHCN), was then set up to control these new entities pending the transfer of these incorporated assets to the private sector. This structure was to be maintained for 18 months. The shareholders of the holding company were two government entities; the Bureau of Public Enterprises (BPE) and the Ministry of Finance Incorporated (MoFI).

In 2013, the FGN took a major step in giving effect to the NEPP when it transferred the entities, which were held by PHCN, to the private sector. To take over these assets, a number of the core investors set up special purpose vehicles (SPVs) to hold their interests in these assets, whereas, the FGN via the BPE maintained a stake of varied percentages in each of these assets.

The transmission company, on the other hand, is still under the control of the FGN, but has been incorporated into a limited liability company with the BPE and the MoFI as its shareholders. The incorporated entity, the Transmission Company of Nigeria (TCN), was in 2013 concessioned to Manitoba Hydro International (MHI), a Canadian company, by a three-year management contract, which was recently extended by a year. The erstwhile holding company, PHCN, has entered the process of being wound up.

Further to the unbundling of PHCN and transfer of core assets to the private sector, the Nigerian Electricity Liability Management Ltd/Gte (NEMCO), a company limited by guarantee, was set up to assume and administer the liabilities of PHCN pursuant to the provisions of EPSRA, and to hold the non-core assets of PHCN, or to sell, dispose or deal with same in any manner for the purpose of financing the repayment of the pension liabilities of employees of PHCN, among other mandates. In the advent of this reform, the power sector has also seen the creation of independent power plants and other stakeholders in addition to the companies that were unbundled from the PHCN.


In Nigeria, an incorporated entity becomes insolvent only after a court has declared thus. As such, there are several pending cases bordering on issues of insolvency and more cases are constantly being instituted regarding liquidation across various industries. The large volume of cases may be attributed to provisions of the law that provide that a company must be compulsorily wound-up if it is unable to meet its financial obligations. It is also possible for members of a company to voluntarily apply for a winding-up order, especially where it is a special purpose vehicle (SPV) and the purpose has been achieved.

This is unusual in Nigeria as most SPVs are more often than not maintained as going concerns after they have achieved their intended purpose. However, in the course of insolvency proceedings, if a company is able to prove its ability to meet its financial obligations but still disputes the nature or quantum of the liability alleged, the court may not make an order for compulsory winding-up of the company.

As the global financial sector evolves, the focus of modern insolvency regulation has shifted from the punishment of insolvent entities through compulsory liquidation to the more constructive alternative of reorganisation and restructuring of such business entities and their operations with a view to rehabilitate to ensure economic stability and financial propriety. However, Nigerian insolvency law is still traditional in its approach, such that winding-up and liquidating the company remain the sole mechanisms for dealing with instances of insolvency.

There are various laws applicable directly and indirectly to insolvency generally in Nigeria. These include:

  • primary legislation:

- the Companies and Allied Matters Act (CAMA) CAP C20 Laws of the Federation of Nigeria (LFN) 2004;
- the Companies Winding-Up Rules 2001 (made subject to CAMA above);
- the Bankruptcy Act – as amended by Decree 109 of 1992 CAP B2 LFN 2004;
- the Bankruptcy Rules – made pursuant to the Bankruptcy Act;
- the Investments and Securities Act (ISA) 2007;
- the Securities and Exchanges Commission Rules (made subject to ISA above); and

  • secondary legislation:

- the Banks and Other Financial Institutions Act 1991;
- the Asset Management Corporation of Nigeria (AMCON) Amendment Act 2015;
- the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act CAP F2, LFN the 2004;
- the Insurance Act CAP. I17 LFN 2004;
- the Economic and Financial Crimes Commission Establishment Act 2004;
- the Mortgage Institutions Act, CAP M19, LFN 2004; and
- the Nigeria Deposit Insurance Corporation Act CAP N102, LFN 2004.

The major legislation regulating the restructuring of companies in Nigeria is the CAMA, together with the Companies Winding-Up Rules. The CAMA makes provisions for the appropriate procedures to be taken in the event of insolvency. Under this statute, winding-up proceedings can be instituted voluntarily by a company or by its shareholders, creditors, a contributory, a trustee or personal representative, an official receiver, a receiver so authorised by a debenture or by the Corporate Affairs Commission, which is the public body charged with the administration of the provisions of the Companies and Allied Matters Act. Nonetheless, provisions in the Banks and Other Financial Institutions Act, as well as the Nigerian Deposit Insurance Corporation Act, also deal with insolvency as it relates to banks and other financial institutions. The Insurance Act contains certain provisions on the winding-up of Insurance Companies, while the Investments and Securities Act provides for various alternatives to winding-up or liquidation of an insolvent company. These are: mergers and acquisition, management buy-out, arrangement with creditors, receivership and administration, reorganisation by way of a scheme for a compromise, arrangement and reconstruction. The Bankruptcy Act governs bankruptcy of natural persons and partnerships together with the Bankruptcy Rules.

In the Nigerian context, the general trend is for creditors to commence winding-up proceedings to recover bad debts without exploring any other alternatives by which debtors can achieve business recovery as a route to repayment of debts. For this reason, the current trend in recent judgments is that the Appellate Courts frowns at the practice whereby the procedure for winding-up of a company is used for debt recovery or channeled as a direct means of debt collection.

Notwithstanding the foregoing observations, Nigeria’s financial institutions have benefited from a forward-looking policy shift in the regulation of the sector as the Central Bank of Nigeria (CBN) has taken to restructuring as a tool for dealing with the financial crisis which occurred in 2009. Some of the changes imposed by the CBN that have necessitated restructuring include the increase in the minimum share capital requirement for banks and the subsequent recapitalisation by banks, which resulted in several mergers and acquisitions; the re-categorisation of banks based on equity and the reversal of the universal banking system introduced in 2010. It is expected that there will be further developments in the area of insolvency and restructuring in Nigeria. Some of these anticipated developments are as follows:

Foreign investment and acquisitions in the various sectors

Presently, the disposition as seen in the policies of the FGN encourages foreign investment in Nigeria in order to ensure a transfer of management expertise and skills lacking in the country. Juxtaposed with the rich potentials of the country, it is expected that the Nigerian economy will see the entry of more foreign direct investment. For instance, in the power sector, a number of the stakeholders are in talks with foreign entities to increase the capacity of power generation through embedded and nuclear power plants with values as high as US$80 billion within the next decade.

Review and Enactment of Legislation

A review of current legislation on insolvency and restructuring reveals some unresolved issues that have become a cause for concern for practitioners in the field and also a clog in the wheel of progress. For example, despite several amendments of existing legislations and enactment of new laws on insolvency, the Bankruptcy Act has not been amended since 1992, while the AMCON Act allows for the legal exercise of various arbitrary powers held by the Corporation that not only conflict with the interests of shareholders but can also be used punitively against companies with little scrutiny. There is also the call by insolvency legal practitioners and stakeholders for a specialised revenue court to be set up with sole jurisdiction as a court of first instance for the settlement of disputes to curb the arbitrariness of the current regime and enable speedy adjudication of insolvency matters.

Presently, Nigeria does not have a composite approach to the issue of insolvency. Rather, there are piecemeal legislations to address disparate matters without providing for a consistent scheme to ensuring standardised practice thereunder. The Bankruptcy Act covers bankruptcy proceedings against individual debtors and partnerships alone, while the CAMA deals with winding-up of companies as well as arrangements and compromises. The latter option is seldom used in reality because practitioners prefer to push for the courts to liquidate and terminate the life of companies without the debtor company being given an opportunity to restructure its business in other to pay its debt over time. While liquidation is the last resort in some other jurisdictions, in Nigeria it is used as a first option, thus causing the untimely death of many companies that could have been salvaged if given the chance to properly manage their debts, restructure or reorganise. Nigeria stands to benefit enormously, particularly in attracting more direct foreign investment and also more revenue for the government where the current modern focus is adopted, wherein liquidation and insolvency becomes the very last option. The modern trend is presently geared towards the option of restructuring business entities and their businesses and permitting the continuation of business which would yield prolonged employments, payment of taxes and dividends and other similar socio-economic benefits. 

In 2016, the Senate passed the Bankruptcy and Insolvency Act, (Repeal and Re-enactment) Bill, 2016 which has provisions correcting the various issues afore raised. Unlike the Bankruptcy Act, the bill contains provisions on bankruptcy proceedings of corporate bodies and unincorporated bodies by defining “person” to include “a partnership, an unincorporated association, a corporation, a cooperative society or an organisation, the successors of a partnership, association, corporation, society or organisation, and the heirs, executors, liquidators of the succession, administrators or other legal representative of a person”. Despite the improvements in the bill, it is yet to receive a presidential assent.

In conclusion, there is still the need for a comprehensive reform of the existing insolvency legislation in line with the modern and global trend to focus more on nipping insolvency in the bud by encouraging business restructuring mechanisms. Non-governmental groups in the sector actively pursue this school of thought, including the Business Recovery and Insolvency Practitioners of Nigeria (BRIPAN), who, by various media, have consistently expressed the view that Nigeria’s insolvency regulations need to be updated to align with the new global paradigm.

The positives in the Bankruptcy and Insolvency Act (Repeal and Re-enactment) Bill, 2016 shows a positive future for Insolvency in Nigeria and if assented to will bring positive changes to the Nigerian scene.

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