NIGERIA Law and Practice Contributed by: Ben Unaegbunam, Omolola Coker, Sanford Mba, Promise Osimhen, Chidera Chikere and Oluwaseun Denagan, Dentons ACAS-Law (Adepetun, Caxton-Martins, Agbor & Segun)
loans without a local CBN licence, provided the lend- ing is on an offshore basis.
rates can affect timing and cost. Accordingly, cross- border loan documentation often incorporates hedg- ing or forward-contract provisions permitted under the FX Manual to mitigate liquidity and policy risks. 3.4 Restrictions on the Borrower’s Use of Proceeds In Nigeria, the use of proceeds from loans or debt securities is subject to both regulatory and contrac- tual constraints. Borrowers are generally expected to apply funds for the purposes disclosed to the lender and, where applicable, to regulators such as CBN or SEC. For foreign-currency loans, CBN rules require that proceeds be used for permissible transactions, including working capital, capital expenditure, import financing, or debt refinancing, while prohibiting spec- ulative forex trading and certain restricted imports. Similarly, corporate debt instruments such as bonds or Sukuk typically specify the intended use of pro- ceeds in their offering documents, and deviations may trigger regulatory scrutiny or investor claims. Loan agreements often reinforce these limitations by first specifying the purpose of the loan and through covenants that restrict distributions, mandate compli- ance with financial ratios, or require lender consent for material deviations. Collectively, these regulatory and contractual frameworks ensure that borrowers apply debt proceeds responsibly and in a manner that safe- guards creditor interests and preserves compliance with Nigerian law. 3.5 Agent and Trust Concepts Nigeria recognises the legal concepts of agency and trust, though their application in corporate and finan- cial transactions is shaped by both statutory and common-law frameworks. Under the common law and the Companies and Allied Matters Act, 2020 (CAMA), agency relationships per- mit an agent to act on behalf of a principal, owing fiduciary duties to act within the scope of authority granted. In syndicated lending, for example, an agent bank commonly administers the loan, collects repay- ments, and manages the interests of multiple lenders. Trusts, governed by the Trustee Act and the Trustee Investment Act, allow trustees to hold and manage property for the benefit of beneficiaries in accordance with fiduciary obligations.
3. Structuring and Documentation 3.1 Restrictions on Foreign Lenders Providing Loans Foreign lenders are not restricted from providing
cross-border loans to Nigerian borrowers. 3.2 Restrictions on Foreign Lenders Receiving Security
Foreign lenders are not prohibited from taking security or receiving guarantees in Nigeria. Nigerian law allows foreign creditors to hold various forms of collateral, including mortgages over real property, fixed and floating charges over corporate assets, share pledges, assignments of receivables, and corporate or personal guarantees. Accordingly, there is no requirement that the secured party be a Nigerian entity. However, cer- tain regulatory and procedural requirements are criti- cal to ensure enforceability. Please see 5.1 Assets and Forms of Security on the nature of security inter- ests that may be taken in Nigeria and the perfection requirements. 3.3 Restrictions and Controls on Foreign Currency Exchange Foreign-exchange transactions fall under the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act (FEMM Act), the CBN Act, and the CBN Foreign Exchange Manual 2018 (as revised). Repatriation of loan repayments, interest, or invest- ment capital through the official market requires proof of the original inflow via an electronic certificate of capital importation (issued by authorised dealers, such as banks), which provides the legal basis for outward remittance. The Money Laundering (Prevention and Prohibi- tion) Act 2022 and CBN AML/CFT Regulations 2022 impose strict KYC, monitoring, and suspicious-trans- action reporting. Although the FEMM Act protects repatriation rights, CBN circulars and adjustments to official-window
430 CHAMBERS.COM
Powered by FlippingBook