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)
5.2 Floating Charges and/or Similar Security Interests Nigerian law permits the creation of floating charges over the whole or a specified part of a company’s undertakings and assets, whether present or future. A floating charge is an equitable charge, and it allows the company to continue dealing with the charged assets in the ordinary course of business until the charge crystallises. According to CAMA, a floating charge crystallises when the security becomes enforceable and the chargee, under powers in the instrument of creation, appoints a receiver or manager or takes pos- session of the assets; when the court makes such an appointment at the instance of the charge-holder; or when the company enters liquidation. In practice, financing documents often provide that assets intended to be secured by a fixed charge but which, for any reason, are not validly charged as such, or which by law cannot be validly charged by way of a fixed charge, will fall under a floating charge. Similarly, assets acquired by a company after the creation of a fixed charge will be classified as subject to a floating charge. 5.3 Downstream, Upstream and Cross- Stream Guarantees A Nigerian company can provide upstream guaran- tees for its parent companies’ liabilities and down- stream guarantees for the liabilities of its subsidiaries and affiliates. In each case, the provision of guaran- tees is subject to the powers of the company in its constitutional document. There is, however, a limitation on the extent of guar- antees a Nigerian company may give. An upstream or downstream guarantee may be voidable where it amounts to unlawful financial assistance under Nige- rian law. Under CAMA, a Nigerian company and its Nigerian subsidiaries are prohibited from providing financial assistance directly or indirectly for the pur- pose of acquiring shares in that company. The excep- tions to provisions of financial assistance and ways to resolve these credit support issues are discussed in 5.4 Restrictions on the Target .
5.4 Restrictions on the Target It is unlawful for a company or any of its subsidiaries to give financial assistance directly or indirectly for the acquisition of its shares before or at the same time as such acquisition takes place, unless such assis- tance is permitted under CAMA. Furthermore, where a person or company has acquired shares in a com- pany and any liability has been incurred thereby for the purpose of the acquisition, it would be unlawful for the company to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred in the acquisition of its shares. These legal restrictions on financial assistance do not apply to funds provided to: • trustees under a scheme, to acquire fully paid-up shares of the company to be held for the benefit of employees of the company, including any direc- tor holding a salaried employment or office in the company; • employees (not directors) by way of loans for the purchase of fully paid-up shares of the company; or • any act or transaction authorised by law. The prohi- bition also does not apply in cases of loans made by a company which lends money in the ordinary course of its business. In addition, and pursuant to CAMA, a company is not to be prevented from rendering financial assistance where: • it is done in pursuance of an order of the court under a scheme of arrangement; a scheme of merger or any other scheme or restructuring of a company done with the sanction of the court; or • its principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of the acquisition of shares in the company or its holding company, or the reduction or discharge of any such liability, but an incidental part of some larger purpose of the company, and the assistance is given in good faith in the interests of the company. Transactions structured under any of the above exemptions are less likely to be challenged.
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