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)
5.5 Other Restrictions Generally, no other restrictions would apply outside the restriction on financial assistance in 5.4 Restric- tions on the Target . Please refer to 4.2 Other Taxes, Duties, Charges or Tax Considerations for the atten - dant cost of granting a security and guarantee. 5.6 Release of Typical Forms of Security Upon the discharge of the secured obligations secured by an asset, the lender is required to execute a deed of release or a memorandum of satisfaction. This deed or memorandum is stamped at 0.075% of the secured obligation and filed at the CAC to update the register of charges and release the registered charge. Where the secured asset is a regulated asset (eg, petroleum assets or intellectual properties), the release instru- ment is also filed at the relevant regulatory register. 5.7 Rules Governing the Priority of Competing In Nigeria, the priority of competing security interests is primarily governed by the “first in time” principle. Under CAMA, a charge created over a company’s assets is void against a liquidator or any creditor of the company unless such charge is registered with the CAC. Consequently, the supervening security interest that is duly perfected or registered will generally rank ahead of subsequent interests. For real estate, prior- ity also depends on registration at the relevant state land registry. Subordination Subordination of priority can be achieved by struc- ture or by contract. Structural subordination arises when senior creditors lend directly to an operating subsidiary of a company, thereby taking priority over junior creditors who lend to the holding or parent com- pany. Contractual subordination occurs where junior creditors agree by contract to subordinate their claims to those of senior lenders. Debts can be contractu- ally subordinated by the lenders using inter-creditor agreements, particularly in syndicated loans and pro- ject finance transactions, to regulate relationships among different classes of creditors, including provi- sions on enforcement rights, standstill periods, and payment waterfalls. Nigerian law upholds the principle of freedom of contract, and courts have consistently Security Interests Priority of Interest
recognised the enforceability of agreements that reor- der priorities. Contractual subordination provisions generally survive the insolvency of a Nigerian borrower, provided that the underlying security interests were validly created and perfected before the commencement of insolven- cy proceedings. However, under CAMA, a security or guarantee given within three months before the onset of insolvency, or given in favour of persons connected with the company (other than by reason of employ- ment) within a period of a year ending with the onset of insolvency, may be deemed a fraudulent preference and declared invalid if it has the effect of giving the holder of such security an undue advantage. 5.8 Priming Liens Under Nigerian law, there is no statutory lien that automatically primes a validly perfected fixed security interest. CAMA provides that secured creditors shall rank in priority to all other claims, including any pref- erential payment or any other debts, inclusive of wind- ing-up expenses. However, while fixed-charge holders remain first in priority, there are categories of claims that are subordinate to fixed charges but still rank ahead of floating charges and unsecured creditors. These include insolvency expenses and the costs of preserving and realising the company’s assets, as well as preferential debts such as unpaid employee wages and salaries up to statutory limits, certain taxes, and pension contributions. To mitigate this risk of priming liens, lenders typically perfect fixed charges early and ensure proper registration with the CAC and limit the use of floating charges for critical assets. 6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders Under Nigerian law, a secured lender may enforce its collateral when the borrower defaults on its obliga- tions under the loan agreement or security instrument. The events of default may include non-payment of principal or interest, breach of financial or operational covenants, insolvency or winding-up of the borrower, cross-default on a separate financing arrangement, or
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