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)
• Unsecured Creditors: They rank equally (pari passu) and share any remaining assets on a pro rata basis. • Subordinated Creditors: Any subordinated claims are settled next, in accordance with the terms of their subordination agreements. • Shareholders or Members: Any surplus remaining after all external debts and liabilities have been discharged is distributed among the sharehold- ers or members according to their rights under the company’s constitutional documents. 7.3 Length of Insolvency Process and Recoveries The length of time for the insolvency process in Nige- ria is dependent on the nature of the proceedings. A voluntary winding-up can take 12 to 24 months if uncontested, as it is driven mainly by the company’s members and creditors and involves fewer court interventions. By contrast, a compulsory winding-up ordered by the court may extend longer, often two to five years or more, especially where disputes arise over creditor claims, the validity of security interests, or allegations of fraudulent preference or transactions at undervalue. Receiverships are faster, sometimes resolving within 6 to 18 months, but their duration depends on the complexity of the company’s assets and the level of co-operation from the borrower or other stakeholders. The value of recovery for a creditor is dependent on the priority of the creditor in the payment waterfall. Secured creditors with fixed charges are generally the most likely to achieve more commensurate recover- ies, as their rights attach to specific assets that can be realised independently of the general insolvency process. Creditors with floating charges, preferential debts, or unsecured claims may recover only a less commensurate value of their exposures, especially where the borrower’s assets are heavily encumbered by fixed secured creditors or where enforcement costs and delays erode asset values. 7.4 Rescue or Reorganisation Procedures Other Than Insolvency There are alternative processes outside formal insol- vency proceedings in Nigeria that companies use to manage financial distress or reorganise their affairs.
One of these processes is receivership, which allows secured creditors to take control of and realise spe- cific assets of a borrower to recover an outstanding debt without winding up the borrower. In Nigeria, receivership is governed by CAMA and the terms of the relevant security agreement (eg, a debenture). CAMA provides two formal procedures for rescue – administration and the company voluntary arrange- ment (CVA). An “administration” is a corporate res- cue procedure where an insolvent company is placed under the control of an administrator to protect it from creditors while efforts are made to restructure or revive it. The administrator is empowered to manage the company’s affairs, business, and property with the primary objective of rescuing the company as a going concern or achieving a better result for creditors than liquidation. During administration, a statutory mora- torium applies, preventing creditors from enforcing claims without the court’s consent. Under CAMA, a CVA is a formal agreement between a financially distressed company and its creditors to restructure its debts, usually through reduced pay- ments or extended timelines. The arrangement is initiated by the directors, administrator, or liquidator, and requires approval from creditors holding at least 75% in value of the debts. Once approved, the CVA becomes binding on all unsecured creditors, providing the company breathing space to continue operating while meeting its restructured obligations. Another approach used as an alternative to formal rescue procedures is debt restructuring arrange- ments between a company and its creditors. These may involve debt rescheduling, refinancing, or con- verting debt to equity. In addition to administration, CAMA also provides for schemes of arrangement and compromise, which enable a company to reach binding agreements with its creditors or members to restructure debts or reorganise ownership and capi- tal. Companies may also pursue mergers or business combinations, often co-ordinated with the Federal Competition and Consumer Protection Commission under Nigeria’s competition law framework.
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