Insolvency Regulations in Nigeria (Part One)

Welcome to our Governance and Compliance Digest Newsletter. In today’s edition, we will delve into “Insolvency Regulations In Nigeria”.

The Insolvency Regulations 2022 (“the Regulation”) was approved by the Honorable Minister of Industry, Trade, and Investment on the 24th of April 2022, in accordance with the powers conferred on him by section 867 of the Companies and Allied Matters Act, 2020 (CAMA). 

Insolvency is a state of financial distress in which a business can no longer pay its bills or cannot meet its obligations to lenders as debt are due. Insolvency can result from an increase in poor cash flow, increase in expenses, and poor management of cash, also a lawsuit from a customer can cause insolvency when the business has to pay for damages and are unable to continue operation as a going concern.

Insolvency can lead to Proceedings, in which legal action will be taken against the insolvent entity, and its assets may be liquidated to pay off outstanding debt. Also, business owners may contact creditors directly and restructure debts into more manageable installments, most creditors agree to this approach because of their desire to get paid even though payment might be delayed.

Insolvency laws protect and maximize value for the benefit of all interested parties and the economy in general. They are made to ensure that the business assets are utilized to their full potential and the proceeds are properly distributed to creditors. 

The Insolvency Regulations set out specific timelines and details required for insolvency activities to be carried out in line with Company and Allied Matter Act (CAMA) 2020. The Regulations are divided into 13 parts and 3 schedules, it stipulates provisions designed at clarifying compliance requirements for Insolvency Practitioners and outlining comprehensive governance and procedural framework for insolvency practice, in line with global regulatory best practices.

The first part deals with the accreditation of the Insolvency Practitioner which outlines professional bodies that may apply to the Commission for accreditation as an Insolvency Practitioner. These are:

• Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN)
• Nigeria Bar Association (NBA)
• Institute of Chartered Accountants of Nigeria (ICAN)
• Association of National Accountants of Nigeria (ANAN)
• Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN)

The following requirement is expected to be submitted to the Corporate Affairs Commission (CAC or the Commission) for them to be considered and the accreditation is to be renewed every three (3) years.

1. Duly completed Form CAC-MISC 02
2. Payment of prescribed fee
3. Evidence of membership in a relevant professional body
4. Evidence of appointment as Liquidator, Provisional Liquidator, Official Receiver, Administrator, Administrative Receiver, Receiver and Manager, Nominee or Supervisor, not less than five (5) years preceding the date of application
5. Where the requirement of paragraph d) is impracticable, evidence of active participatory tutelage in Insolvency Practice not less than five (5) years preceding the date of application and a letter of confirmation of tutelage by the Principal or Managing Partner of the firm where the applicant was or is engaged
6. Evidence of eligibility to practice issued by the relevant professional body; and Insolvency Regulations 2022, Corporate Affairs Commission, Nigeria. Page 18 of 127
7. Evidence of completion of accreditation course of continuing education administered by the relevant professional body in the preceding year in the case of renewal of accreditation. A DAC is a person who provides the services of providing safekeeping, storing, holding, or maintaining custody of virtual assets/digital tokens for the account of another person.

The second part is dedicated to the Company Voluntary Arrangement (CVA) which is a lawful procedure intended to assist in the rescue of a company in financial difficulties. A CVA allows a company to agree to a composition or an arrangement with its creditors in satisfaction of some, or all, of its debts. CVAs have also been of assistance in compromising unsecured bonds, significant trade, or unsecured guarantee liabilities. This requires

• A proposal is to be submitted to the Commission which will contain the detail of the company, why a CVA is desirable and why the creditors are expected to agree to a CVA
• The proposal may be amended with the nominee agreement or with the approval of the court

• The content of the proposal shall contain both the asset and liability of the company, nominee fees and expenses, supervisors, guarantees and proposed guarantees, the duration of the CVA, how the business will be conducted, and details of any further proposed credit facility and how the debt so arising is to be paid, how the fund will be handled and other matters that the proposer considers appropriate to enable members and creditors to reach an informed decision on the proposal.

The third part governs the Administration of the Insolvent Company.  The administration can be implemented by three parties namely.

1. The Court
2. Holder of a floating charge
3. The company or its director

In reference to this part, the Proposed Administrator shall submit a statement headed “Proposed Administrator’s Statement and Consent to Act” which will contain the following:

1. Identification details for the company immediately below the heading
2. A statement that the Proposed Administrator is qualified to act as an Insolvency Practitioner in relation to the company
3. The Proposed Administrator’s CAC accreditation number
4. The name of the relevant recognized professional body which is the source of the Proposed Administrator’s authorization to act in relation to the company
5. A statement that the Proposed Administrator consents to act as administrator of the company
6. A statement on whether or not the Proposed Administrator has had any prior professional relationship with the company and if so a summary of the relationship
7. The name of the person by whom the appointment is to be made or the applicant in the case of an application to the court for an appointment
8. A statement that the Proposed Administrator believes that the purpose of administration is reasonably likely to be achieved in the particular case.

We will conclude our discussion on the Insolvency Regulations in Nigeria in subsequent editions of this Newsletter. Stay tuned!