THE RECEIVERSHIP REGIME UNDER THE AMCON ACT, 2019
-Ugochukwu Sandra Odigbo
Introduction
The Receivership procedure in relation to debtor companies is governed chiefly by the Companies and Allied Matters Act. The CAMA has provided the procedure for appointment of a Receiver and the power that behoves upon him where he is appointed.
The Asset Management Corporation of Nigeria (AMCON), in keeping with its obligations and the purposes of its creation, has, by the AMCON Act (as amended) provided a special procedure and given special powers to a Receiver appointed under the AMCON Act. These powers are an extension of the powers under CAMA and show the seriousness of AMCON in the recovery of the debts due.
The AMCON Receivership regime is largely unknown to the usual Nigerian legal practice and due to its relative novelty, is not very familiar to practitioners. This has prompted the need for this article; to educate legal practitioners and provide a reference where necessary in relation to the special powers under the AMCON Receivership regime.
Receivership
A Receiver/Manager is defined by the Companies and Allied Matters Act [CAMA] as “including a Manager”. The implication of this definition is that a Receiver is a lot of things including a manager. The meaning of the term “Receiver”has eluded any complete definition but the Court in the case of Ponson Enterprises Nigerian Ltd Vs Njigha, made a distinction between the powers of a Receiver and the powers of a Manager. The Manager has only the authority to continue the business whilst the Receiver can do this and can wind up the company where he deems that to be the best way to proceed.
Receivership is an insolvency practice through which Creditors either personally or through an Order of Court appoints a Receiver to realize the assets of the company for the benefit of the Creditor. The Oxford Dictionary defines Receivership as the state of being dealt with by an official receiver.
A Receiver is deemed to be an agent of the persons on whose behalf he is appointed where he is appointed outside the Court under any instrument providing for his appointment. Where he is appointed as a manager, he also has a fiduciary duty to the company to act in utmost good faith towards it.
In special cases, the Receiver can be regarded as an agent of the company; for instance, where the instrument allowing his appointment specifies such.
Receivership Under CAMA
- Appointment by Agreement
The most common way to appoint a receiver is through an express provision in the security agreement between the parties. Thus, a Receiver may be appointed pursuant to enabling power in the debenture by the debenture holder. Also, the trustee of a debenture may appoint a Receiver Manager if satisfied that an event has occurred which entitles the debenture holder or a class of debenture holders to realise the security. When such event occurs, the terms of the agreement would be granted its plain interpretation.
However, a Receiver appointed out of court may apply to the court for direction in relation to the performance of his function when the need arises.
- Appointment by the Court
In the absence of a provision for the appointment of a Receiver, a Debenture holder or trustee may still apply to court for such appointment. The general ground upon which such application is granted is the protection or preservation of the property or corporate entity, for the benefit of persons with vested interest in it. Once the appointment is made, the Receiver may decide to carry on the business with the objective of a rescue in the long term or to sell same as a going concern in the short term.
The essence of receivership is to enable a secured creditor to enforce his security against a debtor by appointing a Receiver to sell some assets of the insolvent company, or the company itself as a going concern or in some cases, manage the company with a view to recovering the amount due to the creditor and then hand the company back to its owners. In Uwakwe & Ors v. Odogwu & Ors the Court held that there are two main classes of cases in which the appointment is made:
- To enable persons who possess rights over property to obtain the benefit of those rights and to preserve the property pending realization, where ordinary legal remedies are defective; and
- To preserve property from some danger which threatens it.
In the case of Intercontractors Nigeria Ltd. v. UAC, the court enunciated that once a receiver/manager is appointed, he becomes the alter ego of the company. This suggests some wide powers. However, section 209(3) CAMA specifically mentions the powers of a Receiver to include power to: grant or accept leases of land and licences in respect of patents, designs, copyright or trademarks; collect debts owed to the property; enforce claims vested in the company; compromise, settle and enter into arrangements in respect of claims by or against the company, on the company’s business with a view to selling it on the most favourable terms; take possession of the assets subject to the mortgage, charge or security and to sell those assets and, if the mortgage, charge or security extends to such property; and recover any instalment unpaid on the company’s issued shares.
These powers granted by CAMA are in addition to any other powers conferred on the trustee of the debenture trust deed or on behalf of the debenture holders by the debenture instrument and may be altered or altogether excluded by the debenture instrument. The powers of the Receiver are further listed in section 393(3) CAMA and Schedule 11 CAMA. Thus, the Court of Appeal in CBCL (Nig.) Ltd. v. Okoli summed up the powers of a Receiver when it held that a receiver has the power to deal with the asset and liabilities of a company on behalf of the company. A Receiver/Manager possesses the above mentioned powers in addition to his power to carry on any business or undertaking of the company.
For Receivers appointed under an instrument, all monies realized from sale of assets, rents or debts are distributed by the Receiver in accordance with his instrument of appointment. Where the Receiver is appointed by court, an application shall be brought for an order setting out the manner of distribution amongst various claimants. Typically, the settlement of the cost of realizing the assets and other incurred expenses and remunerations connected thereto takes precedence. The cost of the debenture holder’s action (if any) is settled next. Thereafter, the Receiver usually settles preferential debts out of the property subject to a floating charge in priority to the claims of the debenture holder. Finally, the Receiver then settles debenture debt with interest accruing thereon up to the date of payment.
Receivership Under the AMCON Act
The AMCON Act extends the powers of the Receiver beyond the powers under CAMA. One example is that Section 387(1), CAMA prohibits bodies corporate from being appointed as Receivers. This prohibition does not apply to AMCON as the AMCON act expressly permits AMCON to act as a Receiver or to appoint one where it sees fit. A Receiver under the AMCON Act, in addition to the powers provided under CAMA, has additional powers which make an AMCON Receiver much more powerful than a Receiver under CAMA.
Firstly, Section 48(3) of the AMCON Act gives the Receiver control over assets of the debtor company whose powers are not limited to the charged assets but can be extended to assets unpledged/uncharged. This special provision gives AMCON the power to exert extreme pressure on the debtor company and to increase the assets from which the debt may be recovered. On this power, there have been issues arising from questions of legality/unconstitutionality of the Section. However, these issues are settled by the proviso to Section 44(2), Constitution of the Federal Republic of Nigeria which provides thus:
“Nothing in sub-section (1) of this Section shall be construed as affecting any general law……. relating to leases, tenancies, mortgages, charges, bills of sale or any other rights or obligations arising out of contracts.”
Secondly, according to the provisions of the AMCON Act, once AMCON commences Receivership over a debtor company, all pending and prospective suits against a Receiver are suspended for a minimum period of one year. However, this protection only applies to a Receiver who has elected to manage the affairs of the company and has published the notice of election pursuant to Section 48(4) of the Act.
Thirdly, under the AMCON Act, a Receiver has three options where appointed. He may:
- Realize the assets of the debtor company;
- Enforce individual liability of the shareholders;
- Manage the affairs of the company.
Fourthly, the AMCON Act gives the Receiver the power to commence a hive-down which is a means of restructuring the company. Where the Receiver/Manager determines that it will not be feasible to rehabilitate the debtor company, the Act empowers him to restructure the company by way of a hive down. The Receiver may, on behalf of the secured creditors, transfer the assets of the debtor company up to the amount of its indebtedness to a new company incorporated for that purpose by the Receiver/Manager. After the transfer, the Receiver may elect to operate the new company or sell it. Where he elects to operate the new company, he has a time limit of one year from the date of the transfer of assets except where time is extended by the unanimous approval of the secured creditors. After the hive down, shares in the new company will be allotted to the secured creditors in proportion to the value of assets over which they hold secured interest.
Conclusion
The Receivership tool is one of the most effective debt recovery tools that can be harnessed by a debtor, made even more powerful by the AMCON Act. The powers of a Receiver under CAMA are numerous and far reaching and all these and more are given to AMCON Receivers. The Receivership procedure also provides a time-efficient way of recovering debts in comparison with debt recovery actions in Court which can only be stalled by obtaining an express order restraining the continued exercise of receivership powers or an order setting aside the Receiver’s appointment.
The Rights of a Receiver exists without recourse to the Courts. The Receiver may however, elect to approach the Courts for protective orders. It is important to note at this point that a Receiver appointed under the AMCON Act need not approach the Court asking to be appointed a Receiver. This would amount to submitting the validity of the Receiver’s appointment to the jurisdiction of the Court thereby creating room for the Receiver’s validity to be challenged. Where a Receiver is appointed under the AMCON Act or other instrument or agreement, the powers become exercisable from the time of appointment.
The glaring observation from this analysis is that the AMCON Act deliberately departs from some of the provisions of CAMA while building upon some. This is because the Corporation was created for peculiar cases of a dire nature. Hence, the Corporation’s approach required an extraordinary character. A recognition of this fact will help get a better grasp of the reasoning behind the seemingly extreme provisions of the AMCON Receivership section.
ENDNOTES
- Section 567(1), CAMA
2. (2000) 15 NWLR (pt 689) page 46
3. Chuka Agba SAN; Overview of the Fiduciary Duties of AMCON Receivers/Receiver Managers and Receivership as a tool in AMCON Debt Recovery Drive.
4. Section 390, CAMA
5. See Carnco Foods Nig Ltd Vs Mainstreet Bank Ltd (2013) LPELR-20725(CA)
6. Intercontractors Nigeria Ltd v. UAC [1988] 2 NWLR (Pt. 76), 303
7. A debenture is a long-term security yielding a fixed rate of interest, issued by a company and secured against assets.
8. Section 209, CAMA
9. Section 309, CAMA
10. Okoya & Ors. v. Santili & Ors. [1990] 2 NWLR (Pt.13), 172.
11. Lightman and Moss, the Law of Receivers of Companies. (5thed., 2014), p.11
12. [1989] LPELR-3446(SC)
13. A floating charge is a liability to a creditor which relates to the company’s assets as a whole and may become fixed in particular circumstances (such as liquidation)
14. A Debenture Trust Deed is a document created by a company as security that is issued by the company to protect the interest of a denture holder, where trustees are appointed. In order to raise funds from the general public, companies can create security in the form of shares known as debenture stock. – https://www.618bees.com/article/476-what-is-a-debenture-trust-deed-and-when-is-it-necessary#:~:text=A%20Debenture%20Trust%20Deed%20is,shares%20known%20as%20debenture%20stock.
15. Section 209(5), CAMA
16. [2009] 5 NWLR (Pt. 1135), 446 C.A
17. Section 391, CAMA
18. Section 182, CAMA
19. Section 48, AMCON Act (as amended)
20. Section 48(7), AMCON Act (as amended)
