Examine the legal
framework for receivership in Nigeria
Introduction
A
receiver is an important person appointed to manage, collect and receive in
pending proceedings, rents and profits of land or personal estate which it does
not seem reasonable to the court that either party should collect or receive or
for the same to be distributed among the person entitled.[1] A
receiver or receiver manager may be appointed by the court, by statute and
under a power contained in any instrument acknowledging debt, Although a
receiver is not expressly defined under Nigerian statutes, section 387 of the
Companies and Allied Matters Act, 2004 (CAMA) states that any person can be
appointed as a receiver[2] or
manager subject to the disqualification of the following: infant, lunatics,
body corporate, undischarged bankrupt (unless permitted by the court), director
or auditor of the company, and persons convicted of fraud, dishonesty, official
corruption or moral turpitude and disqualified under section 254 of CAMA. This
at best describes the qualification of a receiver by elimination, leaving the
position open to anyone who isn’t disqualified under the aforesaid section.
Right
to realise security of a company
Pursuant to
CAMA, a debenture holder is entitled to realise any security of a company
vested in him or in any other person for his benefit if‐
- the company fails to pay any instalment of interest, or the whole or part of the principal or any premium, owing under the debenture or the debenture trust deed covering the debenture, within one month after it becomes due; or
- the company fails to fulfil any of the obligations imposed on it by the debentures or the debenture trust deed; or
- any circumstances occur which by the terms of the debentures or debenture trust deed entitled the holder of the debenture to realize his security; or
- the company is wound up[3]
Appointment
of Receivers
Receiver
may be appointed by:
1.
Court
2.
Statute
3.
Debenture holder or Charge holder
There are two methods recognised by
our laws by which a receiver may be appointed. An appointment may be made out
of court or by the court.
Out of court
Where the charge instrument or mortgage document
states that the debenture holders or a trustee of the debenture can as a remedy
to a default, exercise the right to appoint a receiver or a receiver and
manager, a receiver may be appointed if the trustee or the debenture holder is
satisfied that the event which entitles the debenture holders to realise the
security has occurred.[4]
Such receiver or manager will be deemed to be an agent of the person or persons
on whose behalf he is appointed
and,
if appointed manager of the whole or any part of the undertaking of a company,
he will be deemed to stand in a fiduciary relationship to the company and
observe the utmost good faith towards it in any transaction with it or on its
behalf[5] A
receiver or manager appointed out of court may apply to the court for direction
in relation to any matter relating to his Duties[6]
By the court
An
application may also be made by the creditors of a company being wound up by a
court, particularly to a debenture holder. In such a case the court would
appoint an official receiver on behalf of such creditor[7] In
addition, the court may on the application of persons interested, appoint a
receiver or a receiver and manager of the property or undertaking of a company
if:
- The principal money borrowed by the company or the interest is in arrear; or
- The security or property of the company is in jeopardy
Where so appointed, the receiver
or manager is deemed to be an officer of the court and must act according to
the directions of the court[8]
Notice of
Appointment of a Receiver or Manager
Where a receiver
or manager of the property of a company has been appointed, notice must be
given to the Corporate Affairs Commission within 14 days[9]
Duties, power and Liabilities of a Receiver
A receiver
shall be held personally liable on any contract entered into by him on account
of any property or undertaking of the company in his possession, except where
the contract between him and the third party states otherwise[10].
However, a receiver or manager may be indemnified out of the property over
which he has been appointed to act as a receiver or manager where he incurs
liability while acting appropriately in the course of exercising his function[11].
Where the property is insufficient to indemnify the receiver or manager, the
appointors of the receiver or manager will be liable to indemnify him[12]
to the extent un-recovered from the property by the receiver.
A receiver
appointed shall have, subject to the order made by the court, power to take
possession of the mortgage assets, charge or security and to sell those assets
and, if the mortgage, charge or security extends to such property, to collect
debts owed to the property, to enforce claims vested in the company, to
compromise, settle and enter into arrangements in respect of claims by or
against the company, to grant or accept leases of land and licences in respect
of patents, designs, copyright or trademarks, and to recover any instalment
unpaid on the company’s issued shares.[13]
Conclusion
In summary, the
basic duty of receiver manager is to realize value to the person who appoints
him and to ensure all preferential creditors and those who have priorities over
his appointor are settled. Receivership as a tool for debt recovery may be
conceived as a more reliable approach in the event of corporate insolvency. It
serves as an efficient means of recovering outstanding sum due to the debenture
holders and in some cases preserve the existing assets of the company through
business management.
abdulmjabubakar@Gmail.com
[2] This is in contrast with the UK jurisdiction
where s.230 (2) of the Insolvency Act, 1986 states that a person can be
appointed a receiver of a company only if qualified to act as an insolvency
practitioner in relation to the company. Sections 390-392 of the Insolvency
Practitioners Act and the Insolvency Practitioners (Recognised Professionals
Bodies) Order 1986 states that qualification to act as an Insolvency
practitioner must be derived from an authority given by: a recognised
professional body; the Secretary of State; or a competent authority designated
by the Secretary of State.
[4] S390 of CAMA 2004
[5] ibid
[6] S 391 of CAMA 2004
[12] s. 394 (3) of CAMA. This is only
applicable where the receiver or manager is appointed out of court.
[13] S 393 of CAMA
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