Three weeks ago, President Buhari assented to the new Companies and Allied Matters Act 2020, bringing into effect widely-lauded changes in the Nigerian business environment. Recently, BD Legal’s Onyinyechi Ukegbu sat with Olanipekun Orewale, partner, Ælex Law Practice, who was involved in drafting provisions of the Act.
You were involved in drafting some of the provisions of the CAMA, what provisions were those?
Along with other experts, I was involved in drafting the insolvency provisions of the new CAMA 2020. These provisions introduce robust business rescue mechanisms of company voluntary arrangements and administration into insolvency laws and practice in Nigeria: Section 572 increases the monetary threshold necessary to trigger compulsory liquidation from N2,000 to N200,000; section 577 preserves the right of the fixed charge holder or any other validly created and perfected security interest, other than floating charge, to enforce their security during compulsory liquidation; section 657 ranks the claim of secured creditors in priority to all other claims, among other sections. Also, I drafted sections 704 to 709 on the qualifications of an insolvency practitioner. Apart from my involvement in the drafting, I defended the insolvency provisions before the appropriate committees of the two houses of the National Assembly.
How are they an improvement on the old provisions?
The old provisions established an insolvency regime that was business-liquidation focused. With the various amendments to CAMA, Nigeria’s insolvency regime is business-rescue focused, is in line with international best practices. Under the old provisions, a company in financial distress is typically either subject to liquidation or receivership. Now, a company can make a proposal to its creditors for a composition in satisfaction of its debts or a scheme of arrangement to ultimately preserve the company. A company may also enter into administration for the main purpose of rescuing the company. Moratorium on enforcement actions has also been included for companies in financial distress.
Additionally, the monetary threshold for a company being deemed unable to pay its debts has been increased to N200,000 and N100,000 for registered and unregistered companies respectively, to reflect the commercial realities of doing business in Nigeria. Previously, where a registered company was unable to pay N2,000 or where an unregistered company was unable to pay N100, after the expiration of a demand notice served on such company, the company would be deemed unable to pay its debts.
Under the old provisions, there was neither categorization of persons acting as liquidators and receivers, nor educational qualification requirements and training for people to act as insolvency practitioners. Given the importance of adequately balancing the rights of both debtors and creditors in an insolvency while ensuring best practices, the inclusion of qualification of insolvency practitioners is an improvement on the insolvency regime.
Furthermore, the interests of secured creditors are protected under the new Act such that the secured creditors can enforce their securities during liquidation and their claims are accorded priority above any other creditors in the distribution of the liquidation dividends.
What impact will this have on the insolvency sector?
The insolvency sector will be primarily driven by the goal of rescuing a financially distressed company as against winding up of such company or receivership. Also, there would be balancing of the interests of both creditors, debtors and critical supplier of essential services to the distressed company.
What changes will this elicit in insolvency practice?
One of the notable features of the new insolvency provisions of CAMA is that all the on-going cases of liquidation and receivership are free to take the advantage of the window of business rescue mechanisms provided under the Act. That apart, the directors or shareholders of a financially-distressed company, having formed the opinion that the company is unable to pay its debts, can promptly enter into binding arrangements with the creditors through the voluntary arrangement procedure, or utilize the administration procedure by bringing an application to the court to appoint an administrator for the company. This obviates the need for enforcement actions by creditors.
Consequently, business liquidation will no longer be the first course of action against insolvent companies. Creditors are also more likely to opt for one of the business rescue options, rather than liquidation, in the hope that they would realise better returns than if the company were to be wound up.
Section 705 c) of CAMA requires that to qualify as an insolvency practitioner, you must be a lawyer or account and a member of Business Recovery and Insolvency Practitioners of Nigeria (BRIPAN). There have been questions about why membership of BRIPAN, a private association is a statutory requirement. Can you speak to this?
It is true that Sec. 705 (c) requires an insolvency practitioner to have a degree in law, accountancy or any other recognized discipline; at least five years PQE in insolvency matters; and be a member of BRIPAN. However, the provision also creates an alternative to associating with BRIPAN, by stating that the insolvency practitioner may be a member of any other professional body recognized by the Corporate Affairs Commission (CAC). Therefore, it is not mandatory for the insolvency practitioner to be a member of BRIPAN, where the CAC recognizes any other professional body.
Qualification to act as insolvency practitioner was introduced into the Act as a result of the need to regulate insolvency practitioners such that only competent professionals with requisite specialism in insolvency, in the light of these fundamental provisions, can act as insolvency practitioners in Nigeria. Other jurisdictions also have provisions for the specific qualifications of insolvency practitioners as well as the agency or board or organization responsible for certifying such insolvency practitioners.
It is not the first time that a professional association would be recognized under the Act. Afterall, Nigeria Bar Association was recognized under the LPA. Under CAMA, BRIPAN was specifically identified because it is the only professional body in Nigeria which sees to the education, training and certification of insolvency practitioners, and it is also a member of INSOL International, a world-wide federation of associations of accountants and lawyers who specialize in business turnaround and insolvency.
Before becoming a member of BRIPAN, an applicant has to undergo a compulsory insolvency training in stages, and like any other professional body in Nigeria, BRIPAN charges a fee for the training, and induction of members. Thereafter, the inducted members pay the annual membership dues. This procedure for membership has been in force for a long time, prior to the passing of CAMA 2020.
Section 851 of CAMA also requires a person challenging any fees by the CAC to appear before a CAC panel made up of the Registrar General of the CAC, five (5) officers of the CAC, and someone from the Ministry of Trade and Investment. Some say this is tantamount to making the CAC a prosecutor and a judge in its own case. Do you agree?
Section 851 of CAMA sets up an Administrative Proceedings Committee for the CAC, with the specific functions to:
- provide the opportunity of being heard for persons alleged to have contravened the provisions of the CAMA or its regulations;
- resolve disputes or grievances arising from the operations of CAMA or its regulations; and
- impose administrative penalties for contravention of the provisions of CAMA or its regulation, in the settlement of matters before it.
Section 851 was included for administrative convenience, and anyone dissatisfied with the decisions of the Administrative Committee may appeal to the Federal High Court. I do not agree that where the Administrative Committee presides over any challenge of fees imposed by the CAC, ipso facto, it would be tantamount to making the CAC a prosecutor and a judge in its own case. There is nothing sacrosanct in these provisions relating to the composition of the membership of the Committee. Other statutes in Nigeria have similar provisions. For example, the Investment and Securities Act (ISA) have similar provisions on the membership of its Administrative Proceedings Committee. In the case of Securities & Exchange Commission v. Osindero Oni & Lasebikan (2008) JELR 46696CA, the Court of Appeal held that the mere fact that the Administrative Proceedings Committee set up pursuant to the provisions of ISA comprising of the members of the Securities and Exchange Commission presided over an allegation of violation of the breach of the provisions of ISA would not amount to the breach of the fundamental right of the Respondent.
The fundamental objective of the provision is to create an internal administrative procedure for the resolution, in timely manner, of any complaints arising from the challenge to the statutory fees and the operation of the provisions of CAMA.
What are the most beneficial changes in CAMA for the Nigerian business environment?
The changes in CAMA were made for the purpose of benefiting the Nigeria business environment and to improve the ease of doing business in Nigeria. For example, the introduction of business rescue regime, will ensure that distressed companies and their creditors consider business rescue first, before taking steps that may lead to the winding up of the company, which would affect certain stakeholders, like shareholders and employees of the distressed companies.
Any final thoughts?
The CAMA 2020 is a giant step towards standardizing Nigeria’s corporate law and insolvency practice with international best practices. I firmly believe that the provisions of CAMA 2020 promote the interests of all stakeholders in the Nigeria economic/business arena and will act as a catalyst for foreign investment.
Notwithstanding the robust insolvency provisions in the Act, I am of the considered opinion that there is need to have a stand-out Act on insolvency as it were in other jurisdictions. Happily, BRIPAN through its distinguished professional members had drafted and presented a stand-out Bill on Insolvency before the National Assembly which is yet to be passed into law. The need to pass the bill into law becomes necessary to cover all the fields which this Act have not covered. Noting also that majority of the insolvency has cross border elements and issues coupled with the fact that Nigeria has no statutory provisions on cross border insolvency, it is therefore imperative for Nigeria to ratify the UNCITRAL Model on cross border insolvency, subject to local adaptation, to promote unrestricted access to foreign courts, recognition of foreign insolvency practitioners and proceedings, cooperation and coordination of proceedings among courts and enforcement of judgments and orders.