Examining The Concept Of Debt And Strategies Of Debt Recovery Of Debt In Nigeria

CONTRIBUTOR: TOBENNA MOGBO

INTRODUCTION

Humans are social beings, therefore transactional by nature. To ensure individual sustenance and economic balance in society, transactions must occur between one party and another. The party who gives money out to another person to be repaid at a given period is called the Creditor. The party who receives the money and agrees to pay up at a given period is the Debtor. Therefore, as far as man and his endeavours are concerned, debtors as well as creditors will always exist, and this makes it pertinent that procedures and laws applicable to debt recovery should be understood. Debt recovery procedures and the laws which govern it provide security and ensure that lenders continue to show willingness to provide credit to intending borrowers, so that economic activities within the financial space are sustained.

WHAT IS DEBT?

In the words of Per JOSEPH TINE TUR, JCA in Ekaete v. UBN Plc;^[1]

A debt is a liability on a claim; A specific sum of money due by agreement or otherwise. It is the aggregate of all existing claims against a person, entity, or State, a non-monetary thing that one person owes another, such as goods or services

The Black’s Law Dictionary^[2] defines “debt” as a sum of money due by contract or by a certain and express agreement, which fixes the amount, independent of extrinsic circumstance. In simpler words, the concept called debt does not begin when a debtor fails to refund the sum borrowed from a creditor after the agreed due date; rather, debt begins on the day the loan agreement was entered either orally or in writing and the receipt of the loan sum is acknowledged be the debtor. The money transferred by the creditor to the debtor on the day of the agreement, the receipt of which the debtor acknowledges, can be called the debt sum. Therefore, a party becomes a debtor from the day a loan agreement is entered into, as against the societal belief that a person becomes a debtor after a demand for the loan sum has been served and the party is unable to liquidate the loan sum.

For a monetary claim to be classified as debt fit for recovery then it must have satisfied certain conditions:

• The amount owed must be a certain, fixed, or liquidated sum.
• There must be a due date that has passed.
• The obligation arises from an agreement between the parties involved, namely the debtor (the person who owes the debt) and the creditor (the person entitled to recover the debt).

WHAT IS DEBT RECOVERY?

Debt recovery refers to the systematic process undertaken by creditors to collect unpaid debts from debtors. This process becomes necessary when a debtor fails to fulfil their financial obligations within the agreed timeframe. The primary goal is to secure payment for outstanding debts, which can involve various methods such as direct communication, negotiation, mediation (from family and friends) and legal action.^[3]

The Court of Appeal in NIGERIA POSTAL SERVICES V INSIGHT ENGINEERING COMPANY LIMITED^[4] stated that an action of debt lies where a person claims the recovery of a liquidated or a certain sum of money affirmed to be due to him. It is generally founded on some contract alleged to have taken place between the parties, or on some matter of fact from which the law would imply a contract between them.

LEGAL FRAMEWORK FOR DEBT RECOVERY IN NIGERIA

There are various laws and bodies regulating debt recovery in Nigeria some of which are:

Regulatory laws;

1. The Companies and Allied Matters Act 2020
2. The Bankruptcy Act, CAP. B2, L.F.N. 2004
3. The Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act, CAP. F2, L.F.N. 2004
4. The Secured Transactions in Movable Assets Act,2017
5. High Courts Civil Procedure Rules of various States
6. Federal High Court (Civil Procedure) Rules, 2019
7. Asset Management Corporation of Nigeria Act (as amended), 2019
8. Banks and Other Financial Institutions Act (BOFIA) CAP B3. LFN, 2004.
9. Arbitration and Mediation Act, 2023
10. Nigeria Deposit Insurance Corporation Act
11. Insolvency Regulation
12. Company Winding Up Rules
13. Investment and Securities Act

Regulatory Bodies;

1. Corporate Affairs Commission (CAC)
2. High Court of Justice of various states
3. Nigeria Deposit Insurance Corporation (NDIC)
4. Asset Management Corporation of Nigeria (AMCON)
5. Central Bank of Nigeria (CBN)
6. Federal Competition and Consumer Protection Commission (FCCPC)

USING LAW ENFORCEMENT AGENTS TO RECOVER DEBT

It has become a common practice for a creditor to report cases of debt recovery to the police, who in turn carry out an arrest on the debtor to facilitate quick liquidation of the loan sum. The position of the law is clear in respect to this practice that it is not one of he duties/powers of the police to recover debt. The primary duty of the Police, by Section 4 of the police Act, is the prevention of crime, investigation and detection of crime and the prosecution of offenders. Debt recovery does not fall within the purview of these powers as debt is not a criminal offence. The Police is not a debt recovery agency and has no business dabbling in contractual disputes between parties arising from purely civil transactions.

The court of Appeal in Madaki & Anor v. GTB & Anor held that when a purely civil matter is reported to the Police, such a person cannot go scot-free as the report ought not to have been made at all since it is not within the purview of Police duties. It is a report made malafide , and he will be equally liable for the action taken by the Police, irrespective of whether he actively instigated them or not, since he had no business involving the Police in a purely civil matter in the first place.

Strategies for debt recovery

1. Alternative Dispute Resolution (ADR)

Alternative Dispute Resolution also known as ADR is a mechanism of settlement examples are negotiation, mediation, arbitration and conciliation. They are sometimes more effective, faster and cost effective compared to other strategies of debt recovery. There are often no strict formalities, however the disadvantage of ADR is that any decision arrived at in facilitating the recovery of debt is largely unenforceable.

1. Action in court (Litigation)

Taking a further step in court to recover the loan sum is one of the most effective ways of recovering debt. The creditor can take legal action by filing a lawsuit in a competent court of law (Small claims court, Magistrate Court, State High Court, or Federal High Court) using fast-track procedures like the default summons (in Magistrate Court) claims (Small Claims Court) Undefended List or Summary Judgment Procedure (State/Federal High Court).

1. Receivership

A receiver can be appointed where parties expressly agree in the loan agreement that a receiver should take over the property of the debtor to facilitate the recovery of debt in the event of default. A receiver can also be appointed by the court.^[5] The limitations to this process are that a receiver can only be appointed against a company and not a natural person. Where the debt involves a company, a receiver is appointed to take over any fixed charge of the company, and immediately, the powers of the directors over such property cease. The receiver has the power to do whatever he seems fit to be done with the property (lease or sell) in order to realize the debt owed to its appointor.

1. Winding up

Section 573 (b) of the Companies and Allied Matters Act, 2020^[6] gives a creditor the power to petition for a winding up. By virtue of Section 571 and 572 of the Companies and Allied Matters Act, 2020^[7] a winding of petition can be brought against a company where such company is in debt for such amount exceeding N 200,000 and a letter of demand has been served on the company without the company totally or partially offsetting the loan sum within the period of 3 weeks of the service of such demand on the company. However, S. 19 of the Business Facilitation Act 2023^[8] has altered the said provision of CAMA and subjected the debt threshold to be as may be determined by the Corporate Affairs Commission (CAC). But the CAC is yet to put out a specific debt threshold.

1. Bankruptcy

An individual can be declared bankrupt if theyare unable to pay up is debt. Bankruptcy can be declared either by the creditor or the debtor.^[9] By virtue of S. 2-4 of the Bankruptcy Act^[10], a creditor may commence bankruptcy proceedings by filing a petition at the registry of the Federal High Court for the issuance of a Bankruptcy Notice.

CONCLUSION

Follow the Latin maxim which says “aequitas subvenit vigilantibus, non dormientibus”, recovery of debt has a six (6) year statue of limitation period regarding any debt arising from contracts in Nigeria, meaning claims must be initiated within this timeframe, failure of which makes such debt irrecoverable.

Even though several debt recovery strategies has been stated above a creditor and a debtor are bound by the mode of recovery of debt agreed upon by both parties in the loan agreement.

Reference

1. Ekaete v. UBN Plc (2014) LPELR-23111(CA)(Pp 60 – 60 Paras E – F) ↑
2. Black’s Law Dictionary 10^th edition ↑
3. DEBT RECOVERY IN NIGERIA: THE EFFECTIVE STRATEGIES AND STAGES available on https://www.legal500.com/developments/thought-leadership/debt-recovery-in-nigeria-the-effective-strategies-and-stages/ accessed on May 2025. ↑
4. NIGERIA POSTAL SERVICES V INSIGHT ENGINEERING COMPANY LIMITED (2006) 8 NWLR (Pt. 983) p. 438 ↑
5. Section 550 to 553 of the Companies and Allied Matters Act, 2020. ↑
6. Section 573 (b) of the Companies and Allied Matters Act, 2020. ↑
7. Section 571 and 572 of the Companies and Allied Matters Act, 2020. ↑
8. S.19 of Business Facilitation Act 2023. ↑
9. Section 1 of the Bankruptcy Act CAP B2 LFN 2004. ↑
10. Section 2-4 of the Bankruptcy Act CAP B2 LFN 2004. ↑