The Role of Insolvency Practitioners in Nigerian Corporate Restructuring; Legal and Ethical Considerations

Contributed By Cyril Samuel Dandison ESQ

INTRODUCTION

Corporate restructuring is a critical mechanism for reviving financially distressed businesses ensuring economic stability, and safeguarding stakeholders’ interests. It involves making significant changes to a company’s organizational, financial, or operational structure with the goal of improving its financial health, efficiency, and overall performance.

In the context of Nigerian corporate restructuring, the role of the insolvency practitioner is critical, and delving into the legal and regulatory aspects with the goal of understanding the limitations and obligations placed on the practitioner throughout the restructuring journey is essential for this and also acknowledging the intrinsic ethical complexities entwined within this role.^[1]

Who Is an Insolvent Practitioner?

An insolvent practitioner in Nigeria is a highly qualified and authorized professional entrusted with overseeing the intricate process of managing the financial hardship and insolvency of companies in accordance with the legal and regulatory framework laid out in the Companies and Allied Matters Act (CAMA) of 2020. The role of an insolvent practitioner is pivotal in safeguarding the interests of stakeholders, ensuring fairness, and preserving the integrity of the insolvency proceedings.^[2]

To qualify as an insolvent practitioner in Nigeria, individuals must meet stringent criteria set forth in CAMA 2020. This includes^[3];

1. Possess a degree in law, accountancy, or a relevant discipline from a recognized university or polytechnic.
2. Have a minimum of five years of post-qualification experience in insolvency-related matters, ensuring their competence and expertise in handling complex financial situations.
3. Must be a certified member of reputable professional bodies, such as the Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN), to ensure their competence and adherence to established industry norms.

Obligations of an Insolvent Practitioner in Corporate Restructuring in Nigeria

The insolvent practitioner assumes several critical roles, including but not limited to:

1. Liquidator, Provisional Liquidator, or Official Receiver: In cases where a company becomes insolvent and is no longer capable of meeting its financial obligations, the insolvent practitioner may be appointed as a liquidator, provisional liquidator, or official receiver. Their responsibility is to wind up the affairs of the company, realize its assets, and distribute proceeds to creditors in a fair and orderly manner.^[4]
2. Administrator or Administrative Receiver: The insolvent practitioner may be appointed as an administrator when the company is under administration, providing an opportunity for restructuring and rescue. The administrator’s task is to assess the company’s financial position, develop a feasible restructuring plan, and negotiate with creditors and other stakeholders to achieve the best possible outcome for the company.^[5]

1. Receiver and Manager: In situations where a company defaults on its secured debts, the insolvent practitioner can be appointed as a receiver and manager. Their primary role is to manage and realize the assets secured by the creditors to repay the debts owed to them.^[6]
2. Nominee or Supervisor of a Company’s Voluntary Arrangement: The insolvent practitioner can also act as a nominee or supervisor in voluntary arrangements between the company and its creditors. These arrangements are designed to facilitate the company’s recovery by agreeing on a repayment plan that creditors find acceptable.^[7]

LIMITATIONS OF INSOLVENCY PRACTITIONERS IN CORPORATE RESTRUCTURING IN NIGERIA

The limitations faced by Insolvency Practitioners in corporate restructuring in Nigeria stem from many factors, some of which are;

1. Legal Framework Limitations: The primary statute governing corporate rescue and insolvency in Nigeria, which is the Companies and Allied Matters Act (CAMA) 2020, lacks comprehensive and up-to-date provisions that align with global trends in corporate restructuring. The outdated procedures and inadequate options available under CAMA hinder Insolvent Practitioners from effectively executing corporate rescue plans. The absence of specific laws dedicated to corporate rescue further restricts their ability to navigate complex situations. For instance, the Companies’ Creditors Arrangement Act (CCAA) of Canada; this law is similar to Chapter 11 of the United States Bankruptcy Code and provides a number of options for companies to restructure their debts than what is provided by CAMA 2020.^[8]
2. Limited Corporate Rescue Mechanisms: Nigeria’s corporate rescue mechanisms, such as arrangements and compromises, receivership, and mergers or acquisitions, are few and inadequate. This limitation restricts Insolvent Practitioners from having a diverse toolkit to address various financial distress scenarios. The absence of moratorium provisions weakens their ability to protect distressed companies from legal actions, making it challenging to implement restructuring plans without the threat of litigation.^[9]
3. Lack of Minimum Qualifications and Regulation: The absence of specific qualifications and regulatory oversight for Insolvent Practitioners in Nigeria means that individuals can be appointed without the necessary expertise, experience, or accountability. For instance, no provision for the completion of a recognized insolvency practitioner training course, or not even a provision for the assessment of the ethical conduct of insolvency practitioners periodically in Nigeria. This limitation reduces the effectiveness of these practitioners in guiding distressed companies through complex restructuring processes. The absence of a recognized standard of competence and ethical conduct could lead to inconsistent outcomes and potential abuse.^[10]
4. Corruption and Judicial Challenges: Corruption within the legal system and potential external influences can hinder Insolvent Practitioners’ efforts to achieve equitable and transparent outcomes in corporate restructuring. The judiciary’s susceptibility to corruption may lead to biased decisions, lengthy legal proceedings, and the manipulation of insolvency processes. This limitation undermines the integrity of corporate rescue efforts and makes it difficult for practitioners to navigate legal challenges.^[11]
5. Complexity of Fraud Detection and Prosecution: Detecting and proving corporate fraud in Nigeria is complex due to the lack of a general offence of fraud in the legal system. The intricate nature of corporate fraud cases and the requirement to establish deliberate intent to deceive make it challenging for Insolvent Practitioners to effectively address fraudulent activities that contribute to corporate insolvency. This limitation can hinder their ability to uncover and address fraudulent behaviours.^[12]

ETHICAL PRINCIPLES TO BE CONSIDERED BY AN INSOLVENT PRACTITIONER IN CORPORATE RESTRUCTURING IN NIGERIA

In the realm of corporate restructuring, ethical principles serve as the guiding compass for insolvency practitioners (IPs) in their pivotal role. Irrespective of the jurisdiction, these principles remain remarkably consistent, including in Nigeria. These principles underscore the foundation upon which insolvency practitioners must operate, ensuring transparency, trustworthiness, and fair treatment throughout the intricate process of corporate restructuring.^[13] There are the key ethical principles to be considered by an Insolvency Practitioner during corporate restructuring in Nigeria:

1. Integrity, Independence, Impartiality: Insolvency practitioners must uphold attributes of integrity, independence, and impartiality. This involves acting honestly, transparently, and without bias. They should have relevant knowledge and experience.^[14]
2. Good Faith and Trust: Insolvency practitioners must act in good faith, showing honesty and confidentiality. They must ensure transparency in dealings, including reporting and negotiations. This fosters trust among stakeholders.^[15]
3. Best Interests of Beneficiaries: Insolvency practitioners have a duty to act in the best interests of beneficiaries, avoiding conflicts of interest. This includes not profiting personally from their fiduciary role and refraining from activities that compromise beneficiaries’ interests.^[16]
4. Independence and Impartiality: Insolvency practitioners should exercise their powers independently and impartially, avoiding biases or influences that might compromise their professional judgment. This is vital to gain stakeholders’ trust.^[17]
5. Duty of Care, Skill, and Diligence: Insolvency practitioners must demonstrate reasonable care, skill, and diligence in their actions. Their expertise in insolvency matters raises the standard of care expected of them.^[18]
6. Transparency and Disclosure: Insolvency practitioners should disclose any relationships or situations that could impact their independence. Transparency in pre-appointment consultations and throughout the process builds confidence.^[19]
7. Protection of Sensitive Information: Insolvency practitioners must maintain confidentiality of sensitive corporate information. This includes not using such information for personal benefit or competing with the company.^[20]

In corporate restructuring in Nigeria or any jurisdiction, adhering to these ethical principles is essential for Insolvency practitioners to foster trust, maintain their professional integrity, and ensure the success of the insolvency process.

CONCLUSION

In conclusion, the role of the Insolvent Practitioner in Nigerian corporate restructuring is beset by a web of legal and ethical challenges. The need for comprehensive legal reforms, robust rescue mechanisms, stringent qualifications, anti-corruption measures, and strong institutional support is paramount. Only through concerted efforts to address these limitations can the Insolvent Practitioner truly emerge as a catalyst for effective corporate restructuring, contributing to the growth and stability of Nigeria’s business landscape.

Keywords: Corporate restructuring, Financial distress, Insolvent practitioner, Nigeria Companies and Allied Matters Act (CAMA) of 2020, Stakeholders’ interests, Legal and regulatory framework, Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN), Liquidator, Official Receiver, Administrator, Administrative Receiver, Receiver and Manager, Voluntary arrangement, Corporate rescue mechanisms, Ethical principles.

1. H. Adekola, “A General Overview of Corporate Restructuring in Nigeria” Available @ https://www.mondaq.com /nigeria/corporate-governance/894972/a-general-overview-of-corporate-restructuring-in-nigeria ↑
2. H. Onigbinde, “CORPORATE INSOLVENCY REGIME IN NIGERIA: AN APPRAISAL OF THE INNOVATIONS UNDER THE COMPANIES AND ALLIED MATTERS ACT 2020” Available @Article-4.pdf (unilaglawreview.org) ↑
3. Ibid. ↑
4. M Kcleod, “What the Liquidator does” (Accura Accountants Business Recovery Solutions; 2023) Available @ Role of a Company Liquidator | Rights and Duties of a Liquidator (aabrs.com) ↑
5. O. Kalu & P. Edokpayi, “Chapter 26 CAMA 2020: Insolvency Professionals, A Miscellany Issue?” (2020) Available @ https://www.mondaq.com/nigeria/insolvencybankruptcy/977940/chapter-26-cama-2020-insolvency-professionals-a-miscellany-issue ↑
6. D. Adu & E. Randle “The Concept Of Receivership Under The Companies And Allied Matters Act, 2020” Available @ https://www.mondaq.com/nigeria/contracts-and-commercial-law/1220774/the-concept-of-receivership-under-the-companies-and-allied-matters-act-2020 ↑
7. O.O. Elizabeth, “An Overview Of Company Voluntary Arrangements Under CAMA 2020” Available @ https://www.mondaq.com/nigeria/corporate-and-company-law/1307950/an-overview-of-company-voluntary-arrangements-under-cama-2020 accessed 19th August, 2023 ↑
8. H.E. Chidi, “Issues and Challenges In Corporate Rescue and Insolvency Practice in Nigeria” 2022 Available @ (PDF) ISSUES AND CHALLENGES IN CORPORATE RESCUE AND INSOLVENCY PRACTICE IN NIGERIA (researchgate.net) accessed 19^th August, 2023 ↑
9. Ibid ↑
10. Ibid ↑
11. Ibid ↑
12. Ibid ↑
13. Lézelle Jacobs, “Corporate insolvency practitioners: ethics and fiduciary duties” Available @The Culture of Bankruptcy (openrepository.com) accessed on 24^th August, 2023 ↑
14. Ibid ↑
15. Ibid ↑
16. Ibid ↑
17. Ibid ↑
18. Ibid ↑
19. Ibid ↑
20. Ibid ↑