Debt Recovery in Nigeria: Limitations and Opportunities

Debt recovery in Nigeria, much like in other jurisdictions, is governed by a framework aimed at assisting creditors in pursuing outstanding debts. However, this framework has faced criticism for its inefficiencies and limitations. Despite these challenges, creditors must navigate the system as it stands, leveraging strategic approaches to improve their chances of success.

Key Considerations for Debt Recovery

Successful debt recovery in Nigeria hinges on several critical factors:

1. Debtor’s Financial Capacity: Can the debtor afford to repay the debt?
2. Nature of the Debtor: Is the debtor an individual or a registered entity?
3. Collateral: Was the debt secured, and is the collateral traceable?
4. Debtor’s Cooperation: How willing is the debtor to engage?
5. Asset Availability: Are the debtor’s assets identifiable and accessible?

Without a thorough assessment of these factors, creditors risk depleting resources in pursuit of bad debts.

Legal Options for Creditors

The first step in debt recovery typically involves issuing a Letter of Demand. Ideally, this elicits a response, potentially leading to repayment plans through negotiation or mediation. Nigerian law encourages Alternative Dispute Resolution (ADR) for its cost-effectiveness, speed, and ability to preserve relationships.

However, when debtors deny claims or refuse engagement, creditors may have no choice but to resort to litigation. Unfortunately, litigation in Nigeria is fraught with challenges, including:

• High costs for legal representation and logistics.
• Lengthy judicial processes—cases can span several years.
• Weak enforcement mechanisms, making judgment recovery arduous.

For foreign creditors, these challenges are compounded by additional travel and logistical expenses.

Practical Realities and Challenges

A significant barrier to effective debt recovery in Nigeria is the lack of a Central Asset Registry, making it difficult to trace debtor assets. Furthermore, some debtors may genuinely lack the financial capacity to repay.

While some creditors resort to self-help measures, such as involving law enforcement to pressure debtors, this approach is illegal and frowned upon by Nigerian courts. Such actions can further complicate the recovery process.

Navigating the System

Given the limitations of Nigeria’s debt recovery framework, creditors are often better served by pursuing negotiation or ADR. These methods are faster, less expensive, and more likely to yield positive outcomes. Litigation should be a last resort, carefully considered to avoid incurring further losses in pursuit of already doubtful debts.

In conclusion, given the limitations of the debt recovery landscape in Nigeria is far from perfect, a strategic, well-informed negotiation or some sort of ADR can improve outcomes.

Written by: Temitayo Gaji

*This article is informative and is not to be used as legal, economic, or commercial advice.