A LITTLE GIST ON RECEIVERSHIP IN NIGERIA

The concept of receivership in Nigeria is mainly governed by the Companies and Allied Matters Act, 2020. Chapter 19 of the Companies and Allied Matters Act, 2020 speaks on receivers in Nigeria.

Firstly, what does the concept of receivership entail?

Although receivership is not defined in the Companies and Allied Matters Act, 2020 (‘CAMA’/the ‘Act’), the Act defines a Receiver by his function as: ‘A person appointed as a receiver of any property of a company shall, subject to the rights of prior encumbrances, take possession of and protect the property, receive rents and profits and discharge all out-goings in respect thereof and realise the security for the benefit of those on whose behalf he is appointed…’[i] Receivership may easily be thus defined as the process of a receiver carrying out his role as a receiver.

Receiver, Official Receiver, Receiver/Manager, Liquidator

It is important to differentiate a Receiver, an Official Receiver, a Receiver/Manager and a Liquidator.

As seen above, a Receiver is an individual that is appointed by a Company’s creditors or debenture holders, following an instrument authorising the creditors and debenture holders to make the appointment. The Receiver takes possession of some secured assets of the company to realise security on behalf of those on whose behalf he is appointed (usually the creditors/debenture holders). The functions of a Receiver are usually tied to specific assets of the Company.

An Official Receiver is a Receiver who is appointed by the Court. In other words, where the receiver is not appointed by creditors but by an order of the Court, he is called an Official Receiver.[ii]

A Receiver/Manager is a person appointed to act as Receiver whilst also managing a part or whole of the undertaking of a Company. It implies that a Receiver does not only oversee specific assets; he oversees a part or the whole of a business of the Company, depending on the terms of appointment.

Section 556 of CAMA stipulates that unless a Receiver is an appointed manager, he does not have power to carry on any business or undertaking. This implies that where a Receiver is appointed and unless he is also appointed a Manager, his duty is only restricted to specific assets and not the management of the any of the Company’s undertaking.[iii]

Interestingly, Section 868 of the CAMA defines a Receiver as including a Manager.

While it can be argued that Sections 556 and 868 of the Act appear to be contradictory, it is submitted that where it is intended that the Receiver also performs the function of a Manager, it should be expressly stated.

A Liquidator is appointed to wind up the affairs of a Company and to distribute assets to creditors. A provisional liquidator may also be appointed before the appointment of the liquidator. Winding-up Proceedings must have been initiated before a liquidator is appointed. Further, while a Receiver may be appointed out of the Court under a power contained in an instrument, a liquidator is appointed by an order of the Court.

When is a Receiver required?

The appointment of a receiver by the creditors of the Company or by an order of the Court will be needed where:

a.??????The principal money borrowed by the company or the interest is in arrears; or

b.??????security or property of the company is in jeopardy.[iv]

In Uwakwe & Ors v Odogwu & Ors[v], the Supreme Court made reference to “Kerr on Receivers” at page 5 under the heading “Object of appointment” where it was opined that the object sought by the appointment of a Receiver is the safeguarding of property for the benefit of those entitled to it.

Thus, where a Company has failed to discharge its obligations in respect of credit facilities and the transaction instrument/document empowers the creditor to appoint a Receiver, the creditor may appoint a Receiver who will manage the assets of the Company used as security. It also means that a Receiver will usually be appointed in respect of secured transactions.

How is a Receiver appointed?

A Receiver may be appointed by the creditors or debenture holders (under a power contained in the transaction document) or by the Court. Where the Receiver is appointed by the creditors, the Receiver is at liberty to apply to the Court for direction as it relates to the performance of his functions.

It must also be noted that corporate entities are precluded from being appointed as Receivers. In other words, a Company or other organization cannot be appointed as a Receiver. Only natural persons may be so appointed.[vi]

Duties of Receivers

A Receiver has the duty to realise security for the purpose for which he is appointed and his actions must be geared towards this purpose. The Receiver also has the duty to make periodic returns to the Corporate Affairs Commission, whether appointed by a Court or appointed under an enabling instrument. Default in carrying out this duty may make the Receiver liable to penalties.[vii]

Does a Receiver have a fiduciary relationship with the Company?

In considering whether or not a Receiver has fiduciary duties to the Company, the provisions of CAMA will be examined as it relates to each type of Receiver referenced in the Act.

Official Receivers

The Act provides that a Receiver or Manager of any property or undertaking of a Company appointed by the Court is deemed to be an officer of the Court and not of the Company and shall act in accordance with the directions and instructions of the Court.[viii] It implies that an official Receiver does not primarily act for the Company but for the Court.

Receivers appointed by creditors or debenture holders

As it relates to Receivers appointed out of Court under a power contained in an instrument, the Receiver shall deal with the property to realise the security for the benefit of those on whose behalf he is appointed.[ix] However, a person appointed as a Manager of the whole or any part of the undertaking of a company also owes the Company some fiduciary duties. The Manager must act at all times in what he believes to be the best interest of the Company work towards the preservation of the assets of the Company, promoting the Company’s purposes and furthering its business. He must act in good faith when transacting with or on behalf of the Company.[x]

It would appear that Receivers only has fiduciary duties to the Company in their capacity as Managers (where applicable).

Is Receivership Company or Creditor Inclined?

It is important to consider whether receivership under CAMA is mainly a business rescue procedure or a debt recovery procedure. Can receivership under the Act be said to be a means to satisfy the creditors of a company or a business rescue strategy?

As observed from a study of the relevant provisions relating to Companies and Allied Matters Act, it would seem that the provisions of the Act are tilted towards the recovery of the funds of the creditors of the Company and the persons on whose behalf the Receiver is appointed. It appears that the Receiver is only obligated to act in the best interest of the Company where he is appointed also as a Manager, in which case he would be overseeing the whole or any part of the undertaking of the Company. In spite of the fiduciary duties imposed on a Manager, he is primarily appointed to manage the undertaking with a view to the realization of the security of those on whose behalf he is appointed.[xi]

Following the above, receivership could be seen as mainly a debt recovery procedure in Nigeria. It is more preferable to Winding-up Proceedings in that it does not necessarily lead to the end of the Company. A Receiver may deal with the assets of the Company for the realization of the security after which the assets reverts to the Company. Still, it has been opined that in most cases, the result of receivership is a dissolution of the Company even when dissolution was not the intended objective.[xii]

Conclusion

The appointment of a receiver is easily seen as a debt recovery procedure in Nigeria which if properly employed, could be useful to both parties in the realization of their objectives. Indeed, most secured credit transactions enable the appointment of Receivers in fitting circumstances.

[i] Section 556 of the Companies and Allied Matters Act, 2020.

[ii] See Section 551 of the Companies and Allied Matters Act, 2020.

[iii] Section 556 of the Companies and Allied Matters Act, 2020.

[iv] See Section 552 (1) of the Companies and Allied Matters Act, 2020.

[v] (1989) 5 NWLR (Pt 123) 562 at 576.

[vi] See Section 550 of the Companies and Allied Matters Act, 2020.

[vii] See Section 561 (2) of the Companies and Allied Matters Act, 2020.

[viii] See Section 552(2) of the Companies and Allied Matters Act, 2020.

[ix] See Section 556(1) of the Companies and Allied Matters Act, 2020.

[x] See Section 553 of the Companies and Allied Matters Act, 2020.

[xi] See Section 556(2) of the Companies and Allied Matters Act, 2020.

[xii] Aelex. (2019). The Evolution Of Business Rescue In Nigeria. Retrieved from https://www.mondaq.com/nigeria/insolvencybankruptcy/809026/the-evolution-of-business-rescue-in-nigeria