A consequence of the recovery of the Nigerian economy following the economic depression experienced between 2016 and 2018 led financial institutions to increase their appetite to lend to companies operating in different sectors of the economy. This was made possible by improvements to asset quality and stimulatory measures taken by the federal government, particularly towards shifting the focus from the country's over reliance on oil-generated revenue to the non-oil sector.
However, the outbreak of covid-19 in Q1–Q2 2020, coupled with a sharp reduction in crude oil prices, has had devastating effects on the Nigerian economy and reversed the upsides that were gained after the last recession. The fiscal and monetary authorities in Nigeria have nevertheless swung into action by way of a series of regulatory responses. The Central Bank of Nigeria (CBN) has introduced a 100 billion naira credit support intervention for the healthcare industry to provide credit to Nigerian pharmaceutical companies and other healthcare value chain players that intend to build or expand their capacity.2 The CBN also introduced the 50 billion naira Targeted Credit Facility (TCF)3 as a stimulus package to support households and micro, small and medium enterprises (MSMEs) affected by the pandemic. Eligible activities under the scheme include agricultural value chain activities, hospitality (accommodation and food services), manufacturing/value addition among others. Furthermore, the CBN granted an extension of moratorium by one year on all principal repayments on all CBN intervention facilities effective on 1 March 2020.4 The CBN also directed that interest rates applicable on all CBN intervention facilities be reduced from 9 per cent to 5 per cent per annum for one year, effective on 1 March 2020. The Federal Ministry of Finance has also provided 102.5 billion naira in resources for direct interventions in the country's healthcare sector in addition to waiving import duty and value added tax on critical medical equipment and supplies. These are unprecedented times and the constantly evolving state of affairs makes it difficult to give a forecast on how things will develop. What can be said is that the response of the Central Bank of Nigeria and the Ministry of Finance to the pandemic has been to encourage banks to lend more and for banks to extend credit to the real sectors of the economy, such as healthcare, manufacturing of goods, etc. The effect of the policies implemented during the period of this pandemic, however, remains to be seen.
i Recent reforms
The strong focus on the Nigerian domestic manufacturing sector, coupled with the provision by the CBN of specialist intervention funding to targeted sectors and the passage of certain legislation in 2017, improved the access of companies, especially MSME and manufacturing companies, to debt financing prior to the covid-19 pandemic.
In 2019, the CBN introduced regulatory measures to improve lending to the real sectors of the Nigerian economy via a letter addressed to all banks dated 3 July 20195 by requiring all deposit money banks to maintain a minimum Loan to Deposit Ratio (LDR) of 60 per cent by 30 September 2019. The CBN also assigned a weight of 150 per cent in computing LDR for MSME, retail, mortgage and consumer lending. The CBN further raised the LDR by a letter dated 30 September 20196 to 65 per cent by 31 December 2019. The effect of this is to encourage banks to lend to local companies rather than investing in treasury bills. It is their hope that adequate access to credit will in turn have a greater impact on the Nigerian economy.
There are a large number of Nigerian banks and law firms that are members of the Loan Market Association (LMA) and, as a result, a lot of syndicated loan agreements and even bilateral loan agreements are modelled on the LMA forms and precedents. There is an LMA facility agreement that has been drafted and agreed for naira facilities and use in the Nigerian lending market.
ii LEGAL AND REGULATORY DEVELOPMENTS
i The Finance Act 2019
The Finance Act 2019 was signed into law on 13 January 2020 and addresses a number of issues in the country's tax legislation that have negatively affected the ease of doing business in Nigeria. One noteworthy development is the thin capitalisation and interest on foreign loans, which limits deductible interest paid by Nigerian companies on loans to a maximum of 30 per cent of earnings before interest tax depreciation and amortisation (EBITDA). This is aimed at moderating the debt-to-equity ratio of companies.
The Finance Act also removed the incidence of double taxation on securities lending transactions by expanding the definition of interests and dividends to include compensating payments received by a borrower or lender in a regulated securities lending transaction.7 This will mean that compensating payments made to the lender of securities or borrower (the giver of collateral) that qualify as dividend or interest will not be subject to any further tax in the hands of the lender or borrower. The Finance Act also introduces a proviso to exclude a regulated Securities Lending Transaction from the scope of 'disposal' of money market instruments, thereby precluding the payment of income tax and capital gains tax on security lending transactions. Also, the Finance Act has excluded share, stock or securities transfers by a lender to either a borrower or an agent of the lender and documents issued in a regulated securities lending transaction from the payment of stamp duty.
Additionally, there has been a reduction in exemption of interest on foreign loans with a tenor of seven years and above and a moratorium of two years from a maximum of 100 per cent to 70 per cent. This could potentially increase the tax income accruable to the federal government of Nigeria. Another change made by the Finance Act 2020 is the increase of the rate of value added tax (VAT) from 5 per cent to 7.5 per cent. This has the effect of making loans more expensive for borrowers.
ii Federal High Court decisions on value added tax
Pursuant to the Federal High Court decisions in Vodacom Business Nigeria Limited v. Federal Inland Revenue Service8 and Federal Inland Revenue Service v. Gazprom Oil & Gas Nigeria Limited,9 value added tax will now be payable by a borrower for fees payable to finance parties for transaction services (e.g., management, restructuring or agency fees) regardless of whether the service provider is a foreign entity that has not included value added tax in its invoices to the borrower. In this case, the borrower is required to compute the applicable value added tax and remit the same to the tax authority. In line with these decisions, the Finance Act 2019 has amended the Value Added Tax Act by inserting a new Section 2, which provides that value added tax is payable on the supply of all taxable goods and services in Nigeria other than those specifically exempted from tax under the act. Services are deemed to be supplied in Nigeria if the services are provided in Nigeria by a person physically present in Nigeria at the time that the service was provided or the services are provided to a person in Nigeria irrespective of where the services are rendered from.
iii New clause for credit facilities agreements
The CBN directed that, with effect from 26 August 2019, loan offer letters and loan agreements must contain a clause empowering the lender, where any obligor fails to repay the loan as agreed, to request that the CBN exercise its regulatory power to direct all banks and other financial institutions to set off the obligor's indebtedness from any money standing to the obligor's credit in any bank account or from any other financial assets being held for the obligor's benefit.10 It is hoped that these measures will improve the credit culture and enhance credit risk management in the system.
III TAX CONSIDERATIONS
Loan transactions, as other commercial transactions in Nigeria, are subject to Nigerian taxes. These taxes include withholding tax on interest as well as stamp duty. A brief overview of each of these taxes is given below.
i Withholding tax
Interest on loans is generally subject to withholding tax payable at the rate of 10 per cent of the relevant interest sum. However, where lenders are domiciled in countries with which Nigeria has entered into double taxation agreements (DTAs), the applicable rate of tax will be 7.5 per cent of the interest amount, pursuant to the relevant DTA. Nigeria recently ratified the double taxation treaty that it entered into with Spain, thus bringing the total number of countries that Nigeria has a DTA arrangement with to 13.
With respect to loan documentation, market practice is that loan agreements are drafted to include gross-up provisions such that the borrower is obliged to pay an additional amount to the lender with interest, to ensure that the lender receives and retains the same amount that it would have received had no tax been withheld therefrom, or otherwise due as a result of the payment. The practical effect of grossing up is that the lender receives the agreed interest sum while still fulfilling its withholding tax obligation under Nigerian law.
ii Stamp duty
The Stamp Duties Act requires any instrument executed in Nigeria – or that relates, wheresoever executed, to any property situated or any matter or thing done or to be done in Nigeria – to be stamped and the appropriate stamp duty paid in respect of the instrument.
With respect to secured facilities, the practice is usually to stamp the security document at the relevant ad valorem rate, and the loan agreement would then be stamped at a nominal rate of 500 naira for the original and 50 naira for each counterpart copy.
The Finance Act 2019 defines 'instruments' to include electronic documents. The legal effect of which is that electronic documents (including copies of agreements) will now be accepted for the purpose of stamp duty payment by the various stamp duties offices. The amendment also puts to rest the argument as to whether a document is only received in Nigeria when the physical copy of the document is received in Nigeria. Such documents will now be deemed to have been received in Nigeria if an electronic copy of such document is transmitted into Nigeria and the obligation to stamp begins to count from the date of receipt into Nigeria.
Prior to December 2016, loan agreements with respect to unsecured facilities executed in Nigeria – or that relate to any property situated, or any matter or thing to be done, in Nigeria – would usually attract a nominal stamp duty of 500 naira for an original and 50 naira for each counterpart. Deriving its powers from the Stamp Duties Act, the Federal Inland Revenue Service issued a public notice in December 2016 stating that unsecured facility agreements are to be stamped at an ad valorem rate of 0.125 per cent of the loan amount. Where the tenor of the unsecured loan agreement does not exceed 12 months, it can be stamped at a nominal rate of 500 naira.
iii Compliance with FATCA
Nigerian financial institutions comply with the Foreign Account Tax Compliance Act (FATCA) by creating FATCA compliance units to oversee and ensure that FATCA reporting requirements are met. From a transactional perspective, financial institutions may allocate FATCA risk by inserting certain clauses and representations to minimise downside risks that may occur.11 To assist with the above, the LMA template, which may be adopted by financial institutions, sets out information necessary to ensure compliance with FATCA.
iv CREDIT SUPPORT AND SUBORDINATION
Nigerian law recognises various types of security interests. These security interests may be created over movable assets (tangible and intangible) and immovable assets (real estate) located in Nigeria. These interests may be taken in the form of a mortgage, charge, pledge, lien or assignment, depending on the type of property.
Real estate or immovable property
Security over an immovable asset may be granted by way of a mortgage or a charge. A mortgage over land or other immovable assets may be created by way of a legal or equitable mortgage. A legal mortgage involves a transfer of the legal title in the immovable asset by the mortgagor to the mortgagee as a security for the payment of the mortgagor's debt. However, an equitable mortgage of an immovable asset is created by the mortgagor or borrower depositing the title deeds to the property with the lender, with or without a memorandum of deposit. An equitable mortgage creates a personal right against the mortgagor, which cannot be exercised without an order of the court.
A fixed or floating charge may also be created on an immovable property. A fixed charge is created over a specific immovable property of the chargor, thereby restricting the right of the chargor to deal with the asset without the consent of the chargee. However, a floating charge may be taken over a whole or specific immovable property owned by the chargee. A floating charge does not attach to a specific asset until there is a specific event that will cause the charge to crystallise.
To create an enforceable legal mortgage or a fixed charge over an immovable property, the security interest must be duly perfected as required under Nigerian law. The deed creating the legal mortgage or the fixed charge is required to be stamped (with ad valorem stamp duty being payable) and the consent of the governor of the state where the land is situated must be obtained. In addition to the requirement that the deed must be registered at the relevant land's registry, where the party providing the security is a company, the deed must be registered at the Corporate Affairs Commission (CAC).
Similarly, security may also be taken over shares of a company incorporated in Nigeria by way of a mortgage or a charge. To take a legal mortgage over shares, the mortgagor must transfer legal title to the shares to the lender, on the condition that the shares will be transferred back to the borrower on repayment of the loan. The lender must be registered in the company's register of members as the owner of the shares. An equitable mortgage of shares is created by depositing the share certificates with the lender or a security trustee appointed by the lender. Where an equitable mortgage is created, legal title to the shares is not transferred to the mortgagee (bank or security trustee).
Security can also be taken over shares by way of a fixed or a floating charge. Under Nigerian law, there is no requirement to register a share charge at the CAC where the nature of the security created is a fixed charge or a legal mortgage. A floating charge over shares, however, is required to be registered at the CAC. Though a fixed charge over shares is not a registrable instrument, certain practitioners have increasingly been filing a fixed charge as a miscellaneous document at the CAC, to notify third parties that conduct a search on the records of the company creating the charge of the existence of the charge. To facilitate enforcement of the security, lenders usually require the borrowers to execute a blank share transfer form.
Security may also be created over shares that are dematerialised and kept with a central depository. The company that operates Nigeria's central depository for listed shares is the Central Securities Clearing System (CSCS). A memorandum executed by both parties requesting the CSCS to place a 'lien' on a specific quantity of shares, or all the shares of an account owner, is required to be forwarded to the CSCS. 'Lien' is used in this sense as a description for the security interest that is created over the shares or account.12 Legally, the nature of the security interest that is created is a floating charge over the shares and, as such, will require registration of the interest at the CAC if the party granting the security is a company.
Also, an undated letter signed by the party creating the security, authorising the lender to sell the shares in the event of default at the expiry of the loan due date, must be given to the lender, as the CSCS would require this document if the lender wishes to realise the security.
There is an erroneous practice in Nigeria of creating a pledge over shares. An asset can only be pledged if it is transferable by delivery of possession.13 Usually, the owner of the shares has a share certificate that evidences entitlement to the shares concerned. This is not, however, a document of title, as legal title only passes to the lender when he or she becomes the registered holder of the shares rather than mere possessor of the share certificate.14 Thus, where a party purports to create a pledge over shares, the legal effect of that is a floating charge, which could be held to be void for lack of registration.15
Under Nigerian law, a security interest may be created over the money in bank accounts by way of a fixed or floating charge. A fixed charge is created over deposits in bank accounts where the parties expressly state that they have created a fixed charge over the bank account, which must be adequately and sufficiently described in the security document; and the bank or security trustee must have control of how the funds deposited into that account are managed or dealt with.
Where the charge created on the security is a floating charge, the chargor controls the charged accounts until the charge crystallises into a fixed charge following certain events stipulated under the security document. A floating charge over cash deposits will require registration at the CAC. The registration must be preceded by the payment of stamp duty on the document creating the charge, usually at an ad valorem rate.
Other assets used as security
Security can be created over intellectual property, such as patents, trademarks, copyright and designs.16 Usually, parties execute a deed setting out the terms and conditions on which the security is granted.
Security may also be created over a company's claims and receivables, which can be by way of an assignment, or a floating or fixed charge. Assignments must be in writing and must be preceded by the payment of stamp duty on the deed of assignment, at an ad valorem rate and registered with the CAC.
Costs of perfection of security interests
Where the security is immovable property, the consent of the governor of the state where the property is situated must be obtained, and this usually attracts the payment of a fee that varies from state to state. Once the governor's consent has been granted, the security interest over the land must be registered at the relevant state's lands registry, which also attracts a fee that varies from state to state.
With respect to companies creating security over their assets, a registration fee of 1 per cent of the sum secured is required to be paid to the CAC where the company is a private company, and a registration fee of 2 per cent of the sum secured where the company is a public company.
The stamp duty payable on a debenture deed or deed of share charge is 0.375 per cent of the secured amount. In respect of security by way of assignment, the stamp duty payable on the deed of legal mortgage and assignment is at an ad valorem rate of 1.5 per cent.
Nigerian law recognises the rights of parties to commercially structure their transactions to allow the security documents to be stamped for an initial amount and then subsequently upstamped for additional sums. Consequently, on a large financing, parties may agree for the security documents to be stamped to cover a certain value, which may be less than the value of the amount that has been borrowed.
ii Guarantees and other forms of credit support
Guarantees are a common form of security used in finance transactions. A guarantee must be in writing (or evidenced in writing) and signed by the guarantor or a person authorised by the guarantor. Where no consideration has been furnished for issuing the guarantee, it must be granted by way of a deed.
In accepting corporate guarantees, it is important to ensure that the issuance of the guarantee, as well as its value, is permitted under the articles of association of the guarantor.17
Negative pledges are designed to mitigate risk to lenders by prohibiting the borrower from creating security or quasi-security over its property, without first obtaining the prior consent of the lender or granting the lender commensurate or similar security as well.
The most common forms of quasi-securities used in Nigeria include hire purchase agreements, retention of title clauses in contracts, conditional sale agreements, negative pledges and letters of comfort.
iii Priorities and subordination
Security interests are typically ranked and given priority according to the date of their creation and their nature – whether legal or equitable. Generally, a legal interest will rank in priority over an equitable interest.
A fixed charge will usually have priority over a floating charge, unless the terms on which the floating charge was granted prohibited the company from granting any latter charge having priority over the floating charge and the person in whose favour the latter charge was granted had actual notice of that prohibition at the time when the charge was created.
Where more than one creditor has the same type of security interest – for instance, where there are two legal interests over the asset of the borrower – the security interest that was registered first will rank ahead of the subsequent secured party.
With respect to security created over the assets of a company incorporated under the laws of Nigeria, where the security is not registered within 90 days of the date of creation or another prescribed period, the security becomes void against the liquidator of the company and other third-party creditors, but not the company.
Ordinarily, contractual subordination is recognised and enforceable under Nigerian law. Creditors may agree among themselves to contractually vary the order of priority or waive or subordinate their security interests to those of other creditors. Creditors may enter into a contractual subordination arrangement whereby junior creditors agree to subordinate their payment rights to the payment of debts due to senior creditors or agree to turn over monies collected from the debtor to the senior creditors.
However, there is significant risk that these subordination arrangements would not be enforceable in winding-up proceedings commenced against the debtor company. This is because the legal rights accruing to junior creditors in bankruptcy are not affected by such arrangements and a liquidator is not bound to adhere to the subordination arrangement.18 Under Nigerian bankruptcy laws, all unsecured creditors are ranked pari passu and the liquidator is required to distribute the assets of the insolvent company among them equally. Different rules apply to secured creditors, as they are entitled to enforce their security in satisfaction of the debt, even if the borrower is in liquidation.19
Intercreditor agreements are contracts between two or more creditors agreeing in advance on how their competing interests in their common borrower will be dealt with. It could contractually restrict junior creditors from commencing enforcement proceedings against the debtor company, provided that any of the obligations owed to senior creditors are outstanding.20 In the event of a breach, the senior creditors may have a right to proceed against the junior creditors and claim any proceeds received by the junior creditors pursuant to the terms of the intercreditor arrangement.
CBN Circular No. BSD/DIR/GEN/LAB/10/009 on the Review of the Limit on Foreign Currency Borrowings by Banks (the Circular), dated 13 February 2017, stipulates that all foreign currency borrowings by a Nigerian bank must be subordinated debts with prepayments allowable only upon obtaining prior approval of the CBN. The Circular, however, does not stipulate the categories of foreign currency borrowings that are required to be subordinated and to what they should be subordinated. More clarity is therefore required from the CBN on the issue, especially as the Companies and Allied Matters Act, the Nigeria Deposit Insurance Corporation Act, the Banks and Other Financial Institutions Act and the Bankruptcy Act already set out the position under Nigerian law in relation to the priority of bank debts. Pursuant to these laws, the ranking of the debts of a Nigerian bank in the event of an insolvency is as set out below:
- liquidator expenses;
- depositor funds;
- preferential debts, including: all local rates and charges due from the company at the relevant date that became due and payable within 12 months next before that date;
- deductions under the National Provident Fund Act 1961;21
- wages or salaries of any clerk or servant of the company;
- wages of workers or labourers;
- accrued holiday remuneration payable to clerks, servants, workers or labourers on termination of employment, or in the event of death; and
- worker's compensation (this does not apply if a company is being wound up voluntarily for reconstruction or amalgamation with another company, or if the rights due in respect of the compensation accrued before the relevant date under the Workmen's Compensation Act);22
- secured debts;
- unsecured debts; and
- shareholders debt.
V LEGAL RESERVATIONS AND OPINIONS PRACTICE
i Legal reservations
There are some reservations with respect to financial assistance. Nigerian law prohibits a Nigerian company and any of its Nigerian subsidiaries from providing financial assistance directly or indirectly for the purpose of acquiring shares in that company.
The term 'financial assistance' is broadly defined to include 'a gift, guarantee, security or indemnity, loan, any form of credit and any financial assistance given by a company, the net assets of which are thereby reduced to a material extent or which has no net assets'.
The consequences of failing to comply with the financial assistance rules are serious, as any transaction that represents unlawful financial assistance is void and unenforceable. Furthermore, the company and its officers will be guilty of an offence and liable on conviction to a fine.
ii Opinions practice
The typical types of opinions that are issued in a lending transaction are either: (1) a capacity and authority opinion, which confirms that the borrower has the capacity and the authority to enter into the opinion documents; or (2) a legal, valid, binding and enforceable (LVBE) opinion, which confirms the foregoing, as well as the fact that the obligations undertaken in the opinion documents are legal, valid, binding and can be enforced against the person with respect to whom the opinion is being issued.
Typically, for finance transactions conducted in Nigeria, the counsel to the lender is responsible for most of the transaction documentation, including the preparation of an LVBE opinion on the transaction. However, this does not preclude the lenders requiring that the borrower's counsel should also give a capacity and authority opinion.
iii Choice of law and enforcement of foreign judgments
Nigerian law permits contracting parties to freely choose the law that will govern their contract, provided that the choice of law is real, genuine, bona fide, legal and reasonable, and was not made in bad faith or contrary to public policy.
The governing law of the contract would determine the construction, validity and performance of the agreement.
In the same way, foreign judgments may be duly enforced in Nigerian courts, provided they are not contrary to the public policy of Nigeria. There are two regimes for the enforcement of foreign judgments: the statutory and the common law regimes. Statutorily, the Reciprocal Enforcement of Judgments Ordinance 1958 provides for the registration and enforcement of foreign judgments in Nigeria, specifically judgment obtained from the high courts in England or Ireland, or from the Court of Session in Scotland. Thus, under the statutory regime, the courts of Nigeria will recognise and enforce (without re-examination or relitigation of the matter adjudicated upon) any judgment rendered by the high courts of England, in respect of any suit, action or proceeding arising out of or in connection with the transactions, as long as they satisfy the requirements of the Reciprocal Enforcement of Judgments Ordinance.
Under the common law regime, Nigerian law recognises a procedure whereby a judgment creditor seeking to give effect to a foreign judgment (which does not fall within the purview of the statutory regime) may institute an action for the enforcement of the judgment according to the rules of Nigerian courts. This principle of enforcement of foreign judgments through the common law route has been given judicial recognition in a number of Nigerian cases.
Foreign arbitral awards are also enforceable in Nigeria without the need for a relitigation of the facts on merits. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention) has been given effect in Nigeria by the Arbitration and Conciliation Act, Cap A18 of the Laws of the Federation of Nigeria 2004. An arbitral award made in any country that is a party to the Convention will be enforced by the courts in Nigeria subject to the provisions of the Convention.
VI LOAN TRADING
Loan trading may occur with both individual and company debts. The practice of loan trading at this time is generally through novation or assignment, where the lender transfers its rights under the loan agreement to a new lender. This new lender then assumes the position of the old lender, inclusive of its rights and obligations. This is, however, subject to the provisions of the loan documents and the required consent under the agreements between the initial lender and the borrower.
A deed of assignment or a transfer certificate is usually executed between the initial lender and the new lender, which may contain an option for the assignor to assign to the assignee the benefit of any supporting security or guarantees related to the facility agreement. The provisions of the deed of assignment must not create new obligations but should only be limited to ongoing obligations on the part of the assignor. If the original lender still has obligations under the loan agreement (such as an obligation to make further advances to the borrower), it is advisable for a deed of novation to be executed.
Parties may also adopt a risk or funded participation arrangement, whereby the lender under a loan agreement subcontracts all or part of its risk to another financial institution or individual. In respect to a funded participation arrangement, the parties agree that the participant will fund the grantor, whereas for a risk participation, parties agree that the participant will reimburse the grantor on amounts unpaid by the borrower, following a payment default under the loan agreement.
VII OUTLOOK AND CONCLUSIONS
The Nigerian government continues to intensify efforts in carrying on reform activities targeted towards improving the ease of doing business in Nigeria, which has resulted in Nigeria moving up 15 places in the World Bank's ease of doing business ranking.23 One of the key areas noted in the Ease of Doing Business Report is the government's drive to expand access to credit for businesses, particularly MSMEs.
In addition to this, the House of Representatives of Nigeria passed the Companies and Allied Matters Bill (the CAMA Amendment Bill) on 17 January 2019. The CAMA Amendment Bill had earlier been passed by the Nigerian Senate on 15 May 2018 following which it was transmitted to the House of Representatives, for concurrence. It is awaiting presidential assent. If signed into law, it is expected to reform and ease the process of establishing and managing companies in Nigeria. Under the CAMA Amendment Bill, the cost of registering security at the CAC has been reduced by about 65 per cent. Second, it sets out a massive revamp of the insolvency regime in Nigeria, and also introduces provisions that will validate netting and automatic early termination under the International Swaps and Derivatives Association master agreement and similar derivatives arrangements.
The CAMA Amendment Bill also sets out a netting procedure that allows a company to settle debts by paying only a proportion of the amount that it owes to the creditor and allows a company to come to some other arrangement with its creditors over the payments of its debts. This netting provision will serve as a means of mitigating credit risks associated with over-the-counter derivatives, and promote financial stability and investor confidence in the Nigerian financial sector.24
As a result of the global pandemic, the Nigerian loan market is likely to see more debt restructurings, reorganisations and forbearances. While borrowers are striving to maintain cashflow or liquidity, lenders want reassurance that borrowers will be able to meet their obligations. As a result, the lenders have resorted to making margin calls or demanding additional security or taking security where their loan is unsecured. In the short term, lending activities are expected to slow over the course of the year because of an anticipated global recession; however, the expectation is that this depression and the contraction or reduction in lending will only be for a short while. The only respite in view is greater economic stimulus from the Central Bank of Nigeria and a surge in global economic activities.
1 Kofo Dosekun is the managing partner, Oludare Senbore is a partner, and Mutiat Adeyemo, Ozioma Agu and Nadia Ambah are associates at Aluko & Oyebode.
2 CBN Guidelines for the Operations of the N100 Billion Credit Support for the Healthcare Sector,
3 CBN Guidelines for the Implementation of the N50 Billion Targeted Credit Facility,
4 CBN Policy Measures in Response to COVID-19 Outbreak and Spillovers,
5 BSD/DIR/GEN/MDD/01/045 - Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy, dated 3 July 2019.
6 Re: Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy,
7 Any securities lending transaction conducted pursuant to rules made by the Securities and Exchange Commission.
8 Appeal No. FHC/L/4A/2016.
9 Suit No. FHC/ABJ/TA/1/2015.
10 BSD/DIR/GEN/LAB/12/054 - New Offer Letter Clause for Credit Facilities,
11 Jide Bablola, 'Foreign Account Tax Compliance Act (FATCA) – A Nigerian Perspective',
12 Richard Calnan, Taking Security: Law and Practice (2006).
13 Cogg v. Bernard (1703) 2 Ld Raym 909.
14 Richard Calnan, Taking Security: Law and Practice (2006).
15 Joanna Benjamin, Interests in Securities: A Proprietary Law Analysis of the International Securities Markets (2000).
16 Section 197(2)(i) of the Companies and Allied Matters Act, Laws of the Federation of Nigeria 2004.
17 N Okafor, O Okafor, J Eimunjeze and D Adesina, 'Lending and Taking Security in Nigeria: overview', https://uk.practicallaw.thomsonreuters.com/4-524-5665?transitionType=Default&contextData= (sc.Default)&firstPage=true&bhcp=1.
18 O Chukwu, O Nathaniel and U Okoli, 'Nigeria' in Getting The Deal Through: Loans and Secured Financing (2018).
21 A bill to repeal and re-enact the Company and Allied Matters Act was recently passed by the Nigerian legislature and is currently awaiting presidential assent. Once passed into law, this provision will no longer apply.
22 As footnote 21.
23 World Bank Ranking, Ease of Doing Business in Nigeria 2019, www.doingbusiness.org/data/exploreeconomies/nigeria.
24 Proshare, 'Executive Summary of changes to CAMA', www.proshareng.com/news/Business- Regulations,-Law---Practice/Executive-Summary-of-Changes-to-CAMA/40038.