CAMA 2020 - Giant Step towards standardizing Nigeria’s Corporate Law and Insolvency Practice

President Muhammadu Buhari recently assented to the new Companies and Allied Matters Act 2020, bringing into effect widely-lauded changes in the Nigerian business environment. Recently, BD Legal’s Onyinyechi Ukegbu sat with Olanipekun Orewale, partner, Æl

You were involved in drafting some of the provisions of the CAMA, what provisions were those?

Along with other experts, I was involved in drafting the insolvency provisions of the new CAMA 2020. These provisions introduce robust business rescue mechanisms of company voluntary arrangements and administration into insolvency laws and practice in Nigeria: Section 572 increases the monetary threshold necessary to trigger compulsory liquidation from N2,000 to N200,000; section 577 preserves the right of the fixed charge holder or any other validly created and perfected security interest, other than floating charge, to enforce their security during compulsory liquidation; section 657 ranks the claim of secured creditors in priority to all other claims, among other sections. Also, I drafted sections 704 to 709 on the qualifications of an insolvency practitioner. Apart from my involvement in the drafting, I defended the insolvency provisions before the appropriate committees of the two houses of the National Assembly.

How are they an improvement on the old provisions?

The old provisions established an insolvency regime that was business-liquidation focused. With the various amendments to CAMA, Nigeria’s insolvency regime is business-rescue focused, is in line with international best practices. Under the old provisions, a company in financial distress is typically either subject to liquidation or receivership. Now, a company can make a proposal to its creditors for a composition in satisfaction of its debts or a scheme of arrangement to ultimately preserve the company. A company may also enter into administration for the main purpose of rescuing the company. Moratorium on enforcement actions has also been included for companies in financial distress.

Additionally, the monetary threshold for a company being deemed unable to pay its debts has been increased to N200,000 and N100,000 for registered and unregistered companies respectively, to reflect the commercial realities of doing business in Nigeria. Previously, where a registered company was unable to pay N2,000 or where an unregistered company was unable to pay N100, after the expiration of a demand notice served on such company, the company would be deemed unable to pay its debts.

Under the old provisions, there was neither categorization of persons acting as liquidators and receivers, nor educational qualification requirements and training for people to act as insolvency practitioners. Given the importance of adequately balancing the rights of both debtors and creditors in an insolvency while ensuring best practices, the inclusion of qualification of insolvency practitioners is an improvement on the insolvency regime.

Furthermore, the interests of secured creditors are protected under the new Act such that the secured creditors can enforce their securities during liquidation and their claims are accorded priority above any other creditors in the distribution of the liquidation dividends.

What impact will this have on the insolvency sector?

The insolvency sector will be primarily driven by the goal of rescuing a financially distressed company as against winding up of such company or receivership. Also, there would be balancing of the interests of both creditors, debtors and critical supplier of essential services to the distressed company.

What changes will this elicit in insolvency practice?

One of the notable features of the new insolvency provisions of CAMA is that all the on-going cases of liquidation and receivership are free to take the advantage of the window of business rescue mechanisms provided under the Act. That apart, the directors or shareholders of a financially-distressed company, having formed the opinion that the company is unable to pay its debts, can promptly enter into binding arrangements with the creditors through the voluntary arrangement procedure, or utilize the administration procedure by bringing an application to the court to appoint an administrator for the company. This obviates the need for enforcement actions by creditors.

Consequently, business liquidation will no longer be the first course of action against insolvent companies. Creditors are also more likely to opt for one of the business rescue options, rather than liquidation, in the hope that they would realise better returns than if the company were to be wound up.

Sec. 705 c) of CAMA requires that to qualify as an insolvency practitioner, you must be a lawyer or account and a member of Business Recovery and Insolvency Practitioners of Nigeria (BRIPAN). There have been questions about why membership of BRIPAN, a private association is a statutory requirement. Can you speak to this?

It is true that Sec. 705 (c) requires an insolvency practitioner to have a degree in law, accountancy or any other recognized discipline; at least five years PQE in insolvency matters; and be a member of BRIPAN. However, the provision also creates an alternative to associating with BRIPAN, by stating that the insolvency practitioner may be a member of any other professional body recognized by the Corporate Affairs Commission (CAC). Therefore, it is not mandatory for the insolvency practitioner to be a member of BRIPAN, where the CAC recognizes any other professional body.

Qualification to act as insolvency practitioner was introduced into the Act as a result of the need to regulate insolvency practitioners such that only competent professionals with requisite specialism in insolvency, in the light of these fundamental provisions, can act as insolvency practitioners in Nigeria. Other jurisdictions also have provisions for the specific qualifications of insolvency practitioners as well as the agency or board or organization responsible for certifying such insolvency practitioners.

It is not the first time that a professional association would be recognized under the Act. Afterall, Nigeria Bar Association was recognized under the LPA. Under CAMA, BRIPAN was specifically identified because it is the only professional body in Nigeria which sees to the education, training and certification of insolvency practitioners, and it is also a member of INSOL International, a world-wide federation of associations of accountants and lawyers who specialize in business turnaround and insolvency.

Before becoming a member of BRIPAN, an applicant has to undergo a compulsory insolvency training in stages, and like any other professional body in Nigeria, BRIPAN charges a fee for the training, and induction of members. Thereafter, the inducted members pay the annual membership dues. This procedure for membership has been in force for a long time, prior to the passing of CAMA 2020.