INTRODUCTION
"The Board and Management of the bank have not been able to improve the bank's inancial performance, a situation which constitutes a threat to inancial stability...".
Nigeria woke up to the above statement of the Apex Bank on 3rd June 20241 when the operating license of the defunct Heritage Bank Plc was revoked. Reports online indicate that, at least 90% of the bank's active loan portfolio of around ₦700,000,000 (Seven Hundred Billion Naira) was considered lost or doubtful as of March 31, 2024 and less than 5% of outstanding loans were performing.2 This regrettably is not peculiar to the defunct bank. The Deputy Governor of the Central Bank of Nigeria (CBN) in charge of Financial System Stability has described the rise in non-performing loans in the Nigerian banking industry as alarming.3 Not only does this situation constitute a threat to inancial stability in the country, the institutions granting the loans may be under existential threat.
How the inancial institutions contend with this conundrum can only be left to one's imagination. Given the pride of place it occupies in the intricate web of inancial transactions and micro economic growth and development of the country, it is impossible to put a freeze on granting loan facilities. This is because loan facilitates economic activity, engenders inancial stability, promotes investment and supports entrepreneurship & consumer spending. The dificulties associated with ensuring that borrowers keep their end of the bargain on repayment are however enormous. Many people access credit facilities and divert same to servicing their lavished lifestyle instead of utilizing them for the purpose agreed in the loan documentations. Dificulties in debt recovery may also be occasioned by debtors dealing adversely with collaterals or bottlenecks associated with the perfection of loans documentation, amongst others. In fact, from legal complexities and regulatory hurdles to the practical dificulties of tracking down delinquent borrowers, the landscape of enforcing loan contracts is fraught with intricacies.
As grim as the situation appears, are creditors left without remedies? Obviously not. Usually, after making an unsuccessful demand to the debtors to liquidate outstanding obligations, the creditors have several options at their disposal. They may ile debt recovery actions before competent courts. In practice, once the creditors lead credible evidence to prove the indebtedness on a balance of probabilities or preponderance of evidence, the court is bound to direct the debtors to pay.4 Also, the creditors may initiate a winding up proceedings against the debtor (i.e. a registered company) if the company is indebted in a sum exceeding N200,000 and the sum has remained unpaid after the creditor has written to demand payment.5 Furthermore, an Administrator may be appointed over the debtor's company to manage its affairs, business and proper ties.6 The creditor can also exercise the option of petitioning regulatory & law enforcement agencies where it has facts to show that the loan has been intentionally diverted to unrelated purposes or where other criminal liabilities can be established. Bankruptcy proceedings may also be initiated against the debtors. If the monies have been funnelled outside the country, the creditors may adopt asset tracing procedures in the foreign country. Fuller considerations of the options open to creditors would be contained in our subsequent bulletins on this subject.
In practice, any debt recovery options adopted may lead to prolonged litigations. Whilst debt recovery cases are pending, interim remedies are available to the creditors to stop the dissipation of the debtors' assets so as not to render judgment that would be obtained nugatory. This is the focus of this introduc tory article in our series on debt recovery Nigeria.
Footnotes
1. Central Bank of Nigeria Press Release - Cbn Revokes the Banking Licence of Heritage Bank Plc. Available at https://www.cbn.gov.ng/Out/2024/CCD/CBN%20 Press%20Release%20Heritage%20030624.pdf accessed on 25th June 2024.
2. 'Exclusive: How ₦590 billion in non-performing loans made Heritage Bank's closure inevitable' (3rd June 2024). Available at https://techcabal.com/2024/06/03/heritage-bank-%E2%82%A6590-billion-in-non-performing-loans/#:~:text=Heritage%20is%20thought%20to%20have, as%20of%20March%2031%2C%202024 accessed on 25th June 2024.
3. 'Recapitalization: Nigerian Banks' Non-performing Loan alarming – CBN' (1st May 2024). Available at https://dailypost.ng/2024/05/01/recapitalization-nigerian-banks-non-performing-loan-alarming-cbn/ accessed on 25th June 2024.
4. See Okpu v. Trust Bond Mortgage Bank Plc (2021) LPELR-54554(CA)
5. Section 572 (a) Companies and Allied Matters Act, 2020
6. Section 443 Companies and Allied Matters Act, 2020
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