Analysis of Insolvency-Related Revisions to BOFIA 2020 (Part 3)

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Insolvency Discourse by Kubi Udofia info@kubiudofia.com

Insolvency Discourse by Kubi Udofia info@kubiudofia.com

Continued from last week.

Introduction

The Banking and Other Financial Institutions Act, 2020 (BOFIA 2020) was passed to law on 13 November 2020. BOFIA 2020 repealed the Banking and Other Financial Institutions Act, 1991 (BOFIA 1991). This three-part discourse examines revisions which BOFIA 2020 has introduced to Nigeria’s bank resolution and insolvency legal framework. This is the third and concluding part of the three-part discourse.

Banking Sector Resolution Fund

1. Purpose of the Fund

BOFIA 2020 has established a Banking Sector Resolution Fund (Fund) to be domiciled with CBN: Section 74. The CBN Governor, with the approval of the CBN Board, is to determine a date for the commencement of the Fund. The Fund is to be exclusively used for: (i) payment of operating costs of bridge banks; (ii) payment of costs of transferring the business at a bank following a resolution measure; (iii) provision of loans, overdrafts or other credit facilities to a bridge bank or a bank under resolution; (iv) payment of any professional fees and costs incurred in the resolution measure; (v) other purposes in support of resolution measures prescribed by the CBN Governor; and (vi) payment of cost of administering the Fund: Section 78. The so-called exclusivity of the purposes appears to be watered down by the CBN Governor’s power to prescribe other purposes in support of a resolution measure.

2. Contributions to the Fund

The CBN is to contribute N10billion or a sum determined by CBN’s board to the Fund. The NDIC is to contribute N4billion or an amount which its board determines. Each bank is to contribute an annual levy in an amount equivalent to ten basis points of its total assets as at the date of its audited financial statement for the immediate preceding financial year. These basis points may be varied by CBN from time to time. A bank which defaults in contributing is prohibited from paying bonuses or dividends during the period of default.

3. Fettering of Judicial Powers

Section 93(2) disallows the issuance of injunction or similar orders against the Fund or its assets. It also disallows issuance of execution or attachment against moneys in the credit of the Resolution Fund. Section 93(3) makes it impermissible to subject the Fund, its Board or agents to any action, claim or demand by or liability to any person in respect of any act or omission done in good faith in execution of any power or function. These provisions risks being set aside for being in violation of Section 6(6)(a) and (b) of the 1999 Constitution. They clearly preclude and/or limit the judicial powers conferred on Courts: AMCON v Shittu – Appeal No: CA/L/1266/2019; NNPC v Fawehinmi (1998) 7 MWLR (Pt 559) 598 at 612E-F; Njikonye v MTN Ltd (2008) All FWLR (Pt 413) 1343 at 1369A-1369B.

Special Tribunals for the Enforcement and Recovery of Eligible Loans

BOFIA 2020 has established a Special Tribunal for enforcement and recovery of eligible loans: Section 102(1). Proceedings before the Tribunal are to be deemed to be judicial proceedings, whilst the Tribunal is to be regarded as a civil Court: Section 122(a). Further, the Tribunal’s award or judgment is to be enforced as a judgment of a High Court upon registration of a copy of such award or judgment with the registry of the High Court: Section 126(4).

1. Jurisdiction of the Tribunal

The Tribunal is vested with jurisdiction throughout Nigeria and its President is required to divide Nigeria into divisions for administrative convenience: Section 106. The Tribunal has jurisdiction over any causes and matters pertaining to enforcement and recovery of eligible loans by banks and other financial institutions: Section 115(1)(a). The Tribunal is also vested with jurisdiction over any causes and matters connected with or pertaining to enforcement of security or guarantee, or attachment of any assets under an eligible loan made by any bank or other financial institutions in Nigeria to its customers: Section 105(1)(b).

2. Reconciling with Constitutional Jurisdiction of High Courts

Section 115(2) provides that the jurisdiction conferred on the Tribunal in Section 115(1) shall not affect the jurisdiction and powers of the Federal or State High Courts to continue to hear and determine debt recovery and related financial consumer causes and matters before the courts “as at the date of the commencement” of BOFIA 2020 “provided that such matters before the courts shall be concluded timeously”.

Section 115(2) does not brazenly divest courts of record of their jurisdiction like section 284 of the Investments and Securities Act 2007. Nevertheless, it has its flawless. First, its wordings suggest that, save for debt recovery and related matters pending in courts of record prior to the enactment of BOFIA 2020, the Tribunal’s jurisdiction may affect the jurisdiction of such courts of record over the stated matters. This plainly violates Sections 6(6)(a) and (b) and 272(1) of the 1999 Constitution. Second, Section 115(2) ends with a befuddling proviso (see above). The function of this proviso is unclear. Generally, a proviso qualifies, relaxes, restricts or limits the effect, or operation of a preceding part, of a provision: Ugwu v. PDP (2013) LPELR-21356(CA) at 57-58D-D. If the proviso suggests that the Tribunal’s jurisdiction in Section 115(1) may affect the powers of courts of records over debt recovery and related consumer causes where the matters are not concluded timeously, this is also unconstitutional.

Further, an appeal against the final decision of the Tribunal or an interlocutory decision on points of law only, is required to be filed at the Court of Appeal: Section 127(1). This provision, by implication, excludes State High Courts from entertaining actions relating to eligible debts, in clear violation of section 272 of the Constitution. Section 127(2) requires the Court of Appeal to hear all such appeals on an accelerated basis and “in priority to all other appeals”. In furtherance, of this purpose, the President of the Court of Appeal is mandated to issue an exclusive and special practice direction. Instructively, Section 3(a) of the Court of Appeal Practice Direction, 2013 mandates the Presiding Justices of each division, in conjunction with the Deputy Chief Registrar, to ensure that registries give priority to the “listing, consideration and determination of all applications and substantive appeals” related to “all criminal appeals originating from or involving the EFCC, ICPC or any other statutorily recognised prosecutorial agency or person, or where the offence relates to terrorism, rape, kidnapping, corruption, money laundering and human trafficking”.

3. Stay of Proceedings

Where a party has, in a loan or security agreement, agreed to submit to the Tribunal’s jurisdiction, a Court may stay proceedings commenced in breach of the dispute resolution agreement. A Court would do so if it is satisfied that there is no sufficient reason why the case should not be referred to the Tribunal in accordance with the agreement: Section 116(1). Section 116(2) provides that the Court shall not stay proceedings where the financial institution has filed pleadings in the proceedings or taken any steps in the action other than applying that the Court should refer parties to the Tribunal: Section 116(2). This provision is analogous to section 5 of the Arbitration and Conciliation Act, 1988.

Further, the wording of Section 116(2) presupposes that an order for stay of proceedings and referral to the Tribunal may still be made even where a party other than the financial institution has filed pleadings or taken steps in proceedings in Court. Indeed, it appears that the framers of BOFIA 2020 did not contemplate the possibility of a party other than a financial institution commencing proceedings in relation to a dispute pertaining to a loan or security agreement. For instance, Section 118 provides for payment of case fees by “banks, specialised banks or other financial institutions”, which is 0.5% of the claim or a percentage determined by the Tribunal’s rules.

4. Powers of Tribunal

Section 122(2) of BOFIA 2020 outlines several powers of the Tribunal for the purposes of discharging its functions. Notably, the Tribunal is empowered to (i) grant an injunction or appoint a liquidator in appropriate cases, (ii) make orders for the enforcement of security or guarantee, or attachment of assets, (iii) make an order of mandamus, prohibition or certiorari, (iv) upon ex parte application, before or after the filing of the action for debt recovery, grant custody and/or possession of debtor’s movable or immovable property to a financial institution pending the hearing and determination of a debt recovery action, (v) upon an ex parte application, before or after the filing of the action for debt recovery, grant an order freezing a debtor’s account(s) pending the hearing and determination of a debt recovery action.

5. Exemption from Statute of Limitation

Section 122(5) of BOFIA 2020 excludes the application of any Federal or State statutes or rules of limitation on an action for recovery of eligible debt before the Tribunal. In effect, this means that such debt recovery actions may subsist in perpetuity. This approach flies in the face of the public policy (backed by laws and a plethora of judicial authorities) that legal rights are not perpetual and should not last for eternity for the public good. It ignores the fact that such unlimited or interminable threats of litigation over dormant or stale claims may have more cruelty to them than justice: Wema Bank Plc v Owosho (2018) LPELR-43857 (CA)

Analysis of Insolvency-Related Revisions to the BOFIA 2020 (Part 2)

Postscript

In spite of some significant (and other insignificant) flaws, BOFIA 2020 embodies insolvency tools and provisions which may be employed to efficiently facilitate bank resolutions, or orderly liquidations.

Concluded