Debtors as Threat to Financial System


One thing that is prevalent in the entire South-eastern Nigeria is entrepreneurial spirit.

The region is majorly dominated by men and women who are self-driven in their determination to succeed, not minding the socio-economic challenges and lack of support from various levels of government as can be seen in other climes.

Indeed, it is a common knowledge that south-eastern Nigeria has bred more naira billionaires than any other region in the country.

Clearly, it was this entrepreneurial spirit he saw flowing through the blood of his kinsmen as well as other factors that made the founder of the defunct Diamond Bank, Pascal Dozie, to strategically position the financial institution to support businesses in the region.

Even though Diamond Bank had national spread, during its existence, the bank which has since been acquired by Access Bank Plc, had majority of its customers as south-east business owners, in its deliberate attempt to support his brothers.

From agriculture, construction, oil and gas, even operators of micro, small and medium-sized enterprises (MSMEs), Alaba traders, Nnewi, Idumota, ASPAMDA, Balogun, Onitsha, Owerri, Ariaria, Kano, and even non-igbo business, then saw the Diamond Bank as the go to financial institution for support and business expansion.

That was why the bank then was a dominant player in the retail segment of the industry.

Unfortunately, lending is very risky because repayment of loans is not always guaranteed and most of the times depend on other factors not in the control of the borrower.

And the inability to manage loans, which make up the largest share of banks’ assets, would likely lead to high levels of non -performing loans (NPLs).

Indeed, NPLs erodes confidence and threatens the continuous existence of a financial institution.

Some recalcitrant debtors are in the habit of moving from one bank to another, with a deliberate plan not to repay.

This, was the case of Diamond Bank as some of his kinsmen who collected loans from the bank deliberately refused to honour their obligations, thereby allowing the volume of NPLs to hurt its operations.

In fact, excessive NPLs was a major factor that weakened a lot of banks in the 90s as well as during the reign of Mallam Sanusi Lamido as Governor of the Central Bank of Nigeria (CBN), which even led to the creation of the Asset Management Corporation of Nigeria (AMCON) to clean up the system.

Thereafter, the regulatory authority also restrained banks from granting further credit to potential borrowers with unserviced facility exceeding a certain amount or any amount of delinquent facility that was taken over by AMCON.

Precisely, to clean up the mess in the sector then and revive some of the banks, the Sanusi-led CBN had to inject about N700 billion in a bailout exercise as well as removed some bank chief executives who were deemed to be irresponsible.

To further buttress the damage recalcitrant debtors have caused on the Nigerian economy, AMCON recently revealed that 350 of its debtors owe it N3.6 trillion.

The corporation’s Group Head of Enforcement, Joshua Ikioda, disclosed in Abuja, that if the amount is recovered, it would be enough to complete the revival of the moribund Ajaokuta Steel Company in Kogi State, and capitalise over two million micro-businesses with N2 million each or 200,000 Small and Medium Enterprises (SMEs) with N20 million per SME. The move will create jobs for Nigeria’s unemployed youth and help develop the economy.

He also revealed that the debtors represent 80 per cent of the N4.4 trillion of the total outstanding debt to the corporation, adding that all agencies of the government and other stakeholders must support AMCON’s debt recovery efforts.

“This colossal outstanding debt of N4.4 trillion is bigger than the N3.85 trillion capital expenditure budget of the federal government of Nigeria in 2021.

“It is also bigger than the N3.12 trillion total foreign debt service and N3.7 trillion personnel cost for the year.

“It is also bigger than the N3.12 trillion for total foreign debt service for 2021,” the visibly angry AMCON official had said.

Clearly, this scenario which is capable of dampening confidence in the system is what Access Bank Plc trying to avoid, which has seen the bank aggressive in its debt recovery, especially legacy debts from the defunct Diamond Bank, which it acquired in 2019.

The bank is now in a legal tussle with A.B.C Orjiako, the chairman of Seplat Petroleum Development Company; Seplat as a company; Cardinal Drilling Nigeria Limited, another company associated with the businessman, and Kalu Nwosu, Managing Director of Cardinal Drilling Nigeria Limited, over an indebtedness put at $85.8 million.

The unfolding scandal comes at a time when the prediction is that the outlook for Nigeria’s banking sector will remain negative this year amid difficult operating conditions and sovereign pressures due to the pandemic.

The Seplat versus Access Bank Saga

On December 2, 2020, the head office of Seplat Petroleum Development Company Plc, a listed company on the Nigerian Stock Exchange (NSE) and the London Stock Exchange (LSE) was seal up following a court order which permitted a receiver/manager, Messrs Kunle Ogunba & Co to enforce an ex parte motion requesting that Access Bank take over the oil and gas company’s head office, due to the Cardinal Drilling Nigeria loan taken from Diamond Bank.

In its letter to the NSE, the oil and gas company had explained that Seplat was not a shareholder in Cardinal Drilling Company and therefore was not liable for its debt obligations.

It was gathered that in 2012, Cardinal Drilling Services Limited applied for and obtained a credit facility from Diamond Bank to buy CDS Rigs 101, 201, 202 and 203.

The loan was secured by a fixed and floating Debenture over Cardinal’s assets and the Cardinal Rigs were allegedly used to provide drilling services to Seplat.

It was also gathered that CDS 101 and 201 were used to execute Seplat’s 2019 work programme and all four rigs were allegedly critical to Seplat’s future drilling plans and to shareholder returns by way of improved revenues and possible dividends.

But Cardinal Drilling was unable to service the facility, prompting Access Bank to approach the court to enforce its rights.

Seplat in the letter to the NSE had described Cardinal Drilling as a third party providing it with drilling services.

“We understand that Cardinal Drilling has outstanding loan obligations to Access Bank. However, Seplat is neither a shareholder in Cardinal Drilling, nor has outstanding loan obligations or guarantees to Access Bank and did not at any time make any commitments or guarantees in respect of Cardinal Drilling’s loan obligations to Access Bank.

“Seplat strongly believes that there is no merit or justification for this action against it and has taken prompt legal action to vacate the court order pursuant to which the building was sealed.

“This action was taken by Access Bank without any prior notice to Seplat, as required under Nigerian law,” it insisted.

Few weeks later, Seplat won an appeal to unseal its corporate head office. The Lagos Division of the Court of Appeal on Friday, January 22 suspended the interim order issued by a Federal High Court sealing the office over the matter.

Justice Joseph Shagbaor Ikyegh, who led the three-man panel, while delivering a ruling on an application by Seplat for an order suspending the interim order made by Justice Rilwan Aikawa of Federal High Court, pending the determination of the appeal filed by Seplat, held that the balance of convenience favoured the petroleum company.

Justice Ikyegh also held that Access Bank had nothing to lose if Seplat continued to discharge its obligation to its numerous clients, even as it lifted the order stopping banks from fulfilling their obligations to Seplat under bank-customer relationship.

But Access Bank which is bent on recovering its debt, said it had filed a notice of appeal at the Supreme Court to challenge the decision by the Lagos Division of Court of Appeal to unseal the office.

The bank maintained that the loan was utilised by Seplat.

The bank, through its solicitors, Mr. Kunle Ogunba and Associates, had argued that the learned justices of the court erred in law when they suspended the interlocutory orders made by the trial judge at the Federal High Court, thereby treating the substantive appeal at an interlocutory stage.

The bank in an affidavit in support of the application before Supreme Court, stated that, “by discharging the said interlocutory orders, the Appeal Court judges, wittingly (via a motion) determined the main appeal which seeks to also discharge the interlocutory orders made by the trial court”.

The bank also stated that the learned justices of the Court of Appeal erred in law when they failed to dismiss the said application, same being an abuse of court process filed to interfere with administration of justice.

It is therefore seeking an order setting aside the Appeal Court’s ruling delivered on January 22, 2021, as well as reinstating the interlocutory orders made by Justice Rilwan Aikawa of the Federal High Court on December 24, 2020.

The bank has also filed a motion on notice for an order of injunction pending appeal at the Court of Appeal, for an order restraining the Seplat and others in the suit, which includes; Cardinal Drilling Services Limited; Orjiako, Nwosu, the baliffs, sheriffs and/or any other person acting through them from taking further step towards enforcing, executing or giving any effect to the ruling/order of the Court of Appeal delivered on January 22, 2021, pending the hearing and final determination of the appeal it has filed at the Supreme Court.

The assets affected by the Mareva order included; 25, Lugard Avenue, Ikoyi, Lagos, 6, Agodogba Avenue, Parkview, Ikoyi, Lagos and the one at 11, Oba Adeyinka Oyekan Street, Ikoyi, Lagos.

However, few days after, Ogunba accused Seplat of embarking on blackmail and intimidation over his discharge of his professional duties to the bank.

The senior lawyer, was reacting to reports that he had been dragged to the Legal Practitioners Privileges Committee (LPPC) and the Legal Practitioners Disciplinary Committee (LPDC) of the Nigerian Bar Association (NBA) for alleged gross misconduct and unethical practices by the indigenous oil company.

Ogunba posited that the petition against him was meant to create all kinds of roadblocks which would delay the payment of the debt the oil firm owes Acesss Bank Plc.

While noting that he had not been formally notified of the said petition to prompt a formal response, Ogunba advised the oil company that rather than embarking on a wild goose chase, it should indeed begin the process of liquidating its huge financial obligation to the bank.

Insisting that the attempted blackmail and intimidation would not work, the senior lawyer noted that he was merely discharging his duties to his client in the court case between the two companies.

“It is obvious that the petition (if any) is an attempt to blackmail me and avoid the payment of huge indebtedness of Seplat to Access Bank Plc and nothing more.

“Seplat is better advised to take steps to liquidate its debt rather than attempt to intimidate me, a lawyer merely doing my duties as such. Once again, I reiterate the fact that the petition has not been formally brought to my attention for a formal reaction,” he stated.

He expressed surprise that he was being targeted by the oil firm rather than facing the issues at stake, asking Seplat to focus on the substance of the case, rather than attempting to hound him.

Orjiako on Familiar Path

From all indication, Orjiako appears to be gaining notoriety as a bad borrower and analysts have stressed the need for commercial banks across the world and the Central Bank of Nigeria to reassess if he still possesses what bankers call the Five C’s of credit (character, capacity, capital, collateral, and conditions).

This is because in in 2019, AMCON through its lawyers had written all commercial and merchant banks in the country, directing them to forthwith, stop Sheba Exploration & Production Company and its President, Orjiako and Allenne Limited from withdrawing monies from their accounts domiciled in all the banks. In addition, the interim order by the court then, had given the Receiver/Manager the mandate to take over all the assets of Sheba E & P, its subsidiaries and affiliate companies, the personal assets of Orjiakor (including his homes at Parkview Estate, Ikoyi, in London and Maryland in the US), his offices and offices of SEPLAT, a floating, production, storage and offloading (FPSO), as well as the shares of SEPLAT Petroleum and Development Company Plc and Platform Petroleum, pending the determination of the case.

Lexavier Partners Legal Practitioners, solicitors to AMCON, had disclosed this in a letter dated August 16, 2019.

Specifically, it disclosed that on August 15, 2019, Justice T.O. Taiwo, had in a ruling at a Federal High Court, at the Abuja, in an interim order against the defendants and in favour of AMCON, had appointed Francis Chuka Agbu, (SAN), as Receiver/Manager.

Lexavier Partners Legal Practioners, in the letter had stated: “We refer to the above subject matter in which we act as Solicitors to AMCON, which is the plaintiff in the suit.

“We wish to inform you that on Thursday, August 15, 2019, the Federal High Court, holden at the Federal Capital Territory, Abuja, coral, Honourable Justice TO Taiwo, made the attached order against the defendants and in favour of AMCON.

“By the said Order, your bank is mandated to henceforth prevent all further withdrawal(s) of funds and other debit transactions from the defendants’ account (s) domiciled with your bank and also furnish the Receiver/Manager within seven days from the date of this notice, with comprehensive statements in respect of each account.”

It had added: “The said account should be forwarded within the stipulated time to an address at Ikoyi. Please note that the attached order is binding and enforceable against your bank and shall remain so until and unless a subsequent order is made to the contrary.

“Consequently, we expect that your bank will fully comply with the order. Thus, we shall be constrained to initiate contempt proceedings against the bank and every responsible officer of the bank in the event that the terms of this order are flouted or in any way undermined by any action or conduct of the bank or any of its officers.”

Meanwhile, the interim court ruling on the matter had stated that the judge had, “granted judicial protection to Francis Chuka Agbu, (SAN), the Receiver/Manager of the Ist defendant applicant herein vide the Deed of Appointment of Receiver of July 30, 2019, to take possession of and preserve the first defendant, Shebah Exploration and Production Company Limited and all assets and undertaking wherever they may be found, including but not limited to those assets lying and situate at: 10c Lugard Avenue, Ikoyi, Lagos; 25a Lugard Avenue, Ikoyi, Lagos; MT Trinity Spirit, a vessel used as a FPSO facility and located in, around, and or within the first defendant’s Ukpokiti oil field, whether or not under the control of the first defendant and wherever it is, within or outside jurisdiction.”

It had also directed that, “all and any movable and immovable assets of Shebah Exploration and Production Company Limited wherever located, in Nigeria or outside of Nigeria, including the production facilities and all other assets belonging to the first defendant and located in and around the Ukpotiki oil field and to take possession of and inventory of all equipment, machinery and any chosen thereon.”

“That interim order is hereby made directing the Sheriffs of this Honourable Court to liaise with Francis Chuka Agbu, (SAN), as the Receiver of the first Defendant to enter upon the following: The 2nd defendant’s property in Parkview Estate, Ikoyi, Lagos; the 2nd defendant’s property in Maryland, United States of America; the 2nd defendant’s property in London, United Kingdom.

“An interim order directing all the financial institutions listed in the schedule to this motion to disclose to, and or furnish the Receiver with all sums standing to the credit of the defendant in their custody by sending to Francis Chuka Agbu (SAN), as Receiver/Manager, within seven days of receiving this order, a statement showing the outstanding balances of the Defendants.

“An order directing the Nigeria Police and all its officers, including the Inspector General of Police, Assistant Inspector General of Police Zone 2 and 9, and the Commissioners of Police of the Lagos State and Delta State Police Commands, their Deputies and Officers attached to them, as well as all other law enforcement agents/personnel to assist and protect the Receiver/Manager and the Sheriff of this Honourable Court in the execution of the orders granted pursuant to this application, and secure and keep all the properties listed in prayer two above or all the properties affected by the said order of this court, pending the hearing and final determination of the motion on notice before this court.”

The foregoing therefore underscores the need for the banking sector regulators to put in place policies that would ensure that bad borrowers are punished.

This will go a long in preserving the health of our financial institutions as well as make it easy for banks to support ventures or ideas that have the capability of contributing to economic growth.

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