Insolvency Discourse by Kubi Udofia info@kubiudofia.com
Introduction
In the context of insolvency and security enforcement, a receiver’s primary duty is to deal with the assets covered by the security and realise them for the benefit of his appointor. A common practice in Nigeria, is for parties to provide in security agreements that receivers appointed by creditors are agents of debtors. This discourse examines the validity of such arrangements against the background of Section 553(1) of the Companies and Allied Matters Act (CAMA) 2020.
Privately Appointed Receivers under CAMA 2020
Receivers may be appointed by court or privately under a power contained in an instrument. A receiver who is appointed by court is deemed to be an officer of the court and must act in accordance with the court’s instructions: Section 552(2) CAMA 2020; E.S. & C.S. Ltd v N.M.B. Ltd [2005] 7 NWLR (Pt 924) 215 at 270B-C. In contrast, a privately appointed receiver is deemed to be the agent of the persons on whose behalf the receiver is appointed: Section 553(1) CAMA 2020. Further, where a receiver is also a manager of the company’s undertaking, he is deemed to stand in a fiduciary relationship to the company and observe the utmost good faith towards the company in transactions on behalf of, and with, the company.
Section 553(1) CAMA 2020 replicates section 390(1) CAMA 1990 with two alterations. First, Section 390(1) CAMA 1990 provided that a privately appointed receiver “shall … be deemed to be an agent.” In contrast, section 553(1) of CAMA 2020 says the receiver “is … deemed to be an agent.” This revised phrasing is similar to what is used for administrative receivers in Section 44(1) of the UK Insolvency Act 1986.In reality; the replacement of “shall be” with “is” does not alter the mandatory nature of the provision.
Second, CAMA 1990 made Section 390(1) to be subject to Section 393 CAMA 1990. Section 393 dealt with a receiver/manager’s duties and powers. Section 393 CAMA 1990 is re-enacted without revision in Section 556 CAMA 2020. Instructively, Section 553(1) CAMA 2020 is made subject to section 554 of CAMA 2020, an entirely different provision. Section 554 CAMA 2020 (which re-enacts Section 391 CAMA 1990) permits a privately appointed receiver to apply to court for directions in performing his functions. The implication of the alteration is that, notwithstanding that a receiver is privately appointed and deemed an agent of the person(s) on whose behalf he is appointed, he may still seek the court’s direction. This does not appear to be a cross-referencing error.
Agency of Privately Appointed Receivers under Common Law
It is common in Nigeria for instruments to provide that receivers appointed by debenture-holders/creditors are agents of debtor-companies. This practice may have been influenced by the position of common law and some English statutes. Under common law, parties may define the agency of a receiver in their debenture/instrument: Lathia v Dronesfield [1987] BCLC 321 at 323. Accordingly, in practice parties usually stipulate in instruments that receivers appointed by creditors would be (deemed to be) agents of debtor-companies. Where parties omit to specify whose agent a receiver would (be deemed to) be, in the event of a dispute, a court would make a determination based on the terms of the instrument: Deyes v Wood [1911] 1 KB 306.
In Re Vimbos [1900] 1 Ch 470 and Robinson Printing Ltd v Chic Ltd (1905) 2 Ch 123 where the debentures did not state whose agent the receivers were, the courts held that they were agents of the persons who appointed them and not the debtors. Intercontractors Ltd v N.P.F.M.B [1988] 2 NWLR (Pt 76) 280 at 292H-293A was based on the Companies Act,1968 which had no provision similar to Section 390(1) CAMA 1990 or Section 553(1) CAMA 2020. In that case, Nigeria’s Supreme Court relied on Robinson Printing Ltd v Chic Ltd [supra] to suggest that parties could, in their debenture, appoint the receiver an agent of the company.
Receivers in England may also be appointed under statutes which define the receivers’ agency status. An administrative receiver appointed under Section 44(1) of the UK Insolvency Act 1986 is deemed to be the debtor’s agent, unless and until the company goes into liquidation. A receiver appointed by a mortgagee under the power conferred by Section 109(1) of the UK Law of Property Act 1925 (LPA) is deemed to be the agent of the mortgagor-company unless the mortgage deed otherwise provides: M. Wheeler and Company Ltd v Warren [1928] 1 Ch 840 at 844. In Central London Electricity Ltd v Berners [1945] 1 All ER 160, the court explained that whether the receiver which was appointed under Section 109 of LPA was to be deemed the company’s or the debenture-holder’s agent, depended on the terms of his appointment in the debenture.
Agency of Privately Appointed Receivers under CAMA 2020
A privately-appointed receiver is deemed to be the agent of the person(s) on whose behalf the receiver is appointed: Section 553(1) CAMA 2020. The pertinent question is: on whose behalf is a receiver typically/usually appointed? This is not a factual issue. Where it to be a question of facts, the answer would depend on how parties structure their instruments. Parties would, by skilful drafting, pre-determine whose agent a receiver would be. For instance, if the intention is to make the receiver a debtor’s agent, parties would simply state in the instrument that the receiver would be deemed to be appointed on behalf of the debtor. However, and as explained below, CAMA provides for the appointment of receivers for the purpose of realising the security for the benefit of debenture-holders/creditors.
Interestingly, in Lynson Chemicals Ltd v FBN Plc [1999] 1 FHCLR 243 at 269 and Polfa Nigeria Plc v Lawson [2000] 1 FHCLR 263 at 273, the court held that the “clear meaning” of Section 390(1) CAMA 1990 was that a privately-appointed receiver/manager is “the agent of the company on behalf of which the receiver/manager is appointed”. Similarly, in Unibiz Ltd v CBCL Ltd (2001) 7 NWLR (Pt 713) at 542C-G, the court (relying on English authorities) suggested that a receiver was the agent of the company. In O.B.I Ltd v U.B.N Plc [2009] 3 NWLR (Pt 1127) 129 at 157B-C, the court explained the “law” as being that a receiver was “regarded as the agent of the company for the purpose of dealing with the assets in receivership”: see also CBCL Ltd v Okoli [2009] 5 NWLR (Pt 1135) 446 at 461F-G. In Dagazau v Bokir Int’l Co Ltd [2011] 14 NWLR (Pt 1267) 261 at 347A, the court upheld the provisions in an instrument which made a receiver an agent of the company. Most recently, in ITB Plc v Okoye [2021] 11 NWLR (Pt 1786) 163 at 197F-G, Kekere-Ekun JSC affirmed the statement by a trial court that a suit commenced by a receiver to secure a company’s assets was a claim by the company itself “whose agent the receiver is”.
With respect, the debtor-company cannot, by any stretch of reasoning, be “the person or persons on whose behalf a receiver/manager is appointed” under Section 390(1) CAMA 1990 (now Section 553(1) CAMA 2020). “Company” is mentioned three times in section 553(1) CAMA 2020. If the lawmakers’ intention was for the company to be the entity on whose behalf the receiver is appointed, the word “company” would have simply been used and not “person or persons”. In other words, the provision would have read: “A receiver or manager of any property or undertaking of a company appointed out of Court under a power contained in any instrument is … deemed to be an agent of the company on whose behalf he is appointed”.
Further, section 556(1) describes the receiver’s duties as being, amongst others, to “realise the security for the benefit of those on whose behalf he is appointed”. Similarly, Section 556(2) describes a receiver/manager’s duty as being to manage the company’s undertaking “with a view to the realisation of the security of those on whose behalf he is appointed”. A company cannot take or hold security over its own assets. Consequently, debenture-holders/secured creditors are clearly the persons on whose behalf receivers are appointed as opposed to debtor-companies. .
Commendably, there are case laws which have accurately defined a receiver’s agency status under Section 390(1) CAMA 1990 (now Section 552(1) CAMA 2020). In UBN Ltd v Tropic Foods Ltd [1992] 3 NWLR (Pt.228) 231 at 245E, Ejiwunmi JCA stated that a receiver is an “agent of those who appointed him”. Eleven years later, Ejiwunmi JSC echoed this position in Unibiz Nigeria Ltd v CBCL [2003] 6 NWLRR (Pt.816) 402 at 424D-E, 425C. In Tanarewa v Arzai [2005] 5 NWLR (Pt.919) 593 at 640E-641A, the court held that the receiver was the agent of the debenture-holder/creditor which appointed the receiver or on whose behalf the receiver was appointed. The court rejected the contention that the receiver was the agent of the debtor-company. Similar interpretations of Section 390(1) CAMA have been given in Christlieb Plc v Majekodunmi [2008] 16 NWLR (Pt 1113) 324 at 345D; Fadeyibi v Industrial Heritage Ltd [2013] 4 NWLR (Pt 1344) 353 at 374B-D; Jukok Int’l Ltd v Diamond Bank Plc [2016] 6 NWLR (Pt 1507) 55 at 94F-G and Carnco Foods Nigeria Ltd v Mainstreet Bank Ltd (2013) LPELR-20725.
More recently in Folorunsho v Rosula Nigeria Ltd (2019) LPELR-47339 (CA) at 46-47, the court overturned the decision of the trial court which had held that the receiver was an agent of the debtor. The court rightly held that parties could not by their contract alter the position of the law under Section 309(1) CAMA 1990 by making a receiver the agent of the party issuing the debenture. The court further stated that whether or not parties made specific provision, the law remained that a receiver appointed by a debenture-holder was the agent of the debenture-holder for the purpose of the receivership and a contrary provision would be “ineffective” and “inoperative”.
Conclusion
Stipulating in security agreements that a receiver appointed by a creditor shall be the agent of a debtor, conflicts with Section 553(1) CAMA 2020 (previously Section 390(1) CAMA 1990). Such provision is inoperative and ineffective, but does not invalidate the power/right of the creditor to appoint a receiver under the instrument.
