Federal Government Approves Insolvency Regulations for Businesses – Insolvency/Bankruptcy

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On 24 April 2022, the Honorable Minister for Industry, Trade and Investment approved the Insolvency Regulations 2022 (“the Regulations”), pursuant to the powers conferred upon him by Section 867 of the Companies and Related Matters Act 2020 (“CAMA”). The regulations, which were issued by the Corporate Affairs Commission (CAC or “the Commission”), repeal section 24 of the Companies Regulations 2021 and are inapplicable to procedural rules relating to insolvency applications brought by the judge Chief of the Federal High Court. or any court of competent jurisdiction to hear matters arising out of the CAMA.

The Regulations, which are divided into 13 parts and 3 schedules, introduce provisions aimed at clarifying compliance requirements for insolvency practitioners and providing a comprehensive governance and procedural framework for the practice of insolvency, in accordance to the best global regulatory practices. We have highlighted some of the important provisions of the Regulations below:

1. Accreditation of Insolvency Practitioners – In exercising its powers under Section 705 of CAMA 2020 to make instruments and orders, the Board under Regulation 1.07 sets out the qualification, standards, competence, discipline and requirements for accreditation of insolvency practitioners in Nigeria. This is to reduce instances of fraud/embezzlement or incompetence and mismanagement.

2. Corporate Voluntary Arrangements – Policy 2.02 defines the content of a proposed Corporate Voluntary Arrangements (CVA). This includes assets and liabilities, applicant fees and expenses, CVA timing, and any other matters that should enable proposing members and creditors to make an informed decision on the proposal.

3. Creation and Operation of a Creditors’ Committee in a Jurisdiction – Part V of the Regulations provides for the creation and operation of a creditors’ committee in a Jurisdiction. The function of the Committee is to assist the director in the exercise of his functions and to draw up or review a plan of reorganization, or to decide whether the company should be liquidated. The Regulations also provide for remote participation in Committee meetings when the director deems it appropriate.

4. Directors’ Reports and Remuneration – Part 6 of the Regulations provides that the director must prepare and submit progress reports to the Commission. This will contain, among other things, the date of appointment of the administrator, details of the progress made during the reporting period, including a summary statement of receipts and payments during the reporting period, the information relating to remuneration and expenses, etc.

Remark

The CAMA is a critical piece of legislation that impacts the Nigerian business climate. The Insolvency Regulations are therefore commendable as they establish specific time limits and details required to perform insolvency activities as contained in the CAMA 2020, which is appropriate for contemporary business and insolvency practices. Nevertheless, there are still gaps in the CAMA that have not been addressed in the Regulations. For example, the CAMA provides that a receiver or manager may be removed by a court at the request of an “interested person”. However, the Regulations do not define who can be considered an “interested person” for the purposes of a request under this article, which may give rise to different interpretations.

In addition, the CAMA provides that a person may apply to the Federal High Court to make a proposal for the replacement of a candidate. However, it does not specify the form in which the request must be made. Similarly, the Rules fail to specify the form that a request for a proposal for a scheme of arrangement or compromise should take. However, we expect that such requests can be made either by using a ‘statement of claim’ or ‘motions’, as provided for in the Companies Court Rules 1992, which still apply. It also fails to provide notice of meetings called and the required notice period.

We anticipate subsequent legislative amendments to CAMA 2020 and amendments to the Rules to address the above and other deficiencies. In the meantime, restructuring entities must comply with the provisions of CAMA 2020 and related regulations.

Please click here to download the Insolvency Regulations 2022.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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