AGGRESSIVE INSOLVENCY-BASED LEGAL TOOLS FOR DEBT RECOVERY IN NIGERIA.

Insolvency in Nigeria, whether corporate or personal, functions both as a mechanism for addressing financial distress and as a strategic legal tool for creditors seeking to recover outstanding debts. Its procedures exert considerable pressure on defaulting debtors and often result in the realisation and distribution of assets for the benefit of creditors. The legal framework governing insolvency has evolved significantly, particularly with the enactment of the Companies and Allied Matters Act 2020 (CAMA 2020), complemented by the Bankruptcy Act, the Federal High Court Act, and relevant judicial authorities. Overall, the objective of insolvency recovery is to balance the interests of debtors, creditors, and other stakeholders while promoting fairness, preserving assets, and ensuring orderly distribution.

Building on this framework, several legal mechanisms are available for initiating and managing insolvency recovery in Nigeria. These mechanisms are designed to either rehabilitate the distressed entity or ensure the efficient realization and distribution of its assets. The principal tools include winding-up proceedings, receivership, administration, company voluntary arrangements, and, in the case of individuals, bankruptcy processes. Each mechanism operates within defined statutory procedures and serves a distinct purpose in protecting creditor interests and securing optimal recovery outcomes.

Administration  (Corporate Rescue)

Under the Companies Allied Matters Act 2020, an administrator can be appointed to take over the management of a distressed company. The objective of this procedure is to rescue the company as a going concern or restructure it to provide a better return to creditors than liquidation would.

When an administration order is granted by the court, a statutory moratorium applies; this means the creditors’ enforcement actions are stayed (unless the court or administrator agrees). This gives breathing room to the administrator to reorganize, negotiate, and potentially recover more value than through forced asset sales. Administration seeks to rescue the company as a going concern or achieve a better result for creditors than immediate liquidation.

For debt recovery, it can:

1. Secure the debtor’s assets under an administrator’s control.
2. Facilitate structured repayment plans.
   
   

Administration provides creditors with an additional protective mechanism against asset erosion.

Receivership.

 A secured creditor (e.g., holder of a debenture) can appoint a receiver or receiver-manager to take control of specific assets charged as security.  The receiver’s duty is primarily to the appointing creditor, and they can realize (sell) the secured assets. Under CAMA, a receiver and manager may actually run the business (not just liquidate assets), which can be used more aggressively to maximize asset value before sale.

This tool allows:

1. Immediate control of the charged assets.
2. Realization and sale of the assets to offset the outstanding indebtedness.
3. Mitigation of asset dissipation by the debtor.

Receivership is particularly effective because it bypasses lengthy litigation processes.

Company Voluntary Arrangement (CVA)

The Companies Allied Matters Act 2020 provides for CVAs, where a company in distress makes a formal plan to compromise or restructure its debts with creditors. Creditors vote on the arrangement; if approved, it’s binding.  This is less of a liquidation aggressive strategy, but can be a powerful recovery tool: you negotiate a structured payback plan, often better than forcing a winding-up that yields limited recovery.

Scheme of Arrangement / Compromise Under CAMA.

There are provisions for a scheme of arrangement (or compromise) among creditors or with members. This is a court-sanctioned process, which can include debt restructuring, mergers, or capital reorganization. The process can include a moratorium similar to administration, giving time to implement the scheme.

 Liquidation (Winding-Up)

If rescue is not feasible, winding up (liquidation) remains a last resort. Under CAMА, companies may be wound up by court order or voluntarily. A liquidator is appointed to sell off the company’s assets and distribute proceeds to creditors in a legally prescribed priority order. For a creditor seeking maximum recovery and willing to force the issue, this is an aggressive but sometimes necessary path.

Informal / Out-of-Court Workouts: 

One very effective tool is informal negotiation (work-out): restructuring operations, changing business structure, negotiating payment terms, rescheduling debt, or converting debt to equity. This can be faster, cheaper, and more flexible than formal legal mechanisms.

Debt Recovery Litigation

Use civil court processes (debt claims) under applicable Civil Procedure Rules (depends on the state) to secure judgments. Once you have judgment, you can enforce via seizure of assets, garnishment, or other enforcement tools. Cross-Border Insolvency Tools (if applicable). While Nigeria does not fully implement the UNCITRAL Model Law, in cross-border cases or assets, you may need to use international insolvency cooperation tools. For multinational debtors, strategies involving foreign jurisdictions might be part of aggressive recovery.

Strategic /Practical Considerations for Aggressive Recovery

1. Hire Qualified Insolvency Practitioners: Use certified insolvency practitioners. Under CAMA 2020, there are rules on who can act as a liquidator, administrator, or receiver.

2. Use the Moratorium to Your Advantage: If you are opting for administration or a scheme of arrangement, the statutory moratorium can protect restructuring efforts and prevent other creditors from undermining your strategy.

3. Negotiate Hard: Even in CVAs or informal workouts, push for favorable terms, e.g., higher repayment, security, or equity conversion.

4. Leverage Security: If you have secured claims (debentures, charges), use receivership to enforce them. Litigation Readiness: Be prepared to litigate if needed, file winding-up petitions, enforce judgments, or challenge improper actions. Value Realization: In liquidation or receivership, make sure assets are professionally valued and marketed to maximize recovery.

5. Stakeholder Management: With CVAs or schemes, align interests (creditors, employees, management) to make the restructuring smoother and more effective. Compliance: Ensure all processes strictly comply with CAMA 2020 and court requirements to avoid being challenged.

Risks and Challenges.

Even aggressive recovery can backfire if done poorly, e.g., pushing for liquidation when business could be saved may reduce total recoverable value. The moratorium can delay your immediate recovery. Insolvency practitioners may have competing interests; their appointment and actions can be challenged. Informal workouts depend heavily on creditor cooperation that is not always guaranteed. Court procedures (especially winding-up) can be slow, costly, and litigious.

AGGRESSIVE INSOLVENCY RECOVERY PLAYBOOK (NIGERIA)

 Structured, Practical, Legally Grounded

PHASE 1 DIAGNOSIS & POSITIONING (0-7 DAYS)

 1. Establish Your Legal Standing.

Identify whether you are: Secured creditor (fixed/floating charge, debenture), Unsecured creditor, Trade creditor, Investor/shareholder. Confirm exact amounts owed, due dates, and any existing restructuring attempts.

2. Conduct Asset & Liability Intel.

Gather fast intelligence: Assets (movable, immovable, inventories, receivables), Existing charges (search CAC register for charges), Bank accounts & major customers, Pending litigation, Directors’ personal guarantees (if any), Any fraudulent preferences / undervalued transactions. Why? You can only be aggressive when you know where your leverage is.

3 Issue Immediate Demand & Trigger Pre-Action Steps

 Issue Formal Demand Letter (7-14 days notice). Serve Notice of Intention to Sue. If secured creditor: issue notice to appoint a receiver if default persists. Collect all acknowledgements of debt. This sets up a legally defensible trail.

PHASE 2 AGGRESSIVE LEGAL PRESSURE (7-30 DAYS)

4. Start Dual-Track Strategy (Pressure + Negotiation). Always keep two parallel tracks:

Track A (Pressure): litigation, receivership, winding-up petitions. Track B (Recovery Focused): negotiation, informal workout, CVA. Debtors respond fastest when both are active.

5. Use the Most Aggressive Tools Available A. If you are a Secured Creditor: 

Tool 1- Appoint a Receiver / Receiver-Manager

Serve statutory notice. The receiver takes immediate control of the charged assets. Sell assets to recover debt. Operate the business briefly if needed to protect value. Aggressiveness Level: Very high. Best for: Fast recovery, debtor non-cooperation, and large secured debts. B. If you want to rescue the business while controlling it:

Tool 2 – Administration (CAMA 2020).

Apply to court or appoint out-of-court (if permitted by debenture). The administrator takes over the entire company. Automatic moratorium stops all enforcement actions. The administrator restructures the business or prepares it for sale. Aggressiveness Level: High, but more strategic than destructive. Best suited for: Large companies with complex debt structures. C. If you want to force a restructuring plan:

Tool 3-Company Voluntary Arrangement (CVA).

 Propose a formal plan to compromise debts. Creditors vote. If approved, the plan becomes binding on all. Aggressiveness Level: Medium-high. Best suited for: Creditors seeking to maximize long-term recovery.

 D. If you need ultimate pressure:

Tool 4—Winding-Up Petition File petition at the Federal High Court.

Advertise the petition after the court direction. Debtors become immediately pressured, as banks freeze accounts, investors panic and directors face legal consequences. Aggressiveness Level: Maximum. Best for: Stubborn debtors, last-resort recovery, forcing quick settlements.

E. If there was misconduct:

 Tool 5– File Actions for Fraudulent Preference / Undervalued Transactions.

Reverse asset transfer meant to evade creditors. Hold directors personally liable for reckless trading. Aggressiveness Level: Extremely high (personal liability).

Best for: Where assets are being hidden or transferred.

PHASE 3– NEGOTIATION UNDER PRESSURE (2-8 WEEKS)

 Tool 6. Use Leverage Created by Legal Actions.

Once pressure increases, negotiate from strength. Offer a structured payment plan. Propose a debt-for-equity swap. Secure assets as collateral for repayment. Demand escrow-arranged repayments. A debtor facing winding-up or receivership becomes much more cooperative.

 Tool 7. Explore Restructuring Options:

 Informal workout, CVA Scheme of Arrangement, Refinancing by third parties, Business sale, or partial asset sale. Choose the path that yields the highest net recovery, not just the fastest.

PHASE 4–ASSET REALIZATION & RECOVERY (1-6 MONTHS)

 Tool 8. Execute Asset Recovery.

Depending on the mechanism used, Sell charged assets (in receivership). Sell the whole business or divisions (administration). Liquidator sells remaining assets (winding-up). Enforce judgment via: garnishee orders, writ of fi fa (asset seizure), bank account freezing, sale of attached movable property.

 Maintain Strict Monitoring, Track proceeds distribution.

Ensure the administrator, receiver, or liquidator files statutory returns. Challenge any improper transactions.

PHASE 5—CLOSURE & PROTECTION

Recover Full Amount or Close Out Issue satisfaction/discharge documents. Collect dividends if in liquidation. Close out proceedings. If the debtor is revived, retain security over future credit.

ADVANCED AGGRESSIVE TACTICS (OPTIONAL)

1. For Cross-Border Debtors: Freeze foreign accounts. Use local recognition of foreign insolvency actions. Go after parent guarantors outside Nigeria.  For Politically Exposed Companies, use regulatory pressure (CAC compliance, SEC filings, tax liabilities).
2. For Hidden Assets Forensic accountants, Asset tracing like Bank verification and account discovery, Challenge secret charges at CAC.

References

1. Companies and Allied Matters Act 2020 (Nigeria);
2. Bankruptcy Act, Cap B2 Laws of the Federation of Nigeria 2004;
3. Federal High Court Act, Cap F12 Laws of the Federation of Nigeria 2004.
4.  Companies Winding Up Rules 2001
5. Re Great Northern (Nig) Ltd (1973) 1 All NLR (Pt 2) 502;
6. Re Atlantic Computer Systems plc [1992] Ch 50
7. Companies and Allied Matters Act 2020 (Nigeria) s 572; ss 572–580; ss 551–558;ss 590–597; ss 658–674.
8. Tochukwu Onyiuke, Punch (30 July 2020), ‘Why Nigeria Must Develop Cross-Border Insolvency Law’, https://punchng.com/why-nigeria-must-develop-cross-border-insolvency-law/ (accessed 28 March 2022).
9. Reciprocal Enforcement of Judgments Ordinance, 1922 and Foreign Judgment (Reciprocal Enforcement) Act of 1961. Section 3 of the Foreign Judgment (Reciprocal Enforcement) Act 1961 empowers the minister of justice to extend the right to register and enforce a foreign country’s judgment in Nigeria to any country which accords reciprocal treatment to judgments given in Nigeria.
10. The United Nations Commission on International Trade Law (“UNICTRAL”) developed the UNICTRAL Model Law on Recognition and Enforcement of Insolvency Related Judgments (MLREIJ) to facilitate adoption of this practice.
11. The Reciprocal Enforcement of Foreign Judgments Ordinance, 1922 contained in Cap. 175, Laws of the Federation of Nigeria and Lagos, 1958 & The Foreign Judgment (Reciprocal Enforcement) Act, Cap. F35, Laws of the Federation of Nigeria, 2004.
12. United Nations Commission on International Trade Law on Cross-Border Insolvency,1997.
13. The Hague Convention on Choice of Court Agreement, 2005.
14. Onakoya, A. B., & Olotu, A. E. (2017). Bankruptcy and Insolvency: An Exploration of Relevant Theories. International Journal of Economics and Financial Issues, 7(3), 706–712. Retrieved from https://www.econjournals.com/index.php/ijefi/article/view/4652
15. Idigbe, A. Using existing Insolvency Framework to drive business recovery in Nigeria: The Rule of Judges. Being Paper Presented at the Federal High Court Judges Conference held at Senkuyu, Sokoto on the 11th day of October, 2015. 39
16. Akinwunmi & Busari Insolvency Practice in Africa–The Nigerian Experience. http://akinwunmibusari.com. Accessed on 12th January, 2014. 
17. Ogbuanya, N.C.S. Essentials of Corporate Law Practice in Nigeria. (Novena Publishers Limited 2013) 579.
18. Goode, R. Principles of Corporate Insolvency Law (Sweet & Maxwell 1997)2