The latest Companies and Allied Matters Act (CAMA) 2020 shows that the ‘company rescue’ provision of the Act allows the takeover of ailing companies by administrators to repay their creditors and sustain the line of business.
This is part of the CAMA Act 2020, which repealed the CAMA 2004 and assented to law by President Muhammadu Buhari, viewed as the most significant business-related legislation in Nigeria in the last three decades because of its transformational and innovative provisions in terms of operating businesses in Nigeria.
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Jurists last week brainstormed on the topic ‘Giving life to business rescue intent of CAMA 2020 under the present legal order: Implementation challenges’ during the just concluded Nigerian Bar Association (NBA) Lagos branch.
A judge of the Federal High Court, Justice Nnamdi Dimgba, said CAMA 2020 contains changes to Nigeria’s insolvency legal regime whose underlying philosophy arguably is the promotion of corporate rescue as opposed to the termination of the life of distressed businesses.
“For although the Supreme Court in Air Via Ltd v. Oriental Airlines Ltd, (2004) 4 SC (Pt.11) 3; [2004] 9 NWLR (Pt. 978) 298 stated the adverse nature of winding up proceedings, and the fact that it should not be used as a substitute for a debt recovery action, this has not deterred litigants and their counsel from resorting to the filing of winding up petitions against debtor companies, and sometimes unnecessary liquidation of the said companies, in situations when an ordinary debt recovery action could have been sufficient,” Justice Dimgba said.
One of the significant provisions is the provision regarding business rescue. Just as an individual can be sick, companies could also fall sick. Hence the issue of whether or not to bury a sick company.
Lawyers who have been waiting for this piece of legislation, now believe that if they can make effort and explore the business rescue provisions of CAMA 2020, they could bring back sick companies that might have been killed.
Prof. Godwin Oyedokun, a professor of management and accounting, Lead City University, pointed out that Section 712 tells you what to do when you are trying to resuscitate a dying company.
The CAMA 2020 also provides, amongst other things, more business rescue options such as Administration which sought to substantially eliminate receivership, and Company Voluntary Arrangement (CVA).
It also increased the threshold for petitioning for the liquidation of an insolvent company from N2000 to N200,000.
Section 717 provides that no winding up petition can be brought up within the moratorium period of six months when the rescue mission can come up.
Under the repealed law, once a petition to wind up a company is advertised, all banks will stop giving support to the sick company and all creditors will be on alert and will not cooperate with the company. But the new CAMA has now changed all that because an administrator can be appointed to manage the sick company so that some services cannot be affected.
A company, according to Chief Anthony Idigbe (SAN), contributes to the circulation of money in the community, in addition to other benefits. The company does this by making a profit for its shareholders, paying taxes to the government, paying salaries to its staff members, and engaging in community activities.
“So if you quickly liquidate a sick company, that circulation of money is going to stop, so, that is why everything should be done to save a sick company.”
Idigbe however mentioned that where a company cannot repay its creditors, it will affect the circulation of money. “Therefore you should look for those companies that will pollute the circulation of money”.
According to him, a business is different from a company. “You can save the business and let the company die.”
Idigbe SAN said there are now many opportunities for lawyers thrown up by the business rescue mechanism in CAMA 2020. Lawyers can act as nominees, supervisors, and administrators in the case of company voluntary arrangements. Whereas the previous CAMA only provided for a receiver-manager who has come to sell off the company.
“Lawyers don’t necessarily have to be administrators but as lawyers, you must improve your skill, especially in turnaround management.
“You can act as a lawyer supporting the administrator because insolvency has an impact on the contract. It modifies rights under contract especially the new obligation, not the ones that collapsed.
“In the previous CAMA 2004, there are limitations to how far a company could be rescued. A company that owes N20 million but has a business of N200 million could be wound up under the old CAMA. Today, if that happens, you can use the business rescue mechanism in CAMA 2020 to save such a company,” Idigbe SAN said.
He however identified culture as one of the major challenges. “Most bankers’ mentality will not adjust the terms of the agreement for a sick company to survive.”
He said courts should do more training to improve our jurisprudence.
According to Dr Sanford Mba, an author, “it is hoped that gaps in the rescue provisions of the Act would be filled by judges, who have been given a pre-eminent role as the gatekeepers.
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