Challenges of Enforcement of
Securities in Nigeria
PROF. YEMI OSINBAJO, SAN
CREDIT THE LIFEBLOOD
• MODERN ECONOMIES DEPEND
CONSIDERABLY ON THE FREE AND ADEQUATE
FLOW OF CREDIT.
• EASY REALISATION OF CREDIT IS CRUCIAL TO
CONFIDENCE IN LENDING
• FAILURE OF RULES OR ADMINSTATION OF
JUSTICE IS A MAJOR ISSUE
LEGAL SYSTEM MUST SUPPORT
COMMERCE
• 3 PILLARS OF MODERN SOCIETY
• THE ECONOMY
• RIGHTS
• SECURITY OF LIVES AND PROPERTY
DEPEND ON THE JUSTICE SYSTEM
ENFORCEMENT OF SECURITIES
FORECLOSURES
• COURTS MORE INCLINED TO GIVE SEVERAL
OPPORTUNITIES AS POSSIBLE TO THE
MORTGAGOR TO REDEEM AS POSSIBLE.
• BETWEEN FORECLOSURE ORDER NISI AND
ABSOLUTE…….PROCEEDINGS BECOME
PROTRACTED
SALE
• BEFORE SALE POWER OF SALE MUST ARISE
UNDER THE DEBT INSTRUMENT IT MUST ALSO
BECOME EXERCISABLE.
• WHERE DEBT INSTRUMENT IS A LEGAL
MORTGAGE, THE M/GEE MUST GIVE M/GOR
NOTICE (SEC. 19(1) CONVEYANCING ACT 1881, SEC.123(1) PCL)) NOTICE MAY
BE EXCLUDED BY AGREEMENT ( NHDS V MUMUNI 1977 2SC
57,GBADAMOSI VKABO TRAVELS 2000 8NWLR, PT 668 PG243 )
• ABSENCE OF NOTICE DOES NOT VITIATE TITLE OF
PURCHASER WITHOUT NOTICE
APPOINTMENT OF RECEIVER
• BY DEED
• BY COURT WHEN DEBT INSTRUMENT NOT
UNDER DEED
• BUT INJUNCTIVE RELIEFS STILL GRANTED
AGAINST RECEIVERS APPTD BY DEED
Security for Bondholders
• For borrowing by Govts, security for bondholders is
paramount under the Investments and Securities Act
(ISA), and is achieved by a number of devices:
• the creation of a specific sinking fund where a
dedicated portion of the earnings/ receivables/ cash
flow of the issuer is administered by a trustee;
• Issuance of Irrevocable Standing Payment Order (ISPO)
from the statutory allocation from the Federation
Account;
• Registration of securities in a Register is mandatory;
• Bond instrument transferable
Case Study (LASG Bond)
• LASG instituted a bond issuance program. The 1st tranche of N75Billion
was issued with tremendous success early this year.
• The legal Framework involved the enactment of a Bonds Law and a Debt
Management Office Law. This was in compliance with constitutional
requirements of appropriation and also ISA.
• The key provisions of the law are:
• Creation of a Consolidated Debt Service Account (CDSA) which required
LASG to save 15% of its IGR monthly for debt servicing, as security for
borrowing.
• It is from this CDSA that individual sinking funds for any bond issuance will
be created.
• Trustees required to manage the CDSA;
• Proceeds of CDSA to be invested only in FG Bonds
LASG- Trust Deed
• Under the Trust Deed entered in respect of the bonds, the Trustee
is required to commence enforcement proceedings upon default of
any interest or principal payment.
• The 1st recourse is to the ISPO, after which such other proceedings
may be commenced as required by SEC Rules. It starts with
conciliation, then arbitration, then referral to SEC and then the
Investments and Securities Tribunal (“IST”).
• Individual Bondholders may only commence action where the
Trustee fails to do so, and in a representative capacity.
• Under a negative pledge, the Government undertook not to
encumber the CDSA or Sinking Fund to prioritise any interest above
the bondholders’.
Syndicated Loan
• A loan offered by a group of lenders (called a
syndicate) who work together to provide
funds for a single borrower. The borrower
could be a corporation, a large project, or
a sovereignty (such as a government). The
loan may involve fixed amounts, a credit line,
or a combination of the two.
Case Study- MegaCorp
• Syndicated
Funding
arrangement
for
MegaCorp for the purpose of share buy-out of
privatised company;
• A number of banks with varying funding
obligations and interests;
• Issues with default of payment obligations and
legal challenge by lender on the ground of
modification of initial agreement.
Legal Issues of Enforcement
• Issues of corporate governance and conflict of interestcross-directorship in banks and Megacorp• does this affect the bargaining balance of Megacorp in
a consideration of undue onerous terms regarding
setting aside in litigation/arbitration?
• Lead Financer at cross-purpose on mode of
enforcement with other financers;
• Security Trustee, a subsidiary of one of the lenders;
• Political implications of enforcement of security.
Lessons
• Arms’ length objective tripartite relationship
between Lender/ Borrower/ Security Trustee;
• Whenever renegotiation process of loan is
considered, clarity of terms of enforcement
should be considered.
Challenges of Enforcement of Securities in
Nigeria
• Statutory Restrictions
o There are statutory restrictions where the debtor is a
government agency or corporation or where the funds to
be attached is in custody of a government official in his
official capacity.
 No property of the Nigerian National Petroleum Corporation
can be subject to attachment or execution. (Section 14
NNPC Act Cap N ); NNPC V. AIC Ltd (2001) 1 NWLR (Pt.
695)
 No funds in custody of a government official can be liable to
attachment by garnishee proceedings except by the consent
of the Attorney-General of the Federation or a State
respectively (Section 84 Sheriff and Civil Process Act)
Challenges of Enforcement of Securities in
Nigeria (Contd)
•
Perfection of Security Instrument
 Pre-securitization perfection
o Obtaining Governor’s consent prior to delivering a legal mortgage instrument.
Without Governor’s consent, transaction is void and unenforceable. Sections
21, 22 and 26 of the Land Use Act Cap L5 LFN 2004; Savannah Bank V.
Ajilo (1989) All NLR; UBN Plc V. Ayo Dare & Sons (Nig) Ltd (2000) 11
NWLR (Pt. 679). Where Governor’s consent was not obtained before mortgage,
the entire transaction is void.
o Securities investments of a public company or collective investment scheme
must be first registered with the Securities and Exchange Commission before
they are issued, transferred, sold or offered for subscription to the public.
Section 54 Investment and Securities Act 2007
o Where the borrower is a Government, there must be an enabling Appropriation
Legislation permitting the Government to charge its funds or spend it in
specific manner consistent with the issuance of the securities instrument.
Sections 80 and 120 Constitution of the Federal Republic of Nigeria 1999
Challenges of Enforcement of Securities in
Nigeria (Contd)
•
Post-Securitisation Perfection
o Legal Mortgages must be registered at the Land’s Registry.
 Registration gives notice to subsequent and prospective encumbracers of the
existence of the charge
 Failure to register results in lose of priority of claim to subsequent registered
charges.
 The mortgagee, where he fails to register the security, loses any right of claim
against a subsequent bona fide purchaser of title in the security without
notice. Dearle V. Hall (1828) 3 Russ 1
 Where the chargor is a Company, failure to register the charge within 90 days
of creation of the charge voids the securitization transaction. The charge can
thereafter only proceed against the chargor on the chargor’s personal
undertaking. Section 197 Companies and Allied Matters Act Cap C20 LFN
2004
Challenges of Enforcement of Securities in
Nigeria (Contd)
• Technical Objections in Court
 Jurisdictional challenge
 Third party interest e.g. where root of title of land
(security) is a Federal Government grant, the State
Government may declare interest in and lay claims to the
reversion: Nitel V. Onikoyi dispute, Federal High Court V.
Donald Duke etc
 Non-compliance with statutory provisions e.g. Sheriff and
Civil Process Act, Rules of Court
 Allegations of fraud in the conduct of sale
 Proceedings to set aside sale
 Objections of a 3rd party bona fide purchaser of security
without notice
Challenges of Enforcement of Securities in
Nigeria (Contd)
• Technical Objections in Court
 Jurisdictional challenge
 Third party interest e.g. where root of title of land
(security) is a Federal Government grant, the State
Government may declare interest in and lay claims to the
reversion: Nitel V. Onikoyi dispute, Federal High Court V.
Donald Duke etc
 Non-compliance with statutory provisions e.g. Sheriff and
Civil Process Act, Rules of Court
 Allegations of fraud in the conduct of sale
 Proceedings to set aside sale
 Objections of a 3rd party bona fide purchaser of security
without notice