RECEIVERSHIP UNDER AMCON AMENDMENT ACT 2019: IMPLICATIONS FOR DEBTOR COMPANIES AND ENTITIES

INTRODUCTION:

On 7th August 2019,the President of the Federal Republic of Nigeria signed a new Asset Management Corporation of Nigeria (Amendment) Act 2019 into law. Asset Management of Nigeria (AMCON) was established through the AMCON Act enacted on the 19 July,2010 as a ‘stabilizing and revitalizing tool in Nigeria economy’ with these objects: to assist eligible financial institutions to efficiently dispose eligible bank assets; effectively manage and dispose of eligible bank assets acquired by the corporation and obtain the best achievable financial returns on eligible bank assets or other assets acquired by it.[1]

In order to achieve the above objects, AMCON is given several powers under the AMCON Act among which are : power to appoint a receiver[2]; power to take custody of debtor’s company[3]; power of freezing debtor’s bank accounts[4];special powers to commence bankruptcy proceedings against debtors[5]; special powers to institute winding up proceedings against debtors[6] and special debt recovery procedure[7].

This publication specifically looks at changes introduced by the AMCON Amendment Act 2019 on the receivership under the AMCON Act and what it means to debtor companies and entities.

RECEIVERSHIP PRIOR TO THE AMCON AMENDMENT ACT 2019

By virtue of the commencement provision of the new AMCON Amendment Act 2019,it took effect on the 29th July 2019.[8],Thus our discussion under this head shall dwell on the powers of AMCON to act and appoint a receiver under the AMCON Act 2010 (as amended in 2015) .Under this Act, AMCON is merely empowered to act and appoint a receiver to realize the assets of the debtor company, enforce the individual liabilities of the shareholders and directors as well as manage the affairs of the company.[9]In addition to the above, the receiver has powers to act over the entire assets of the debtor company even though some or part of such assets are not charged, mortgaged or pledged as security to the loan[10], subject of course to the rights of secured creditors and third parties; to elect to manage the affairs of the debtor company[11], in which case the receiver shall manage the assets of the company as a fiduciary[12] not only for the benefit of AMCON but for other creditors[13]. By section 48(7) of the AMCON Act, no proceedings, claims or enforcement action shall be brought against the debtor company for a period of one year from the day the receiver elects to manage. However, the receiver is required to prepare a rehabilitation plan within 30 days of election to manage[14].In absence of the rehabilitation plan, the standstill provisions in section 48 (7) mentioned above will cease to apply.

CHANGES ON RECEIVERSHIP UNDER THE AMCON ACT INTRODUCED BY THE AMCON AMENDMENT ACT 2019

The AMCON Amendment Act represents the second amendment of the AMCON Act 2010. The need for the amendment came as result of the bid to enhance AMCON’s debt recovery capability and improve the supporting regime for enforcement[15] and it amended twenty sections of AMCON Act. The changes on receivership under the new amendments are reflected in the provisions discussed below:

1.   It removes the proviso to the old section 48(3) which hitherto required that the receiver should exercise his powers over the assets of the debtor company subject to the rights of secured creditors in the security and took this requirement to the general new provision of Section 34 (1)(c)(i).

2.   It increases the time within which the receiver/manager shall prepare and submit to AMCON a detailed rehabilitation plan for the debtor-company or entities from 30 days to 90 days[16].

3.   It provides for the extension of the standstill period of one year for a further period of one year upon an ex-parte application made to court by the receiver/manager.[17] The receiver/manager enjoys more time of the protection from non-inference or distractions which may be occasioned by any action, suit, claim or even judgment enforcement against him or the debtor company during this period.

4.   It further prohibits even other secured creditors or judgment creditors from enforcing their security against the debtor company during this protected standstill period[18]. This provision has widened the scope of those who are prohibited from enforcing any security against the company to include other secured creditors or judgment creditors.

5.   It sets out clear management objectives for the receiver manager[19].

6.   It introduces restructuring by hive down where the receiver manager considers that the objectives for managing of the affairs of the debtor company can no longer be achieved[20].Hive down is defined as a form of re-organization of a company whereby a business or businesses are transferred to a subsidiary[21].It is important to note that by this amendment the decision to hive down is solely a discretion of the receiver/manager and the receiver/manager may choose to restructure the debtor company by transferring the assets of the debtor company to a new company incorporated by the receiver/manager.[22] In doing this, the receiver /manager transfers such assets which security exists to cover the value of the debt of the debtor company, not only to AMCON but also to all debtor company’s secured creditors.

7.   By the new section 48(12),AMCON Act empowers the receiver/manger to operate or lease the transferred assets through the new company or to sell the entire company for the benefit of secured creditors. Though the Amendment Act has made these copious provisions on the powers of the receiver/manager to hive down, the receiver has no power to operate the new company for more than one year from the date of the transfer of the assets of the debtor company unless the secured creditors unanimously approve an extension[23].

8.   Under the new section 48(13) of the AMCON Act, the receiver /manager cannot unilaterally make a decision on the assets to be transferred to the new company. The assets must be independently valued, the new company capitalized to the value of the transferred assets and its shares shall be distributed to the secured creditors in accordance with the value of their respective interests in the transferred assets.

9.   Upon the allotment of the shares to the secured creditors as stated above, the secured interests of the secured creditors will stand discharged[24].Thus, upon the allotment of the shares to the secured creditors, the right of the secured creditors over the assets of the debtor company shall abate.

10. The 2019 Amendment exempts the share capital or the transfer of assets for the purposes of the hive-down under the above provisions, from payment of stamp duty, any other tax, any imposition or fee[25].It can be surmised that the exemption from such statutory payments is aimed at reducing extra burden to the receiver/manager in the realization of his objective.

11. In the same vein with the preceding paragraph,AMCON, in consultation with other secured creditors,may direct the receiver/manager to appoint an advisory committee within 7 days of receiving such directive from AMCON. It can also be reasoned that the advisory committee will assist the receiver /manager in providing industry specific advice which will help the receiver/manager not only to realize the assets of the debtor companies and entities and but also discharge their liabilities to AMCON.

IMPLICATIONS OF THE AMENDMENT TO THE DEBTOR COMPANIES AND ENTITIES

     I.       AMCON in seeking to recover debts of the debtor companies, will not only be required to consider the interest of other secured creditors in the exercise of its receivership rights over the property of the debtor company, but will be required to do so immediately upon the vesting of an eligible bank assets, tangible or intangible assets, or property of the debtor company.

   II.       The receiver/manager now has a longer period to understand the company before the submission of the rehabilitation plan. Invariably, the receiver/manager will have long period to concentrate and think on ways to improve the fortune of the company. This appears to work better in revitalizing the business of the debtor companies or entities.

  III.       Although the receiver/manager is obligated to exercise his rights over the assets subject to the rights of the secured creditors whose rights rank pari passu or in priority to AMCON’s rights over the property under Section 34 (1)(c)(i) AMCON Act (as amended), such secured creditors lack the legal capacity to enforce such security during the standstill period as stated in section 48(7).

 IV.       The amendment injects the consciousness into the receiver/manager to ensure that he manages the affairs of the company in the interest of all the debtor company’s creditors, rescue the company as a going-concern and achieve better result for the company’s creditors as whole than it would have been the case if the company was wound up.

  V.       The amendment introduces some level of independence in the receiver/manager’s dealing with the assets of the debtor companies by introducing the requirement of independent valuation of the assets to be transferred to a new company as discussed above and the appointment of an advisory committee made of persons with industry experience and expertise.

In conclusion, the 2019 Amendment of the AMCON Act indeed brought far-reaching implications especially where AMCON receiver has elected to manage the affair of the debtor companies and entities as contained in section 48(4) of AMCON Act 2010 ( as amended by the Amendment Act, 2019).It is believed that the Amendment Act 2019 will play a huge role in helping some of the debtor companies continue in their businesses profitably as well as provide the required support for AMCON accomplish its assignment.

Ikenna Amadi

[1] S.4 of the AMCON Act,2010 (as amended)

[2] S.48 of the AMCON Act,

[3] S.49,AMCON Act

[4] S.50.AMCON Act

[5] Ibid ,S.51

[6] Ibid,S.52.

[7] Ibid,S.53,i.e power of the CJ of the FHC to designate judge to hear AMCON debt recovery matters.

[8] It appears that the Act has not been gazetted at the time of writing this piece,

[9] S.48(1) and (2),AMCON Act

[10] S.48(3)

[11] S.48(4)

[12] S.48.(6)

[13] Section 48(5)

[14] S.48(8)

[15] Muyiwa Balogun, The AMCON Amendment Act 2019:Genenis,Efficacy & Implications in Troubled Assets Resolution, A Paper delivered during the AMCON AMP Annual Seminar on Eko Hotels and Towers Victoria Island Lagos on 21 September,2019.

[16] Section 48(8)

[17] Section 48(7)(a) and (10)).

[18] New Section 48(7)(b).

[19] New Section 48 (11).

[20] New Section 48(12).

[21] Available at https://uk.practicallaw.thomsonreuters.com , - Accessed on 24 September,2019. 

[22] New Section 48(12).

[23] Proviso to Section 48(12).

[24] Section 48 (14).

[25] Section 48 (15).