The Companies and Allied Matters Act 2020 brought administration into Nigerian law. It is a rescue procedure: a qualified insolvency practitioner takes control of a struggling company with the aim of saving it, or at least of getting a better result for creditors than an immediate winding up would. For creditors, the moment a company enters administration, the rules of recovery change.
What administration is for
An administrator must pursue a defined order of objectives: first, rescuing the company as a going concern; if that is not reasonably practicable, achieving a better result for the company's creditors as a whole than a winding up would; and failing both, realising property to make a distribution to secured or preferential creditors. Every decision the administrator makes should be measured against these objectives.
How an administrator is appointed
An administrator may be appointed by the court, by the holder of a qualifying floating charge, or by the company or its directors. Whatever the route, the appointee must be a qualified insolvency practitioner, and notice of the appointment must be given and published.
The moratorium
The most immediate effect on creditors is the moratorium. While the company is in administration, creditors generally cannot take steps to enforce security over the company's property, repossess goods held under hire purchase or similar agreements, or begin or continue legal proceedings or enforcement against the company, without the administrator's consent or the court's permission. A winding-up petition also cannot proceed in the usual way.
In practice, this means that a judgment, a pending garnishee application or a planned sale of charged property may be frozen. Creditors who were close to recovery need advice quickly on whether to seek consent or permission to continue.
Secured creditors
Security is not lost in administration, but its enforcement is controlled. An administrator may deal with property subject to a floating charge as if it were not charged, with the charge-holder keeping the same priority over the proceeds. Property subject to a fixed charge can generally be sold by the administrator only with the court's order, with the net proceeds applied towards the secured debt.
Proposals and the creditors' meeting
The administrator must set out proposals for achieving the purpose of the administration and put them to creditors. Creditors can vote at the meeting, may form a creditors' committee, and can ask questions of the administrator. Unsecured creditors should prove their debts promptly, with documents, so that their votes and later distributions are counted.
Challenging the administrator
An administrator is an officer of the court and owes duties in the conduct of the administration. A creditor who believes the administrator is acting, or proposes to act, in a way that unfairly harms its interests may apply to the court for directions or relief. Such applications should be made with care and good evidence; courts allow administrators room to exercise commercial judgment.
What creditors should do now
- Stop any enforcement step and check whether it is caught by the moratorium.
- Gather the facility documents, security documents and statements of account, and submit a proof of debt.
- Diarise the creditors' meeting and consider whether to seek a place on the creditors' committee.
- If you hold security, take advice on how the administrator proposes to deal with the charged assets.
Our Managing Partner, a CAC-accredited Insolvency Practitioner, served as the court-appointed Administrator of Dana Airlines Limited, so we understand administration from the administrator's side as well as the creditor's.
This article is general information, not legal advice. The law and court practice change, so please take advice on your own circumstances.