MENU AMCON’s debt recovery challenges

Despite its enormous powers under its enabling laws, the Asset Management Corporation of Nigeria (AMCON), is struggling to discharge its mandate of debt recovery. There is an outstanding debt of over N3 trillion that it has not been enable to recover in its eight years of existence. With a short lifespan for its operation, there are years that it may not recover this huge debt before it winds up in 2021. COLLINS NWEZE reports.

With an outstanding debt of over N3 trillion,  the Asset Management Corporation of Nigeria (AMCON) still has a long way to go before it winds up.

This explains why the corporation gathered legal practitioners in Lagos to discuss ways of getting the recovering the funds from recalcitrant debtors. The 2018 yearly seminar for “AMCON external solicitors and asset management partners” provided opportunity for the lawyers to discuss the AMCON debt recovery drive and ways to improve it.

Moreover, the 2009 banking crisis was triggered largely by the poor quality of bank assets because then, many banks suffered from an overhang of “non-performing loans”, otherwise described as “toxic assets” or “troubled assets”.

To contain the crisis the Asset Management Corporation of Nigeria (“AMCON or Corporation”) was establishment as a bank resolution vehicle through the AMCON Act.

AMCON has powers, which at face value, empowers it to deal with defaulting debtors. The utilisation of these powers, in theory, should have helped AMCON in recovering to huge debt

Section 48 of the AMCON Act empowers AMCON to either act as, or appoint a receiver for a debtor-company whose assets have been charged, mortgaged or pledged as security to AMCON. This in itself is a unique provision. First, AMCON itself may act as receiver, which is a departure from the provisions under the Companies and Allied Matters Act, thereby enabling it to throw its resources (manpower and otherwise), to ensure quick recovery of debts.

One of the speakers, Ibrahim Buba of Federal High Court, Lagos said AMCON was created to be a key stabilising and revitalising tool aimed at reviving the financial system.”

He said the AMCON Act 2010 (as amended)  was gazetted on August 9, 2010, adding that the corporation explores litigation as one of the options to recover non-performing bank loans.

He said: “In banking sector disputes, the courts can be faced with serious fundamental issues and indeed urgent ones, that hit at the bottom of the economy of the nations, that must be handled with dispatch, as failure to do so will tell on the economy, and the judiciary as an institution set up by the Constitution to adjudicate on disputes between persons, authorities and governments, in order to have order, peace and good governance, a veritable tool of maintaining social equilibrium. Indeed no nation can afford to toy with its banks and finances, if it must advance in the comity of nations. Consequently, every regime must and shall act to meet its immediate and future problem.”

Federal High Court Judge, Justice Nnamdi Dimgba said the issue of AMCON’s debt recovery drive has become complex. It touches on the thoughts and deliberations of policy makers; AMCON executives; and even the average citizen (as AMCON oversees funds that trace their roots to the taxpayer). For those of us in the judiciary we are partners in ensuring that AMCON successfully meets the mandate conferred upon it by the AMCON Act – which we are called upon to interpret, from time to time.

He said the task to strengthen AMCON’s recovery drive is of national concern.

“Figures bandied in the media suggest that AMCON’s attempts to recover value from non-performing loans (NPLs) stands at a paltry 19 to 20 per cent or thereabouts of the NPLs on AMCON’s docket.  It has been suggested that in over eight years, AMCON has only been able to hit an annual recovery rate of less than 2.5 per cent. The unrecovered value currently stands at around N3 trillion”.

In context, this exceeds the internally generated revenue (IGR) of the 36 states. In the light of growing agitations for salary increases, investments in tertiary education, and improved healthcare – these are alarming figures that requires AMCON to fully utilize its statutory powers, in order to deliver its mandate under the AMCON Act.

Dimgba said the question however, is whether the powers contained in the AMCON Act are suitable, or whether the powers are being underutilised. This quickly becomes the boundary that determines whether AMCON is pursuing its mandate vigorously, or is inadvertently giving a free pass to derelict debtors.

The examination of the Special Powers of AMCON under the AMCON Act showed that the receiver appointed by AMCON (or AMCON itself) has the power to: realise the assets of the debtor company; enforce the individual liability of the shareholders and directors of the debtor company; and manage the affairs of the debtor company.

He said the powers under the AMCON Act are unique. “Ordinarily a creditor is only able to exercise receivership powers over assets charged to it directly or where an all-assets-debenture exists. The AMCON Act however, in a bid to ensure that the best value is derived from the undertakings of the debtor, empowers AMCON to exercise its rights under Section 48 over the entire undertakings of the debtor company and assets, notwithstanding that only a part of the assets of the company was charged or mortgaged as security to AMCON,” he said.

“The provisions are further strengthened when dealing with a situation where AMCON or a receiver appointed by it, opts to manage the affairs of the debtor company. In such an instance, the enforcement of all judgements, claims, debt enforcement procedures existing or being pursued before the publication of the notice of the receiver to manage the affairs of the debtor company stands suspended and unenforceable against the debtor company and corporation’s receiver for a period of the shorter of one (1) year from the notice or the period that the receiver continues to manage the affairs of the obligor Company”.

“There are concerns as to whether the provisions on receiver management as contained in the AMCON Act are actually fit for purpose or whether they introduce business rescue legislation into Nigeria by the back door. In the event that they do in fact introduce a form of business rescue, it is evident that this may be a clog in the wheel of AMCON’s recovery drive. Further analysis on this point is provided in paragraph 39 below”.

In addition to receivership, AMCON is also empowered under Section 49 of the AMCON Act to, through an application ex-parte,  seek a forfeiture order against the assets of a debtor. This is a particularly important power as it enables AMCON to move stealthily without tipping off otherwise crafty debtors. The forfeiture order vests the control and possession of the assets in AMCON, pending trial and judgement. Upon a favourable judgment, the assets in question are permanently forfeited to AMCON.

“What is clear is that these powers serve as a form of security for AMCON in litigating appropriate cases, comforted by the fact that at the end of trial, the fruits, in the form of the forfeited assets would flow to AMCON. This is clearly a better position than a situation where AMCON successfully prosecutes a case in court but is left to subsequently undertake the ordeal of enforcement post – judgment with the risk that the assets in question may be dissipated by the time of enforcement.”

He said in addition to the benefits set out in the preceding paragraph, it is further evident that the utilisation of forfeiture orders would serve as a bait to recalcitrant debtors, forcing them to the negotiating table to agree to a settlement or resolution of their debts, especially where these debtors have the funds to settle their debts, but are merely truant.

“The foregoing said, AMCON is required to move quickly, as , where AMCON fails to commence debt recovery actions within 14 days of obtaining a forfeiture order, the order lapses,” the Judge said.

Also, there is a perception that many debtors have the resources to pony, but for reasons best known to them, are not ready to do so. To address this issue, AMCON, is by virtue of Section 50 of the Act, empowered to apply, ex parte, to court for: (x) attachment and (y) freezing of bank accounts of a debtor where there is reasonable belief that sufficient funds to offset their debt to AMCON are contained in that account.

“There is however a need to balance the rights of AMCON with the rights of the debtor in question. For this reason, AMCON is required to immediately commence a debt recovery action against the debtor or debtor company. The balance is achieved in that, where AMCON fails to commence the required debt recovery action within 14 days, then the order shall lapse. As such, this power is directly linked to the success of a debt recovery action.

The AMCON Act, per Section 51, also provides for a specialised bankruptcy regime. In sum, where AMCON obtains judgement in an action for debt recovery, AMCON is empowered to begin bankruptcy proceedings against a judgement debtor, even without establishing the occurrence of any act of bankruptcy or fulfilling other conditions prescribed under the Bankruptcy Act. In simple terms, this provision achieves the same results that would result from bankruptcy proceedings, albeit in a shorter time and without the extensive pre-conditions.

Once an obligor is adjudged bankrupt, an official receiver may be appointed or AMCON may assume the office of trustee of the property of the debtor. In sum, this provides another avenue for AMCON to recover debts, upon a successful debt recovery action.

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By virtue of Section 52 of the Act, AMCON is also empowered to approach the courts to issue a winding up order against a corporate debtor that is also a judgement debtor pursuant to a debt recovery action that has failed to pay its judgement debt within 90 days from the judgement/order for payment.

Compared to creditors’ winding up under the CAMA, the provisions under the AMCON Act are simpler. For example, under the AMCON Act: there is no requirement to notify the judgement debtor; winding up is started by way of an application (and not a petition as is the case under CAMA); and there is no obligation on AMCON to apply to court for leave to advertise or not  to advertise the application; there is also no room under the AMCON Act for creditors’ participation.

Be that as it may, where a winding up order is made, the provisions of CAMA as it relates to priorities of payments would be triggered and would be as applicable as though the winding up order was obtained under CAMA.

According to Dimgba, the facts however suggest that this stronger recovery drive is not yet reality, as the docket of unresolved NPLs remains dangerously high. The corresponding question begging for answer is: why have the special powers contained under the AMCON Act not translated to an increased recovery drive?

An analysis of similar recovery agencies across the world suggests that there are two key distinguishing approaches to the job of an asset management corporation.. On one hand, is an approach which favours enforcement through the courts and the other is the restructuring of the NPLs.

The enforcement approach is informed by the understanding that the asset management corporation in question has a limited time, and a recovery mandate. The approach further understands that the vast majority of debtors may be unable or unwilling to repay their debts. With this understanding, the enforcement approach jettisons restructuring plans and focuses on enforcing the security by sale of the underlying assets.

The restructuring approach is however informed by the understanding that time is abundant and opportunities exist for debtors to restructure their NPLs and provide a plan ‘usually long term’ toward resolving their indebtedness.