January 11, 2023

ADMINISTRATION: CAMA’S KNIGHT TO RESCUE MAROONED PRINCESSES

Introduction:

On August 7, 2020, Nigeria’s President Muhammadu Buhari gave assent to the Companies and Allied Matters Act Cap 2020 (CAMA or the Act) and thereby introduced a new suite of insolvency options into Nigerian law. These options include Voluntary Arrangement, Administration, Arrangements + Compromise, and Netting. In April 2022, and while exercising the powers CAMA conferred on it in that regard, Nigeria’s Corporate Affairs Commission (CAC), issued the Insolvency Regulations 2022 (the Regulations) to provide the administrative processes for such concepts as, the: Insolvency Practitioner, Voluntary Arrangement, Administration, Netting Events, et.al.

In this brief, we shall review, on a relative basis, the concept of Administration and make a case for its effectiveness as a veritable insolvency option; perhaps, we are able to establish it as that emissary or knight that should first be sent to negotiate the rescue of corporate princesses, before a decision is made to exert the more lethal insolvency options.

What is Administration?

Simply, it is a formal process where a Company is found to be insolvent and an Insolvency Practitioner, in this case known as the Administrator, is appointed to run the affairs of the Company unhindered and for a short spell, with the view of rescuing the Company from its insolvent situation.

“Unhindered” in this context means that, during Administration, no legal action can validly be maintained against the Company save with leave of Court, thus giving the Company and the Administrator the room to focus on the core mandate of the Administration: the rescue of the Company from its insolvent situation. For example, upon an Administration Order, any pending

application for the Company’s liquidation is suspended. Same will apply in the case of a Receiver appointed under a Floating Charge; the Receiver will have to vacate office until after the Administration.

“Short spell” means that the Administration must be for a short term. In Nigeria, this term is limited to a period of one year, with an extendable period of six months.

In practical terms, Administration gives a Company legal moratorium to focus and resolve its insolvent situation, while still in operation. It serves as a temporary immunity from the legal actions of Creditors, who of course are at the receiving end of a Company’s insolvency situation. The Administration period allows the Administrator to consider all Creditors alike and present a solution that would rescue the Company from the insolvent situation. It is noteworthy that the Administrator may not be the cliché “nice guy” as the solution may include the rationalization of an over bloated workforce, the firing of managers and/or directors of the Company, the sale of the properties or business of the Company or even the liquidation of the Company itself. This Knight will readily protect the realm by plunging the sword into the heart of the virus-ridden Princess where necessary!

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Please do not treat the foregoing as legal advice as it only represents the public commentary views of the authors. All enquiries on this Brief should please be directed at:

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