LESSONS LEARNT FROM NIGERIA’S FIRST COURT-ORDERED ADMINISTRATION: THE MOORHOUSE COMPANY LIMITED – PT 2

LESSONS LEARNT FROM NIGERIA’S FIRST COURT-ORDERED ADMINISTRATION: THE MOORHOUSE COMPANY LIMITED – PT 2

Introduction

In our previous article, we explored the essence of Administration as an insolvency option recently introduced by Nigerian corporate law, exemplified through the inaugural administration of the Moorhouse Company Limited.  We highlighted some pivotal elements such as the appointment of an Administrator, mandatory statutory procedures following such appointment, and the nexus between the Administrator and the Court.

In this article, we shall pivot towards a more experiential perspective, such as the Administrator\’s adept management of creditors, formulation of the Administrator\’s Proposal, convening of Creditors\’ Meetings, as well as other pertinent facets.

A. Management of Creditors:

Upon appointment, an Administrator acts as a custodian who orchestrates the management of creditors and their claims applying diligence and fairness. Under Nigerian insolvency law, the Administrator is entrusted with several responsibilities aimed at maximizing the returns for creditors while facilitating the rehabilitation of the insolvent company. Central to these responsibilities is the effective management of creditor claims, which involves well-structured communication, verification of claims and distribution of funds to settle these claims.

Communication stands as the cornerstone of managing creditor claims during insolvency proceedings. The Administrator must establish clear channels of communication to keep creditors informed about the progress of the administration, including any developments pertaining to their claims. Timely and transparent communication fosters trust and cooperation among stakeholders. Furthermore, the Administrator must diligently scrutinize each claim to ascertain its validity in a bid to ensure that only legitimate claims brought against the company are recognized and settled. Upon verification, the Administrator can proceed with the distribution in accordance with the statutory hierarchy prescribed under CAMA 2020. Priority is accorded to secured creditors, whose claims are backed by collateral, followed by preferential creditors and finally, unsecured creditors.[1]

In managing creditors’ claims, the Administrator plays a pivotal role in resolving contentious issues that may arise during the administration process whether it involves conflicting claims or challenges to the valuation of assets. Essentially, the Administrator must maintain neutrality, employing mediation, negotiation, or legal recourse to achieve a successful resolution.

B. Administrator’s Proposal

The preparation of the Administrator’s Proposal is perhaps one of the most significant actions to be taken by an Administrator upon assumption of office. The Administrator’s Proposal prima facie determines the Administrator’s strategy and approach toward achieving either of the objectives of the Administration as provided by CAMA2020. 

Upon his appointment, an Administrator is required to, within 30 (thirty) days from the day the company entered administration, prepare and share with the relevant stakeholders, a copy of his “Statement of Proposal”.[1] Stakeholders include the CAC, every creditor of the company whose claim and address the Administrator is aware of, and every shareholder/member of the company whose address he is aware of.[2]

The Administrator’s Statement of Proposal sets out particulars of; the company, the administrator(s)’s appointment, and their respective functions (where more than one administrator is appointed), particulars of the directors and company secretary, and details of the insolvent company’s shareholding. Other information contained in the Statement of Proposal includes an account of the circumstances giving rise to the appointment of the Administrator, a summary of the Statement of Affairs of the company, details of the person who provided the Statement of Affairs, and the Administrator’s comment on the same, if any. 

Importantly, the Administrator’s Statement of Proposal also contains a statement on how the Administrator intends to achieve the purpose of the Administration bearing in mind the situation of the company as indicated in the Statements of Affairs and Concurrence, how the Administration will end, how the affairs and business of the company have been managed since the Administrator’s appointment, and how it will be managed post approval of the Administrator’s Proposal.

Lastly, the list and particulars of all creditors, pre-administration cost, and the basis upon which the Administrator’s remuneration should be fixed.[3]  The Administrator’s Proposal is typically presented to the creditors at an Initial Creditors Meeting (ICM) for approval.

In the Moorhouse Administration, the Administrator’s Proposal was prepared to include the Administrator’s approach how to the company’s finances could be revived, mandatory obligations on the owners/shareholders to raise additional funding for operations and part settlement of creditors with an option for liquidation upon failure of the shareholders to raise the funds and timelines for achieving set goals.

The Administrator’s Proposal served as a working guide to the Administrator and his team to discharge their functions and the eventual completion of the Administration process.

C. Meetings: Initial Creditor Meeting (ICM) and Committee Meetings

Under CAMA2020 and the Regulations, specific types of meetings are prescribed to facilitate the management and resolution of financial distress of the company in administration. Among these, Initial Creditors Meeting (ICM) and Committee Meetings stand out as critical forums for deliberation and action. The ICM essentially serves as a platform for the appointed Administrator to interact with creditors and get their feedback on the proposed strategies for achieving the purpose of the administration. The ICM must be convened promptly after the commencement of the Administration to inform creditors about the company\’s financial position, the reasons for administration, and the proposed strategies for resolving the insolvency.[1] After the conclusion of an ICM, the Administrator must immediately report any decision taken to the Court, the CAC and such other persons as may be prescribed by the Minister.[2]

Creditors may form a Creditors\’ Committee (the Committee) to represent their interests throughout the administration process. The formation of the Committee typically occurs during the creditors meeting, where creditors nominate and appoint representatives to serve on the Committee. The Creditors\’ Committee typically comprises representatives of major creditors, such as financial institutions, suppliers, and other significant stakeholders. The Committee acts as a liaison between creditors and the Administrator, providing valuable insights, expertise, and oversight during the administration period.

It is useful to note that creditors’ meetings are not mandatory. The Act provides that anything which is required or permitted to be done at a creditors’ meeting may be done by correspondence between the Administrator and creditors, subject to some prescribed conditions.[3] Nevertheless, meetings play a crucial role in the Administration process. From our experience, these gatherings facilitate transparency, collaboration, and informed decision-making among the Administrator, creditors, and other stakeholders.[4]

D. Remuneration of an Administrator

Both CAMA2020 and the Regulations provide that Administrators are entitled to compensation for their services,[1] which can be determined based on various factors such as the value of the assets they manage, the time devoted to administrative tasks, or a fixed amount. There is room for flexibility under the Regulations, permitting a combination of these methods tailored to different administrative responsibilities.

Notably, transparency is emphasized by the requirement for Administrators to provide creditors with a detailed estimate of fees and expected expenses before finalizing the remuneration basis. This ensures that stakeholders are informed and can assess the fairness of the proposed compensation. When determining the basis of remuneration, factors such as the complexity, level of responsibility, and effectiveness of the Administrator are considered. Administrators also have the right to request adjustments to their remuneration if they deem the fixed rate inadequate or inappropriate.

Furthermore, the transition between administrators is managed to ensure continuity in remuneration decisions until further determinations are made. In instances where excessive remuneration or expenses are suspected, creditors or members can seek recourse through Court applications within specified timeframes.

E. Termination of Administration

The appointment of an Administrator automatically ceases to have effect at the end of the one year beginning with the date on which it takes effect. This term of office may however be extended for a specified period, by an order of the Court on the application of the Administrator; or for a period not exceeding six months, by consent of the relevant creditors. It is important to note that an order of the Court cannot be made after the expiry of the administrator’s term of office.[1]

Additionally, an administration may be brought to an end upon the application of the Administrator of the insolvent company, to the Court to terminate the administration at a specified time.[2] This may occur where the Administrator believes that the purpose of administration has been sufficiently achieved. Lastly, a creditor of the company can apply to the court for cessation of the administration at a specific time based on an allegation of improper motive against the Administrator or the person who appointed him.[3]Where the administration ceases automatically, the Administrator must,  within five (5) working days of the cessation, notify the CAC and the Court by a notice accompanied by a final progress report.[4]

However, where the Court makes an order ending the administration, the Administrator has 14 days from the date of the order to deliver a copy of the order and the final progress report to the CAC, directors of the company, and all other persons to whom notice of the Administrator’s appointment was delivered.[5]

F. Attitude of the Court

In view of the fact that this process is court-driven, it is important that the Court embraces the process and operates smoothly with the Administrator. This is more so, as the Administrator is deemed as an officer of the Court, and all the functions performed by him are deemed that of the Court.[1]  

In the Moorhouse Administration, being the first Administration process in Nigeria, elements of mistrust and caution were observed from the disposition of the Court. This was most likely due to past experiences of the Court, especially with the application of Receivership wherein the Court noted the practice of applicants’ use of Receivership Orders to take over a company’s property, eventually disposing of them at a ridiculously low price without regard to the survival of the company.[2] However, as the process continued, especially with the Administrator’s periodic reports, the Court embraced the process which also contributed to the successful completion of the Administration.

Conclusion

An administration under Nigerian law is a structured process aimed at maximizing the value of a company\’s assets and protecting the interests of creditors. Administrators can effectively navigate the complexities of company administration if legal standards and obligations are upheld. Perhaps one of the most essential aspects that contributes significantly to the success of administration as an insolvency option is the ability of stakeholders to collaborate effectively towards achieving the best result for the company and its creditors.

The Nigerian judicial system, the directors and shareholders of insolvent companies as well as the creditors must all be well informed of the concept of an Administration and its distinctions from other insolvency options. Stakeholders must also understand the extent of the statutory powers granted to the Administrator and refrain from attempting to influence or manipulate the outcome of the administration proceedings. 

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Joseph Ajah
Senior Associate
joseph.ajah@ao2law.com

Uwemedimo Atakpo Jnr.
Senior Associate
uwemedimo.atakpo@ao2law.com

Oghenekaro Isiorho
Associate
oghenekaro.isiorho@ao2law.com

Oluseun Olayiwola
Associate
oluseun.olayiwola@ao2law.com

Oluwasunmisinuola Ajayi
Associate
oluwasunmisinuola.ajayi@ao2law.com

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