Debt Recovery in Nigeria – The credit system is an integral part of every modern economy. It thrives on the efficiency and functionality of the system of debt recovery. The late 1980s and early 1990s witnessed rising non-performing credit portfolios in banks and other financial institutions and unfortunately, this , contributed significantly to the recent financial distress in the banking sector. An inefficient debt recovery system in Nigeria has also seen the birth of predatory debtors in the banking system whose modus operandi involves abandoning their debt obligations in one bank only to contract new debts in other banks.
As much as the rise of this crop of predatory debtors and the consequential failure of the credit system in Nigeria can be blamed on lack of personal integrity, weak regulatory system and greedy and desperate commercial banking, an inept legal system that failed to rise to the occasion to nip these monsters in the bud should also share in the blame.
The legal system is the last resort in the event of any commercial dispute. But even in a negotiation process, the fear of the retributive and punitive consequence of an effective legal system is an underlying factor that may encourage adherence to norms and values and the fulfilment of obligations. Unfortunately, in Nigeria that factor has been lost. The legal system is usually circumvented and frustrated in the process of debt recovery by debtors and their smart lawyers. A resort to law enforcement agencies is not unusual and in most cases effectual. As painful as it sounds, the Police and the Economic and Financial Crimes Commission (EFCC) have effectively replaced our courts as the agent of coercion in debt recovery.
Characterised by a slow and often agonising judicial process, obsolete and ineffective legislations, the failure of the legal system in this respect is its manifest inability to compel an unwilling debtor to pay its debt. The consequence as earlier pointed out is a resort to the law enforcement agencies.
Debt Recovery Laws
Apart from insolvency proceedings which are largely statutory, actions for debt recovery are essentially rooted in common law and enhanced by special provisions in various high courts civil procedure rules. The implication of this is that debt recovery proceedings are essentially bugged down by the rigid technicality of common law doctrines. Interlocutory issues like service of processes, jurisdiction of courts, compliance with pre-action formalities and the absolute right of appeal are usually employed by lawyers to frustrate and delay debt recovery proceedings. England, the common law motherland has since moved away from this strict doctrinal adherence to procedural rules in debt recovery proceedings. Issues of service, mostly in proceedings for the enforcement of mortgages have been relaxed to accommodate advancements in information and communication technology, and the right of appeal has been seriously restricted. Far reaching changes have indeed been introduced by the English Consumer Credit Act of 2006 and the Civil Procedure Rules of 1999.
The State High Court Rules
Such proactive measures, adapted to suit our peculiar circumstances are needed if the efficiency of the credit system in Nigeria is to be enhanced. Indeed, some of these measures have been incorporated into the civil procedure rules of some of the states’ high courts, especially, the High Court of Lagos State (Civil Procedure) Rules of 2004. Of particular significance are the frontloading provisions, the provisions for summary proceedings, pre-trial conference provisions and all other provisions that encourage the expeditious determination of disputes. The courts however must take full advantage of its duty to manage cases as enshrined in those rules, issues must be identified at the earliest stages and where possible, if they can be effectively resolved by a review of the frontloaded documents, resolved without necessarily going through a full trial. The summary procedure provisions of the rules must also be taken advantage of. The current practice of allowing a defence, even when the defence is prima facie frivolous, defeats the essence of the summary procedure provisions of the various rules.
The Judicial system must also take advantage of advancement in technology. Service of processes can be done by electronic means; the judge can preliminarily review cases and render a preliminary decision as to whether the scarce resources of the judiciary should be employed in a case before it without necessarily hearing parties. Interlocutory issues, issues of compliance and procedural applications like applications for leave can be done electronically and decisions sent to the applicant electronically. The court can also encourage and where necessary, actively participate in any of the alternative dispute resolution procedures. The right of interlocutory appeal can also be regulated. All interlocutory appeals should be subjected to a special permission by way of leave of court which leave can be heard and determined without physical hearing. As is the case in the UK, decisions can be rendered and dispatched to parties by electronic means. Appeals can also be determined and judgment delivered electronically.
Insolvency Proceedings
Insolvency proceedings (bankruptcy and winding-up proceedings) can be employed as a veritable debt recovery tool. The current position that a disputed debt cannot be a basis for winding-up a company is no longer tenable as this has laid the foundation for frivolous and usually vexatious preliminary objections. A typical scenario is for a debtor to raise any question no matter how inconsequential as to the accuracy of the computation of interest and on that basis argue that the debt is disputed. The debtors usually do not argue that the debt is not due, or that same has been liquidated. He/she may not even dispute the quantum of interest charged. All that is being alleged is that by some error, even though non-deliberate, the computation of the debit balance on the loan account is inaccurate. The current provision of our winding-up laws as interpreted by our appellate courts is that this objection alone is enough to rob the Federal High Court of its jurisdiction to wind-up the debtor company.
I am of the opinion that this position can be improved upon. If the debt is disputed, the court can, in the same proceedings, determine the dispute and if it finds that the alleged amount or an amount equivalent to the prescribed amount of debt that can ground a winding-up proceeding under the provisions of the Company and Allied Matters Act is owing, it may proceed to wind-up the debtor company.
Also, as is obtainable in the United Kingdom, the winding-up jurisdiction of the Federal High Court can also be enlarged to include the power to order receivership/administration or to order combinations and/or restructuring so as to reposition the debtor company for profitability in deserving cases. The exclusive jurisdiction of the Federal High Court in Insolvency proceedings must also be revisited. The State High Courts are sufficiently competent to hear and determine winding-up and bankruptcy proceedings.
Law Enforcement Agencies and Debt Recovery in Nigeria
As the law stands, the EFCC and other law enforcement agencies are not agents for debt recovery. It is widely reported that high net-worth individuals and institutions, even though they have the capacity to fulfil their debt obligations are often unwilling to do so. The efficiency of the EFCC in this respect can be employed to curb this menace. As crude as it may sound, desperate situations require desperate measures. If debtors are simply unwilling to fulfil their debt obligations they must somehow be compelled by the law enforcement agencies to do so. The services of the EFCC can be engaged in a way that doesn’t run afoul of the law. Regulations or other statutory provisions may provide for asset declaration and undertaking by the debtor to apply the declared assets to the satisfaction of the debt if found liable. This declaration can become a subject for investigation by the law enforcement agencies, in cases of reasonable suspicion of false declaration, and if any inconsistency is revealed, the deponent/debtor may be prosecuted for perjury.
Section 419A of the Criminal Code can also be invoked to unleash the law enforcement agency against persons who have obtained credit by false pretence or by rendering any form of fraudulent misinformation. The section provides thus;
“Any person who by any false pretence or by means of any other fraud obtains credit for himself or any other person-
(a) in incurring any debt or liability; or
(b) by means of an entry in a debtor and creditor account between the person giving and the person receiving credit,
is guilty of a felony and is liable to imprisonment for three years.”
These provisions can however be more effective if plea bargain becomes a part of our criminal justice system. The essence generally is to employ the threat of incarceration to compel an unwilling debtor to pay his debt.
Actualising most of the suggestions proffered in this article will require amendments in existing legislations and in some cases, new legislations. Most importantly, it will require an intrepid political will. Generally, the significance of an efficient debt recovery in Nigeria system cannot be over emphasised. It has been stated and restated that the development of the economy must be private sector driven. It has also been stated that the transformation of the private sector must necessarily be heralded by the injection of foreign capital. When the global economy booms again as it definitely will, the capitalist economies of the world will be looking for fertile grounds for industrial and commercial investments. When this happens, the Nigerian Legal System must be ready to showcase an efficient and confidence inspiring debt recovery system.
Debt Recovery in Nigeria by Ndubuisi Ogbonnaya