Analysis Of Administration As A Business Recovery Mechanism Under The Companies And Allied Matters Act 2020.

By Ufomba Christiana Onyinyechi

Introduction:

The signing into law of the Companies and Allied Matters Act, 2020 (the “CAMA 2020”) has been lauded as a remarkable feat, a game changer in the corporate regulatory framework, and described as Nigeria’s most progressive piece of business legislation in the last three decades. The CAMA 2020 repealed and replaced the 30-year old Companies and Allied Matters Act of 1990 (the “CAMA 1990”). It provides a robust framework for reforming identified onerous legal, regulatory and administrative bottlenecks which have lingered for three decades. CAMA 2020 contains changes to Nigeria’s insolvency legal regime whose underlying philosophy arguably is the promotion of corporate rescue as opposed to the termination of the life of distressed businesses.

The CAMA does not only provide exit options for ailing businesses but introduces company rescue mechanisms which offers an insolvent company a chance to continue as a going concern. One of such mechanisms is the business rescue scheme of Administration. This Article sets out to evaluate Administration and how it plays out as a business recovery mechanism under the CAMA 2020.

What is Administration?

Administration is a company rescue mechanism which allows an insolvent company, under the control of an administrator, an opportunity to rescue the whole or any part of its undertakings.

Simply put, it is a procedure which affords an insolvent company the opportunity to continue as a going concern for the primary purpose of managing its debt profile to ensure the company can resume the pursuit of its business, in whole or part.

The scheme allows for the appointment of an administrator to run an ailing company, with the primary aim of rescuing the business and ensuring its survival. This scheme is quite similar to the scheme of appointment of a receiver by the creditors of a company, with the fundamental difference being that receivers are appointed with the primary aim of realizing the assets of the company for the purpose of satisfying the debt owed to their appointors.

What then is the Purpose of Administration?

The purpose(s) of administration as provided in Section 444(2) of CAMA 2020 are, in the order listed below:

1. rescuing the company in whole or part to enable it continue as a going business concern;
2. achieving a better result for company’s creditors than would be likely if the company was immediately wound up without first being in administration; and
3. realizing property to make a distribution to secured/preferred creditors.

It is pertinent to note that the two purposes listed in (b) and (c) above may only be pursued by the administrator if in his view a rescue is not practicable. Accordingly, the objectives are listed in order of priority.

How does Administration play out as a business Recovery Mechanism?

A company enters administration when the appointment of the administrator takes effect, and an administrator may be appointed by the court, the holder of a floating charge, the company, or its directors.[1] Upon the appointment, the administrator makes a formal statement setting out proposals specifying how he intends to achieve the purpose of administration.[2] The proposal is then shared with creditors of the company, members and the Corporate Affairs Commission (CAC) and the proposal is formally presented to the Creditor’s meeting for consideration and approval[3] after which administration is conducted in accordance with the approved proposals. Where a company is in administration, a resolution cannot be passed for the winding up of the company, neither can an order be made for winding up of the company.[4] Similarly, all petitions for the winding up of a company shall be dismissed/ suspended save for those presented on the grounds of public interest, or where the application for winding up is made for regulated entities in the financial industry.[5]

Again, by virtue of Section 480 of CAMA 2020, no steps can be taken to enforce security over the company’s property or repossess goods in the company’s possession under a hire purchase arrangement neither can any legal proceedings be commenced or continued against a company without the consent of the administrator or permission of the Court.

Flowing from the foregoing, it can be deduced that Administration as provided in CAMA 2020 is geared towards salvaging the company without legal interruptions particularly without creditors commencing winding up or other legal proceedings. With this, a business rescue mandate in relation to an insolvent company can be pursued without the hovering risk of liquidations or other compounding circumstances.

With the inclusion of Administration in CAMA 2020, Nigeria stands to benefit enormously from it particularly in attracting more Foreign Direct Investments and revenue for the government, wherein liquidation becomes the very last option resorted to after administration and other business rescue mechanism have failed. Administration as a business rescue mechanism allows for the continuation of business hence yielding prolonged employments, payment of taxes and dividends, and other similar socio-economic benefits..

Although the provisions on Administration are novel in Nigeria, they draw their precedents from other jurisdictions. For example, the UK Courts would not make an administration order unless there is a real prospect of success in rescuing the business, selling it as a going concern, or a good arguable case for it as stated in Re Harris Simons Construction Ltd.[6]

Conclusion

The CAMA 2020 makes a paradigm shift from the dissolution of insolvent companies to allow recovery and continuity of business which is indeed laudable. However, the courts needs to be vigilant so that the parties do not infact use the administration procedure as a means to deviate from business resuscitation which it is expected to serve and resort to abuse of the provisions in order to cheat their creditors and possibly escape from jurisdiction.

Nigerian Courts are likely to take a cue from the positions taken by the UK courts and those of the courts of jurisdictions from which the novel provisions of CAMA 2020 have been drawn.

References:

1. Strachan Partners: Review of The Companies And Allied Matters Act 2020 Company Rescue Mechanisms.
2. Hon Justice (Dr) Nnamdi Dimgba, Changes to Nigeria’s insolvency system by the Companies and Allied Matters Act 2020: A judicial perspective.
3. Halimat Onigbinde: Corporate Insolvency Regime In Nigeria: An Appraisal of the Innovations Under The Companies And Allied matters Act.
4. www.proshareng.com

About the Writer:

Ufomba Christiana Onyinyechi (AICMC) is a Graduate of the Faculty of Law, Abia State University, and an Aspirant of the Nigerian Law School.

She can be reached via: Email: [email protected]

[1] Section 450, CAMA

[2] Section 486, CAMA

[3] Section 490, CAMA

[4] Section 479, CAMA

[5] Section 477, CAMA

[6] (1989) 1 WLR 368