Winding Up or Liquidation of Banks in Nigeria: Legal Framework and Procedures The winding up or liquidation of a bank in Nigeria is a critical process governed by several key pieces of legislation, primarily the Companies and Allied Matters Act (CAMA) 2020, the Banks and Other Financial Institutions Act (BOFIA) 2020, and under the regulatory purview of the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC). This article provides a comprehensive overview of the legal and procedural framework for bank liquidation in Nigeria.
Legal Basis and Grounds for Liquidation
A. Under Companies and Allied Matters Act (CAMA) 2020, there are two basis for liquidation and they are:
- Voluntary Winding Up: Initiated by a special resolution of the bank’s shareholders. This typically occurs when the shareholders believe that the company can no longer continue its business operations effectively.
- Compulsory Winding Up: Initiated by a court order, which can be sought by creditors, shareholders, or the company itself. Grounds for compulsory winding up include:
a. The company is unable to pay its debts.
b. A special resolution by the company to wind up.
c. It is just and equitable for the company to be wound up.
B. Under Banks and Other Financial Institutions Act (BOFIA) 2020:
- Regulatory Non-compliance: Failure to comply with any condition of the license or any regulatory directive issued by the CBN.
- Financial Instability: Conducting business in an unsound manner, insolvency, or engaging in unsafe banking practices that threaten the financial stability of the bank.
Initiation of Liquidation
A. Voluntary Winding Up under CAMA:
- Resolution: The process begins with a special resolution passed by the shareholders.
- Liquidator Appointment: The company appoints a liquidator who takes over the management of the company’s affairs to wind up its operations.
B. Compulsory Winding Up under CAMA:
- Court Petition: Creditors, shareholders, or the company itself can petition the court for a winding-up order.
- Court Order: Upon hearing the petition, if the court is satisfied with the grounds presented, it issues an order for the company to be wound up.
- Official Receiver: The court appoints an official receiver to oversee the liquidation process.
Winding Up under BOFIA
- CBN’s Decision: The CBN, with the approval of its Board, decides to revoke the bank’s license.
- NDIC Appointment: The NDIC is appointed as the liquidator to manage the winding up of the bank’s affairs.
NOTE: The court with the exclusive jurisdiction over these proceedings is the Federal High Court.
The Role of the NDIC
The NDIC plays a crucial role in the liquidation process, particularly when it comes to banks. As the appointed liquidator, the NDIC has the following responsibilities:
- Taking Control: The NDIC takes control of the bank’s assets and assumes responsibility for its operations.
- Asset Realization: The NDIC identifies, secures, and sells the bank’s assets to generate funds.
- Debt Settlement: Proceeds from asset sales are used to settle the bank’s liabilities. Priority is typically given to secured creditors, followed by unsecured creditors.
- Depositor Reimbursement: The NDIC ensures that insured depositors receive their funds up to the insured limit. For amounts exceeding the insured limit, depositors may receive liquidation dividends based on the proceeds from the asset sales.
- Reporting: The NDIC must provide regular reports to the CBN and other regulatory bodies on the progress of the liquidation.
The Liquidation Process
The winding up of a bank involves several steps to ensure a thorough and transparent process:
- Revocation of License: The CBN publishes a notice of revocation in the Federal Government Gazette and the media, officially revoking the bank’s license.
- Appointment of Liquidator: The NDIC is appointed as the liquidator and takes immediate control of the bank’s operations and assets.
- Asset Valuation and Sale: The liquidator conducts a thorough valuation of the bank’s assets and prepares them for sale. This can include real estate, financial instruments, and other assets owned by the bank.
- Settlement of Liabilities: The liquidator uses the proceeds from the asset sales to pay off the bank’s debts. The order of payment usually follows a legal priority, with secured creditors paid first.
- Payment to Depositors: Insured depositors receive their funds up to the insured limit, typically through alternate banks designated by the NDIC. For amounts above the insured limit, depositors receive payments based on the remaining proceeds from the asset sales.
- Final Reporting and Closure: The liquidator submits a final report to the CBN and other relevant authorities, detailing the outcomes of the liquidation process. Once all obligations are settled, the bank is officially dissolved.
Regulatory Compliance and Oversight
Throughout the liquidation process, regulatory compliance is crucial to ensure transparency and protect the interests of all stakeholders. The liquidator must adhere to all relevant legal provisions and report regularly to the CBN. The NDIC’s role as a liquidator is governed by both the CAMA and BOFIA, ensuring that the process is carried out in accordance with established legal standards.
Conclusion
The winding up or liquidation of a bank in Nigeria is a complex process that involves multiple legal and regulatory frameworks. However, through proper guidance with the laws, the winding up or liquidation of a bank may be easily facilitated.
References
a. Companies and Allied Matters Act (CAMA) 2020
b. Bank and Other Financial Institutions Act (BOFIA) 2020
c. Nigerian Deposit Insurance Corporation (NDIC) Act