Procedures Available to Creditors for Recovery of Debts in Nigeria

INTRODUCTION

Debt is a thing that has been from the dawn of time and as long as man and his endeavours continue, there will always be debtors and creditors. Loan is necessary and becomes unavoidable in some circumstances. It may be for the purpose of meeting up with an urgent business/contract obligation or to even engage in a new business line with propitious expectations of returns. Inability to fulfil loan obligations results in debts. Debt may as well arise from money put into an investment contract that failed. Whatever may be the reason, debt paralyses business and personal plans. It also affects human relationships and goes to the state of mind and reputation of the parties involved. Thus, the creditor and even debtor alike seek out options that may be employed to relieve themselves of the scourge and burden of debts, and sometimes, disregarding the side effects of those options. Some creditors engage the use of force, security agencies, debt collectors, or some other unlawful means that may end up in something unpalatable. It is therefore highly essential to be abreast of the lawful options available for debt recovery so as to avoid the dire consequences that may betide erring party if any unlawful means is employed. Click here to read our post on the repercussions of the use of security agencies for debt recovery.

WHAT IS A DEBT?

Some monetary claims or entitlements that may be regarded as debts are not actually debts properly called. Black’s Law Dictionary (8^th Ed.) defines “Debt” as a specific sum of money due by agreement or otherwise. See also Per Ikongbeh, J.C.A. in Nipost vs Insight Engineering Company Limited (2006) 8 NWLR (Pt. 9830) p. 435.

It follows that for a monetary claim to be regarded as debt, the money must be a specific sum – a certain, fixed, or liquidated amount of money; there must be a due date and such due date must have passed; it must arise from some agreement by parties to it called the “Debtor” (the person who owes the debt) and “Creditor” (the person who claims or is entitled to recovery). Thus any amount that is not calculated or ascertained or agreed upon by parties cannot be regarded and recovered as debt.

A court of law may in its judgment help parties to reach a certain sum as a total sum of money claimable by a Claimant against the Defendant, such amount is called judgment debt.

PROCEDURES FOR DEBT RECOVERY

Nigerian laws and various Rules of Courts make special provisions for less cumbersome processes for recovery of debt. Thus, apart from the preliminary options discussed below, taking an action in court as last resort for recovery of debt, other things being equal, is a straightforward one as the circumstances of each case may determine. But before taking any option, it is important that a comprehensive demand notice is written to the debtor. The letter must be sent by means that would ensure delivery and a copy of the acknowledgment of receipt or such other proof of delivery must be obtained and kept.

1. Procedures Stated in Agreement

Parties to facilities, loans, project funding, contracts, etc. usually resort to written Agreements. It is always advisable for parties to so do as provisions for simple and less expensive procedures can be provided in such Agreement for recovery of money owed thereby. By law, any licenced money lender in Nigeria is mandated to make a written agreement on lending, failing which its right to make claim for recovery of such money cannot be exercised.

If there is a written agreement between you and the debtor, please check the procedures for recovery of debt stated therein and go on to explore that. Howbeit, before you give out your hard-earned income to a contract or investment, or loan, it is advisable that you contact a lawyer to help you prepare a requisite agreement or review the agreement for that purpose. It is also important that you ensure that the borrower provides security in case of a loan or credit transaction.

2. Recovery Through Disposal of Security

The scope of this article does not require the needed wide discussion on secure credit here. Indeed, provisions of laws regulating this aspect are elaborate, and more importantly, financial institutions who advance secure credit facilities do make comprehensive requisite legal instruments thereon depending on the nature of the transaction and the type of security involved. It may be by way of legal mortgage, equitable mortgage, charge, etc. There is now a new legal regime on the use of movable assets as collateral for loans in Nigeria. If you want to read about the tenets and process of debt recovery on loans secured against movable assets, click here.

3. Debt Restructuring and Renegotiation Option

This option is available to a debtor who is experiencing financial distress or liquidity problems and therefore at high risk of defaulting. It, therefore, becomes necessary to renegotiate and alter the existing contractual terms such as – the duration, time of payment, interest rate, compound interest, recapitalisation, etc. so as to make repayment easier for the debtor. This option is to be taken and handled with utmost carefulness. The proposal for restructuring must be made in good faith and the debtor must be seen to be ready to fulfil the new obligations before altering the existing instrument and executing a new one.

This option may be a good one to maintain relationships and to avoid delays and the frustrations that may otherwise betide such a recovery process in due course.

4. ADR Mechanisms

Another means of debt recovery is to seek out a third-party intervention. Most written Agreements provide for this procedure. It may be by arbitration or mediation. It may be formal or informal, institutional or otherwise depending on the parties and the volume of money involved. There are individual arbitrators or mediators that the party may appoint. Party may choose to appoint neutrals (arbitrator or mediator) from institutions such as chartered institutes, chambers of commerce, even the courts like the Lagos Multi-Door Courthouse (LMDC), etc. Parties are bound by whatever may be the outcome of the process, whether in the form of arbitral award or terms of settlement and if there is default of compliance, legal process could be taken to enforce it.

5. Litigation

This is the last resort in case any of the above fails. Sometimes, this may be the more suitable option than any of the aforementioned depending on the circumstances of each case. Needless to say, this option involves taking out appropriate legal processes that lawyer has to be engaged to pursue. As earlier pointed out, Nigerian laws and Rules of Courts make provisions for simple and fast procedures for liquidated money demands such as debt. Those special provisions are made so as to take debt recovery out of the normal cause of court proceedings that may linger for long before judgment is delivered. The amount of the money, the nature of the transaction, the parties involved, etc. ceteris paribus, determine the particular court to approach for the recovery process. Summary judgment and undefended list procedures are specifically provided in various Rules of Courts for this purpose.

At the High Court of Lagos State, there is a Fast Track Procedure for recovery of monetary claims of N100,000,000.00 (One hundred million naira) and above. Any matter that qualifies for this procedure is expected to be concluded within 90 days.

Under the Companies and Allied Matters Act, 2020, the law that regulates the registration, management, and affairs of companies and corporate bodies in Nigeria, provisions are made for simple procedures for recovery of debt owed by registered companies. Also, a creditor is empowered by law to petition the court for winding up of a company for inability to pay its debt and may subsequently appoint a receiver to take possession of and sell the assets of the company to recover the debt.

All the above procedures are available, helpful, feasible, responsive, and very propitious in debt recovery rather than resorting to self-help or other nonstandard options that may have some boomeranging effects in due course.

LEGAL LIMITATIONS IN DEBT RECOVERY

As we have procedures and provisions of law for recovery of debt, so we have some limitations to the use of those procedures in certain cases. There are basically two categories of debt that the law will not enforce.

1. The first is statute-barred debt- these are debts that are caught up by limitation law. Generally, debts cannot be recovered after six years of the date the cause of action arose except for debt in mortgage or charge on land transactions which is twelve years. The law expects the creditor to be vigilant and not to sleep on his right. Equity aids the vigilant; not the indolent.
2. The second category is bad debt- if the creditor does not act timeously to recover his money, the debtor may be declared insolvent or overtaken by more diligent and secured creditors. It would therefore become impossible for such creditors to recover the debt.

When any of these occur, however, the creditor needs to consult with a lawyer for a review of the claim/case and for necessary steps that could be taken so as to possibly circumvent such limiting factors before embarking on the recovery exercise.

************

If you find this Article helpful, you can share it to help others, too.

Note that this content is just a general guide on the subject matter treated. If you would like to find out more about a consultation with Our Team regarding your specific need on this topic or any legal issue you may be confronted with, click here to contact us.