Procedures For Winding Up Cash – Starved Banks In Nigeria By S.O. Giwa Esq

It is not in doubt that banks be it Microfinance Banks or conventional banks are incorporated limited liability companies registered with Corporate Affairs Commission in full compliance with the requirements of Companies and Allied Matters Act in respect of their registration. For the reason of status of banks as incorporated companies, many customers who are judgment creditors by virtue of judgment of court used to resort to filing a petition before the court through their lawyers pursuant to provisions of sections on application for winding up of companies in the Companies and Allied Matters Act to wind up banks as a means of re-cooping their judgment sum from cash starved banks. Are the provisions of sections on application for winding up of companies in Companies and Allied Act applicable to banks in Nigeria? .

It is against this background that this piece is written with utmost view to discussing the Act of National Assembly of the Federal Republic of Nigeria applicable to banks vis-à-vis winding up of banks with full recourse to the procedures involved and party that has locus to wind up cash-starved banks.

Legal capacity in the legal parlance is a cognizable and recognized right by law and which capable of being enforced in the court of law. For any person to have been adjudged as a proper person for performance of act, such person must have been conferred with such right by law.

It is worth saying that though the provision of section 410 of Companies and Allied Matters Act confers right to bring an application for winding-up of a company on a Creditor, including a contingent or prospective creditor of the company; this provision is not applicable to bank for reason that only applicable Act with respect to winding-up of a bank/Financial Institution is Banks and other Financial Institutions Act which regulates banking and other financial institutions and for matters connected therewith. This is fortified by the provision of the introductory part of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 which provides thus:

‘An Act to regulate banking and other financial institutions and for matters connected therewith’

Flowing from the above quoted provision is the deductible fact that affairs of banks are regulated by Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 to the exclusion of Companies and Allied Matters Act. Hence, legal maxim ‘Expressio unius est exclusio alterius’ meaning the expression of one thing is exclusion of another applies. What then are the procedures for winding-up of a bank provided for under Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004?

PROCEDURES FOR WINDING-UP OF BANKS AND OTHER FINANCIAL INSTITUTIONS 

Combing through the provisions of the sections of Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 with a view to finding out the laid down procedures of Banks and other Financial Institutions in the Act evinced provisions of sections 35, 36, 38, 39 and 40 discussed thereunder as the relevant provisions on the procedures of winding-up of Banks and other Financial Institutions and party who has right to apply for winding up of Banks and other Financial Institutions in Nigeria.

The procedures for winding-up of a bank and proper party who is vested with power to apply for winding-up of Banks and other Financial Institutions in Nigeria are succinctly provided under sections 33, 35, 36, 38, 39 and 40 of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004.

The provision of section 33 of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 confers power on the Governor of the Central Bank of Nigeria to order a special examination or investigation of the books and affairs of any bank. The provision of section 33 (1) of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 goes thus:

‘The Governor shall have power to order a special examination or investigation or the books and affairs of a bank where he is satisfied that –

• it is in the public interest so to do; or
• the bank has been carrying on its business in a manner detrimental to the interest of its depositors and creditors; or
• the bank has insufficient assets to cover its liabilities to the public; or
• the bank has been contravening the provisions of this Act; or
• an application is made therefor by-
• a director or shareholder of the bank; or
• a depositor or creditor of the bank:

    Provided that in the case of paragraph (e) of this subsection, the Governor may not order a special examination or investigation of the books and affairs of a bank if he is satisfied that it is not necessary to do so.’’

Flowing from the above quoted provision is deductible fact that the first step of the procedure for winding-up of a bank is an application to be made by a director or shareholder of the bank or a depositor or creditor of the bank on the affairs of the bank to the Governor of the Central Bank of Nigeria.

It is therefore safe to conclude that the first step to take in winding-up of a failing bank is lodging complaint on the affairs of a failing bank via an application by a director or shareholder of the bank or a depositor or creditor of the bank to the Governor of the Central Bank of Nigeria.

Reading the provision of section 33(2) of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 further evinced the second step which is to be taken by the Governor of the Central Bank of Nigeria. The provision of section 33(2) provides thus:

‘For the purpose of subsection (1) of this section, the Governor shall have power to appoint one or more qualified persons other than the officers of the Central Bank to conduct special examination or investigation, under conditions of confidentiality, of the books and affairs of the bank.’ 

It is deductible from the above quoted provision of section 33(2) of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 that upon the receipt of the letter of complaint via application on the affairs of the bank, the Governor of the Central Bank of Nigeria is to appoint one or more qualified persons who are not officers of the Central Bank to conduct special examination or investigation of the books and affairs of the bank complained of under conditions of confidentiality.

It is worth saying that the failing bank on its own may alternatively inform the Central Bank that it is likely to become or unable to meet its obligation under the Act; or it is about to suspend payment to any extent; or it is insolvent. If the bank on its own does that, the Governor of Central Bank of Nigeria would then appoint one or more qualified persons who are not officers of the Central Bank to conduct special examination or investigation of the books and affairs of the bank. Fortifying the above is the provision of section 35(1) of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 which provides thus:

‘Where a bank informs the Bank that-

• it is likely to become or unable to meet its obligation under the Act; or
• it is about to suspend payment to any extent; or
• it is insolvent

the Governor by order in writing exercise any one or more of the powers specified in subsection (2) of this section.’

If the Governor of the Central Bank is satisfied that the bank is in a grave situation provided for in section 33 of the Act quoted above in this piece, the Governor may by order in writing prohibit the bank from extending any further credit facility for certain period; or require the bank to take any steps or any action or to do or not to do any act or thing whatsoever, in relation to the bank or its business or its directors or officers which the Central Bank of Nigeria consider necessary; or remove notwithstanding any limitations contained in the memorandum and articles of association any manager or officer of the bank for reasons to be recorded in writing with effect from such date set out in the said order; or remove notwithstanding any limitations contained in the memorandum and articles of association any director of the bank; or appoint any person or persons as a director of the bank with provision in the said order that the person or persons appointed be paid remunerations stated in the order by the bank or appoint any person to advise the bank in relation to the proper conduct of its business, provide for the person so appointed to be paid remuneration stated in the order by the bank.

The above powers of the Governor of Central Bank of Nigeria stated in the preceding paragraph are provided for in section 35(2)(a-e) of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004.

Flowing from the provision of section 36 of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 is the turning over the control and management of the failing bank by the Central Bank of Nigeria to the Nigerian Deposit Insurance Corporation on terms and conditions as the third step after taking above discussed steps in the preceding paragraphs and the state of affairs of the bank concerned does not improve.

It is important to be noted that the Nigerian Deposit Insurance Corporation is empowered under section 38 of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 to remain in control of and continue to carry on the business of the bank in the name and on behalf of the bank until prescribed time by the Central Bank of Nigeria.

It is pertinently important to note that where the Nigerian Deposit Insurance Corporation has assumed control over the said cash-starved bank as provided for in section 36 of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 and the bank is still insignificantly under-capitalized to the extent that its risk weighted assets ratio is below five percent but above two percent, the Nigerian Deposit Insurance Corporation is statutorily empowered to take some measures provided for under section 37 of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004.

These powers as provided for under section 37 of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 are:

i. requiring the bank to submit a recapitalization plan acceptable to Nigerian Deposit Insurance Corporation;
ii. prohibiting the bank from extending any further credit and incurring any additional capital expenditure without the approval of Nigerian Deposit Insurance Corporation;
iii. requiring the bank to take such steps or to do or not to do any act or thing whatsoever in relation to the business of the bank or its directors or officers as may be considered necessary within stipulated time by the Nigerian Deposit Insurance Corporation notwithstanding the provisions of section 7 of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 on restructuring, re-organization, mergers and disposal of bank;
iv. removing any director, manager, officer or employee of the bank with the approval of the Central Bank of Nigeria; and
v. appointing with approval of Central Bank of Nigeria any person or persons as a director or directors of the bank and cause their remuneration to be provided by the bank

 In the event that the bank over which the Nigerian Deposit Insurance Corporation has assumed control cannot be rehabilitated, the next step provided for under section 39 of Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 is for Nigerian Deposit Insurance Corporation to recommend other resolution measures to the Central Bank of Nigeria which include revocation of the bank’s licence.

It is after the recommendation by the Nigerian Deposit Insurance Corporation that the Central Bank of Nigeria may then revoked the bank’s licence pursuant to section 39 of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004.

The last step of its all for the winding up of banks is the provision of section 40 of the Banks and other Financial Institutions Act Laws of the Federation of Nigeria Cap B3 2004 which confers right on the Nigerian Deposit Insurance Corporation to apply to the Federal High Court for a winding up order of the affairs of the bank.

From the above highlighted procedures, it is crystal clear that it is the Nigerian Deposit Insurance Corporation that has the legal capacity to wind-up Banks and other Financial Institutions and not a Creditor, including a contingent or prospective creditor of the company, the officer receiver, a contributory, a trustee in bankruptcy to, or a personal representative of a creditor or contributory, the Corporate Affairs Commission, and a receiver authorized by the instrument under which he was appointed provided for under section 410 of Companies and Allied Matters Act.

On a final note, it is hereby advised and recommended that every legal practitioner should always endeavour to find out applicable law before taking any legal step in seeking justice in courts for clients as doing that would enhance speedy determination of cases in Nigerian Courts and reduce filing of preliminary objection to a suit which some lawyers often derive joy in doing.

S.O. Giwa Esq. a.k.a pentalk (Ibadan based Legal Practitioner) giwa_pentalk@yahoo.com 08035224192