In this concluding part of these series, COLLINS NWEZE sheds more light on the huge task ahead of AMCON.
AMCON has powers, which at face value, enable it to deal with defaulting debtors. The use of these powers, in theory, should help AMCON to recover huge debts. For instance, Section 48 of the AMCON Act empowers the corporation to either act as or appoint a receiver for a debtor-company which assets have been charged, mortgaged or pledged as security to AMCON. This in itself is a unique provision.
First, AMCON itself may act as a receiver, which is a departure from the provisions under theCompanies and Allied Matters Act (CAMA), thereby enabling it to utilise its resources (manpower and otherwise), to ensure quick recovery of debts.
Justice Ibrahim Buba of the Federal High Court said AMCON was created to be a key stabilising and revitalising tool for reviving the financial system.
At a forum organised by AMCON in Lagos, Buba said the AMCON Act 2010 (as amended) was gazetted on August 9, 2010, adding that the corporation explores litigation as one of the options to recover Non-Performing Loans (NPLs).
Although AMCON was established in 2010, it began purchase of NPLs in 2012 and will stop operation in 2023 when its 10-year mandate will elapse.
He said: “In banking sector disputes, the courts can be faced with serious fundamental issues and indeed urgent ones, that hit at the bottom of the economy of the nations, that must be handled with dispatch, as failure to do so will tell on the economy, and the judiciary as an institution set up by the Constitution to adjudicate on disputes between persons, authorities and governments, in order to have order, peace and good governance, a veritable tool of maintaining social equilibrium.”
Another judge, Justice Nnamdi Dimgba said the issue of AMCON’s debt recovery drive has become complex adding that it touches on the thoughts and deliberations of policymakers, AMCON executives and even the average citizen.
He said lawyers are partners with AMCON in ensuring that the corporation successfully meets its mandate conferred on it by the AMCON Act. He said the task to strengthen AMCON’s debt recovery drive is of national concern.
He said AMCON has achieved less than 20 per cent debt recovery rate, adding that the corporation has only been able to hit an annual recovery rate of less than 2.5 per cent.
He said that in the light of growing agitations for salary increases, investments in tertiary education, and improved healthcare – these are alarming figures that require AMCON to fully utilize its statutory powers, in order to deliver its mandate under the AMCON Act.
Dimgba said: ” The question, however, is whether the powers contained in the AMCON Act are suitable, or whether the powers are being underutilized. This quickly becomes the boundary that determines whether AMCON is pursuing its mandate vigorously, or is inadvertently giving a free pass to derelict debtors”.
The examination of the Special Powers of AMCON under the AMCON Act showed that the receiver appointed by AMCON (or AMCON itself) has the power to: realise the assets of the debtor company; enforce the individual liability of the shareholders and directors of the debtor company; and manage the affairs of the debtor company.
He said the powers under the AMCON Act are unique. “Ordinarily a creditor is only able to exercise receivership powers over assets charged to it directly or where an all-assets-debenture exists. The AMCON Act however, in a bid to ensure that the best value is derived from the undertakings of the debtor, empowers AMCON to exercise its rights under Section 48 over the entire undertakings of the debtor company and assets, notwithstanding that only a part of the assets of the company was charged or mortgaged as security to AMCON,” he said.
“The provisions are further strengthened when dealing with a situation where AMCON or a receiver appointed by it, opts to manage the affairs of the debtor company. In such an instance, the enforcement of all judgements, claims, debt enforcement procedures existing or being pursued before the publication of the notice of the receiver to manage the affairs of the debtor company stands suspended and unenforceable against the debtor company and corporation’s receiver for a period of the shorter of one year from the notice or the period that the receiver continues to manage the affairs of the obligor Company”.
In addition to receivership, AMCON is also empowered under Section 49 of the AMCON Act to, through an application ex-parte, seek a forfeiture order against the assets of a debtor. This is a particularly important power as it enables AMCON to move stealthily without tipping off otherwise crafty debtors. The forfeiture order vests the control and possession of the assets in AMCON, pending trial and judgement. Upon a favourable judgment, the assets in question are permanently forfeited to AMCON.
Also, there is a perception that many debtors have the resources to pay, but for reasons best known to them, are not ready to do so. To address this issue, AMCON, is by virtue of Section 50 of the Act, empowered to apply, ex parte, to court for freezing of bank accounts of a debtor where there is a reasonable belief that sufficient funds to offset their debt to AMCON are contained in that account.
“There is however a need to balance the rights of AMCON with the rights of the debtor in question. For this reason, AMCON is required to immediately commence a debt recovery action against the debtor or debtor company. The balance is achieved in that, where AMCON fails to commence the required debt recovery action within 14 days, then the order shall lapse. As such, this power is directly linked to the success of a debt recovery action.
The AMCON Act, per Section 51, also provides for a specialised bankruptcy regime. In sum, where AMCON obtains a judgement in an action for debt recovery, AMCON is empowered to begin bankruptcy proceedings against a judgement debtor, even without establishing the occurrence of any act of bankruptcy or fulfilling other conditions prescribed under the Bankruptcy Act. In simple terms, this provision achieves the same results that would result from bankruptcy proceedings, albeit in a shorter time and without the extensive pre-conditions.
According to the AMCON Act, once an obligor is adjudged bankrupt, an official receiver may be appointed or AMCON may assume the office of trustee of the property of the debtor. In sum, this provides another avenue for AMCON to recover debts, upon a successful debt recovery action.
By virtue of Section 52 of the Act, AMCON is also empowered to approach the courts to issue a winding-up order against a corporate debtor that is also a judgement debtor pursuant to a debt recovery action that has failed to pay its judgement debt within 90 days from the judgement/order for payment.
Compared to creditors’ winding up under the CAMA, the provisions of the AMCON Act are simpler. For example, under the AMCON Act, there is no requirement to notify the judgement-debtor; winding up is started by way of an application (and not a petition as is the case under CAMA); and there is no obligation on AMCON to apply to court for leave to advertise or not to advertise the application; there is also no room under the AMCON Act for creditors’ participation.
Be that as it may, where a winding-up order is made the provisions of CAMA as they relates to priorities of payments would be triggered and would be as applicable as though the winding up order was obtained under CAMA.
According to Dimgba, the facts, however, suggest that this stronger recovery drive is not yet a reality, as the docket of unresolved NPLs remains dangerously high. The corresponding question begging for answer is: why have the special powers contained under the AMCON Act not translated to an increased recovery drive?
An analysis of similar recovery agencies across the world suggests that there are two key distinguishing approaches to the job of an asset management corporation. On one hand, is an approach which favours enforcement through the courts and the other is the restructuring of the NPLs.
The enforcement approach is informed by the understanding that the asset management corporation in question has a limited time and a recovery mandate. The approach further understands that the vast majority of debtors may be unable or unwilling to repay their debts. With this understanding, the enforcement approach jettisons restructuring plans and focuses on enforcing security by the sale of the underlying assets.
The restructuring approach is however informed by the understanding that time is abundant and opportunities exist for debtors to restructure their NPLs and provide a plan ‘usually long term’ toward resolving their indebtedness.
Asset partners to go
Kuru also hinted at the corporation’s plan to disengage Asset Management Partners (AMPs) that are not effective in recovering N740 billion debts assigned to them.
The AMPs are currently handling over 6,000 accounts within AMCON portfolio but outsourced to them. The accounts outsourced to AMPs constitute only 20 per cent or N740 billion of the total Eligible Bank Assets (EBA) portfolio of N3.7 trillion.
Kuru said AMCON places equal importance on the recovery efforts as they count towards the achievement of the corporation’s core mandate.
The corporation will also be exploring the Alternative Dispute Resolution (ADR) option that involves out-of-court settlement.
Leading jurists have also urged AMCON to embrace the opportunities offered by ADR Centres established by the Federal High Court.
Speaking in Abuja, Justice Buba, Justice A.M. Liman; C.M.A. Olatoregun; B.F.M. Nyako; Nnamdi Dimgba, Chuka Agbu and Olugbenga Bello, among others, urged the asset managers to refer some of their cases to ADR as that could provide faster ways towards recovery, rather than wait endlessly for the courts, especially now that the corporation has over 3,000 court cases and counting, with imminent sunset date fast approaching.
The lawyers spoke at the Abuja version of the 2019 Annual Seminar for External Solicitors and Asset Management Partners (AMPs) of AMCON, which ended at Sheraton Hotel, Abuja last weekend.
Justice Buba, who chaired one of the sessions said, “Every judge is supposed to promote ADR because it is faster. ADR was set up to help the courts. If you say you don’t want ADR, then you have to be ready to waste your time in court. It is not that the courts deliberately delay your cases, but the courts are overwhelmed by the barrage of cases before them.”
Justice Nyako, who also chaired a session, urged AMCON lawyers to familiarise themselves with the legal procedures before appearing in court.
He was commenting on why cases pile up in courts.
She said: “If a lawyer handling AMCON case does not follow procedure, the case will not take off. But to help ease off the pressure, the Federal High Court is trying to establish three more ADR centres for ease of dispensing justice.
“Once the ADR centres are open, I want to encourage our lawyers to refer some of these AMCON cases to the ADR centres and help decongest the courts.”
Kuru said the huge outstanding debt of the corporation will eventually become a burden to the Federal Government if at sunset AMCON fail to recover them.
Urging AMCON lawyers to sit up, especially in the face of hard fighting obligors, he added: “We have noticed the increased incidence of obligors taking advantage of the appeal process to deny us the benefit of favourable judgments obtained.
“Going forward, we should be conscious of the availability of the opportunity to request the courts to order litigants to deposit judgment consideration with the court registrars. This will mitigate the practice of obligors deliberately dragging their matters in court.”
Why bad loans persist, by CBN
The CBN Governor, Godwin Emefiele had during CBN-FITC Continuous Education Programme for Directors of Banks and Other Financial Institutions, said the level of insider abuses perpetrated by bank chief executives and other key stakeholders are worrisome to the regulator.
He expressed the apex bank’s dismay over the level of corporate governance abuses perpetrated by the top echelon in banks, adding that the regulator would henceforth punish offenders.
Emefiele, who spoke on the theme: “The Next Level of Corporate Governance Practice”, said fit and proper persons should be appointed into the boards of banks, adding that corporate governance is undoubtedly an essential pillar in financial system stability.
Shareholders unite
against AMCON
Shareholders of five banks are kicking against the N83.58 billion contribution into the AMCON’s sinking fund in 2018. The banks are Sterling Bank, United Bank for Africa (UBA), Guaranty Trust Bank, Zenith Bank and First Bank of Nigeria (FBN) Holdings.
Data obtained from the banks’ annual reports indicated that Sterling Bank paid the sum of N6 billion for the financial year ended December 31, 2018.
UBA, during the period, paid N16.63 billion, GTBank paid N16.31 billion, Zenith Bank contributed N9.54 billion and FBN Holdings paid N35.10 billion.
The CBN, on January 1, 2011, had signed an agreement with banks operating in the country to establish the AMCON sinking fund.
The agreement required the CBN to contribute N50 billion and the banks an equivalent of 0.3 per cent of their total assets as at the date of their audited financial statements, annually for 10 years.
However, the contribution, a non-refundable levy on all banks in Nigeria, was increased to 0.5 per cent in 2013.
Shareholders have criticised the sinking fund, saying that they were shortchanged and urged the Federal Government to wind down the corporation.
Commenting on the issue, Publicity Secretary, Independent Shareholders Association of Nigeria, Moses Igbrude described AMCON as a fraud designed to suppress investment in Nigeria.
Igbrude said banks and their shareholders had paid over N1 trillion to AMCON within eight years of its existence in spite of nationalising some banks without giving their shareholders anything.
He said AMCON was an emergency toxic vehicle established by the government through the CBN and stakeholders then to save the situation at hand then, and noted that “it has over stayed its welcome.”
“The only way forward is for AMCON to start winding up their operations because it has spent eight years, the remaining two years should be used for rounding off.
“The lawmakers should not extend the years. Shareholders will protest and even go to court to challenge AMCON’s extension,” Igbrude said.
According to him, the government needs to evaluate the performance of AMCON since inception, noting that the impact of the corporation is not felt.
National President, Constance Shareholders’ Association of Nigeria, Malam Shehu Mikail decried the huge contributions being made by banks into the sinking fund to the detriment of their shareholders.
Mikail said the act that established AMCON needed to be reviewed. “The body should give details of its services to the nation.
“We do believe that all other regulatory agencies are up to the task of enforcing the necessary rules to sustain the financial sector,” he said.
Mikail noted that AMCON must be disengaged because, “it is causing more injury to shareholders in terms of dividend payment.”
However, the Chief Operating Officer, InvestData Limited, Ambrose Omordion said the establishment of AMCON saved many listed and unlisted companies by not allowing debts to swallow them.
However, he said the 0.5 per cent contribution by the banks to AMCON’s sinking fund meant a reduction in the funds available to banks to lend to the private sector.
“This is because such contributions can be channelled to support one sector of the economy, or enhance banks’ rewards to their shareholders,” Omordion said.
He noted that AMCON’s mandate was to recover and manage debt, but nobody knew how the corporation deployed the contribution.
He explained that shareholders were against the contribution because they were not seeing the impact of the contribution to the capital market or the economy.
Also, Justice M.B Idris of Court of Appeal summarised AMCON’s role in this way: “AMCON is an institution created for the purchase and resolution of nonperforming loans. It is also an instrument created by the Federal Government of Nigeria by which the government bolsters ailing banks through the injection of capital in consideration for equity”.
He said many of the bad loans bought by AMCON had been deemed lost or irrecoverable by the banks. “The recovery rate of non-performing loans everywhere in the world takes a very long time. The best we have seen is 57 per cent achieved by the Malaysians. I gave you the background so that you can know how difficult the job is. In setting up an asset management corporation, the idea is to take those loans out of the banks and put them where they will be managed for a very long period of time. For instance, in the case of the United States of America, after the Resolution Trust Company of America bought loans from the Small and Medium Enterprises (SMEs), after the five-year period, all those loans were transferred to Deposit Insurance Corporation and many of those loans still exist. These things take a long time,” he said.
Continuing, he said: “So, I don’t want anybody in Nigeria to believe that there is a magic bullet in AMCON Act that is going to make them recover these loans in any kind of magical way. So far today, measured against other such companies in the world, AMCON has made significant progress”.
Speaking on AMCON operations and results achieved so far, Board Board Member at Standard Bank Group, South Africa, Atedo Peterside, said one third of the money that the Federal Government squandered on AMCON can resolve most of Nigeria’s social and economic problems including providing stable power supply for the country.
Peterside who did not elaborate further on AMCON’s operation, spoke during ‘A Consultative Roundtable with The Central Bank of Nigeria Governor’ tagged: ‘Going for Growth’ held in Lagos at the weekend.
Like Peterside, Justice Dimgba believes that AMCON still has a long way to go given that the volume of unresolved NPLs remains dangerously high in the corporation’s portfolio, even as its sunset timeline ticks.
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