SECTION 48(6) OF THE AMCON AMENDMENT ACT 2015 –For Whose Benefit?
By Victor Okotie
Before the amendment in 2015 of the Asset Management Corporation of Nigeria (AMCON) Act 2010, which introduced Section 48(6) of the Act, unsecured creditors in Nigeria were indeed ill-fated.
In “The Unfortunate Fate of Unsecured Creditors”, in the previous edition of this Newsletter, the situation prior to the amendment was discussed, showing that a Receiver/Manager, in dealing with the proceeds of the sale of the assets, undertaking and goodwill of the debtor company over which he was appointed a Receiver/Manager, had no duty to pay debts owed by the debtor-Company, to unsecured creditors. He would recover only the debt owed his appointor/secured creditor and get discharged thereafter.
However, Section 48(6) of the AMCON Amendment Act 2015, came out with some protection for unsecured creditors. By it, a Receiver appointed by AMCON, who elects to manage the affairs of the debtor-Company or entity, shall in paying off “any debts” owed by the debtor company, adhere to the debt priority ranking prescribed under Section 494 of the Companies and Allied Matters Act 1999 (CAMA). The phrase “any debts” are the debts owed to the general body of creditors (including AMCON) which along with the debtor company, the Receiver/Manager owes fiduciary duties.
According to the ranking, labour claims, such as social insurance and tax deduction claims, wages/salaries and pensions, accrued holiday remuneration, and local tax rates and charges (preferential claims) would be paid, before the secured creditors (including AMCON) are paid. Thereafter, the unsecured creditors would be paid. Thus, an AMCON-appointed Receiver/Manager now has a duty to pay the unsecured creditors after paying the preferential claims, AMCON’s debts and the debts of the other secured creditors; and in doing so, he must apply the ranking as provided under Section 494 of CAMA.
This is in line with Sections 48(5) and 48(6), which state that an AMCON-appointed Receiver/Manager shall manage the affairs of the company for the benefit of both the debtor company and the general body of creditors.
Nevertheless, because in practice, the preferential claims may take a large part of the realised funds, AMCON may only get what is left after a large chunk of the recovered funds has been paid to the preferential claim holders. On this note, one would ask, is the said provision which was introduced via the 2015 amendment of the AMCON Act actually favourable to AMCON, which was established mainly to resolve non-performing loans and save the Nigerian banking system and economy from total collapse? My answer is No.
In addition, experience had shown that in most cases, the entire assets of the debtor company when sold, can barely satisfy the secured creditors. In such a case, there seems not to be much hope of actual repayment of the debt owed to the unsecured creditors.
Therefore, it is arguable that in reality, Section 48(6) does not give much benefit to the unsecured creditors or AMCON, but is more beneficial to the class of persons having those preferential treatments.