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The Trusted Advisors Legal Digest: Winding down AMCON- Matters Arising (Part II)

Transitioning AMCON – the choice between winding down and privatization

The establishment of the Nigerian Asset Management Corporation (AMCON) in 2010 was an interventionist approach pivoted on the urgent need to address the burgeoning problem of non-performing loans in Nigeria’s banking sector. However, with the recent unanimity over the need to end its mandate and ensure a successful wind-down of the corporation, there are important matters that need to be considered to ensure a smooth winding-down process. In the first part of this article, we examined the legal framework, in this part, we will look at the challenges, as well as the embedded opportunities that are associated with the winding-down call.

Challenges in the Winding-Down Process: The winding down of AMCON is likely to present several legal and practical challenges. This section examines some of the key challenges that may arise, including the disposal of assets, resolution of outstanding debts, employee redundancy, and potential litigation.

a. Resolution of Non-Performing Assets: This challenge is pivotal to the success of the corporation’s winding-down plan. If the blueprint is to dispose of the pledged assets, then each of the subsisting but unrecovered assets will constitute a brick on the path to the realization of its winding-down mandate. This brings the disposal of these assets to the focal point in the transition state of play.

Source: Asset Management Corporation of Nigeria Full Year Audited Group Result Presentation for the year ended 31 Dec. 2011

However, the process for disposing of these assets can be complex and time-consuming. The apparent challenges include assessing the true value of the assets, finding suitable buyers, and navigating legal and regulatory requirements. Additionally, the growing strain on the economy and market conditions can hinder the ease of moving these assets along, further complicating the winding-down efforts.

b. Debt Recovery: The mandate of the corporation is not only to acquire the debt but also to recover the same. Fulfilling this mandate is crucial for the success story of the corporation and it will guarantee the long-term sustainability of its winding-down roadmap. However, the task of recovering these debts from defaulting borrowers can be challenging. Factors such as legal disputes, asset tracing, and enforcement difficulties pose significant obstacles in this respect. The complexity of the Nigerian legal system and the judicial system, in particular, hampers the effectiveness of debt recovery efforts. The effect is that successful debt recovery often depends on the cooperation of the debtors, as the converse often triggers an increased propensity to exploit the legal system and put a strain on the enforcement mechanisms.

Read also: Winding down AMCON- Matters Arising

Source: Asset Management Corporation of Nigeria Full Year Audited Group Result Presentation for the year ended 31 Dec. 2011

c. Repayment of Outstanding Obligations: The CBN remains the corporation’s sole obligee. This is the case both from the standpoints of its equity investment in the corporation as well as the redemption of its obligation under the bond as well as other debt instruments. Failure to redeem these obligations was recently categorized as a potential robbery on the taxpayer. The significance of this is that special attention should be given to this discussion to foster a better deal offering to Nigerians.

d. Legal Complexities: As a legal creation, the corporation functions and operates within a complex legal framework, which can hinder the winding-down process. This complexity easily creates several legal challenges, which may arise from a series of litigation involving debtors, regulatory reporting and compliance, and asset transfer procedures. As of today, the corporation is involved in not fewer than 5000 live cases with issues ranging from foreclosure to receivership action and depending on the value of the assets and the litigation appetite of the counterparties, these cases can drag on for a minimum of five to six years. Resolving these legal complexities requires a proactive approach, including the engagement of legal experts.

e. Stakeholder Management: Beyond the CBN, which is the principal holder of the corporation’s share equity and its debt interest, there are myriads of stakeholders which must be accounted for in its winding down journey. The corporation is an amalgam of diverse stakeholders, and AMCON’s winding-down process involves managing various stakeholders, including debtors, banks, investors, and government agencies. Conflicting interests, divergent expectations, and communication gaps can complicate stakeholder management. AMCON must navigate these challenges by fostering transparent communication, addressing concerns, and promoting collaboration among stakeholders to achieve a successful winding-down process.

f. Exiting its Fiduciary Obligations: The corporation, by its standing, particularly as a receiver entity for many organizations today, stands in the position of a fiduciary vis-a-vis the interest of the respective target insolvent organization. While the corporation has been able to manage the burden of this fiduciary with the backing of its establishment Act, its winding down invariably imports the conclusion that the will either rapidly exit this position by rapidly exiting the target entities or pass on the burden of this fiduciary to a successor entity.

g. Legislative Review and Proactive Measures: To ensure a successful winding-down process, targeted efforts must be made towards reviewing the underlying legal framework, and specific proactive measures must be deployed towards clearing the relics of the corporation’s decade-long existence. These efforts will include painstaking reviewing and updating of relevant legislation, streamlining legal processes, enhancing debt recovery mechanisms, and strengthening stakeholder engagement. Additionally, adopting best practices from international experiences of similar organizations will afford valuable insights for AMCON’s winding-down efforts.

The Opportunities Arising:

i. The Emergence of a True Asset Management Company: According to its establishment enactment, the AMCON was set up “…For the purpose of efficiently resolving the non-performing loan assets of banks in Nigeria; and for related matters.” While commendable, the existing structure of the corporation has seen it gravitate towards and excel better as an asset-holding and asset-trading organization. The palliative and support outlook of its emergence has dwarfed its potential to operate as a purely commercial interest with sufficient grit to carry out its all-important management mandate. This scoring does not in any way reflect the deficit in the corporation’s human resource capacity but speaks volumes to the overbearing regulatory oversight and ambulatory political patronage which has come to define its over a decade of operation

One way to remove the clog from its wheel of success, therefore, is to embrace a true transition into a successor entity in the structure of a limited liability company, possibly with zero governmental involvement. It is beyond doubt that the existing resource base constituting its portfolio will blossom even more under an efficient system driven majorly by a well-defined commercial viability and sustainability consideration over and above the primordial sentiment of political favours and exchanges.

ii. The Business Side of Claim Trading: One popular refrain chorused so far by stakeholders in the winding-down discourse has been the lack of sufficient time to spin off available assets in a manner to accommodate the transition of a plausible winding-down timetable. While this readily presents itself as a challenge to the neutrals, it definitely presents viable opportunities on the other side of its winding-down coin. We venture to argue that from the range of assets currently under the control of the corporation, a new market for claim trading can emerge such that several players can come up to take respective slices of the larger cake.

Conclusion

The winding down of the Nigerian Asset Management Corporation presents both legal and practical challenges that need to be carefully addressed. By understanding and proactively dealing with these matters, AMCON can ensure a smooth and successful winding-down process. While the success of the journey depends on the corporation’s ability to assemble qualified and passionate multidisciplinary professionals to midwife its transitioning, the majority of the guidance it requires for its transition journey is legal, and the delivery of its legal team will be central to the success story of the transition exercise.

Taye Awofiranye is the Managing Partner at The Trusted Advisors and heads the Fiscal and Finance practice. Ajibola Olaosebikan is a Senior Associate in the Conflict and Dispute Management Practice group of the Firm.

The Trusted Advisors is a leading Nigerian full-service law firm providing cutting-edge and timely legal solutions and services to its clients.

Disclaimer: This article provides general information and does not constitute legal advice. For specific legal advice, readers are advised to consult with a qualified legal professional familiar with Nigerian laws and regulations.