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Winding down AMCON- Matters Arising

Report says AMCON existence sending wrong signal about Nigerian banking system

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 this journey, we shall examine the legal framework, the challenges, as well as the embedded opportunities that are associated with the winding-down call.

Read also: NG Eagle AOC extended by 6 months on deadline day, AMCON sells process

Legal Framework for Winding Down AMCON
AMCON is a creation of the law, and the peculiarity of its operations and positioning derives not only from the specific statutory flavours of its creation but also the peculiar import of the adjunct political considerations on its operation. It is, therefore, auspicious to commence a review of the winding-down process through the prism not only of the subsisting legal framework but also the minimum sets of tweaks and resets necessary to wind down the corporation. This section aims to discuss the relevant impact of the AMCON Act, as well as other applicable laws and regulations that may impact the winding-down process.

a. The AMCON Act: As the establishment Act for the corporation, this Act must not only be repealed but there must be put in place an adequate framework for transitioning every miscellaneous and incidental establishment, structure, and transaction that is adjunct to the subsistence and footprint of the corporation. This Act sets out the legal basis for AMCON’s functions, powers, and responsibilities, including the acquisition and resolution of non-performing loans, and some of these incidental activities are likely to survive any winding-down exercise involving the corporation.

b. Powers and Functions of AMCON: A good sum of AMCON’s peculiarity revolves around the unique nature of its powers and functions to recover risk assets in a manner no other entity can successfully implement. This peculiarity involves a near-absolute mandate to take over and manage eligible bank assets, acquire non-performing loans, enforce security interests, and recover debts. The corporation can deploy some of these advantages to fast-track the liquidation of its existing asset portfolio with a view to fast-tracking its winding-down process and resolving its outstanding obligations.

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

Read also: AMCON recovers 70% of bad debts

c. Related Regulations and Guidelines: In addition to the AMCON Act, specific regulations and guidelines (e.g. the CBN guidelines on the AMCON Bond and the credit access of its obligors) have emerged to support the operations of the Corporation, and some of these guidelines impact directly on some subsisting obligations of the corporation. In addition, due to the substantial slant of its portfolio towards risk assets and the reliance on receivership as a vehicle for recovery, the corporation will do well to cast more than a glance at the impact of shedding its current statutory protection and the reality of its ‘civilian’ successor entity having to deal with the rudiments of implementing recovery within the current judicial ecosystem.

d. Relevant Banking and Insolvency Laws: The corporation’s tango with insolvency transcends the simple ambits of Chapter 26 of CAMA 2020 and takes into account sector-specific legislations like the Banks and Other Financial Institutions Act (BOFIA), the Companies and Allied Matters Act (CAMA), and the Nigeria Deposit Insurance Corporation Act (NDIC Act). These laws contain copious provisions bordering on banking operations, insolvency, remediation, liquidation, and debt recovery, among other things.

e. Court Processes and Judicial Support: The preliminary plan rolled out by the promoters of the winding down indicates an urgent need for rapid recovery and liquidation of its current risk asset portfolio. This need sits at the epicentre of the winding-down call, and the break-even scorecard arising from such a liquidation process will be a strong benchmark for measuring the success or otherwise of the process. Throughout its existence, the corporation has had to rely on court intervention for this leg of its mandate, and this will be even more so for the rapid outcome necessitated by a winding-down process. The ambit of the intervention from the Nigerian courts will range from resolving disputes, enforcing debt recovery, and providing necessary judicial support. Perhaps, this presents the most complicated challenge for the corporation, especially in the wake of the recent outburst over its collaboration with the judicial arm of the government.

f. Regulatory Oversight: The Central Bank of Nigeria (CBN) and other relevant regulatory authorities will play pivotal roles in the oversight of the transitioning of AMCON’s operations and winding-down process. The position of the CBN presents a classic case of potential regulatory capture as the CBN singularly holds all the obligations of the Corporation today. It goes without saying, therefore, that the bank’s mandate to oversee this transition will come in direct conflict with its interest to ensure optimal returns on its equity and debt investment in the corporation.

g. Labour Laws and Employee Redundancy: One predictable outcome of the winding-down roadmap through rapid liquidation is the obvious labour and employee issues like exit benefits and redundancy. Even where the winding-down roadmap leads to a successor assets management entity, these problems will subsist, especially where the operational structure may no longer support the Nigerian character flavour sustained in governmental agencies like the corporation.

Read also: AMCON recovers N1.6tn debt since its inception Kuru

h. Privatization Regulations: it is beyond conjecture that the winding-down roadmap may take the route of privatization of the corporation. This presents itself as a particularly attractive option for two reasons. In the first place, considering that the corporation has realized less than 50% of its assets throughout its existence, it is hard to see the disposal of assets concluded within the best timeline possible. Furthermore, considering that the problem of bad debt is likely to continue in the banking industry, winding down AMCON without a successor entity will prove counterproductive, especially in the wake of the possible reoccurrence of the event leading to its creation.

In the next part of this article, we will discuss the challenges foreseen during this process as well as a way forward.

 

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.