Federal Government approves Insolvency Regulations for Companies
The Honourable Minister of Industry, Trade and Investment on 24 April 2022 approved the Insolvency Regulations 2022 (“the Regulations”), pursuant to the powers conferred on him by Section 867 of the Companies and Allied Matters Act, 2020 (‘CAMA’). The Regulations, which was published by the Corporate Affairs Commission (CAC or “the Commission”), repeals Clause 24 of the Company Regulation 2021 and is inapplicable to the rules of court relating to insolvency applications made by the Chief Judge of the Federal High Court or any court vested with jurisdiction to hear cases arising out of CAMA.
The Regulations, which is divided into 13 parts and 3 schedules, introduces provisions aimed at clarifying compliance requirements for insolvency practitioners and providing a comprehensive governance and procedural framework for insolvency practice, in line with global regulatory best practices. We have highlighted below some of the significant provisions of the Regulations:
1. Accreditation of Insolvency Practitioners - In the exercise of its powers under section 705 of the CAMA 2020 to make instruments and orders, the Commission under Regulation 1.07 sets out the qualification, standards, competence, discipline, and requirements for the accreditation of Insolvency Practitioners in Nigeria. This is to curb incidences of fraud/defalcation or incompetence and mismanagement.
2. Company Voluntary Arrangements – Regulation 2.02 sets out the contents of a proposal for Company Voluntary Arrangements (CVA). This includes assets and liabilities, nominee fees and expenses, timing of the CVA and any other matter which should enable the proposer members and creditors to reach an informed decision on the proposal.
3. Establishment and Operation of a Creditor’s Committee in an Administration – Part 5 of the Regulations provides for the establishment and operation of a Creditor’s Committee in an Administration. The function of the Committee is to assist the administrator in discharging the administrator’s functions and devise or revise a reorganization plan, or decide whether the company should be liquidated. The Regulations also provides for remote attendance of Committee meetings where the administrator considers it appropriate.
4. Reporting and remuneration of administrators – Part 6 of the Regulations provides that the administrator shall prepare and deliver progress reports to the Commission. This shall contain, among other things, the date of appointment of the administrator, details of progress during the period of the report, including a summary account of receipts and payments during the period of the report, the information relating to remuneration and expenses etc.
CAMA is a critical piece of legislation which impacts the Nigerian business climate. The Insolvency Regulations is, therefore, commendable as it sets out specific timelines and details required to execute insolvency activities as contained in the CAMA 2020, which is fitting for contemporary business and insolvency practices. Notwithstanding, there are still gaps in the CAMA which have not been addressed in the Regulations. For instance, CAMA provides that a receiver or manager may be removed by a court on an application by a “person interested”. However, the Regulations does not define who may be considered a “person interested” for the purpose of an application under this section, which may leave it open to different interpretations.
Further, CAMA provides that a person can apply to the Federal High Court to make a proposal for the replacement of a nominee. However, it does not provide the form in which the application should be made. Similarly, the Regulations omits to provide the form that an application for a proposed scheme of an arrangement or compromise should take. We, however, expect that such applications can either be made using an ‘originating summons’ or ‘motions’ as provided in the Companies Proceedings Rules 1992, which is still applicable. It also fails to provide for notice of the meetings summoned and how many days’ notice is required.
We expect subsequent legislative amendments to the CAMA 2020 and modifications to the Regulations to address the above noted and other gaps. Meanwhile, entities undergoing business restructuring are to comply with the provisions of CAMA 2020 and the related Regulations.
Please click here to download the Insolvency Regulations 2022.