Legal Methods for Debt Recovery in Nigeria

In the Nigerian Business environment as well as any other jurisdiction, no factor is usually as important as the level of access to Credit facilities which are a means for getting businesses running as well as a means of plugging gaps in individual finances.

In the same length, no issue bothers those in the business of rendering Credit services more than the issue of recovering its receivables, specifically debts owed by their customers, which has led to the creation of a sub-industry on its own – the Debt Recovery sub-sector.

With the coming of Fintech, the problem of recovering debt hasn’t gone away but has instead taken a digital form, with debtors sometimes playing the system to take several loans on the basis of either inaccurate or concealed unfavorable information that would ordinarily disqualify the borrowers from getting a loan. This has led to many Digital lenders, some of them less than transparent themselves, turning into Digital loan sharks and using Debt Recovery methods that would qualify as some of the most deeply upsetting forms of Cyber-bullying.

This article aims to enlighten Digital lenders, be they Digital Banks, Digital Financial Institutions or Moneylending companies, on the full extent of Debt Recovery as a concept and some of the legitimate methods for Debt Recovery under Nigerian law.

For starters, Debt Recovery is simply the process of securing payment from borrowers, be they individuals, businesses or companies, for Monetary debts owed to other companies or individuals which were not paid as at the time and in a manner agreed between the borrowers and lenders.

This will then lead us to some of the permissible methods of Debt Recovery under Nigerian law which are as follows:-

1. A Conditional Bill of Sale :- This is a document that grants to the lender from the borrower a conditional title to a piece of moveable property (or chattel) legally owned by the borrower or his guarantor as a security for the loan. Conditional Bills of Sale are enforceable debt instruments that grant speedy collateral security for lenders and are to be registered with the Bill of Sale Registry under the Directorate of  Commercial Law of the Ministry of Justice in places like Lagos State.

By requiring that this document be executed at least digitally, Digital Credit providers can be assured of collateral security on the Back-end for their services.

2. Global Standing Instructions :- These are legal conveyances signed by borrowers that allow for the recovery of debts as at when due from all accounts belonging to or maintained by the borrowers when they’re in default of their repayment obligations other than the accounts domiciled with the Creditor lender who must be a Bank or Financial Institution licensed by the Central Bank of Nigeria.

Global Standing Instructions can be executed digitally and provide a smooth process of quick recovery and NPL(Non-Performing Loan) reduction in the Banking Sector. Global Standing Instructions however, do not apply to penal charges accruing on a loan as part of the outstanding obligations of a borrower.

3. Small Claims Actions :- Small claims actions are basically lawsuits that are designed by deliberate policy in states like Lagos to aid in the quick recovery of debt sums below 5 Million Naira in a quick, relatively affordable and efficient manner.

Small claims actions can be carried out in person without the necessity of hiring a lawyer to appear in court (though a Lawyer’s input in filing and commencing a small claims action is necessary) and are required by Practice Directions of the Magistrate Court in places like Lagos to be beyond 60 days (or 2 months).

Small claims actions are advantageous because they can be enforceable against relatively minute sums that would ordinarily be too negligible to hire a Debt Recovery agency or a law firm.

4. Debt Recovery Actions via Summary Judgment :- These types of actions are usually actions that are for sums of 10 Million Naira and above and are usually filed as liquidated sum demands for judgments of the Court based on the borrower having no reasonable defense to such suits, hence the term “Summary Judgment”, especially where the borrower had admitted to the existence of the debt in question.

Debt Recovery Actions of this nature are under the jurisdiction of State High Courts and can be carried out for huge debts , though it must be pointed out that they usually take longer in terms of time and can be considerably expensive in terms of filing costs and legal fees.

5. Company Voluntary Arrangements :- A new method of Debt Recovery introduced by the Companies and Allied Matters Act 2020, these are simply proposals by a company to its unsecured creditors (creditors that advanced unsecured loans not backed by any collateral or security) that result in a binding agreement or understanding for the satisfaction or liquidation of the borrower’s debts .

6. Administration :- This is also a new method of Debt Recovery introduced by the Companies and Allied Matters Act 2020 and involves the appointment of an Administrator by a creditor/lender rather than a liquidator or Receiver/Manager, to manage a debtor company diligently for the repayment of a due debt. This is an alternative to the sometimes unnecessary practice of winding up a company via the appointment of a liquidator.

7. A Winding-up Petition :- This should be a last resort and is applicable to debtor companies owing a minimum requirement of Two Hundred Thousand Naira. 

This requires filing a petition to the Federal High Court and asking for the appointment of a Liquidator to oversee the process of Winding-up which usually involves satisfying the debts of the company in order of priority. This can take up to a year or more. 

8. A Criminal Petition :- This is only applicable in the event of a dud or dishonored cheque being advanced by the borrower in exchange for the loan at the time of transacting between both parties or the obtaining of the loan based on false information (a misrepresentation) given deliberately by the borrower. Debt Recovery is STRICTLY a Civil matter.

These options listed above are part of the options available for creditors in Nigeria and should NEVER be ditched in favor of illegal practices like Debt-Shaming which involves unethical disclosure of a public nature by a lender to either the public or 3rd parties known to the borrower/debtor that are not privies or parties to the loan transaction, usually with information about the debt aimed at shaming the loan defaulter into repaying his loan debt.

This practice is a Criminal violation of the Nigerian Data Protection Regulations 2019 as well as a breach of the Cybercrime Act which can lead to a blacklisting of the digital lender, a fine imposition from the National Information Technology Development Agency (NITDA) as well as Criminal Prosecution and business license revocation.

From the above, it is hoped that the ability to make a better-informed decision on the Debt Recovery method best suited for a particular circumstance as well as what would be considered best operating practice in Nigeria’s Finance sector.