This article provides a comprehensive overview of the Insolvency Regulations 2022, which was recently introduced by the Corporate Affairs Commission (CAC) in Nigeria.
In the wake of the recent Companies and Allied Matters Act 2020 (CAMA), the Corporate Affairs Commission (CAC), while exercising its inherent powers, rolled out a new set of guidelines targeted at, amongst others, regulating insolvency proceedings in Nigeria. This guideline, known as the Insolvency Regulations 2022 (herein referred to as “the Regulations”), has introduced notable changes to the practice and procedure of insolvency in Nigeria, some of which we have briefly highlighted in this article.
It is pertinent to note that the Regulations have been geared towards providing a comprehensive governance and procedural framework for insolvency practice in line with international best practices. These key features are:
- Introduction of Company Voluntary Arrangements (CVA).
- Accreditation of Insolvency Practitioners (IPs).
- Virtual meetings.
- Establishment and operation of a Creditor’s Committee in an Administration process.
- Unified timelines.
Introduction of Company Voluntary Arrangements (CVA)
The Regulations have birthed a procedure for the operation of Company Voluntary Arrangements (CVA) in the Nigerian insolvency practice space. Essentially, the CVA is a debt repayment plan that allows a company to settle debts by paying only a proportion of the amount owed to creditors and then, come to some other arrangement with the creditors on the repayment of its remaining debts. It is designed to rescue a company and it is generally an out-of-court process.
The CVA was originally brought to the limelight by CAMA 2020 but has now been expanded by the new Regulations. Which makes provisions for procedures and modalities to be adopted by companies seeking to make use of the arrangement. An application for CVA must be brought to the CAC through a proposal, and the contents, formats and other components are carefully laid out in the Regulations.
Accreditation of Insolvency Practitioners (IPs)
The Regulations have also introduced the requirement for accreditation of Insolvency Practitioners (IPs). In effect, this means that certain individuals who desire to be registered as IPs may apply to the Commission for accreditation as IPs and these individuals must be members of any of the following bodies:
- Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN);
- Nigerian Bar Association (NBA);
- Institute of Chartered Accountants of Nigeria (ICAN);
- Association of National Accountants of Nigeria (ANAN);
- Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN).
Professionals who are members of the above-mentioned bodies can apply to the Corporate Affairs Commission for accreditation as IPs, and upon fulfilment of stipulated conditions which include but are not restricted to the payment of the prescribed fees and completion of relevant forms, they are granted a renewable 3-year accreditation.
Typically, an intending IP shall be required to submit a duly completed form CAC-MISC 02, proof of membership of a relevant professional body, evidence of an appointment, eligibility to practice for the current year, and payment of the prescribed application fee. Upon successful consideration of the application, the IP will be issued a registration and be deemed accredited, and the Commission reserves the right to terminate the accreditation at any time.
Another essential feature of the new Regulations is the introduction of designated virtual facilities for the conduct of statutory insolvency meetings such as Liquidators’ meetings, Creditors’ meetings, etc. The definition of ‘attendance’ within the context of Paragraph 1.05, Insolvency Regulations 2022, has been extended to include physical meetings and virtual meetings in person, by proxy, or by a corporate representative. The designated virtual meeting platforms include Zoom, Google Meets, Microsoft Teams, WhatsApp, Facebook, and other electronic media.
It is also apposite to state that this feature has become necessary given the post-Covid reality in most thriving economies, which initiated virtual meetings as one of the measures to combat the pandemic.
Establishment of a Creditor’s Committee
The provisions of paragraph 5 of Schedule 4 of the Regulations has established that a Creditor’s Committee should be set up while conducting an Administration. The purpose of the Committee is to assist the Administrator in discharging its functions and overseeing the reorganization plan for the company undergoing administration.
Essentially, the Committee plays a vital role in ensuring that the Administrator discharges its functions in line with the rules and within the ambits of its powers; hence, there is a system of quasi-checks and balances between the Committee and the Administrator. While this innovation is expected to guarantee a smoother process, there are worries that it will further compound the bureaucracy experienced during an Administration.
In a bid to ameliorate the difficulties experienced by insolvency practitioners in meeting up with several timelines for compliance, the Regulations have introduced a uniform filing system across board.
This feature has streamlined the timeframe within which all insolvency applications may be made to the Commission and has also harmonized timelines and accruable penalties for late filing of applications.
It must be emphasized that the introduction of the new Insolvency Regulations is a welcomed development given that it harmonized all the important procedures necessary for the liquidation, cessation, and insolvency of corporate entities in Nigeria in a single document.
This is against the backdrop of a situation where hitherto, there was no uniform guideline in place to regulate insolvency filings to the Commission. In this era of promoting the ‘ease of doing business’, the Regulations will go a long way in filling the gaps in insolvency practice in Nigeria.
The work put in by the Commission to create the new Regulations must be applauded as the Commission is proactively fulfilling its mandate under CAMA to undertake such other activities as are necessary or expedient to give full effect to the provisions of the CAMA.
The Mazars legal team is available to offer advisory services and guidance in insolvency proceedings, especially in all stages of liquidation, business cessation and Administration. Our services range from application, documentation, liaison and compliance with regulators.