Nigeria: An Analysis Of Nigerian Law On Procedure For Recovery Of Debt From An Insolvent Company And Fraudulent Directors

Many contracts today are negotiated, agreed upon and executed through the internet. The increase of international trade and investment has led to a rise in business relationships between foreign businesses and their Nigerian counterpart. The element of trust and confidence that parties across borders will be bound by the terms of their agreement is important to the implementation of the contract.

Therefore, where a Nigerian party enters into an internet transaction with a foreign party for the purpose of reaping benefits for himself and disregarding his obligations under the contract, the foreign party not only loses confidence in the Nigerian party, but in some instance, also losses the principal sum and anticipated profit under the contract.

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This experience may prevent the foreign party from entering into contracts with genuine businesses in Nigeria. This is indeed a loss for both the foreign party and the Nigerian market and economy. Hence, it is important to know the provisions of Nigerian Law on Recovery of Debts from an Insolvent Company and Fraudulent Directors.

Provision of the Federal High Court Rules on Recover of a Liquidated Sum
Order 12 of the Federal High Court Rules provides that a claimant may apply summarily to Court for issuance of a writ of summons to recover a liquidated sum and the application will be accompanied with an affidavit stating the grounds upon which the claim is based and that the defendant has no defence on the merit to the claim. The Court would enter the claim in the “undefended list” if it is satisfied that the defendant has no defence to the claim.

Order 30 of the Federal High Court Rules provides that where the claimant feels that the defendant have the intention to obstruct or delay the execution of any order that may be passed against him by disposing or removing his property from the jurisdiction of the Court, the claimant may apply to the Court at the time of instituting the suit to make the defendant to deposit sufficient security to fulfill the order or for his moveable or immovable property within jurisdiction to be attached until the order of Court is delivered.

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Provisions of Companies and Allied Matters Act on Liability of Companies and their Directors
Section 290 of the Companies and Allied Matters Act provides that where a company receives property by way of advance payment for execution of a contract or project and the company with intent to defraud, fails to apply the property for the purpose for which it was received, every director and officer of the company who is in default shall be personally liable to the party from which the property was received and a refund of the property so received and not used for the purpose for which it was received. This does not affect the liability of the company itself.

Provision of Companies and Allied Matters Act on Winding Up of Companies
Section 408 (d) of the Companies and Allied Matters Act provides that a creditor may commence winding up proceedings against a company if it is unable to pay its debts. Section 409 of the Companies and Allied Matters Act provides that a company shall be deemed to be unable to pay its debts if it is indebted to a creditor in a sum exceeding N2, 000 (about $ 8) and same remain unpaid after 3 weeks of service of a statutory letter of demand delivered at the registered place of business of the company.

Provision of Nigerian Law on Obtaining By False Pretense and Economic Crime
Section 419 of the Criminal Code Act provides that a person who by false pretense and with intent to defraud obtains from another person anything capable of being stolen and induces the person to deliver anything capable of being stolen is guilty of a felony and is liable to imprisonment for 3 years and 7 years if the thing is of a value of N1, 000 (about $ 4) and above. It is immaterial that the thing obtained or its delivery was induced through the medium of a contract induced by false pretense.

Section 40 of the EFCC Act defines economic crime as an illicit activity committed with the objectives of earning wealth illegally either individually or in a group or organized manner thereby violating existing legislation and includes any form of fraud and corrupt practices.

Procedure for Recovery of Debt from an Insolvent Company and Fraudulent Directors
The Company and its Directors will be served with a letter of demand demanding full payment of the debt within 7 days of receipt of the letter failing which an action will be commenced against the Company and its Directors to recover the debt, including damages for breach of contract and winding up proceedings against the company for inability to pay its debts.

If the debtor does not pay the debt within 7 days as provided in the letter of demand, a summary judgment proceeding is commenced against the debtor and its Company to recover the debt and an application for security or attachment of the moveable and immoveable property of the debtor pending the determination of the proceeding is brought before the Court.

A statutory letter of demand for winding up of the Company for inability to pay its debts may also be served on the Company and upon expiration of the statutory period of 3 weeks, a winding up proceedings commenced against the Company to liquidate and sell its assets.

If the Company or its Directors obtained services or products from a foreign party with intent to defraud or induced the contract by false pretense, this constitutes an economic crime for which the foreign party may petition the Economic and Financial Commission (“EFCC”) and cause criminal investigation to be conducted against the Company and its Directors for their assets to be frozen towards payment of the debt and criminal prosecution.

Though there is a need to quickly pass the bills on internet transactions pending before the National Assembly in order to adequately protect the interest of foreign parties, the current laws on contract and crime may be applied to protect the interest of foreign parties who enters into internet transaction with an insolvent Company or fraudulent Directors of a Company.

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