In response to grave proportions of toxic loans on the books of Nigerian banks, the Central Bank of Nigeria (CBN) in 2009 carried out special examination of banks’ books and bailed out 14 distressed banks. But the toxic-loans cleaning measure did not stop there. The Federal Government of Nigeria also set-up a toxic assets warehouse to ‘collect’, ‘recycle’, treat’ and dispose toxic loans that had become a systemic burden on banks. In some cases, these toxic loans had thrown banks into negative capital ratios. The toxic-loans clearing warehouse is the Asset Management Corporation of Nigeria (AMCON).
In collecting toxic assets or ‘non-performing loans’ (NPLs), the overriding presumption was that AMCON would only be taking over assets to which proper banking procedures had been followed but the assets had become non-performing due to circumstances beyond the bank’s control. In practice however, this general intention has turned out not to be the actual case. After AMCON acquired these NPLs, many of them turned out to have issues which AMCON didn’t realise or anticipate it would be contending with after conducting due diligence on the loans.
In the manner of a prophetic legislation, the Asset Management Corporation of Nigeria Act (the AMCON Act) – the law setting up AMCON – had foreseen these anomalous situations. The law excludes AMCON from taking up any liability on loans that were subject of intrinsic defects.
Section 43(1)(a) of the AMCON Act provides that “Nothing in this Act shall (a) render the Corporation or any person acting on its behalf or through it liable for any breach of contract, misrepresentation, breach of duty, breach of trust or other legal or equitable wrong committed by an eligible financial institution”. The Act fortifies this protective provision by restricting legal actions against AMCON for “anything done or intended to be done or purported to be done in good faith in the execution of its duties, powers and obligations imposed upon it by the Act. This restriction is contained in section 43(3) of the AMCON Act.
Despite the statutory limitation above, bank debtors usually drag both the bank and AMCON to court for breach of their loan agreements. These legal actions typically border on allegations of fraud, breach of contractual terms, and imposition of illicit and excessive charges by the banks. Consequently, AMCON which was created to ‘collect’, ‘treat’, ‘recycle’, and dispose these NPLs is now burdened with proving the existence of the loan or providing proof of adherence to contract by banks. This situation often hampers AMON’s ability to carry out its statutory mandate.
To be clear, the purport of section 43(1) of the AMCON Act [quoted above], is to absolve AMCON of the responsibility of proving the loan contract and due adherence to them. Judicial attitude to this provision of the law has been judicially stereotypical. With many of the High Courts taking the view that the AMCON is now a ‘custodian’ of the hitherto NPL as such it must join in clearing the toxic loans.
But in the case of Nigerian Union of Road Transport Workers v AMCON & Anor [Suit No. FHC/IB/CS/50/14], the Federal High Court took a different view that is consistent with the intention of the makers of the Act. In that case, AMCON’s position was that as long as the bank that granted the loan was party in the suit, AMCON need not be joined to disprove defects or infractions on the loan facility. The court captured the intention of the law appropriately by stating as follows: “I have considered the endorsement on the Writ of Summons and Statement of Claim and it thus appears to me that there is no specific wrong doing made against the 1st Defendant [AMCON] aside from exercising its statutory powers under the AMCON Act to acquire the alleged debt… I cannot but agree with the submission of the Applicant’s counsel [AMCON] that if the Plaintiffs [the bank debtors] feel that the debt or loan in question should not be acquired by the Applicant that is an issue that should be resolved with the Defendant.”
The Court further emphasized that Section 43(3) of the AMCON Act is another provision of the law that shields AMCON from liability where it exercised its powers to acquire a NPL in good faith. According to the court, since nothing before it showed bad faith in the purchase of the loan advanced to the Nigerian Union Road Transport Workers (“the loan Obligors”) by the bank, the loan Obligors ought not to have sued AMCON for exercising its statutory powers in good faith. In essence, as long as AMCON accepted properly in line with its mandate and within its statutory powers, and in the absence of evidence of malafide, resort should be had to the bank where loan Obligors have genuine issues on their loan facilities with banks. This continues to remain so despite the purchase of the loan by AMCON.
To conclude, while banks could sell-off toxic loans to AMCON, banks will continue to be liable for defects in the toxic loan prior to AMCON’s purchase. But this does not extinguish AMCON’s rights as a successor-in-title under the loan contract. Therefore, AMCON can exercise the rights of a secured or unsecured creditor to the exclusion of the bank.
David Yibakuo Amakiri ©
*In this article the writer has used the words, toxic assets, toxic loans and non-performing loans interchangeably.
 Defects are used in a loosed sense to mean infractions, breach of contract, duty or trust with respect to the loan facility.
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