by *Ikechukwu Nnaemeka

  1. Introduction

One of the ways a company raises capital to expand its business is to obtain credit facilities from financial institutions. These financial institutions typically enter into a debenture contract with the company. When the company defaults in repaying the facilities in the manner agreed in the deed of debenture, a common remedy in the deed available to the debenture holder is the right to appoint a receiver-manager over the company’s assets with the primary intention to realise the debt owed the debenture holder. The practice is usually to appoint legal practitioners to act as receivers-managers. Although this practice seems reasonable, it is unlawful to combine law practice with duties of a receiver-manager.

  1. Receiver and Receiver-Manager: The Distinction

Section 567 of the Companies and Allied Matters Act, Cap C20 Laws of the Federation of NigeriaL (LFN) 2004, (CAMA) defines a receiver to include a manager, but there is a clear distinction between a receiver simpliciter and a receiver-manager.

The distinction was also made severally in the CAMA itself. In section 209(5):

“…a manager of the business or of any of the assets of a company may not be appointed for the benefit of debenture holders unless a receiver has also been appointed and has not ceased to act.”

Section 393(1) also provides that “[a] person appointed a receiver of any property of a company shall subject to the rights of prior incumbrancers, take possession of and protect the property, receive the rents and profits and discharge all out-goings in respect thereof and realise the security for the benefit of those on whose behalf he is appointed, but unless appointed manager he shall not have power to carry on any business or undertaking.”

The Supreme Court made this distinction clearer in Uwakwe v Odogwu [1989] 5 NWLR (Part 123) 562, when it held that:

“A receiver as such has no authority to carry on a going concern. His duty is to stop the business, collect the debts and realise the assets…A manager on the other hand, has powers to continue a business or any going concern.”

The above distinction is important because while a receiver may lawfully combine his brief duties with practice as a legal practitioner, receiver-manager with a more elaborate task cannot.

Is it illegal combining a receiver-manager’s duties with law practice in Nigeria? Written by Ikechukwu Nnaemeka is an associate in Proteus Law Office. Published by Nigerian Law Today

  1. Legal Practitioners as Receiver-Managers in Nigeria

The CAMA does not state any specific qualification for appointment of a receiver-manager. It only provides a list of persons who cannot be appointed as such.[1] The reason behind the practice of appointing legal practitioners as receiver-managers is because being legal professionals, legal practitioners are presumed to understand the intricacies of corporate law practice, and can advise the debenture holder on thorny issues involved in the enforcement of the debenture holder’s rights. In essence the debenture holder enjoys the benefit of having both a manager and a legal adviser, averting costly mistakes which a professional other than a legal practitioner could make and the additional cost of hiring a legal counsel.

It also makes the process of obtaining relevant court orders—such as an order of court sanctioning his appointment and an injunction preventing the directors or members of the company, from exercising control over the assets of the company under receivership or interfering in the exercise of his duties—easier. Although sections 208 and 209 of CAMA show that such order is unnecessary, in practice, the order is invaluable as it is the document usually requested by the police who would be relied upon to see to it that the receiver-manager’s takeover of the company in receivership is not resisted, averting a breakdown of law and order.[2]

  1. The Illegality in combining Receiver-Manager’s Duties with Law Practice.

It is not illegal to appoint a legal practitioner as a receiver-manager. But, it is illegal for a lawyer to combine the receiver-manager’s duties with practice as a legal practitioner as it is contrary to the Rules of Professional Conduct for Legal Practitioners 2007 (RPC), made by virtue of the Legal Practitioners Act, Cap L11 LFN 2004 (LPA).

  • Receivership-Management is a Profession Incompatible with Law Practice

The first reason why a legal practitioner should not combine the receiver-manager’s duties with legal practice is because receivership-management is a profession in itself. Rule 7(1) of the RPC stipulates that:

“unless permitted by the general council of the bar, a lawyer shall not practice as a legal practitioner at the same time as he practices another profession”.

‘Profession’ has been defined in the Black’s law dictionary as “a vocation, calling, occupation or employment involving labour, skill, education, special knowledge and compensation or profit, but the labour and skill involved is predominantly mental or intellectual rather than physical or manual.”

Receivership-management of a company is a profession because it is an ‘occupation which involves “labour, skill, education, special knowledge and compensation’ and by virtue of Rule 7(1) of the RPC, ought not to be combined with law practice. There is no statement, to the writer’s knowledge, of the General Council of the Bar permitting the combination of the role of receiver-manager with the practice of law.

  • Receivership-Management is a Personal Engagement in Business Incompatible with Law Practice.

The second reason why a legal practitioner cannot lawfully combine receiver-manager’s duties with legal practice is that receivership-management of a company is a personal engagement in business incompatible with law practice.

Rule 7(2)(a) RPC provides that:

“[a] lawyer shall not practice as a legal practitioner while personally engaged in:

 (a) the business of buying and selling commodities”.

Rule 7(3) of the RPC defines “trade or business” to include all forms of participation in any trade or business.

The primary duty of a receiver-manager is to manage the business of the company in receivership, pay the debt due the debenture holder, before handing it back to the directors of the company.

Indeed, in paragraph 4 of the eleventh schedule of CAMA, a receiver manager has the “power to carry on the business of the company”. ‘Trade or businesses’ which the legal practitioner can lawfully combine with law practice are limited to:

(a) membership of the board of directors of a company which does not involve either executive, administrative or clerical functions;

(b) being secretary of a company; or

(c) being a shareholder in a company.[3]

Applying the principle of expressio unis est exclusio alterius, (to express one thing implies the exclusion of the other), -“membership of the board of directors of a company-” which involves “executive, administrative or clerical functions” is a trade or business which a lawyer cannot lawfully combine with law practice.

The law is that directors of a company in receivership are suspended from exercising control over assets of the company in receivership. Section 393(4) of CAMA provides that:

“as from the date of appointment of a receiver or manager, the powers of the directors or liquidator in a members’ voluntary winding up to deal with property or undertaking over which he is appointed shall cease unless and until the receiver or manager is discharged”.[4]

With the suspension of the directors, the receiver-manager takes over their role. The receiver-manager of a company is not a member of the board of directors but upon his appointment, the receiver-manager takes over the powers of the board of directors as the directors’ duties are now entirely placed on him. The duties contained in section 393(3) and the eleventh schedule of the CAMA cover those duties which an executive director is expected to oversee and more. The 22 powers specifically set out therein and the wider ‘power to do all other things incidental to the exercise of the foregoing powers’[5] certainly includes ‘executive, administrative and clerical functions’[6] which the RPC precludes a lawyer from engaging in while practicing as a legal practitioner. Hence receivership-management is a trade or business incompatible with practice as a legal practitioner. Continued practice as a legal practitioner while a receiver-manager is contrary to rule 7 of the RPC, and is therefore illegal and unethical.

Is it illegal combining a receiver-manager’s duties with law practice in Nigeria? Written by Ikechukwu Nnaemeka is an associate in Proteus Law Office. Published by Nigerian Law Today

  1. Consequences of the Illegality

Rule 7 of the RPC does not define what amounts to “practice as a legal practitioner”, but given the fact that law practice in Nigeria is fused, the phrase must be understood to mean practice as a solicitor and barrister.

Rule 10 of the RPC can be called in aid to show what amounts to ‘practice as a legal practitioner’. Rule 10 of the RPC lists ‘legal documents’ a lawyer can sign acting in his capacity as a legal practitioner to include “pleadings, affidavits, depositions, applications, instruments, agreements, deeds, letters, memoranda, reports, legal opinions or any similar documents.”

Hence, the logical consequence of the illegality is the disqualification of such lawyer from continued practice as a barrister and a solicitor until he is discharged from his role as a receiver-manager. Therefore, such lawyer must be denied audience before any court of law. Also, any legal document[7] signed in his capacity as a legal practitioner whilst a receiver-manager is incompetent and a nullity.

In NBA v Ibebunjo[8], where the business of selling land was held to be incompatible with practice as a legal practitioner, it was held that:

“[r]ule 7(3) clearly provides the category of businesses that are incompatible with the practice of law… The justice of this case demands that we allow him go full time into his main business of selling of land and to leave the business of practicing law to those who are bona fide legal practitioners”. 

The reason behind Rule 7 of the RPC was further explained as follows:

“This case exemplifies the wisdom of the founding fathers in prohibiting legal practitioners from carrying on a trade or business incompatible with the practice of law. This was to forestall a situation where the profession of law will be robbed of its luster and brought into odium and opprobrium and disrepute by allowing the ethics of other professions to fuse or intermingle with the noble ethics of the legal profession. Legal practitioners must make up their minds whether or not they desire to practice law. The profession would not tolerate those who in the morning are lawyers and in the afternoon and evening of the same day, members of other businesses and professions. The streams of the ethics of our profession must be kept clear and sparkling unpolluted by the understanding of our members of the business practices and ethics of other professions.”[9]

Consequences of Breach of the RPC

The RPC regulates legal practitioners in all aspects of law practice. The consequence of a legal practitioner’s breach of any provision of the RPC is that such legal practitionershall be guilty of a professional misconduct and liable to punishment as provided in Legal Practitioners Act, 1975’.[10]

The punishment for a professional misconduct under the LPA include the Legal Practitioners Disciplinary Committee (LPDC) giving a direction, ordering the Registrar to strike out the name of the offending legal practitioner off the roll of lawyers, suspending that lawyer from practice by ordering him not to engage in practice as legal practitioner for such period as may be specified in the direction, or admonishing that lawyer.[11]

Dauda SAN, in delivering the direction of the LPDC in NBA v Monyei [2013] 18 NWLR (Part 1386) 454, at 468 paragraph G, emphasized the importance of abiding by the RPC when he stated that:

“[a]ny legal practitioner that wants to remain in the fold of men of noble learning must abide by the simple Rules of professional ethics and be standard bearers of all that is good, noble and excellent. Those that cannot keep within the Rules of professional ethics should voluntarily go and look for other past times to engage in.” 

  1. Conclusion

Legal practitioners are qualified to undertake the duties of a receiver-manager and it has been argued that they are better suited for the role. But, a combination of a receiver-manager’s duties with practice as a legal practitioner is illegal and unethical.

 

*Ikechukwu Nnaemeka is an associate at Proteus Law Office. E-mail: hnikechukwu@gmail.com 

[1] Section 387 of the CAMA

[2] Sections 208 and 209 of CAMA

[3] Rule (7) (3)(a)–(c) RPC

[4] See also Intercontractors v National Provident Fund Management Board [1988] NWLR (Part 76) 280

[5] Item 23 of the Eleventh Schedule to CAMA

[6] Rule 7(3) (a) of the RPC

[7] See Rule 10 of the RPC

[8] [2013]18 NWLR (Part 1386) 413, 428B-C

[9] Supra (Holding 4, 429A-C).

[10] Rule 55(1) of the RPC

[11]  Section 12(1)(c) LPA

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2 Comments

  • How has the Lpdc been able to deal or unravel some professions that are intemedilling with legal profession. e.g An estate Surveyor drawing up tenancy agreement for tenants in a property let out by him, a landlord who issues a quit notice to tenants in his property ?. Is it only advocacy that is meant for legal practitioner,? lately mediation, arbitration which is getting good audience of the public are not strictly preserved for the lawyers? So my question is what area or duty of legal profession that has not been hijacked by other professions? what area or duty of legal profession is strictly for the legal professional?

    • While I agree that there have been some incursions from certain quarters, nevertheless, I still believe that the uniqueness of the services legal practitioners render is still protected.

      The NBA stamp and seal for each lawyer also helps. When a document which ought to be prepared by a lawyer, according to law, is prepared by a layman, the consequence is obvious.

      The LPDC is set up solely for lawyers, hence they do not have jurisdiction over other professionals.

      Of all professions, I think law is one of the most versatile. You find lawyers more or less in most professions. Hence it may appear that complaining that other professionals are hijacking work meant for lawyers may come across as the proverbial kettle calling the pot black.