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Common Law, Judicial Precedents and the Nigerian Receivership Procedure

Published online by Cambridge University Press:  20 January 2014

Bolanle Adebola
Rights & Permissions [Opens in a new window]

Abstract

Before the enactment of the Companies and Allied Matters Act (CAMA) 1990, receivership in Nigeria was governed by case law, informal rules (of practice) and the Companies Decree 1968. Nigerian judges were heavily influenced by British case law, precedents were British and the Nigerian Companies Decree was a transplant of the British Companies Act 1948. Against this background, the Supreme Court of Nigeria delivered the Intercontractors decisions in 1988, which subsequently governed the nature, status and powers of Nigerian receivers. In 1990, CAMA introduced a more robust receivership regime which prescribed the nature, status and powers of the receiver, reversing some of the Intercontractors principles. However, the courts, particularly the Supreme Court, failed to enforce the relevant provisions of CAMA or to examine the applicability of the Intercontractors principles that they conscientiously enforced. This article examines the validity of the Intercontractors principles and their continued relevance under CAMA 2004.

Information

Type
Research Article
Information
Journal of African Law , Volume 58 , Issue 1 , April 2014, pp. 129 - 144
Copyright
Copyright © SOAS, University of London 2014 

INTRODUCTION

Intercontractors (Nigeria) Ltd v National Provident Fund Management Board Footnote 1 and Intercontractors (Nigeria) Ltd v UAC Footnote 2 (the Intercontractors decisions or cases) are considered to be landmark decisions on the law and practice of receivership in Nigeria.Footnote 3 The decisions stipulate principles about the nature of receivership, as well as the status and power of the Nigerian receiver and receiver/manager. The decisions were based on the Companies Decree 1968, which was subsequently repealed and replaced by the Companies and Allied Matters Act (CAMA) 1990. CAMA 1990 reversed some of the principles stated in the Intercontractors decisions (Intercontractors principles), particularly those relating to the status and powers of the receiver. Nonetheless, the courts, particularly the Supreme Court, continued to apply the Intercontractors decisions for the next two decades. On some occasions, the courts blatantly ignored relevant provisions of CAMA 1990, and other times interpreted CAMA 1990 in terms appropriate to the Intercontractors decisions.

This article asserts that the Intercontractors decisions made by the Nigerian Supreme Court were not entirely valid: some of the Intercontractors principles cannot be justified even on the basis of the law and practice of receivership that existed in 1988. It also argues that the Intercontractors decisions are not entirely applicable under CAMA 2004: some of the principles have been reversed by the provisions of the extant law. Further, when in May 2011 the Supreme Court affirmed the decision of the Court of Appeal distinguishing the law under CAMA 1990 from the law applicable to the Intercontractors decisions,Footnote 4 it finally took a step in the right direction. It is time the other Intercontractors principles were re-examined to determine their validity and applicability under extant receivership provisions set out in CAMA 2004. The article sets out in detail the two Intercontractors decisions of the Supreme Court. It examines the validity of each principle enunciated by the eminent justices and determines their relevance under CAMA 2004.

INTERCONTRACTORS (NIGERIA) LTD V NPFMB Footnote 5

Facts

The National Provident Fund Management Board (NPFMB) was a statutory body charged with collecting employees' contributions in respect of the National Provident Fund, by way of deductions from their employers. Between 1981 and 1983, Intercontractors (Nigeria) Ltd (Intercontractors) made deductions but failed to pass them to NPFMB. Shortly after, it also defaulted on its loan from Savannah bank and was placed in receivership on 27 June 1985. To recover the outstanding sums, NPFMB commenced an action at the Federal High Court of Nigeria on 7 April 1986. Intercontractors asked the court to strike out the case, stating that the claim, even if successful, was unenforceable because the company was in receivership. It based its request on the premise that a company in receivership could not be sued by an unsecured creditor. The trial judge overruled Intercontractors' objection, and the Court of Appeal dismissed its appeal. The receiver/manager of Intercontractors, on behalf of the company, appealed the decisions of the lower courts at the Supreme Court, Nigeria's apex court. He also sought leave to signify his interest at the Supreme Court and to state his authority for bringing the appeal in the name of the company, but his application to signify interest and assert authority was denied, while the appeal (in the company's name) was allowed.Footnote 6 The parties' appeals were similar to their original claims, though NPFMB also objected to the receiver's standing in the matter. In its opinion, the case was directed at the company which was a separate entity from the receiver. So, the receiver needed to be joined as a second defendant to acquire the right to appeal.Footnote 7

Judgment of the Supreme Court

At the Supreme Court, Karibi-Whyte JSC distilled the issues to a single question: can an action be brought against a company in receivership?Footnote 8 To answer the question, his lordship explored the jurisprudence of receivership. He noted that directors are not functus officio [without further authority] for all purposes at receivership; they have a subsisting right to deal with assets of the company that are not in receivership. Further, he stated that the receiver/manager is deemed to be the company's agent when dealing with assets subject to the receivership, although he has no title in the assets because ownership resides in the company. He explained that it is the receiver/manager who may sue or be sued in relation to the assets comprising the receivership. However, because he has no title to the assets, the action would be in the name of the company, although in limited circumstances, he may bring the action in his name.Footnote 9 On that premise, Justice Karibi-Whyte stated that the receiver/manager does not have to be joined as a party to the action because “it is action in the name of the company”.Footnote 10 Nevertheless, he asserted that the receiver/manager must seek leave of the court to represent the company in suits; leave would be granted if the court thinks that an action is the best way to dispose of the issue.Footnote 11

In this case, the receiver/manager brought an appeal in the name of the company, which he was entitled to do by law. However, because he did not seek leave of the court before instituting the action, the court decided that the proper parties were not before it.Footnote 12 It also decided that NPFMB could bring an action against Intercontractors to recover the stated sums because they were not shown to be assets covered by the debenture. Put differently, the Supreme Court held that an action can be brought against a company in receivership in relation to assets outside the receivership and vice versa. In such cases, the directors may take the helm. In relation to assets covered by the debenture, the receiver would be the proper party, although he would require leave of the court to institute the action.

INTERCONTRACTORS (NIGERIA) LTD V UAC Footnote 13

Facts

UAC obtained a judgment against Intercontractors in May 1985 in relation to a debt. In June, Savannah bank appointed a receiver/manager under a debenture over Intercontractors. In September, Intercontractors, not its receiver, asked the court for an indefinite stay of the writ of fieri facias [writ authorizing seizure of goods to fulfil a claim] because it was in receivership and it would amount to trespass and contempt of court for its properties to be attached to fulfil a judgment debt. UAC objected to the stay of execution, claiming that the company had no right to bring the application. UAC asserted that Intercontractors could not, in the absence of an appeal, stultify a judgment debt against it. It further stated that the proper party ought to be the receiver, not the company. The trial judge upheld the objection and dismissed the application on the ground that the judgment was res judicata [matter decided] between Intercontractors and UAC, the application not being an appeal against the judgment. The court also held that, because the action was not by a receiver seeking a declaration as to priority between himself and UAC, Intercontractors had no right to initiate the action.Footnote 14 Intercontractors' appeal to the Court of Appeal was also quashed for similar reasons. Furthermore, the court stated that the receiver/manager ought to have applied for directions.Footnote 15 Dissatisfied with the earlier decisions, Intercontractors appealed to the Supreme Court.

Judgment of the Supreme Court

As is its practice, the Supreme Court distilled the issues to one main question: can a judgment debtor stay the execution of a judgment debt on account of receivership? The court noted that a judgment debtor could obtain a stay of execution only where he challenges the decision, asks for more time within which to pay or satisfies the court of his inability to pay, and has not been found guilty of misconduct. Even in that event, the grant of a stay is subject to the discretion of the court; receivership is not a legal occurrence that would stay execution.Footnote 16 Once again, the court examined the nature of the floating charge, and the effect of receivership on the company and other stakeholders. It reiterated its earlier decision in the first Intercontractors case.Footnote 17 Karibi-Whyte JSC censured as “too simplistic” the notion that a receiver could institute an action without leave of the court.Footnote 18 Elucidating his earlier opinion, he posited that a receiver is appointed to protect not only the interests of the debenture holder “but also the estate involved in the debenture and for the benefit of all concerned”.Footnote 19 For that reason, the receiver cannot initiate or defend an action on his own initiative without leave of the court, leave being a discretionary matter to be exercised in the interests of all parties according to the particular circumstances of each case.Footnote 20

Applying these principles to the case, the Supreme Court decided that Intercontractors could not stay execution on account of the receivership: Intercontractors was not appealing the judgment and had no other appropriate claims.Footnote 21 It also held that the receiver could not apply for a stay of execution because he was not a party to the action between Intercontractors and UAC. The court noted however that, if the matter had centred on the priority between UAC and the receiver, the proper parties would be UAC and the receiver, but the receiver would require leave to institute such an action.Footnote 22 To restate the opinion of the Supreme Court: in a matter arising solely between the company and a third party which does not affect the rights or powers of the receiver, the board of directors acting for the company (and not the receiver / manager) is the proper party, even though the consequences of the action may affect the receivership. However, in a matter between a creditor and the assets in receivership, the receiver/manager acting for the company (not the directors) is the proper party. Nevertheless, the receiver/manager requires leave of the court to represent the company.

RESTATING THE INTERCONTRACTORS PRINCIPLES

The Intercontractors principles have been cited extensively by Nigerian courts when deciding receivership cases. They are authority for three principles, regarding: the nature of receivership, the status of the receiver/manager and the power of the receiver/manager. According to these principles: (1) the nature of receivership is such that the appointment of a receiver does not divest the company of the ownership of its assets; furthermore directors do not become functus officio at receivership, but continue to deal with issues and assets outside the receivership and to perform other statutory functions; (2) the receiver/manager's status is that of an agent of the company, appointed for the benefit of all interests; and (3) the receiver/manager has the power to sue in the company's name, or in his own name in limited circumstances, but he must obtain leave of the court to represent the company in any suit.

CAMA 2004 AND THE INTERCONTRACTORS PRINCIPLES

CAMA was enacted in 1990 to regulate corporate activities in Nigeria.Footnote 23 Although revised in 2004, CAMA still governs insolvency matters,Footnote 24 as there is no separate Insolvency Act in Nigeria. Section 390(1) of CAMA designates the receiver/manager as the agent of the debenture-holder where appointed under a debenture.Footnote 25 Sections 390 and 393 together outline the powers, duties and liabilities of a receiver/manager. Section 393(2) stipulates that the main duty of the receiver/manager is to realize the assets for the benefit of his appointor, although sections 390(2) and 390(3) instruct him on how to balance the interests of the debenture holder with other interests in the company when appointed over the whole or substantially the whole of the company. For example, he is not to give exclusive attention to the interests of the debenture holder, but must consider the interests of the company and its employees as well.Footnote 26 Section 393(3) endows the receiver/manager appointed over the whole or substantially the whole of the company's assets with (implied) powers contained in schedule 11 to the act, subject to the terms of the debenture.Footnote 27 One of the powers in schedule 11 is the power to sue and be sued in the name of the company.Footnote 28 Section 391 permits the receiver/manager to apply to the court for directions on any matter and for the court to give directions as appropriate.

CAMA 1990 was enacted two years after the Supreme Court decided the Intercontractors cases.Footnote 29 It is imperative to state that CAMA 1990 (now 2004) expressly negates two of the three main Intercontractors principles: it reverses the status of the receiver by making him the agent of the debenture holder, not of the company.Footnote 30 In contrast to the Intercontractors decisions, CAMA 1990 does not require the receiver to be impartial in his treatment of all interests in the company; it highlights the hierarchy of interests to which he should pay attention: the debenture holder takes precedence, then the company, its employees and others as may be appropriate.Footnote 31 CAMA 1990 also endows the receiver/manager with express power to sue or be sued in the name of the company; unlike the Intercontractors decisions, it does not indicate a requirement for leave to sue.Footnote 32 So, even when a debenture does not provide the receiver with the power to represent the company in actions, he is deemed to have been granted that power by law.Footnote 33

IS INTERCONTRACTORS RELEVANT LAW?

As stated above, CAMA 1990 was enacted two years after the Supreme Court decided the Intercontractors cases. Although CAMA 1990 reversed two of the three Intercontractors principles, the courts continued to enforce all three principles as valid law. It is a relief to observe that, for the first time, the Supreme Court, in 2011, applied the relevant provisions of CAMA 1990 in pertinent circumstances, as opposed to merely restating the Intercontractors principles as it had done in the past.Footnote 34 The 2011 decision departs from earlier decisions where the court failed to implement the relevant provisions of CAMA 1990 or examine the rationale of the principles it so conscientiously upheld, to determine if they were good law. Pursuant to the assertion that two of the three Intercontractors principles are, for the most part, unjustifiable under the current regime, the next section examines the rationale of each principle, its treatment by the courts and its applicability under CAMA 2004.

The nature of receivership

The Intercontractors decisions state that the appointment of a receiver does not divest the company of the ownership of its assets, and that the directors do not become functus officio at receivership; they continue to deal with assets that are outside the receivership and to perform other statutory functions.Footnote 35 To arrive at this decision, the court examined English jurisprudence. The Companies Decree 1968 did not stipulate the nature of receivership; neither does CAMA 2004. To elucidate the nature of receivership, one must delve into its jurisprudence, as did the Supreme Court.

Appointment by court

Gaskell v Gosling Footnote 36 outlines the history of receivership in the United Kingdom. A receiver may be appointed by an order of the court or out of the court by a secured creditor under the terms of a debenture.Footnote 37 The receiver appointed by the order of the court is the agent of neither the company nor the debenture holders; he is an officer of the court.Footnote 38 He derives his authority from the order appointing him and cannot be instructed by the debenture-holders or the company.Footnote 39 His powers extend to all of the company's assets and are limited only by the provisions of the order.Footnote 40 As an officer of the court, interference with his duties may be construed as contempt of court.Footnote 41 Notwithstanding the receivership, the company remains a living entity.Footnote 42 Although its directors remain in office, their powers remain in abeyance until the receivership is terminated.Footnote 43

Opinions differ on the extent to which the directors can act during the court-initiated receivership. Kerr & Hunter on Receivers and Administrators aligns its opinion with the notion that the appointment of the receiver “absolutely supersedes” the company in the conduct of its business “and” deprives it of the power to enter into contracts, or sell or pledge its assets.Footnote 44 Doyle, in contrast, suggests that the term “absolutely supersedes” used by the House of Lords in Moss Steamship Footnote 45 was qualified by the set of specific circumstances thereafter enunciated, particularly “power to enter into contracts”.Footnote 46 So, he posits that directors may be able to act when the receiver decides not to act.Footnote 47 The Kerr position is arguably the better opinion. Lord Loreburn stated in his decision that the extent of a receiver's authority is only debateable when he is the agent of the company;Footnote 48 besides, Lord Atkinson did not purport to provide an exhaustive list of circumstances in which the receiver has “absolute” authority to act.Footnote 49 The prudent step would be for the directors to seek leave of the court to exploit an action that a court-appointed receiver fails to pursue. The directors may however continue to perform their statutory duties, although there is no clear authority on this principle.Footnote 50

Appointment by debenture holder

The powers of a receiver appointed out of court by the debenture holder, as in the Intercontractors cases, are limited by the extent of assets covered by the debenture.Footnote 51 In essence, the only assets controlled by the receiver are those covered by the debenture. Again, the directors retain their office but lose their power to deal with the assets subject to the receivership. They must continue to perform their statutory duties, to which end they may request relevant information from the receiver.Footnote 52 They may deal freely with assets outside the receivership (for example assets held in trust for a third party) as long as their actions do not infringe the execution of the receiver's duties.Footnote 53 They also retain residual powers in relation to the assets that comprise the receivership. Therefore they may represent the company in suits that the receiver does not pursue,Footnote 54 they may maintain actions against the receiver and the debenture-holder for wrongs done to the company,Footnote 55 and they may negotiate with third parties for the redemption of the mortgaged assets, but their actions must not interfere with the execution of the receiver's primary duties.Footnote 56 Though the extent of the directors' powers under a receivership initiated out of court is debateable, it is apparent that the company remains in existence and its directors continue to fulfil statutory functions and retain residual powers in the assets which they can enforce as long as their actions do not constitute a “diarchy over all the company's assets”.Footnote 57

Current applicability

In NBCI v Alfijir (Mining) (Nigeria) Ltd (NBCI),Footnote 58 the directors challenged the validity of a receiver's appointment and the propriety of the debenture holder's actions, in a suit commenced in the company's name. Citing the Intercontractors decisions, the Court of Appeal of Nigeria noted that directors do not become functus officio at receivership; they continue to perform duties that do not interfere with the receivership, which in this case included the duty to protect the company's interest against improper actions by the debenture holder.Footnote 59 The Supreme Court reiterated the principle on appeal, although it arrived at a different decision.Footnote 60 Without conceding that either decision was right, it is argued that the nature of receivership as stated in the Intercontractors decisions and restated in NBCI is justifiable on the principles outlined above; the two ambits of the principle remain relevant under CAMA.

The status of the receiver

Agency

The Intercontractors decisions state that the receiver is the agent of the company and that he is appointed on behalf of all interests in the company.Footnote 61 The judges based their opinion on the law and practice of receivership applicable in 1988. The Companies Decree 1968, which applied at the time, was a transplant of the British Companies Act 1948.Footnote 62 At the time, the receiver was presumed to be the agent of the company upon appointment. The precedents used by practitioners were also old British precedents, which reflected the applicable law at the time. They stated that the receiver/manager, when appointed by the debenture holder, would be the agent of the company.Footnote 63 The Intercontractors principle on the agency of the receiver was therefore justifiable at the time it was made, both on the authority of the applicable law and the prevalent practice as evidenced by the debentures.

For whose benefit?

Karibi-whyte JSC stated that the receiver is appointed for the “benefit of all concerned”.Footnote 64 For justification, he referred to Viola v Anglo American Storage Company (Viola).Footnote 65Viola was a complicated case involving the power of a receiver appointed by the court to bring an action against the debenture-holder on whose application he was appointed, in the debenture holder's capacity as buyer. The debenture holder sought to scupper the action against him as buyer. The court held that the decision to continue or to terminate the action was at the court's discretion; in such instances, the receiver would seek leave of the court because he is an officer of the court who is appointed for the benefit of all interests concerned in the estate which the court is obliged to protect.Footnote 66 Such a receiver can be distinguished from a receiver appointed by a debenture-holder who is appointed primarily for the benefit of his appointor.Footnote 67 In Re Johnson & Co (Builders) Ltd,Footnote 68 Evershed MR, explaining the status of the receiver appointed out of court, stated that the “whole purpose” of such a receiver is to benefit the mortgagee by realizing the assets, not to benefit the company; his management powers are ancillary to this primary duty.Footnote 69

It is trite that the agency of the receiver appointed out of court is anomalous; though an agent of the company, his primary duty is to the secured creditor, not the other stakeholders.Footnote 70 The Companies Decree 1968, applicable at the time, contained no contrary provisions. It is therefore submitted that the assertion by the Supreme Court that a receiver who is appointed in relation to a debenture owes a duty to all interests in the company could not be justified by the law or jurisprudence at the time. The authority on which the eminent justices anchored their opinions was not applicable to the case before them: the case applied to a court-appointed receiver but the Intercontractors receiver was appointed under a debenture. The eminent justices of the Supreme Court ought to have distinguished the rules applicable to a court-appointed receiver from those applicable to a receiver appointed under a debenture.

Current applicability

Agency

In contrast to the Companies Decree 1968 and the Intercontractors principles, CAMA 2004 designates the receiver as the agent of the person on whose behalf he is appointed, when appointed out of court under an instrument; that means that he is the agent of the debenture holder. In NBCI,Footnote 71 NBCI, the bank, intercepted a cheque made to Alfijir Ltd (a company in relation to which it had appointed a receiver) and issued a receipt in its own name to the payer. Both the Court of Appeal and the Supreme Court sought to determine the propriety of the bank's actions by examining the relationship between the debenture holder and the receiver.Footnote 72 By examining the terms of the debenture, clause 32 of which stipulated that the receiver was to be the agent of the company, the Court of Appeal determined that the receiver was the company's agent.Footnote 73 By examining the provisions of the law, the Supreme Court also held that the receiver was the company's agent.Footnote 74 The case was decided with reference to the 1968 Companies Decree and pre-CAMA practice because the receiver had been appointed in 1988. The court's opinion on the receiver's agency was therefore justifiable on that occasion.Footnote 75 However in Unibiz (Nigeria) Ltd v CBCL Nigeria Ltd (Unibiz),Footnote 76 both the Court of Appeal and the Supreme Court stated again that the receiver was the agent of the company, although the applicable law in that case was CAMA 1990. Incredibly, Ejiwunmi JSC, who read the leading judgment, gave two conflicting statements of the receiver's agency. First, he applied the provisions of CAMA 1990, by which he stated the receiver to be the bank's agent. Second, he set out at length the Intercontractors decision by which he held the receiver to be the agent of the company.Footnote 77 It is difficult to understand how the court could hold that the receiver was agent of both the company and the debenture-holder.

Like the English law on which it was structurally modelled, CAMA 1990 sets out terms that would be implied at receivership – in the absence of contrary terms in a debenture. The applicable legislation for appointments made after 1990 is CAMA 1990 (or 2004 as the case may be). Given that CAMA 1990 deems the receiver to be the agent of the debenture holder, the Intercontractors principle (decided under the 1968 Companies Decree) ought not to be cited as relevant authority post-CAMA 1990. Nevertheless, it is important to highlight the fact that there are two main issues to be considered when deciding the agency of the receiver: the applicable law and the terms of the debenture.Footnote 78 Pre-CAMA 1990, law and practice in Nigeria were aligned: the receiver was the agent of the company. With the enactment of CAMA 1990 however, the law was reversed and the receiver became, at law, the agent of the debenture-holder; however the practice did not evolve, probably because the same (English) precedents were used by the Nigerian practitioners.Footnote 79 As a result, debentures in relation to which receivers are appointed in Nigeria usually state that the receiver is the agent of the company. Given that the statutory agency is subject to such express contractual terms, the deemed agency would give way to the expressed agency. Nevertheless, it is impossible to assert that all debentures follow old precedents. When the courts decide the receiver's agency, they therefore should not apply the Intercontractors principle in place of section 390(1) of CAMA 1990. The receiver should only be considered the agent of the company where that is expressly stated in the debenture.

For whose benefit?

In NBCI, the Supreme Court restated the Intercontractors principle that a receiver is to be impartial in the performance of his duties (though it did not elucidate its assertion) and that he should perform his duties according to the terms of his appointment.Footnote 80 Ironically, it thereafter consulted section 393 of CAMA 1990 on the receiver's duty, which places the interests of the debenture-holder above all other interests. As stated above, the principle that the receiver is to perform his duties equally for the benefit of all interests only applies to the court-appointed receiver who is an officer of the court. It is arguable that CAMA 1990 instructs the receiver to recognise and consider a hierarchy of interests which are set out in section 390.Footnote 81 This section instructs the receiver/manager to take special consideration of the interests of the debenture- holder when realizing the assets. Concurrently, the receiver/manager must also take other interests into consideration. So, where, for example, the receiver can repay the debt without a sale of the company, he is obliged to achieve that goal. This does not constitute a duty to elevate the interests of the other stakeholders above those of the debenture holder, or to equate the same. Consequently, the Intercontractors principle that a receiver is appointed for the benefit of all interests must be restricted when applied to receivership initiated out of court according to CAMA 1990.

The powers of the receiver

The Intercontractors decisions state that the receiver may sue or be sued in the company's name but he must obtain leave of the court to represent the company in any suit; the court will grant leave as it deems appropriate.Footnote 82 Given that the Companies Decree 1968 contained no provisions on the receiver's powers, the judges again referred to English jurisprudence for direction.

To sue and be sued in the name of the company

Karibi-Whyte JSC based his opinion on the decisions in three cases. In Wheeler v Warren (Wheeler),Footnote 83 the court was to decide whether a receiver could bring an action in the name of the company in the absence of an express power to that effect in the debenture, without the company's consent. In its contemplations, the court refused to explore jurisprudence or to examine other debentures because it believed that it would only find that some debentures in practice contained an express power to institute such actions and such power would ordinarily be enforceable: a finding that was not helpful to the case before it. It therefore limited its assessment to the debenture before it. Upon examination of the terms of that particular debenture, it found that the power to bring such an action could be implied from an holistic analysis of the debenture. His lordship also examined LP Arthur (Insurance) Ltd v Sisson,Footnote 84 in which the question before the court was whether an action could be brought against a receiver by a party who was an applicant to his appointment, with leave of the court, or whether no such action could be commenced, even with leave of the court. The court held that a person at whose instance a receiver was appointed by the court could bring an action against the receiver, provided that he obtained leave of the court. The third case was Viola,Footnote 85 in which the debenture holder sought to quash a case against him in another capacity. The court held that the decision to bring or to terminate an action by a receiver appointed by the court was subject to the court's discretion.

While the cases prove that a receiver, regardless of the source of his appointment, can sue or be sued in the name of the company, they do not justify the need for a receiver appointed out of court to apply for leave to sue. Wheeler turned on the express (or implied) terms of the particular debenture in question. At the time, the law did not imply powers to the receiver appointed under a debenture; each debenture was therefore construed on its terms.Footnote 86 Goulding J in Sowman v Samuel (David) Trust Ltd (In Liquidation) Footnote 87 described each power contained in a debenture as property which a company assigned to its debenture holder. Therefore, where, as in Wheeler, the debenture gave the receiver power to represent the company in its name, in any suit, the term, as property, would be given the full weight of enforcement by the court in the absence of terms to the contrary in the debenture. The situation is analogous to that which applied in Nigeria at 1988. The eminent justices of the Supreme Court ought to have determined whether the debenture before them empowered the receiver to sue or be sued in the name of the company. As in Wheeler, the question of leave ought not to have arisen at all. Furthermore, other cases cited, with respect, cannot be authority for “the law” or “the practice” as suggested by Karibi-Whyte JSC in the Intercontractors decisions.Footnote 88 The authorities merely showed that the court-appointed receiver required leave of the court to represent the company in suits; the procedure did not apply to receivers appointed out of court. For these reasons, it is argued that, while the principle that a receiver appointed under a debenture can sue or be sued in the company's name is justifiable on the authorities, the principle that he requires leave to represent the company cannot be justified.

Current applicability

In contrast to the Companies Decree 1968, CAMA 1990 sets out powers that would be imputed to a receiver appointed under a debenture relating to the whole or substantially the whole of a company's assets.Footnote 89 In Unibiz,Footnote 90 the Supreme Court was given the opportunity to reconsider the Intercontractors principles in view of CAMA 1990. Unfortunately the court, instead of examining the powers of the receiver in accordance with section 393 and schedule 11 of the act, merely restated the Intercontractors decisions.Footnote 91 With respect, Ejiwunmi JSC who led the opinion of the Supreme Court further conflated the issues in question. Kalgo JSC in the Intercontractors decisions stated that the court's aim in granting or withholding leave was to guard against unnecessary depletion of the debtor's estate.Footnote 92 The court would determine if the suit was the best way to resolve the issues while the expenses incurred by the receiver would be approved. The steps were deemed necessary because the company, not the receiver, possessed title to the assets, and so the estate (in other words the company) not the receiver (who is a mere agent) bore the true costs of any action, and it was the court's duty to guard against the depletion of the estate. In Unibiz, after affirming the need for the receiver to seek leave, Ejiwunmi JSC stated that the debenture-holder did not require leave to initiate an action, not because the debenture-holder has title in the goods but because he is deemed in law to be “principal” and so would bear the consequences of his actions.Footnote 93 It is submitted that the opinion does not even follow the Intercontractors decisions. If the action by the debenture-holder is initiated to aid the execution of the receiver's duties (in Unibiz it was an action for injunctions without which the receiver may not have been able to take control of the company), the cost of the action may count as receivership expenses. In that case, it is the estate (the company), not the bank, as principal, that truly bears the cost of the action. The bank will only bear the cost when it cannot recover its debt in full. Ejiwunmi Jsc should therefore have held (on the authority of the Intercontractors decisions) that the bank, though principal at law, should also be required to obtain leave because its actions may deplete the debtor's estate which the court states that it has a duty to protect. Be that as it may, it is important to state that the decision cannot be supported in its statement of the status of the debenture-holder and his rights.

In Wema Bank Plc v Onafowokan (Wema),Footnote 94 the court was asked to decide whether the appointment of a receiver required confirmation, and whether he required leave to commence an action in the company's name. The receiver/manager had sought a confirmation order and protective injunctions by an action commenced in the company's name. The directors objected to the suit, claiming inter alia that leave was not obtained before the suit was commenced, as was held in the Intercontractors decisions and reaffirmed by Unibiz. The trial judge upheld the directors' objections. On appeal, the Court of Appeal re-examined both the Intercontractors cases and the Unibiz decision. Rightly, Ogebe JCA noted that the three cases had been decided without reference to section 393 and schedule 11 of CAMA.Footnote 95 The Intercontractors decisions were based on the law at 1988 which had no provisions analogous to section 393 and schedule 11. Meanwhile Unibiz followed the Intercontractors decisions blindly; although Unibiz was decided with reference to CAMA 1990, the court did not rely on section 393/schedule 11, but merely recited the Intercontractors principles.Footnote 96 He therefore distinguished Wema, and held that the three previous decisions of the Supreme Court did not apply, and that the clear provisions of the law obviated the need for leave to sue. His opinion was upheld by the Supreme Court on appeal.Footnote 97

Wema reflects the correct position of the law on the power of the receiver to sue or be sued in the name of the company: reliance should be placed on section 393(3) and schedule 11 of CAMA, subject to contrary provisions in the debenture. The Intercontractors principle on the need for leave and the Unibiz interpretation of the rule should not be applied by the courts.

CONCLUSION

Nigerian courts have in the past two decades enforced the principles of receivership as stated by the Supreme Court in the two Intercontractors decisions without questioning their validity. Even though CAMA 1990 expressly reversed some of the Intercontractors principles, the courts simply refused to let go of the Intercontractors precedents, even when presented with opportunities to clarify the law. Instead, until 2011, they insisted on interpreting extant law through the lens of unjustifiable precedents. In contrast, this article examines the Intercontractors principles and finds that the Intercontractors decisions are, at best, partly invalid, partly valid, partly applicable and partly inapplicable. The Intercontractors principles on the nature of receivership are valid and applicable under CAMA 2004. The Intercontractors principle on the agency of the receiver was valid at the time it was made but is not entirely valid or applicable under CAMA 2004. The provisions of CAMA ought to determine the agency of the receiver, subject only to contrary terms in the debenture. The problem with this area of the law is that the old precedents may state that the receiver is to be the agent of the company, while CAMA 2004 stipulates that the receiver is deemed to be the agent of the appointing party. The Intercontractors principle on the stakeholders to whom the receiver owes his duty is not entirely correct. It must be restricted in its application, because CAMA 2004 prescribes the hierarchy of interests which the receiver should consider when taking decisions. The Intercontractors principle that the receiver requires leave to represent the company cannot be justified, is inapplicable under CAMA 2004 and has been overruled by the decision in Wema. Nevertheless, the assertion that the receiver can represent the company in suits is valid and remains applicable under the law. Clearly, a practitioner or judge who seeks to rely on the Intercontractors decisions must determine the validity of the principle for which he cites this authority and the extent to which it remains applicable under CAMA 2004. Moreover, the courts must learn to distinguish the various types of receivers and the rules applicable to each. Furthermore, they must be careful to understand the English precedents to which they refer when making decisions on CAMA 2004. In addition, legal practitioners and drafters of legal documents must be careful to ensure that any precedents they utilize correctly reflect their intentions and, ideally, the provisions of the law.

Footnotes

1 (1988) 2 NWLR (pt 76) 280.

2 (1988) 2 NWLR (pt 76) 303.

3 Please note, except as expressly indicated, “receiver” in this article refers to the receiver and manager appointed over all or substantially all of a company's assets. The words “receiver” and “receiver/manager” may be used interchangeably but both refer to the receiver/manager appointed under a debenture over the whole or substantially the whole of a company's assets.

4 Wema Bank Plc v Onafowokan (2005) 6 NWLR (pt 921) 410.

5 See note 1 above.

6 Id at 290.

7 Id at 291.

8 Id at 291–92.

9 Id at 292–93.

10 Id at 294.

11 Footnote Ibid.

12 It refused to let the receiver remedy its mistake by obtaining leave to signify his interest and to give authority for his actions; id at 290.

13 Above at note 2.

14 Id at 314.

15 Id at 315.

16 Id at 324.

17 See note 1 above.

18 (1988) 2 NWLR (pt 76) 303 at 323.

19 Footnote Ibid; see also (1988) 2 NWLR (pt 76) 280 at 295.

20 “It is clearly not one for the private initiative of the receiver/manager as counsel for the appellant seems to assume”: id 303 at 323.

21 Id at 324–25.

22 Id at 325.

23 Laws of the Federation of Nigeria 1990, chap 59.

24 Laws of the Federation of Nigeria 2004, chap C20. The main thrust of the 2004 reform was to excise part XVII (regulating dealings in companies' securities) to be re-enacted as the Investment and Securities Act 1999.

25 Subject to contrary terms in the debenture.

26 Adebola, B “The duty of the Nigerian receiver to ‘manage’ the company” (2011) 8 International Corporate Rescue 248.

27 Sched 11 sets out 23 implied powers of the receiver and manager appointed over the whole or substantially the whole of the company's assets.

28 No 5: “Power to bring or defend any action or other legal proceedings in the name or on behalf of the company.”

29 CAMA was enacted in 1990; the cases were decided in 1988.

30 Compare principle (2) above with CAMA, sec 390(1).

31 Compare principle (2) above with id, secs 393(2) and 390(2).

32 Compare principle (3) above with id, sched 11, no 5.

33 But the debenture is where the receiver can show that he was appointed over all or substantially the whole of the company's assets, although CAMA does not provide a test for that purpose.

34 Discussed at “The powers of the receiver: Current applicability” below.

35 See above at “Restating the Intercontractors principles”.

36 The judgment of Rigby LJ [1896] 1 QB, upheld by the House of Lords [1897] AC 575.

37 The two modes of appointment confer different rights and powers on the receivers because of the source of the authority to act. See Moss Steamship Co Ltd v Whinney [1912] AC 254 (Moss Steamship) and Cripps & Son v Wickenden [1973] 1 WLR 944.

38 Parsons v The Sovereign Bank of Canada [1913] AC 160.

39 Id at 167. For a more thorough understanding, see Frisby, S and Davis-White, M (eds) Kerr & Hunter on Receivers and Administrators (19th ed, 2010, Thomas Reuters (Legal) Limited) chaps 5 and 9.

40 Moss Steamship, above at note 37 at 257.

41 It would be interference with the actions of an officer of the court. See Frisby and Davis-White (eds) Kerr & Hunter on Receivers, above at note 39 at 165.

42 Moss Steamship, above at note 37 at 260.

43 Footnote Ibid.

44 Frisby and Davis-White (eds) Kerr & Hunter on Receivers, above at note 39 at 243.

45 Above at note 37. Compare the decisions of Lord Lorebun and the Earl of Halsbury with that of Lord Atkins in Moss Steamship.

46 L Doyle “The residual status of directors in receivership” (1996) Company Lawyer 131 at 133.

47 Doyle, ibid.

48 Moss Steamship, above at note 37 at 259.

49 Id at 263.

50 Doyle “The residual status of directors”, above at note 46.

51 Doyle, Administrative Receivership: Law and Practice (1995, Pearsons Professional Limited) at 50.

52 Gomba Holdings UK Ltd v Homan (1986) 1 WLR 1301 at 1308.

53 Fletcher, IThe Law of Insolvency (4th ed, 2009, Sweet & Maxwell) at 452; also Re Kayford Ltd [1975] 1 All ER 604 and Doyle “The residual status of directors”, above at note 46 at 133.

54 Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] 2 WLR 636.

55 The position of the law is however still fluid on this point. See Newhart Developments, ibid and Paramount Acceptance Co v Souster [1981] 2 NZLR 38; compare with Tudor Grange Holdings Ltd v Citibank NA [1992] Ch 53.

56 Hoffman J in Gomba Holdings, above at note 52 at 1307.

57 Footnote Ibid.

58 (1993) 4 NWLR (pt 287) 346.

59 Id at 359.

60 (1999) 14 NWLR (pt 638) 176 at 200.

61 See above at “Restating the Intercontractors principles”.

62 Report on the Reform of Nigerian Company Law and Related Matters: Vol 1, Review and Recommendation (1988, Nigerian Law Reform Commission) at 6.

63 Above at note 2 at 322.

64 Id at 323.

65 [1912] 2 Ch 305 at 311.

66 Id at 310–11.

67 See Gomba Holdings, above at note 52 at 1307–08.

68 [1955] Ch 634.

69 Id at 644–45. See also: Shamji v Johnson Matthey Bankers [1991] BCLC 36; Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295; Medforth v Blake [2000] Ch 86; and Silven Properties Ltd v Royal Bank of Scotland Plc EWCA [2003] Civ 1409.

70 See Gaskell v Gosling, above at note 36; R Billins Agency Law (September 2010, Sweet & Maxwell, R.34) (loose-leaf) at B 2.2.

71 See above at note 58.

72 See above at note 60.

73 NBCI, above at note 58 at 359.

74 Above at note 60 at 196–97.

75 See however CAMA, sec 651(2).

76 (2001) 7 NWLR (pt 713) 534; (2003) 6 NWLR (pt 816) 402.

77 Id, 402 at 425 then 427.

78 Re Vimbos [1900] 1 Ch 470; Robinson Printing Company Limited v Chic Limited [1904] 2 Ch 123.

79 See excerpts of the debentures from the Nigerian cases cited, as set out by the courts.

80 NBCI, above at note 60 at 199.

81 See above at note 26.

82 See above at “Restating the Intercontractors principles”.

83 [1928] Ch D 840.

84 [1966] 1 WLR 1384.

85 See above at note 65.

86 Gough Garages Ltd v Pugsley [1930] 1 KB 615; Re Northern Garage Ltd [1946] Ch 188.

87 [1978] 1 WLR 22.

88 Above at note 1 at 294–95 and above at note 2 at 323.

89 CAMA, sec 393(3) and sched 11.

90 See above at note 76.

91 Id (Pt 816) at 424–25 and 427.

92 Above at note 1 at 294–95 and above at note 2 at 323–24.

93 Above at note 76 (Pt 816) at 427.

94 Above at note 4.

95 Id at 419–20.

96 Footnote Ibid.

97 (2011) 12 NWLR (pt 1260) 24.

Ibid
Ibid
Ibid
Ibid
Ibid