The AMCON Act: Beyond the Maths

By

Ogunkunle Olubunmii

The Asset Management Company of Nigeria (AMCON) is a 100%

government-owned SPV which the CBN conceived of as a solution to the
Non-Performing Loans (NPLs) and Margin Loans (MLs) overhang in the
Nigerian banking Industry (NBI).At the time of this discourse, the NBI has
an ML/NPL exposure of over N2.2 trillion! To resolve this overhang, AMCON
is expected to buy up all the NPL/MLs or other Eligible Bank Assets (EBA)
from the banks vide Purchase Agreements and for consideration, may
issue 7 year Federal Government guaranteed, zero-coupon bonds to the
selling banks. 25 % of the bonds issued to the banks can be discounted
with CBN, and the remaining 75% traded for liquidity at the over-the-
counter market (OTC). Certainly, the prospects of selling NPLs and MLs in
exchange for FG guaranteed bonds would ultimately inject the much-
needed capital into the banks and make them attractive for M&A options.
Recently, the AMCON board published the valuation methodologies for the
NPLs and MLs to be purchased or acquired from the banks.

The media has been awash with analyses of the commercial correctness of
the Act i.e. the valuation methodology, taxpayer concerns and all.
However, beyond the maths of the AMCON Act, a review of the Act from a
legal standpoint viz a viz, the rights of all parties involved in light of the
overall mischief which the Act seeks to cure, shows significant implications
for the parties that would typically come under the purview of the AMCON
Act, that is, the debtor, the selling bank, the AMCON and third parties that
may derive proprietary title from AMCON. Without a doubt, there are
certain essential legal considerations –which do not form the bulk of this
discourse- that have to go into the clausing of the relevant Purchase
Agreements, the Asset Management Contracts and of course, the nature
of the legal advice to be given to banks. A few are discussed in relation to
the parties as follows:

AMCON
The legal implication of the Act is the novation of AMCON as creditor and
asset manager for the purposes of recovering and effectively managing
the NPLs and MLs respectively. With its new position, AMCON has the
discretion to adopt the appropriate method with which to proceed against
the debtors. Consequently, AMCON can directly institute a legal action
against the bank’s debtors or take over legal action already commenced
by the selling bank against debtors. AMCON can also decide to forbear the
debts, redevelop the projects, explore the option of restructuring the loans
and making them perform again or even out rightly forgive the loans.
Clearly, the quality of legal advice would make a lot of difference for the
management and liquidation of the debtor’s debt portfolio.
When one considers the immense assets that would be entrusted to
AMCON through the process of recovery and the attendant discretionary
powers that AMCON has in relation to the disposal of the assets, it
becomes apparent that the question of corporate governance is the
singular most important factor that would determine the success or
otherwise of the AMCON. While the professional pedigree of the members
of the AMCON board is indeed impressive, our most recent history both in
the public and private sectors is disappointingly littered with persons who
have intimidating qualifications from the best universities in the world,
remarkable career histories, but very diminutive moral standards and little
or no self -integrity. It is extremely important therefore that firm
supervisory, institutional controls are put in place by the CBN to ensure
the continuing unquestionable integrity of the board members and
employees. While it is okay to have the board members of AMCON declare
their personal debt obligations and that of family and “close business
associates” before assuming duty, the CBN should consider making the
obligation to declare, a periodic affair as opposed to one-off declarations.
The CBN should also consider putting a definitive guide to the phrase
“close business associates”. One wonders whether it matters that they are
‘distant business associates’

The Debtor
A major consequence that the Act has for debtors is that, it is relatively
easy for the courts to declare a debtor bankrupt. The Act invests the
courts with special powers which in effect, derogate from the provisions of
the Bankruptcy Act that would usually operate in practice as a protective
shield for the debtor, effectively, making the debt recovery process more
result-oriented, much to the disadvantage of the debtor. For instance, a
debtor does not need to commit an act of bankruptcy as defined under the
Bankruptcy Act and the AMCON need not file a bankruptcy petition for it to
obtain a receiving order against the debtor, from the court. More
importantly, the court has the powers to adjudge the debtor bankrupt
after a receiving order has been made in the proceedings. These
provisions surely have great consequences for the bank debtors who are
reputable persons in Nigeria.

Further, the Act provides for a statutory exemption to the operation of the
doctrine of privity of contract in the event that the doctrine is used as a
shield by the debtor. Under the Act, the AMCON is entitled to exercise all
attendant rights and powers and also becomes subject to all the
obligations of the bank in relation to the EBA upon purchase/acquisition.
Consequently, the debtor, guarantor, surety or receiver, liquidator,
examiner or any other person concerned and the bank shall cease to have
any rights in relation to the EBA.

The Selling Bank

The Purchase Agreement would perhaps be the most important document
in the relations between the selling bank and AMCON. The mastery of the
workings of this kind of Agreement and also the peculiar demands of the
parties viz-a-vis the particular EBA would go a long way in the
maximization of value and special interests. It is vital to note here that the
rights and powers exercisable by the AMCON in relation to an EBA can be
made subject to the provisions of Purchase Agreement entered into with
the Bank. Depending on the type of EBA, the Purchase Agreement
therefore is an important tool for the constructive delimitation of the
responsibilities of parties to it.

The selling bank also has continuing obligations to the AMCON after
acquisition and can still be liable for any misrepresentations,
misinformation or undisclosed representations made during the
acquisition.

Third Parties
The Act makes adequate provision for the statutory protection of third
parties that may purchase EBAs or connected assets from AMCON. Thus,
AMCON has the powers to, where it deems necessary and fitting dispose
the acquired NPL and also, the security used as its collateral. To the
advantage of a purchasing third party, AMCON is not required to be
registered as owner of any security that is part of an EBA. Also, any
instrument under the seal of the corporation that is expressed to convey
any interest in an EBA to another person shall be taken for all purposes to
validly convey the interest so expressed to be conveyed. Significantly,
such instrument is to operate to extinguish the interest of any other
chargee or pledge in the EBA concerned except for charges or pledges
that have accrued prior to AMCONs interest.
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Ogunkunle Olubunmi practices with the law firm of Solola & Akpana.