Corporate Insolvency Procedures in Nigeria Explained

What is corporate insolvency in Nigeria and when is a company considered insolvent?

Corporate insolvency in Nigeria generally means a company can no longer pay its debts as they fall due or its liabilities exceed its assets. Under CAMA 2020, that financial distress can trigger formal procedures such as administration, receivership or liquidation, which are supervised by the Federal High Court and administered under the oversight of the Corporate Affairs Commission (CAC). (cac.gov.ng)

In practice, Nigerian courts look at both the "cash flow" test (inability to pay debts when due) and the "balance sheet" test (liabilities outweigh assets). Warning signs include persistent unpaid bank facilities, tax arrears, salary backlogs and judgments that cannot be satisfied. When these indicators appear, directors are expected to shift their focus from shareholders to protecting creditors and to consider formal restructuring or insolvency options under CAMA 2020.

What are the main corporate insolvency procedures in Nigeria?

The three main corporate insolvency procedures in Nigeria are receivership, liquidation (winding up) and administration. Receivership is usually driven by a secured creditor to realize collateral, liquidation focuses on orderly closure and distribution of assets, while administration is designed to rescue the company or its business where possible. (helar.law)

How does receivership work in Nigeria?

Receivership in Nigeria allows a secured creditor (often a bank) to appoint a receiver or receiver/manager to take control of specific charged assets or, in some cases, the company's entire undertaking. The receiver's primary duty is to the appointing creditor, to recover the debt from the secured assets, although CAMA 2020 also imposes general duties to act in good faith and with reasonable care. (omaplex.com.ng)

Key features of receivership

• Trigger: Default under a debenture or security agreement, or a court order.
• Who appoints: The secured creditor if the security document expressly grants that power, or the Federal High Court on application. (omaplex.com.ng)
• Scope of control: Over the assets covered by the security; a receiver/manager may also manage the business to preserve value.
• Effect on company: The company and its directors technically remain in office, but the receiver controls the secured assets and associated cash flows.

Typical receivership steps for a secured creditor

1. Confirm that an event of default has occurred and that the security document permits appointment of a receiver without court order.
2. Serve any required demand or notice on the company under the loan and security documents.
3. Execute a deed or letter of appointment appointing a qualified insolvency practitioner as receiver or receiver/manager.
4. File required notices with the CAC so that the appointment appears on the public register. (cac.gov.ng)
5. The receiver takes possession of the secured assets, collects receivables and sells assets as needed to repay the secured debt.
6. Any surplus after satisfying the secured creditor (and the receiver's costs) is returned to the company or, if it is in liquidation, to the liquidator.

How does liquidation (winding up) work in Nigeria?

Liquidation (often called "winding up") is the process of closing a company, realizing its assets and distributing the proceeds to creditors in a defined order of priority. In Nigeria this can be done either by court order (compulsory winding up) or voluntarily by shareholders and creditors under CAMA 2020. (icnl.org)

Grounds for winding up by the Federal High Court typically include:

• Inability to pay debts as they fall due (after a statutory demand or unsatisfied judgment).
• Where it is "just and equitable" to wind up the company (for example, deadlock or loss of substratum).
• Failure to comply with CAMA requirements in serious cases.

Core steps in a court-ordered winding up brought by a creditor

1. Statutory demand / evidence of inability to pay: Serve a statutory demand or obtain an unsatisfied judgment as evidence of insolvency.
2. Petition: File a winding up petition at the Federal High Court, pay filing fees and serve the petition on the company and key stakeholders.
3. Court hearing: The court considers evidence and may grant a winding up order, adjourn for settlement, or dismiss the petition.
4. Appointment of liquidator: The court appoints an official receiver or an authorized insolvency practitioner as liquidator to take control of the company's assets. (icnl.org)
5. Realization and investigation: The liquidator realizes assets, reviews transactions, may challenge undervalue transactions or preferences, and reports on director conduct.
6. Distribution and dissolution: Dividends are paid according to statutory ranking, final accounts are prepared and, once approved, the company is dissolved and struck off the CAC register.

How does administration work in Nigeria?

Administration is a rescue-focused insolvency procedure introduced by CAMA 2020, whose main goal is to save an insolvent company or its business where that will produce a better outcome for creditors than immediate liquidation. An administrator is appointed to take control of the company, a moratorium usually arises, and a restructuring plan is proposed to creditors. (helar.law)

Key characteristics of administration

• Primary objective: Rescue the company as a going concern, or, failing that, achieve a better result for creditors than winding up, or realize property for secured or preferential creditors. (helar.law)
• Who can start it: The company, its directors, creditors, a liquidator, or in some cases a floating charge holder, either by court order or by out-of-court appointment with subsequent filings at the CAC and sometimes the court. (businessday.ng)
• Moratorium: Once in administration, most creditor enforcement and legal proceedings are stayed, giving breathing space to negotiate a plan.
• Control: The administrator (a qualified insolvency practitioner) becomes an officer of the court and an agent of the company, displacing the board's control over day-to-day management. (mondaq.com)

Simplified administration timeline

1. Application or appointment of administrator, and filing of notice with CAC and, where required, the Federal High Court.
2. Within about 60 days, the administrator prepares a statement of affairs, schedules assets and liabilities, identifies creditors and circulates proposals. (mondaq.com)
3. Creditors' meeting is held to vote on the administrator's proposals, which may involve debt restructuring, asset sales, or a company voluntary arrangement.
4. Administrator implements the plan; if rescue is not feasible, administration may convert into a creditors' voluntary liquidation or lead directly to dissolution.

How do creditor claims, ranking and dividend distribution work in Nigerian insolvency?

In Nigerian corporate insolvency, claims are ranked broadly as secured, preferential, unsecured and equity, with costs of the insolvency process itself typically paid before creditor distributions. Secured creditors are paid from their collateral, while the order of distribution of the company's free assets is governed by CAMA 2020 and linked bankruptcy rules. (wipolex-res.wipo.int)

Basic ranking of claims in a winding up

Preferential debts rank equally among themselves after the expenses of the winding up and must be paid in full where assets allow; if not, they abate proportionally. CAMA 2020 confirms that the claims of equity holders rank last. (wipo.int)

How a creditor files and proves a claim

1. Receive notice: The liquidator or administrator issues a notice to known creditors, inviting them to lodge proofs of debt by a specified deadline.
2. Prepare proof of debt: Provide a statement of account, contract documents, invoices, court judgments, bank statements and any security documents.
3. Submit to officeholder: File the proof of debt with the liquidator or administrator, in the format and by the method specified in the notice.
4. Review and adjudication: The insolvency officeholder accepts, rejects, or partially admits the claim; disputed claims can be referred to the Federal High Court.
5. Dividend distributions: Once sufficient assets are realized, interim and final dividends are declared and paid by reference to admitted claims and their statutory ranking.

In cross-border cases, foreign creditors typically rank on the same basis as domestic creditors under Nigerian law, although practical enforcement and information gaps can affect recoveries.

What liabilities can directors face in Nigerian corporate insolvency?

Directors of Nigerian companies in financial distress can face serious civil and, in cases of dishonesty, criminal liability. Under CAMA 2020, directors who enter into transactions knowing or who ought to know that the company will go into insolvent liquidation may be ordered by the court to contribute personally to the company's assets, on application by a liquidator or creditor. (oaslawfirm.com)

Main categories of director risk when a company is insolvent or nearly insolvent

• Wrongful trading-style liability: Continuing to trade or incur new debts when there was no reasonable prospect of avoiding insolvent liquidation, without taking steps to minimize loss to creditors.
• Fraudulent trading and misfeasance: Running the business with intent to defraud creditors, or misapplying company property, can expose directors to both civil contribution orders and criminal prosecution.
• Preferences and undervalue transactions: Paying certain creditors ahead of others or selling assets far below value shortly before insolvency can be challenged and unwound by a liquidator.
• Failure to keep proper books: CAMA 2020 requires adequate accounting records; failure can create presumptions against directors and lead to sanctions.

Protective steps for directors once distress is evident

• Hold frequent, minuted board meetings focusing on solvency, cash flow and creditor impact.
• Obtain early, independent legal and financial advice on restructuring options and insolvency risk.
• Avoid new significant credit or asset disposals without clear justification and board approval.
• Ensure taxes, pension and employee contributions are treated as high-priority payments.
• Consider formal procedures such as administration or a company voluntary arrangement instead of informal "firefighting" that deepens the deficit.

How is cross-border corporate insolvency handled in Nigeria?

Nigeria does not yet have a dedicated cross-border insolvency statute and has not adopted the UNCITRAL Model Law on Cross-border Insolvency. As a result, Nigerian courts rely on general principles of private international law, CAMA 2020 and common law to decide whether to recognize and cooperate with foreign insolvency proceedings. (omaplex.com.ng)

Recognition of foreign insolvency proceedings and judgments

• Foreign insolvency judgments may be recognized if they are final and conclusive, issued by a court of competent jurisdiction, and not contrary to Nigerian public policy.
• There is no automatic "main proceeding" recognition mechanism, so recognition is typically sought by separate application to a Nigerian court.
• Local creditors and public policy concerns often weigh heavily, and courts may be reluctant to defer fully to foreign proceedings where Nigerian assets or employees are heavily affected. (omaplex.com.ng)

Practical issues for cross-border creditors

• Foreign creditors generally rank equally with domestic creditors in the same class under Nigerian law, but they must actively file claims in any Nigerian proceeding.
• Secured creditors with Nigerian law security over local assets may enforce locally regardless of foreign processes, subject to any Nigerian moratorium (for example, in administration).
• Coordinated strategies across jurisdictions are vital, often involving parallel proceedings in the company's home jurisdiction and in Nigeria where significant assets are located.

How can you find insolvency practitioners and restructuring lawyers in Nigeria?

In Nigeria, only qualified insolvency practitioners recognized under CAMA 2020 may act as liquidators, administrators, or similar officeholders, and they often work in tandem with specialist restructuring lawyers. A practical approach is to identify CAMA-compliant insolvency practitioners and law firms with proven experience before the Federal High Court and familiarity with CAC processes. (mondaq.com)

Who is legally allowed to act as an insolvency practitioner?

• CAMA 2020 requires an insolvency practitioner to hold a relevant degree (such as law or accountancy), have at least five years of post-qualification insolvency experience, be certified by the Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) or another CAC-recognized body, and hold an authorization from the CAC. (mondaq.com)

Practical ways to identify suitable advisers

• Use the CAC's online resources to confirm a company's status and cross-check names of proposed liquidators or administrators against public information: Corporate Affairs Commission. (cac.gov.ng)
• Check professional bodies such as BRIPAN, the Nigerian Bar Association and accounting institutes (ICAN, ANAN) for members who specialize in insolvency and restructuring.
• Look for lawyers who regularly litigate at the Federal High Court, which has jurisdiction over federal corporate and insolvency laws: Federal High Court of Nigeria. (fhc.gov.ng)
• Compare several firms or practitioners on independent platforms such as Lawzana, considering track record, sector experience and responsiveness.

Questions to ask before you engage an insolvency professional

• How many administrations, receiverships or liquidations have you handled in the last three years in Nigeria?
• Do you have experience with my sector (for example, oil and gas, manufacturing, fintech)?
• What is your proposed strategy in the first 60-90 days, and what decisions will the board retain?
• How are your fees structured (hourly, fixed, success-based) and what upfront retainer is required?
• Do you foresee any conflict of interest with existing creditors, banks or shareholders?

What are common misconceptions about corporate insolvency in Nigeria?

Several myths often delay decisive action and worsen outcomes in Nigerian corporate distress. Understanding these misconceptions can help boards and creditors choose the right legal pathway faster.

• "Insolvency always means the business is finished." Administration and other restructuring tools are specifically designed to save viable businesses or parts of them; early engagement makes rescue far more realistic.
• "Directors are automatically personally liable for all company debts." Limited liability generally protects directors, but they can be personally exposed where they trade irresponsibly into insolvency, commit fraud or breach duties; careful, documented decision making and timely advice are crucial.
• "Foreign creditors cannot recover anything in Nigerian insolvency." Foreign creditors usually share pro rata with domestic creditors in their class, although practical enforcement issues and local priorities can affect timing and recovery percentages.

Frequently asked questions on Nigerian corporate insolvency

How long does a corporate liquidation usually take in Nigeria?

Simple liquidations with few assets can sometimes be completed in under 12 to 18 months, but larger or contentious cases often run for several years. The timeline depends on asset realization, litigation (for example, to unwind suspect transactions), tax clearances and final court approvals.

Can directors start an administration without going to court?

Yes, CAMA 2020 allows out-of-court appointment of an administrator by the company, its directors or, in some cases, a qualifying floating charge holder, subject to filing the required documents with the CAC and, in certain situations, notifying the court. However, court involvement may still be needed to resolve disputes or extend the administrator's term. (mondaq.com)

What happens to employees when a Nigerian company goes into insolvency?

Employment contracts may be terminated or continued depending on the procedure and the strategy (rescue vs closure). In a winding up, certain wage and benefit claims are treated as preferential debts and rank ahead of unsecured creditors, although they may still not be paid in full if assets are insufficient. (wipo.int)

Can a secured creditor still enforce its security during administration?

Typically, a moratorium in administration restricts enforcement by secured creditors without the administrator's consent or court permission. That said, secured creditors retain strong rights over their collateral and will be key stakeholders in any restructuring plan.

What are the typical costs of starting an insolvency process in Nigeria?

Costs include court filing fees, CAC filing charges, and professional fees for insolvency practitioners and lawyers. For medium-sized companies, professional fees often run into millions of naira, so early, informal restructuring discussions are sometimes explored first, but formal procedures may still be necessary where creditor pressure is acute.

When should you hire a Nigerian insolvency or restructuring lawyer?

You should involve a Nigerian insolvency or restructuring lawyer as soon as there is a real risk that your company cannot meet its obligations as they fall due, not only when the business is about to collapse. Early legal input allows directors to manage their own risk, structure negotiations with banks and key suppliers, and decide whether to pursue administration, a voluntary arrangement, receivership negotiations or an orderly winding up.

Specific triggers to seek immediate legal advice

• Banks threaten to appoint a receiver or enforce security over core operating assets.
• There are multiple unpaid tax, pension or salary obligations and mounting statutory penalties.
• You receive a statutory demand or winding up petition from a major creditor.
• Significant shareholder disputes emerge around whether to inject new capital or shut down.
• The board is unsure how to balance competing interests of lenders, investors and employees.

A lawyer experienced with Nigerian insolvency procedures can coordinate financial advisers and licensed insolvency practitioners, prepare court filings correctly, and help negotiate standstill or restructuring agreements that give the business a conditional second chance.

What are your next steps if your Nigerian company is in distress?

If your company is facing financial distress in Nigeria, a calm, structured approach usually delivers better outcomes than last-minute firefighting. You can move quickly while still being methodical.

1. Diagnose the problem clearly: Prepare a short-term cash flow (13-week view), list all debts by creditor and security, and identify critical contracts and licenses.
2. Stabilize the situation: Pause non-essential spending, avoid favoring particular creditors without advice, and communicate honestly but carefully with key stakeholders.
3. Engage professional help: Speak to a Nigerian restructuring lawyer and, where appropriate, a licensed insolvency practitioner to understand realistic options and risks.
4. Choose a pathway: Decide whether to pursue informal restructuring (amend-and-extend with lenders, debt-for-equity swaps), administration, company voluntary arrangements, receivership negotiations, or an orderly winding up.
5. Protect directors and records: Ensure accurate, up-to-date financial records, keep detailed board minutes, and avoid undocumented side deals that may be challenged later.
6. Use trusted platforms to compare advisers: Shortlist Nigerian insolvency and restructuring firms using independent directories such as Lawzana, compare expertise and proposals, and engage a team that fits your industry and urgency.

Handled early and strategically, Nigeria's corporate insolvency procedures can be used not only to close failed ventures but also to stabilize and rescue viable businesses, protect jobs and preserve long-term value for creditors and shareholders.