Corporate Insolvency Procedures in Nigeria: A Guide

Corporate insolvency in Nigeria is the legal framework for dealing with companies that can no longer meet their debts. For Nigerian and foreign investors, lenders and directors, understanding these rules is essential to protecting value and avoiding personal liability.

This guide focuses on business readers and finance professionals who need a clear, practical overview of what happens when a Nigerian company becomes distressed and which options are realistically available.

What does corporate insolvency mean under Nigerian law?

Under Nigerian law, a company is insolvent when it cannot pay its debts as they fall due (cash‑flow insolvency) or when its liabilities exceed its assets (balance‑sheet insolvency. CAMA 2020 sets detailed tests for "inability to pay debts" and procedures for winding up insolvent companies, supported by Insolvency Regulations issued by the Corporate Affairs Commission (CAC). (thisdaylive.com)

Key features include:

• Cash‑flow test - a company is deemed unable to pay its debts if it fails to satisfy a statutory demand above a threshold amount or cannot satisfy a judgment debt. (thisdaylive.com)
• Balance‑sheet test - where total liabilities (including contingent and prospective liabilities) exceed total assets. (cherutchambers.com)
• Main statutes and institutions:
  • CAMA 2020 and the Corporate Affairs Commission insolvency regulations
  • Federal High Court of Nigeria, which has jurisdiction over winding up and many restructuring applications (fhc.gov.ng)
  • Sector‑specific laws for banks and insurers (for example the Banks and Other Financial Institutions Act 2020 and NDIC Act for deposit‑taking banks). (statehouse.gov.ng)

In practice, a company can be technically insolvent long before any formal court process begins. That "twilight" period is where director decisions are most heavily scrutinized later.

What are the main corporate insolvency procedures in Nigeria?

The main corporate insolvency procedures in Nigeria are receivership, administration and liquidation (winding up). In addition, CAMA 2020 provides rescue mechanisms such as company voluntary arrangements (CVAs) and schemes of arrangement that may avoid a full liquidation. (thecable.ng)

How does receivership work in Nigeria?

Receivership in Nigeria is typically a creditor‑driven enforcement process where a secured creditor (usually a bank) appoints a receiver or receiver/manager over charged assets. The receiver's main duty is to realize the secured assets and repay the appointing creditor, not to rescue the company.

• When it is used:
  • Default under a debenture or other security document with a fixed or floating charge.
  • Urgent need to take control of key assets or cash flows (for example, a factory, project receivables or rental income).
• Receiver's powers (as set out in the debenture and CAMA):
  • Take possession of charged assets and collect income.
  • Operate bank accounts and manage the business to protect or enhance the value of the security.
  • Sell assets, often without shareholder consent, to repay the secured debt.
• Impact on the company:
  • Board's powers over charged assets are displaced by the receiver.
  • The company itself may survive in a reduced form, but often receivership leads to a subsequent liquidation.

How does administration work in Nigeria?

Administration is a rescue‑oriented procedure introduced by CAMA 2020 where an administrator takes control of the company with the goal of saving it as a going concern or achieving a better outcome for creditors than liquidation. It usually comes with a moratorium that temporarily stops creditor enforcement. (thecable.ng)

• Objectives of administration:
  1. Rescue the company as a going concern where possible.
  2. If not possible, achieve a better result for creditors than an immediate winding up.
  3. Realize property to make a distribution to secured or preferential creditors.
• Key effects:
  • Appointment of an independent insolvency practitioner as administrator.
  • Automatic or court‑ordered moratorium that restricts:
    • Enforcement of security and repossession of goods.
    • Commencement or continuation of court actions without court consent.
  • Management powers transfer from directors to the administrator.
• Typical use cases:
  • Businesses that are operationally viable but over‑leveraged.
  • Situations where asset value depends on keeping the business running (for example, hotels, hospitals, concession projects).

What is liquidation (winding up) and when is it used?

Liquidation is the terminal process where a company's assets are collected, sold and distributed to creditors and, if anything remains, to shareholders. In Nigeria, liquidation can be voluntary (initiated by members or creditors) or compulsory (ordered by the Federal High Court). (thisdaylive.com)

• Common grounds for compulsory winding up:
  • Inability to pay debts under CAMA's statutory tests.
  • Just and equitable grounds (for example deadlock, loss of substratum).
  • Failure to file statutory returns or commence business in some cases.
• Process overview:
  1. Creditor, company or contributory files a petition at the Federal High Court.
  2. Court may appoint a provisional liquidator pending determination.
  3. On making the winding‑up order, a liquidator is appointed to collect assets, adjudicate claims and make distributions.
  4. Company is eventually dissolved when affairs are fully wound up.
• Costs and timing:
  • Expect filing fees, gazette and newspaper publication costs and liquidator's professional fees. For a mid‑size company this usually runs into several hundreds of thousands to several millions of naira, depending on complexity.
  • Simple voluntary liquidations may conclude within 6-18 months, while complex contentious cases can last several years.

How do CVAs and schemes of arrangement help distressed companies?

Company voluntary arrangements (CVAs) and schemes of arrangement are restructuring tools that allow a company to compromise its debts with creditor approval, often avoiding liquidation. They are supervised by an insolvency practitioner and sanctioned by the court. (cherutchambers.com)

• CVA:
  • Primarily a contract between the company and its unsecured creditors.
  • Can reschedule or reduce debts while allowing the business to continue trading.
  • Requires majority approvals at creditor meetings and court involvement at key stages.
• Scheme of arrangement:
  • Court‑driven process where each class of creditors votes on a restructuring proposal.
  • If statutory majorities are met and the court sanctions the scheme, it becomes binding on all creditors in that class, including dissenters.
  • Under CAMA 2020, a temporary moratorium may be available while the scheme is negotiated. (nigerianlawyerscenter.com)

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

In a Nigerian liquidation or administration, creditors must formally "prove" their debts, after which the liquidator or administrator admits or rejects claims and pays dividends according to a strict priority ladder. Secured creditors generally stand outside the main pool to the extent of their security, while unsecured creditors share in any remaining assets according to statutory ranking rules. (lawnigeria.com)

What is the creditor claims process?

1. Notice and proof of debt
   • The liquidator issues a notice inviting creditors to submit claims with supporting documents (contracts, invoices, judgments, security documents).
   • Creditors file a proof of debt within the stated deadline, including calculation of principal, interest and any security.
2. Review and admission
   • The liquidator reviews each claim, may request further evidence and can admit in full, admit in part or reject.
   • Disputed claims can be referred to the court for determination.
3. Dividends
   • Once sufficient assets have been realized, interim or final dividends are declared and paid according to ranking.
   • Late‑proving creditors may still be paid but only from any undistributed balance.

How are creditors ranked for payment?

CAMA 2020 organizes distributions broadly as follows (simplified): (lawnigeria.com)

For creditors, this ranking determines realistic recovery. For directors and sponsors, it highlights why unsecured positions often receive little or no dividend in deeply insolvent estates.

What liabilities can directors face when a Nigerian company is insolvent?

When a Nigerian company becomes insolvent or is approaching insolvency, director duties shift toward protecting creditors, not just shareholders. Under CAMA 2020, directors can be personally liable for fraudulent trading, wrongful trading and other misconduct that worsens creditor losses. (lawnigeria.com)

What is fraudulent trading?

Fraudulent trading occurs where a company's business is carried on with intent to defraud creditors or for any fraudulent purpose. If, in a winding up, the court finds fraudulent trading, it may declare the persons involved (including directors and others) personally responsible without limit for all or part of the company's debts, and criminal sanctions may also apply. (lawnigeria.com)

What is wrongful trading?

Wrongful trading under section 673 of CAMA 2020 arises where a director knew, or ought to have concluded, that there was no reasonable prospect of the company avoiding insolvent liquidation, yet failed to take every reasonable step to minimize potential loss to creditors. The court can order that director to contribute personally to the company's assets. (lawglobalhub.com)

Practically, directors should:

• Monitor cash flow and covenant compliance closely.
• Document board discussions about solvency and options.
• Seek early professional insolvency and legal advice once distress becomes serious.
• Avoid incurring new credit unless they reasonably believe it benefits creditors overall.

What other risks do directors face?

• Offences by officers in liquidation - including falsification of books, concealment of assets and failure to keep proper accounts. (lawnigeria.com)
• Misuse or misapplication of company money or property - can lead to personal liability and orders to repay. (aaachambers.com)
• Disqualification - serious misconduct or repeated statutory defaults can lead to disqualification from acting as a director for a specified period under CAMA.
• Shadow directors - individuals who effectively direct the board from behind the scenes can be treated as directors and share these liabilities. (eucd1-acas.dentons.com)

How are cross‑border insolvency and asset recovery 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. Cross‑border cases are handled through general private international law principles, recognition and enforcement of foreign judgments, and cooperation between courts on a case‑by‑case basis. (omaplex.com.ng)

Key practical points:

• No automatic recognition - a foreign liquidation or administration is not automatically recognized in Nigeria. Foreign officeholders often must:
  • Seek recognition by bringing proceedings in Nigeria, or
  • Work with local creditors or shareholders to commence parallel Nigerian proceedings.
• Recognition of foreign judgments - foreign insolvency judgments may be recognized and enforced if they meet Nigerian common‑law and statutory conditions (final and conclusive, competent jurisdiction, not contrary to public policy). (punchng.com)
• Asset tracing - creditors and foreign insolvency practitioners often:
  • Identify Nigerian bank accounts, real estate and moveable assets.
  • Use Nigerian proceedings (for example, freezing orders, examination of directors, clawback of preferences and undervalue transactions) to recover value. (thisdaylive.com)
• Regulated entities - banks and some financial institutions are resolved under special regimes involving the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation, which can override ordinary CAMA procedures. (statehouse.gov.ng)

For cross‑border investors, local insolvency counsel is critical to align foreign and Nigerian strategies and avoid conflicting orders.

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

Under CAMA 2020 and the Insolvency Regulations, only qualified and accredited insolvency practitioners can act as liquidators, administrators or nominees in formal procedures. Choosing the right practitioner and legal team is one of the most important decisions in any corporate workout. (kpmg.com)

Who qualifies as an insolvency practitioner?

CAMA 2020 envisages that an insolvency practitioner must have relevant professional qualifications (for example law or accountancy), several years of post‑qualification experience in insolvency work and authorization from the CAC, usually backed by membership in a recognized professional body such as the Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN). (mondaq.com)

Checklist for choosing a Nigerian insolvency team

• Experience with your sector - for example oil and gas, manufacturing, financial services, infrastructure projects.
• Track record in the specific procedure - administration, creditors' voluntary winding up, schemes of arrangement, or cross‑border enforcement.
• Regulatory standing - CAC accreditation as an insolvency practitioner and good standing with professional bodies.
• Capacity - depth of team, ability to handle forensic accounting, litigation, and negotiations with major banks or state agencies.
• Communication - clear reporting to boards, lenders and foreign stakeholders, not just to court.

Platforms like Lawzana make it easier to compare Nigerian insolvency and restructuring lawyers by practice focus, location and language, and to request proposals before you commit.

What are common misconceptions about corporate insolvency in Nigeria?

Several myths often delay action and increase losses for companies and creditors in Nigeria. Understanding what is wrong with these assumptions can save time and money.

• "Insolvency automatically means bankruptcy or criminality."
  Corporate insolvency is primarily a civil and commercial framework. While fraudulent conduct can lead to criminal charges, most honest business failures are resolved through restructuring or orderly liquidation.
• "Directors are always personally protected behind the company."
  Limited liability is not absolute. Wrongful trading, fraudulent trading, misapplication of assets and some statutory breaches can all pierce the corporate veil and make directors personally liable.
• "Foreign creditors cannot realistically recover in Nigeria."
  Recovery can be challenging, but foreign creditors regularly participate in Nigerian insolvencies, enforce security and, where conditions are met, enforce foreign judgments. The key is early local engagement and a realistic strategy.

Frequently asked questions about corporate insolvency in Nigeria

When is a Nigerian company considered "unable to pay its debts"?

Under CAMA 2020, a company is unable to pay its debts if it fails to pay a statutory demand above a specified threshold within the prescribed period, cannot satisfy a judgment debt, or it is otherwise shown to be unable to meet its obligations as they fall due. Courts also look at balance‑sheet insolvency where liabilities exceed assets. (thisdaylive.com)

Can secured creditors enforce their security during liquidation?

Yes. Secured creditors generally stand outside the liquidation and may enforce their security despite the winding‑up, although they must respect certain procedural and timing rules. Any shortfall after enforcement is claimed in the liquidation as an unsecured debt. (lawcarenigeria.com)

Do employees have priority in a Nigerian insolvency?

Certain employee‑related claims, including specified wage arrears and statutory pension and employees' compensation contributions, are treated as preferential debts and rank ahead of ordinary unsecured creditors, but still after insolvency costs and most secured creditors. (lawcarenigeria.com)

Can a distressed company continue trading while insolvent?

Yes, but only if directors genuinely believe, and can show, that continued trading is likely to improve the position of creditors overall and they are taking reasonable steps to minimize loss. Reckless continuation of loss‑making trading can trigger wrongful or fraudulent trading liability. (lawglobalhub.com)

How long does a typical Nigerian liquidation take?

Simple, uncontested voluntary liquidations can sometimes complete within 6-18 months. Court‑driven or contentious liquidations, particularly where there are disputes about assets, director misconduct or large tax claims, can extend for several years.

When should you hire a Nigerian insolvency lawyer?

You should speak with an insolvency or restructuring lawyer at the first signs of sustained financial distress, not only when creditors are already filing winding‑up petitions. Early advice allows more options such as informal workouts, CVAs or schemes, and can significantly reduce the risk of director liability.

More specifically, consider engaging counsel when:

• Your company is consistently missing payment deadlines, breaching financial covenants, or relying on rollovers to survive.
• Major creditors have issued statutory demands or threatened winding‑up proceedings.
• The board is considering ceasing trading, selling core assets or injecting new money on urgent terms.
• You are a creditor worried about preserving security, ranking or cross‑border enforcement.

A Nigerian insolvency lawyer familiar with the Federal High Court and procedures on the Federal High Court of Nigeria portal can coordinate with insolvency practitioners, negotiate with banks and regulators, and design a strategy that reflects both legal risk and commercial reality.

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

If you are facing potential insolvency in Nigeria, a structured response is far better than reactive firefighting. Use this as a practical roadmap:

1. Stabilize information
   • Prepare up‑to‑date cash‑flow forecasts, aged creditor lists and a realistic asset register.
   • Identify secured creditors, guarantee positions and cross‑default triggers.
2. Take immediate governance steps
   • Convene an urgent board meeting focused solely on solvency and options.
   • Record decisions and reasons, including why any continued trading is thought to benefit creditors.
3. Engage professional help
   • Contact a Nigerian insolvency lawyer and, where appropriate, an accredited insolvency practitioner listed under the CAC Insolvency Regulations.
   • For foreign‑related cases, ensure your advisors are experienced in cross‑border matters.
4. Explore rescue options before liquidation
   • Informal standstill or restructuring with key lenders.
   • CVA, administration or scheme of arrangement if the core business is viable.
5. Prepare for formal processes if necessary
   • Decide whether creditors' voluntary liquidation, court winding‑up, or administration best serves stakeholder interests.
   • Coordinate communications with employees, regulators and major customers to preserve value.

Acting early, with the right legal and insolvency team, often makes the difference between an orderly restructuring and a value‑destroying collapse. If you are ready to move, use a platform like Lawzana to shortlist Nigerian insolvency and restructuring lawyers, compare their experience and request an initial consultation tailored to your company's situation.