The Bank and other Financial Institutions Act 2020 (the “BOFIA 2020“) provides a number of protections for Private Asset Management Companies in Nigeria. In 2017, Nigeria’s Central Bank ( the “Central Bank“) proposed a legal framework for licensing Private Asset Management Companies ( the “PAMC Regulation“). Under this framework, Private Asset Management Companies are private entities licensed by the Central Bank, to buy, structure, manage and dispose non-performing loans of banks and other financial institutions in Nigeria ( “Financial Institutions“). Such non-performing loans must meet certain minimum eligibility requirements to be eligible for sale to Private Asset Management Companies. From a policy standpoint, the CBN takes the view that Private Asset Management Companies will help minimize the likelihood of systemic risk and and promote the soundness and stability of the financial system by providing an alternative liquidity option for banks . Although the final version of the PAMC Regulation is yet to be published by the CBN, the inclusion of certain protective provisions for Private Asset Management Companies in BOFIA 2020 indicates that the CBN still considers the PAMC Regulation a critical part of its strategy for driving financial stability in Nigeria.
Key Investor Protections for Investors under BOFIA 2020
(a) Power to Transfer Assets without consent or regard to any law or contract
The legal basis for the investor protections in the BOFIA is the vesting of an asset separation tool on the CBN by which the CBN is empowered to transfer the assets of the Financial Institution, to one or more private asset management vehicles. In making such transfers, the CBN is not under any obligation to comply with any other law, instrument or written contract or the procedural requirements under any law or written contract. The CBN may also compel a PAMC to retransfer assets back to a failed bank, specialised bank or other financial institution.
(b) Consideration for the Purchase of Non-Performing Loan
Additionally, the CBN has the sole authority to determine the consideration to be paid in connection with the assets transferred to a Private Asset Management Company and such consideration may be paid in debt issued by the Private Asset Management Company. Such consideration may also have a nominal or negative value.
(c) Investor Immunity from Legal Action
The BOFIA 2020 grants the Private Asset Management Companies statutory immunity from any action taken by a shareholder or creditors of a Financial Institution in connection with the enforcement of any right, judgment or claim howsoever described against the assets transferred to a Private Asset Management Company. Additionally, a Private Asset Management Company has no actual or implied legal duty or responsibility to the shareholders or creditors of a Financial Institution and will have no liability to such shareholders or creditors for any acts and omissions in the discharge of their duties unless a case of fraud or gross misconduct which directly affects the rights of such shareholders or creditors is established.
This foregoing legal update is not intended to be legal advice and is provided as a legal update. Please seek legal advice specific to your situation. For inquiries, kindly reach out to your usual Balogun Harold contact or via support@balogunharold.com
