EXAMINING THE INTRODUCTION OF COMPANY VOLUNTARY ARRANGEMENT AS A RESCUE MECHANISM UNDER COMPANY AND ALLIED MATTERS ACT (CAMA) 2020

Abstract

Company may become unable not only to pay dividends to its members but also to repay its creditors and by the provision of repealed CAMA 1990, petitions for winding up could be brought when a company was unable to pay its debt, set at a minimum threshold of NGN 2000, and which debts remains unsatisfied after a period of 3 weeks that a letter of demand had been received. This requirement was pretty much easy to satisfy leading to a flood of petitions that ultimately led to the termination of the life of companies. This state of affairs was helped by the fact that besides winding up petitions there were really no intermediate options open to financially distressed companies to explore in seeking the resolution of a company’s bad financial situation. As such, the provisions on insolvency were not aimed at restructuring and preventing the winding up of companies. Indeed, recognizing the need to promote corporate rescue as well as create enabling condition for investment and improve the ease of doing business in Nigeria, CAMA 2020 introduced series of reforms to Nigeria’s legal regime whose underlying philosophy arguably is the promotion of corporate rescue as opposed to the termination of the life of the distressed companies. The introduction of corporate rescue changed the narrative of resolving insolvency in Nigeria as it priorities corporate rescue above winding up. This paper therefore examined company voluntary arrangement as one of the rescue mechanisms introduced by CAMA 2020 with a view to finding out the shortcomings of the said rescue mechanism. The paper found out that company voluntary arrangement under CAMA 2020 is not accompanied by any moratorium on enforcement actions. The absence of a stay on the enforcement of creditors’ rights may hinder a company that is facing financial distress from adopting this scheme for corporate rescue. Consequently, creditors may unilaterally pursue claims or enforcement actions while the company voluntary arrangement is ongoing and the writers therefore recommended the provision of moratorium which ensures that the process is not torpedoed by the creditors.