Overview of AMCON and Its Role in Debt Recovery
The Nigerian financial system has faced significant challenges in managing debt recovery, particularly concerning non-performing loans. To address this issue, the Asset Management Corporation of Nigeria (AMCON) was established in 2010 as a special purpose vehicle with the mandate to acquire and manage eligible bank assets arising from non-performing loans. This initiative serves as a key stabilizing and revitalizing tool for the financial system, enabling banks to recapitalize and focus on their core lending activities. As a result, it promotes financial systemic resilience, improves capital adequacy ratios, and frees up valuable resources.
Legal Implications of Assigning Eligible Bank Assets to AMCON
This article explores the legal implications of assigning eligible bank assets—arising from non-performing loans—to AMCON, whether partially or wholly, and whether such an assignment extinguishes or limits the bank’s right to further pursue recovery. The recent amendments to the AMCON Act in 2019 have introduced new dimensions to this process.
Under Section 4 of the AMCON Act 2019, the corporation is tasked with assisting eligible financial institutions in efficiently disposing of eligible bank assets in accordance with the provisions of the Act. Section 5 explicitly states that the function of the corporation is to “acquire eligible bank assets from eligible financial institutions.” Furthermore, Section 61 of the AMCON Act defines debt as any credit facility, loan, or risk asset, whether performing or non-performing, including interest. Non-performing loans are defined as outstanding loans that are not being repaid, typically those where the principal and/or interest remains unpaid for at least 90 days.
Functions and Objectives of AMCON
The object and functions of AMCON are outlined under Sections 4, 5, and 37 of the AMCON Act, which empower it to acquire and dispose of eligible bank assets. This includes loans, credits, or other financial accommodations obtained by insiders or persons connected with the eligible financial institution that granted the loan. The rationale behind the establishment of AMCON is to purchase toxic assets from banks, enabling them to maintain a “clean” balance sheet. The legislature’s intention was for AMCON to take over eligible bank assets upon the sale of assets to it.
Rights and Obligations After Assignment to AMCON
A critical question arises: what interest does a bank possess after fully assigning its interest in eligible bank assets from a non-performing loan to AMCON? In other words, does the bank still have the right to pursue the recovery of the loan, or is it only AMCON that has the right to recover the loan?
In the case of Zamfara State Govt & Anor v Unity Bank & Anor, the court held that AMCON was clothed with powers, in keeping with its mandate, to purchase eligible bank assets from non-performing loan assets of banks in Nigeria by virtue of Section 25 of the AMCON Act 2010. Pursuant to this statutory duty, and by virtue of Section 34(1) of the Act, upon acquisition of an EBA by AMCON, all the rights vested in the eligible financial institution, that is, the transferor, in relation to the EBA are automatically transferred to AMCON. This means that the transferor is divested of all the rights over the transferred EBA once acquired by AMCON.
Legal Precedents and Implications
Section 35(1) of the AMCON Act underscores that following the acquisition of an EBA by AMCON, the Corporation is entitled to exercise all rights and powers relating to that EBA, subject to any exclusion contained in the purchase agreement. The combined effects of Sections 25, 34, and 35 show that the bank whose assets have been purchased by AMCON no longer has the opportunity to pursue debt recovery actions in its name, once it has sold its relevant EBA to AMCON.
Similarly, in the case of Van Vilet Trucks (Nig) Ltd v AMCON & Anor, the court held that AMCON had statutory powers of ownership once it had fulfilled the purpose of its creation, which is acquiring eligible bank assets (bad loans). Upon acquisition, it becomes the owner of the loan instead of the initial bank that advanced the facility. This confers authority on AMCON, and once the loan vests in AMCON, the financial institution ceases to have the right to pursue the debtor. Thus, AMCON becomes seized of the eligible bank asset.
Contractual Relationship Between Banks and AMCON
The relationship between eligible financial institutions (banks) and AMCON is purely contractual. Banks sell off their non-performing loans to AMCON and transfer all rights and interests under the loan agreements with customers, thereby empowering AMCON to take all steps necessary, including instituting actions against defaulting debtors. This is akin to the doctrine of subrogation, where an insurer steps into the shoes of the insured and pursues the recovery from the negligent third party. In the case of assignment of eligible bank assets, AMCON steps into the shoes of the eligible financial institution and pursues the recovery of the non-performing loan. Consequently, the right of the assignee bank to recover the loan is extinguished.
AMCON’s Role in Converting Bad Debt
AMCON buys the bad debt of eligible financial institutions and converts them into debt securities such as government bonds or equity investments tradable on the Nigerian Stock Exchange. Trading such debts makes them liquid, and funds realized from trading debt securities may be applied to repaying the loans through AMCON.
For a loan to be purchasable by AMCON, the EBA must emanate from an eligible financial institution. To facilitate this process, AMCON is empowered to issue bonds or other forms of debt instruments as consideration for the acquisition of toxic assets. Loans eligible for purchase must be those whose security rights and transfer are legally enforceable, provided they are classified as substandard and the mechanism for acquisition centers on the issuance of bonds and other debt securities by AMCON, as permitted under the AMCON Act.
Vesting of Eligible Bank Assets in AMCON
Additionally, when the process of acquisition is completed, the EBAs automatically vest in AMCON, which is empowered to exercise all the rights and obligations previously enjoyed by the banks in relation to those EBAs. Moreover, such an acquisition completely and totally extinguishes the right of the bank or eligible financial institution to pursue the recovery of such a loan.
