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The CBN Take-Over of SomeBanks in Nigeria: Serious LegalQuestions Remain Unanswered
September 2009 Vol. 22: Issue #9
In the past two weeks, Nigeria haswitnessed certain radical measures imposedon some banks by the new Governor of theCentral Bank of Nigeria, Sanusi LamidoSanusi on August 14, 2009.For purposes of clarity, the orders issued bythe CBN Governor may be categorized intothree, namely:(a)
The removal of various officersconstituting the executivemanagement of the affected banksand their replacement by certainpersons appointed by the CBNGovernor;(b)
The unilateral advancement ofvarious sums of money into therespective operating funds of the banks with the proviso that the saidadvance, shall at the option of theCBN be convertible into fully paidup securities of the affected banks;and(c)
Other further orders ostensiblydesigned to put the bank on strongerfooting both in terms of corporategovernance and with respect toincreased liquidity.In sum, the orders made by the CBNGovernor constitute a take-over of theaffected banks for a period that would lastat least 5-7 years but could alsofundamentally restructure the futureownership and control of the affected banks. By all accounts, these measures areradical and constitute an unprecedentedtakeover or seizure of private investments by a governmental agency in Nigeria.The alleged basis for these radical measuresundertaken by the CBN Governor is that theaffected banks, in the opinion of the CBNGovernor, appears to meet the criteria of a“failing bank” as contemplated by Section35 of the Banks and other FinancialInstitutions Act, Cap B3 Laws of theFederation of Nigeria, hereinafter, BOFIA.This newsletter addresses three keyquestions, namely:1.
Whether under the enablinglegislation, the CBN Governor hasthe power or
to remove anyofficer or officers of the affected banks and appoint new officers onthe grounds that the banks are“failing” under the definitioncontained in section 35 of theBOFIA? And if so, whether underthe present circumstances, the CBNGovernor exercised such powers judiciously;2.
Whether having regard to the lawsof Nigeria the CBN Governor and/orthe Central Bank of Nigeria maylawfully position itself to holdand/or control shares in Nigerian banks;