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The AMCON Act: Beyond the Maths

The AMCON Act: Beyond the Maths

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The Asset Manangement Company of Nigeria ACt 2010.
The Asset Manangement Company of Nigeria ACt 2010.

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Published by: Tamilore 'Bumsport O'kunle on Nov 23, 2010
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11/23/2010

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The AMCON Act: Beyond the MathsByOgunkunle Olubunmi
i
 The Asset Management Company of Nigeria (AMCON) is a 100%government-owned SPV which the CBN conceived of as a solution to theNon-Performing Loans (NPLs) and Margin Loans (MLs) overhang in theNigerian banking Industry (NBI).At the time of this discourse, the NBI hasan ML/NPL exposure of over N2.2 trillion! To resolve this overhang, AMCONis expected to buy up all the NPL/MLs or other Eligible Bank Assets (EBA)from the banks vide Purchase Agreements and for consideration, mayissue 7 year Federal Government guaranteed, zero-coupon bonds to theselling banks. 25 % of the bonds issued to the banks can be discountedwith CBN, and the remaining 75% traded for liquidity at the over-the-counter market (OTC). Certainly, the prospects of selling NPLs and MLs inexchange for FG guaranteed bonds would ultimately inject the much-needed capital into the banks and make them attractive for M&A options.Recently, the AMCON board published the valuation methodologies for theNPLs and MLs to be purchased or acquired from the banks. The media has been awash with analyses of the commercial correctness of the Act i.e. the valuation methodology, taxpayer concerns and all.However, beyond the maths of the AMCON Act, a review of the Act from alegal standpoint viz a viz, the rights of all parties involved in light of theoverall mischief which the Act seeks to cure, shows significant implicationsfor the parties that would typically come under the purview of the AMCONAct, that is, the debtor, the selling bank, the AMCON and third parties thatmay derive proprietary title from AMCON. Without a doubt, there arecertain essential legal considerations –which do not form the bulk of thisdiscourse- that have to go into the clausing of the relevant PurchaseAgreements, the Asset Management Contracts and of course, the natureof the legal advice to be given to banks. A few are discussed in relation tothe parties as follows:
AMCON
 The legal implication of the Act is the novation of AMCON as creditor andasset manager for the purposes of recovering and effectively managingthe NPLs and MLs respectively. With its new position, AMCON has thediscretion to adopt the appropriate method with which to proceed againstthe debtors. Consequently, AMCON can directly institute a legal actionagainst the bank’s debtors or take over legal action already commencedby the selling bank against debtors. AMCON can also decide to forbear thedebts, redevelop the projects, explore the option of restructuring the loansand making them perform again or even out rightly forgive the loans.Clearly, the quality of legal advice would make a lot of difference for themanagement and liquidation of the debtor’s debt portfolio.
 
When one considers the immense assets that would be entrusted toAMCON through the process of recovery and the attendant discretionarypowers that AMCON has in relation to the disposal of the assets, itbecomes apparent that the question of corporate governance is thesingular most important factor that would determine the success orotherwise of the AMCON. While the professional pedigree of the membersof the AMCON board is indeed impressive, our most recent history both inthe public and private sectors is disappointingly littered with persons whohave intimidating qualifications from the best universities in the world,remarkable career histories, but very diminutive moral standards and littleor no self -integrity. It is extremely important therefore that firmsupervisory, institutional controls are put in place by the CBN to ensurethe continuing unquestionable integrity of the board members andemployees. While it is okay to have the board members of AMCON declaretheir personal debt obligations and that of family and “close businessassociates” before assuming duty, the CBN should consider making theobligation to declare, a periodic affair as opposed to one-off declarations. The CBN should also consider putting a definitive guide to the phrase“close business associates”. One wonders whether it matters that they are‘distant business associates’
The Debtor
A major consequence that the Act has for debtors is that, it is relativelyeasy for the courts to declare a debtor bankrupt. The Act invests thecourts with special powers which in effect, derogate from the provisions of the Bankruptcy Act that would usually operate in practice as a protectiveshield for the debtor, effectively, making the debt recovery process moreresult-oriented, much to the disadvantage of the debtor. For instance, adebtor does not need to commit an act of bankruptcy as defined under theBankruptcy Act and the AMCON need not file a bankruptcy petition for it toobtain a receiving order against the debtor, from the court. Moreimportantly, the court has the powers to adjudge the debtor bankruptafter a receiving order has been made in the proceedings. Theseprovisions surely have great consequences for the bank debtors who arereputable persons in Nigeria.Further, the Act provides for a statutory exemption to the operation of thedoctrine of privity of contract in the event that the doctrine is used as ashield by the debtor. Under the Act, the AMCON is entitled to exercise allattendant rights and powers and also becomes subject to all theobligations of the bank in relation to the EBA upon purchase/acquisition.Consequently, the debtor, guarantor, surety or receiver, liquidator,examiner or any other person concerned and the bank shall cease to haveany rights in relation to the EBA.
The Selling Bank 
 The Purchase Agreement would perhaps be the most important documentin the relations between the selling bank and AMCON. The mastery of theworkings of this kind of Agreement and also the peculiar demands of theparties viz-a-vis the particular EBA would go a long way in themaximization of value and special interests. It is vital to note here that therights and powers exercisable by the AMCON in relation to an EBA can bemade subject to the provisions of Purchase Agreement entered into withthe Bank. Depending on the type of EBA, the Purchase Agreement
 
therefore is an important tool for the constructive delimitation of theresponsibilities of parties to it. The selling bank also has continuing obligations to the AMCON afteracquisition and can still be liable for any misrepresentations,misinformation or undisclosed representations made during theacquisition.
Third Parties
 The Act makes adequate provision for the statutory protection of thirdparties that may purchase EBAs or connected assets from AMCON. Thus,AMCON has the powers to, where it deems necessary and fitting disposethe acquired NPL and also, the security used as its collateral. To theadvantage of a purchasing third party, AMCON is not required to beregistered as owner of any security that is part of an EBA. Also, anyinstrument under the seal of the corporation that is expressed to conveyany interest in an EBA to another person shall be taken for all purposes tovalidly convey the interest so expressed to be conveyed. Significantly,such instrument is to operate to extinguish the interest of any otherchargee or pledge in the EBA concerned except for charges or pledgesthat have accrued prior to AMCONs interest.

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