Do banks have power to recover debts already sold to AMCON?

Introduction

The Federal Government of Nigeria was desirous of stabilising the financial system in the country and so, passed a Law known as the Asset Management Corporation of Nigeria Act in July, 2010 (“The Act” or “AMCON Act”). The Act established an agency known as the Asset Management Corporation of Nigeria (AMCON) for the purpose of efficiently resolving the non-performing loan assets of banks in the Nigerian economy. What this means in simple terms is that if A is owing a bank, and has failed to make repayments as scheduled over a given period (non-performing loan), AMCON has the powers to buy the debt (called eligible bank asset) from the bank (stepping into the shoes of the bank) and thereafter chase A in order to recover the debts. As earlier stated, the essence is to assist the banks to stay afloat and to avert potential financial crisis that could be occasioned by bad debts (also called toxic assets).

In order to seamlessly execute its statutory mandate of stabilising the financial system including debt recovery, the Act gave AMCON wide powers which it invokes while chasing defaulting debtors through court action. For instance, under the Act, AMCON has the powers to apply for an ex parte order (that is an application filed without notice and service to the person to be affected) freezing the bank accounts and assets of the defaulting debtor. The assets are usually the assets used as security (collateral). Once the accounts and assets are frozen, the defaulting debtor would thereafter be served with court papers giving the debtor the opportunity to be heard in court.

The Question

Subsequent to the sale of the bad debts to AMCON, we have seen banks also filing fresh court actions against the defaulting debtors. More so, the banks may, subsequent to the sale, continue an action already commenced against the defaulting debtors prior to the sale of the debts.

The question that usually arise is whether banks have power to recover debts already sold to AMCON?

The Court of Appeal was moved to resolve that issue in a recently decided case of Tilley Gyado & Co. (Nig.) Ltd. v. Access Bank Plc [2019] 6 NWLR (Pt. 1669) 399. The Court interpreted the provisions of Section 34 of the AMCON Act which deals with the effect of acquisition of eligible bank asset by AMCON. At pages 442-443, Hon. Justice Abiru, JCA explained: 

“What do these provisions mean? They mean that an agreement for sale of a debt of a customer is strictly between the Bank who is the creditor, as the seller, and Asset Management Corporation of Nigeria, as the purchaser, without any input or participation from the customer, the debtor. They mean that upon the sale of the debt, all the rights and powers pertaining or attached thereto as well as the obligations thereon became vested in the corporation with or without notification of the sale to the debtor. They mean that the vesting of the rights and powers pertaining to a debt in the corporation upon purchase is without prejudice to the corporation allowing the Bank to continue to exercise some of those rights and powers on its behalf and as its trustee and that all income or monies derived by the Bank from such exercise of the rights and powers on behalf of the corporation shall be for the benefit of the corporation  – Prime Marketing Associates Ltd. v. Keystone Bank Ltd. (2016) LPELR 42262 (CA). In other words, though the rights and powers pertaining to a purchased debt vests in the Corporation immediately upon purchase, including the power to sue for the debt, it does not preclude the bank from exercising or continuing to exercise such powers on behalf of the Corporation.”

Now, it is clear from the above statement of the law that banks can, subsequent to the sale of debts, exercise or continue to exercise such rights and powers on behalf of the Corporation. In other words, by virtue of Section 34(3) of the Act, banks have the power to recover debts already sold to AMCON.

Nonetheless, it is important to note that under Section 34(3) of the Act and as stated by the Court of Appeal, AMCON needs to direct or allow the banks to exercise or continue to exercise such rights and powers on behalf of the Corporation including the power to recover debts already sold. Therefore, one critical follow up question that arises is whether the banks must prove that the directive or permission of AMCON has been obtained before the banks can authoritatively exercise such powers on behalf of AMCON.

The Court of Appeal, per Abiru, JCA, had no difficulty answering the question. His Lordship stated:

“When the bank exercises or continues to exercise the powers on behalf of the Corporation, the question of whether the bank had the permission of the Corporation to do so is a matter strictly and purely between the bank and the Corporation, and it is not the business of the debtor or of any third party to the agreement. This is the essence of the doctrine of privity of contract which postulates that, in law, a contract is always between the contracting parties who must stand or fall, benefit or lose from the provisions of their contract and the contract cannot bind third parties nor can third parties take or accept liabilities under it, nor benefit thereunder.”

 In Tilley Gyado & Co. (Nig.) Ltd. v. Access Bank Plc (supra), the 1st Respondent (Access Bank Plc), in a bid to recover debts owed by the Appellant, filed an application for the issuance and placement of the Writ of Summons under the Undefended List on 23/12/2010. The Writ of Summons placing the matter under the Undefended List was issued on 26/1/2011. Meanwhile, Access Bank assigned the debt to AMCON (joined as 3rd Respondent in the Appeal) and the assignment became effective on 1/1/2011.

The Appellant contended that the case was commenced by Access Bank on 26/1/2011 after the debt was assigned on 1/1/2011. It further contended that Access Bank lacked the locus standi to institute the case. The Court of Appeal rejected these contentions. It held that an action under the Undefended List is commenced by the filing of an application for the issuance and placement of a Writ of Summons under the Undefended List, and not by the issuance of the Writ of Summons. In this case, thus, the case was commenced on 23/12/2010 and not 26/1/2011. In other words, the matter was commenced before the assignment of the debt took place. But this does not make any difference, still. Abiru, JCA clarified:

“In the instant case therefore, the fact that the First Respondent assigned the debt due to it from the Appellant to the Third Respondent with effect from the 1st January, 2011 did not preclude it from continuing the case commenced on the 23rd of December, 2010, or in fact, from commencing a fresh case, against the Appellant for the outstanding debt. The question of whether the First Respondent had the permission of the Third Respondent to do so is not the business of the Appellant, but that of the Third Respondent and only the Third Respondent can complain and question action of the bank, and not the Appellant. The Third Respondent made no complaints against the prosecution of the case by the First Respondent. The complaint of the Appellant is baseless and totally misconceived.”

In Prime Marketing Associates Ltd. v. Keystone Bank Ltd. (supra) (relied upon by the Court of Appeal in Tilley Gyado’s case), there was a Letter of Authorisation clearly mandating the bank to continue the case already instituted on behalf of AMCON. It was argued that there is no law that empowers AMCON to re-assign or re-transfer debt already acquired by them. The Court of Appeal was of the opinion that the argument does not follow. It held that it was not a scenario of re-assignment but of authorization to proceed on AMCON’s behalf, which AMCON is empowered by virtue of Section 34 (3) of the Act to do.

In practice, the Loan Purchase and Service Agreement, which is the instrument by which AMCON usually purchases the debts from banks, often contains an approval by AMCON of the right of the bank to exercise limited servicing right on behalf of AMCON. 

Clearly, just like the debtor has no business questioning the authority of the bank to sue over debts already assigned to AMCON, the debtor too cannot be made to answer to any issue that may arise between the bank and AMCON regarding the debt assignment including any issue relating to the exercise of powers by the bank on behalf of AMCON. The privity of contract doctrine generally has two legs – no benefit; no liability from a contract you are not a party to. Thus, the debtor suffers no prejudice by facing an action filed or continued by the bank. It must be mentioned that the debtor is under no liability to answer to the debt twice. The bank and AMCON cannot lawfully maintain suits simultaneously against the debtor on the same subject matter. That would undoubtedly amount to an abuse of court process.

Conclusion

What is more? the question whether banks have the power to chase defaulting debtors after assigning the debt to AMCON should now be considered a matter well settled. Yes, they can.

 

Featured Image Credit: The Nation.



Stephen Azubuike
Author: Stephen Azubuike
Stephen is a Legal Practitioner, Consultant, Mediator and Social Entrepreneur. He has successfully argued cases from the High Courts of various jurisdictions to the Appellate Courts. Desirous of implementing new legal solutions, he founded Stephen Legal, a firm in the business of providing innovative legal insights and easy solution in this information age. Stephen also serves as a volunteer at Prof. Pat. Utomi’s Centre for Values in Leadership in Lagos, given his passion for capacity building and leadership development.

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