- September 24, 2021
- Posted by: Stephen Azubuike
- Category: Case Law Blog
Receivership remains one of the ways a secured creditor may recover debts owed to it by a company. By this, a creditor reserves the right to appoint (by deed) a receiver for the purpose of realising the assets (sell some of the assets or the company itself) of the debtor company towards the satisfaction of the debt. The power to appoint a receiver is one of the remedies available to a mortgagee in a mortgage.
Typically, where a receiver is appointed over a company, the powers of the company’s directors shall cease and the receiver shall assume the right to exercise powers to oversee the company’s affairs. In fact, in some cases, the receiver may be appointed as “receiver/manager”, in which case the receiver will enjoy the power to manage the company in the process. In exercising the managerial authority, the receiver is expected to act with the underlying purpose of debt recovery and ultimately handing over the company as a going concern to its owners. Thus, receivers who are appointed to also act as managers often get such appointment where the debtor company is very well in business.
In the event that the creditor appoints a receiver or receiver/manager, sometimes, there are controversies on the extent of other rights the creditor may exercise towards recovering the outstanding debts. We saw an example in the recent case of I.T.B. Plc v. Okoye  11 NWLR (Pt. 1786) 163.
In I.T.B. Plc v. Okoye, the creditor, International Trust Bank Plc (I.T.B. Plc or “The Appellant”), granted overdraft facilities of N10 Million to Excellent Manufacturers Ltd. The alter ego of the company, Louis Okoye (“The Respondent”) signed a deed of guarantee by which it personally guaranteed the repayment of the overdraft.
Following default, I.T.B. Plc appointed a Receiver/Manager to realise the assets of Excellent Manufacturers Ltd. The Receiver/Manager filed a suit at the Federal High Court to enable him protect and preserve the assets of the company (including the mortgaged property with which the facility was secured) and prevent the directors including Louis Okoye from interfering with the receivership process.
It is important to mention that this kind of suit by the Receiver/Manager is ordinarily not a legal requirement before the Receiver/Manager may validly act. However, upon his or her appointment and assumption of duties over the affairs of the company under receivership, the directors and alter ego of the company may fight and become a stumbling block. They will usually not respect the provisions of the law that renders them impotent once a receiver is appointed. In order to protect himself or herself, the Receiver will normally approach the Police to provide security for the purpose of the physical taking over of the affairs of the company. The Police most often will decline to cooperate in the absence of a court order to that effect. In abundance of caution, the Police will not act merely on the deed of appointment or the enabling contract which gave the appointing creditor power to appoint a receiver. This is the main reason a receiver/manager, as in this case, will institute an action in court to secure a court order as a backbone.
While the court action instituted by the Receiver/Manager appointed by I.T.B. Plc was pending, I.T.B. Plc commenced another action at the High Court of Anambra State (under the Undefended List Procedure) against Louis Okoye based on his personal guarantee to repay the debts of his company.
Louis Okoye filed a notice of his intention to defend the suit. In his supporting affidavit, he admitted the deed of guarantee and also the fact that a Receiver/Manager had been appointed and that the Receiver/Manager had filed an action.
The trial Court held that Louis Okoye had no defence to the suit filed by I.T.B. Plc. It refused to transfer the matter to the general cause list and entered judgment in favour of I.T.B. Plc.
The Court of Appeal’s position
Louis Okoye appealed to the Court of Appeal and was successful. The Court of Appeal set aside the decision of the trial Court, holding that the subsequent suit by I.T.B. Plc against Louis Okoye was an abuse of court process in that there was an already pending suit by the Receiver/Manager appointed by I.T.B. Plc.
The Supreme Court comes to the rescue
I.T.B. Plc appealed to the Supreme Court. On 18 December 2020, the Supreme Court allowed the appeal, holding that the suit by I.T.B. Plc against Louis Okoye was not an abuse of court process. The apex Court left us with abundant clarity on the true position of the law as follows:
1. A claim by a receiver is a claim by the company itself (that is the company in receivership). It is not a claim by the creditor (such as the bank in this case). In the instant case, the suit by the Receiver/Manager was to prevent Louis Okoye and other directors from interfering with his duties. The suit by I.T.B. Plc was to recover the debt due to it based on the personal guarantee, being his unequivocal and irrevocable undertaking. Therefore, I.T.B. Plc’s suit was not an abuse of court process in that the reliefs sought and the parties are completely different.
2. A person cannot be sued in respect of a contract to which he was not a party. In the instant case, the company, Excellent Manufacturers Ltd., had no business in the suit between I.T.B. Plc and Louis Okoye arising from the deed of guarantee and so need not be joined. Excellent Manufacturers Ltd. is a separate legal entity from Louis Okoye and the other directors of the company, and it was not a party to the deed of guarantee.
Interestingly, the nature of the contract of guarantee as contained in the deed of guarantee was such that Louis Okoye unconditionally guaranteed that he would pay the contractual obligations owed by his company without requiring I.T.B. Plc to first pursue any remedy against the company. In other words, Louis Okoye made himself a primary obligor on the same pedestal as his company.
3. It was contended by Louis Okoye that since I.T.B. Plc had appointed a Receiver/Manager, the Bank had no right of action (locus standi) to sue him. The Supreme Court affirmed the trial Court’s position that such argument defies logic. The Supreme Court quoted J. I. Nweze, J. thus (at page 198):
…In a profound misunderstanding of paragraph 5 of the deed of guarantee, the Defendant equates the appointment of a receiver over a third party company with the assignment by the Plaintiff bank of its right under the deed of guarantee. The Receiver was appointed to realise the assets of the company whilst this action is to enforce the Defendant’s obligation under the deed of guarantee. The debtor company is not a party to the contract. They are two different things altogether.
We agree with the Supreme Court’s decision. Although, I.T.B. Plc’s suit against Louis Okoye and the appointment of the Receiver/Manager are all geared towards recovery of the debt owed to I.T.B. Plc. In principle, the suit by I.T.B. Plc is distinct from the suit by the Receiver/Manager. There is no abuse of court process. Notably, I.T.B. Plc claimed over N23 Million including interests against Louis Okoye. Meanwhile, Louis Okoye’s liability under the deed of guarantee was limited to N10 Million only. It was this N10 Million that the trial Court awarded I.T.B. Plc plus interest. The consequence of this is that I.T.B. Plc will naturally look up to the Receiver/Manager for the recovery of the outstanding.
Whatever the case, if ultimately I.T.B. Plc happens to realise more than it was entitled to, Louis Okoye and his company are entitled to the balance if they are able to prove same. In the same way, if they dispute all or any part of the claims by I.T.B Plc, they have a duty to prove it.
In sum, the Supreme Court is commended for the decision.