Introduction:

In order to avoid bad loans and other rueful experiences[1] while extending a loan facility or other forms of negotiable instruments, it is important you go through this article. While this article does not seek to make a case nor is it an encouragement to loan defaulters, it is a sure way of forewarning would-be-lenders, so they can take smart precautionary measures.

It is a fact that more often than not, after court cases,existing cordial relationships may break down, sometimes irretrievably due to the adversarial and acrimonious stance of parties. Courtcases go south between parties. Hence, to as much as possible continue the maintenance of harmonious and business friendly relationships, parties may wish to adopt these measures prior to signing the offer and acceptance of a loan facility. As would be observed, some of the options are intertwined and parties would have to choose which is most suitable, and then enter into another separate agreement from the loan agreement in order to fully maximise the options below.

Collateral in Moveable Assets Act:

Secured Transaction in Moveable Asset Act was enacted in 2017 to amongst other things encourage ease of doing business in Nigeria, financial inclusion, and the use of tangible assets such as a car, plants and even jewelries, and intangible assets such as copyright, patent, shares, account receivablesetc as collateral in business transactions.[2]The Act is a veritable avenue to encourage the use of moveable assets as collateral for securing loans and other forms of negotiable instruments requiring collateral.[3]It also established a National Collateral Registry warehoused by the Central Bank of Nigeria which aims at further ensuring security and traceability of the registered asset.

Hence, the borrower may put forth his/her moveable asset as collateral to the creditor. A Security Agreement would have to be entered into if this method is adopted and should include provisions that would confer title on the lender, or right of sale of the sale to recoup the facility and interest in the event of default.[4]

Power Of Attorney:

The borrower may also execute a power of attorney over any of his/her assets divesting it to the lender for a period certain until the debt is recouped. Similarly, borrower may also deposit tilted deeds of any of his assets moveable or fixed such as house, shares, stocks, bonds etcwith the lender. Parties may also agree that in the event that the borrower defaults, the lender automatically has a right of reaping from the proceeds of the assets till the full and final satisfaction of the debt including interest.

Profit Sharing:

In order to sure up profit and maximise economies of scale; Micro, Small, and Medium Scale Enterprises (MSMEs) borrowing is a frequent practice nowadays. Flowing from the above, if it is a business that the loan is meant to fund, and the business is still a going concern, parties may enter into (this can be prior to,or during the subsistence of the debt obligation) a profit sharing agreement of the business proceeds, till the debt and interest is fully repaid.

Lien:

A lien is a claim of a legal right against assets that are typically used as collateral to satisfy a debt. A lien serves to guarantee an underlying obligation, such as repayment of a loan. If the underlying obligation is not satisfied, the creditor may be able to seize the asset that is the subject of the lien. Consequently, thelender may also decide to place a lien on any of the borrower’s agreed asset/property pending full discharge of the debt plus any interest.

Loan Restructuring:

Loan restructuring as the name implies is basically the alteration/amendment of some terms and conditions in the loan agreement in order to favour a party, usually the borrower. For instance, a reduction in the agreed interest rate, extension in duration of repayment, etc are some terms that may be restructured. Consequently, the borrower can request that the loan facility be restructured to enable ease of repayment.

Emotional Appeal:

On a lighter note, the African clime is peculiar from others. Africans are known to place much value in maintaining relationships. Due to this, some may not intend prosecuting their cases in regular courts. Hence the Lender may want to go by way of complaining to the Borrower’s elders, mentors, family, loved ones, traditional and spiritual leaders. Great respect and reverence is accorded these persons in the society as they are known to command some measure of substantial influence, and more to the benefit of the Lender if these persons exercise influence over the Borrower, they are likely to influence the Borrower to honour the repayment obligation.

It is hoped that adopting these measures would forestall as much as possible unnecessary court cases and aid harmonious business relationships.

UZOMA, Felix Izuma,

+234-8167019838, [email protected]

Associate, at Likko& Associates, Abuja.

[1]The vestige of the last decade’s global economic meltdown and more precisely, the Nigeria’s banking system Armageddon of 2006 still lingers. The crises brought in its wake numerous jobs losses, bank mergers, and total collapse of some ailing banks. Inadequate regulation and supervision, poor management and inefficiency, weak internal control mechanisms, and more especially; huge non-performing loans were some of the causes.

[2] See Ss. 1 of the Act. Note that the Act excludes the use of real estate as collateral, S. 2.

[3] See the Secured Transaction in Moveable Asset Act, 2017

[4] See S. 44. In the event of any dispute, the Act also provides for recourse to arbitration