Introduction to the Draft Insolvency Regulations 2022
The reformed Companies and Allied Matters Act 2020 (CAMA 2020), which was signed into law on 7th August 2020, provided the Corporate Affairs Commission (CAC), which regulates company law matters in Nigeria, with the power to make Regulations as necessary in s.867. Pursuant to this power, the Companies Regulations 2021 were introduced to provide compliance requirements, together with guidance for companies, promoters, management, and advisers, as well as forms that must be completed and filed with the commission, amongst other things. In addition, the CAC has circulated a draft of further Regulations to be designated the Insolvency Regulations 2022 to render similar service to companies, management and their advisers who seek to utilise any insolvency related procedure. The CAC has published the draft regulations to the public for comments. This blog provides some considerations for the regulator as it works towards producing a final copy of the draft regulations.
Overview of the Draft Insolvency Regulations 2022
The 10 chapters and 4 schedules of the draft Insolvency Regulations 2022 (Draft Regulations 2022) cover the following:
- The Accreditation of Insolvency Practitioners
- Companies Voluntary Arrangement under Chapter 17, Part B;
- Administration of Companies under chapter 18, Part B;
- Receivership under Section 233;
- Receivership under Chapter 19, Part B;
- Arrangement and Compromise under Chapter 27, Part B;
- Winding-up under Chapters 20 – 26, Part B;
- Winding up and Dissolution under Chapter 10, Part C;
- Dissolution of Incorporated Trustees under Chapter 7, Part F;
Critical Considerations for the CAC
As is well known, the insolvency provisions in CAMA 2020 were drawn from the Insolvency Act 1986 (IA 1986), particularly as they apply in England and Wales. IA 1986 is supplemented by additional instruments, including, crucially, Insolvency Rules. As with the IA 1986, we are concerned with the Insolvency (England and Wales) Rules 2016 (IR [E&W] 2016). The IR [E&W] 2016 is made pursuant to powers set out in the IA 1986. To that end, IA 1986, s411 and s412 empower the Lord Chancellor to make Rules that would give effect to the provisions of the Act. The Lord Chancellor acts with the concurrence of the Secretary of State, and where the Rules will affect court procedure, the Lord Chief Justice. Like its Nigerian counterpart, the IR[E&W] 2016 is clear that the power of the courts to make Rules is preserved. Similarly, the IR[E&W] 2016 sets out compliance requirements for companies, management and their advisers who administer the procedures set out in the IA 1986.
It follows therefore that the transplant would be truncated where the IA 1986 but not the IR [E&W] 2016 was transplanted into any system, as appeared to have been done in Nigeria. The Draft IR 2022 are, thus, crucial to the effectiveness of the insolvency legislations. This is most apparent in relation to two new procedures introduced to promote rescue: Administration and the Company Voluntary Arrangement (CVA). While the IA 1986 sets out the pillars of these procedures, it is the IR [E&W] 2016 that enable them to function effectively. Most importantly, the consultative aspects of the procedures are set out in full in the Rules. Matters relating to notice periods, the acceptance or rejection of claims, the administration of meetings, filing requirements, and the thresholds that must be met to determine whether proposals have been passed, inter alia. The Draft Regulations 2022 omit the thresholds that must be met to determine whether proposals have been passed in administration and CVAs. Thus, either the court must be approached to bless proposals passed by majorities it considers reasonable or these procedures cannot be executed.
The decision to approach the court for its blessing is concerning on several levels. First, this is a law-making function. Presently, different thresholds may be approved by different judges, introducing uncertainty into the law which would undermine its effectiveness. Further, the omission directly impacts the balancing act the law seeks to introduce into the power and interest imbalances across various groups of stakeholders. Beyond these, the need to involve the court transforms the procedures into court-led, as opposed to practitioner-led, administrative procedures. The transformation of the procedures into court-led procedures is, in fact, already evident in other parts of the Draft Regulations. Unfortunately, this seems more of a misunderstanding than a matter of design.
The Draft Regulations 2022 appear to have modified the provisions of CAMA 2020. This is most evident in Chapter 5, which deals with Administration. The Regulations set out the: (i) Conditions to satisfy (ii) Procedure that applies (iii) Documents to file (iv) Appointment, Replacement of the officeholder (v) Cessation of the Procedure. The extant form of the Regulations is not in sync with the provisions of CAMA 2020. For instance, while an application is made to the court where the appointment is to be by order, the Draft Regulations require both an application and a notice of intention to appoint. Further, in the case of the out-of-court appointments, the Regulations require the filing of an order in addition to the notice of intention to appoint. The effect would be that there really is only one mode of appointment of administrators: by court order. Similarly, the difference between the notice of intention to appoint and the notice of appointment appears to be lost.
Like the IR [E&W] 2022, the Draft Regulations 2022 has introduced common parts. The goal of common parts is to avoid duplication and unnecessary lengthening of statutory instruments. The Draft Regulations 2022, nevertheless, has offered a less polished output than its counterpart. Common parts are applicable only to areas where the Rules are the same. The approach ought not to be used to merge distinct features. For example, the role of the nominee is different from that of the supervisor. Thus, their appointment protocols are different. By merging these two offices in Chapter 4, the Draft Regulations require the outcomes of meetings that have not been held in the appointment of nominees. Also, the nominee and supervisor have been allocated, by default, the same powers as administrators. Yet, the officeholders under the CVA do not have the management powers of the latter.
Notwithstanding the foregoing, the Draft Regulations have responded to some of the feedback on the regulation of practitioners, particularly, the accreditation of those at the early stages of their insolvency careers. It would thus repeal s.24 of the Companies Regulations 2021. It is expected that additional modifications would be made in that regard after feedback has been provided from the regulatory bodies.
Ideally, the Draft Regulations should look to fill in the minutiae of insolvency actions, such as setting out who should chair meetings, specific dates from which time would be counted, important updates occasioned by changes in practice, amongst other things.
It is commendable that the Corporate Affairs Commission has responded to the need for insolvency regulations to supplement the provisions of CAMA 2020. Also, that the Draft Regulations 2022 have been made public and that comments are being sought. It is important that the regulator ensures that:
- Important omissions such as the voting thresholds are attended to.
- The Regulations align with, not modify the provisions of CAMA 2020 in relation to the new procedures. The role of the court is largely administrative – to endorse documents – unless the Act provides an express right to approach the court for a clearly delineated response.
- The Regulations uncouples roles and procedures that should be separate.
- The Regulations are polished to deliver their actual role – such as to set out specific dates, timelines, details required to execute actions stated in CAMA 2020.
The draft regulations are available: INSOLVENCY-REGULATIONS-Exposure-Draft. CLRNN welcomes comments on the draft regulations. Please send to email@example.com.
Bolanle Adebola PhD ACIA FHEA ABR is an Associate Professor of Law at the University of Reading. She is a member of the council of the Business Recovery and Insolvency Practitioners’ Association of Nigeria (BRIPAN), as well as a Committee Member of the Restructuring and Insolvency Committee (RIC) of the Nigeria Bar Association Section on Business Law (NBA-SBL).